Members of the National Association of Insurance Commissioners (NAIC) voted Wednesday to lower the minimum nonforfeiture interest rate for individual deferred annuities to 0.15%, from 1%.
The minimum nonforfeiture rate is the lowest interest rate guarantee an insurer can use in an annuity contract to determine the annuity’s cash value.
- Links to NAIC fall meeting documents are available here.
- An earlier article about the NAIC’s nonforfeiture model update project is available here.
The NAIC is a Kansas City, Missouri-based group for state insurance regulators. Its members held the nonforfeiture rate vote during a session of their fall national meeting, which took place on-line due to the pandemic.
Life insurers asked the NAIC to lower the nonforfeiture rate this summer because of a dramatic drop in interest rates that occurred after the effects of the COVID-19 pandemic became apparent.
Interest rates are important to U.S. annuity issuers, because U.S. life insurers rely heavily on investments in corporate bonds to back annuity obligations and other long-lasting obligations. Annuity issuers count on being able to earn rates on their own investments that are higher than the rates they pay to annuity holders.
The NAIC changed the annuity nonforfeiture minimum by amending the Standard Nonforfeiture Law for Individual Deferred Annuities (Model Number 805).
The association cannot directly change a state’s laws, but many states start with NAIC models when writing their own laws and regulations.