Notice Section

Annuity Nonforfeiture Interest Rate

October 12, 2022

After many years of low interest rates, many of us have become accustomed to a 1% annuity nonforfeiture interest rate. In order for the nonforfeiture rate to exceed the 1% floor[1], the average 5-year Treasury yield over the designated measurement period must exceed 2.25%. For the 10-year period between 2012 and 2021, there were only 331 days were the 5-year Treasury yield exceeded 2.25%.

Given the recent sharp increase in interest rates, the nonforfeiture rate is now trending closer to the 3% cap. The nonforfeiture rate based on the average 5-year Treasury yield in September 2022 is 2.45% = 3.70% (average Treasury yield) – 1.25%.

This is expected to result in a significant increase in guaranteed minimum interest rates for new contracts or contracts with reset provisions in the near future.

[1] Sixteen states have adopted the new NAIC Standard Nonforfeiture Law for Individual Deferred Annuities with a 0.15% floor.

Oregon Minimum Nonforfeiture Interest Rate to Remain at 1%.

November 9, 2021

The Oregon Division of Financial Regulation issued a notice on October 12, 2021 reminding insurers that Oregon has not adopted the NAIC Standard Nonforfeiture Law for Individual Deferred Annuities (Model 805) language. The minimum nonforfeiture interest rate for deferred annuities must continue to follow state law (Oregon Revised Statute 743.293) which remains at 1%.

Risk Based Capital – Update to Underwriting Risk Experience Fluctuation Risk

August 10, 2021

The NAIC Capital Adequacy Task Force has updated the Underwriting Risk – Experience Fluctuation Risk factors for Comprehensive Medical, Medicare Supplement, Dental and Vision (2021-04-CA).  See more information here.

Risk Based Capital – Update to Life and Fraternal Calculation

July 19, 2021

The NAIC Capital Adequacy Task Force has updated the Life and Fraternal RBC calculation for bond factors (2021-11-L).  The Task Force adopted the factors presented by the American Council of Life Insurers (ACLI) based on work completed by Moody’s Analytics.  The only deviation in the factors from the ACLI’s proposal was related to the size factor for the first 100 bonds. 

Additionally, the Task Force adopted changes to the Real Estate factors and calculation structure within LR007 (2021-01-L and 2021-06-L).  The Base Factors, depending on property type, were reduced to .11 and .13 (from .15 and .23).  The Encumbrance Credit Factors were reduced to .0175 (from .12 and .20).  In addition, the calculation of the Real Estate RBC requirement now incorporates the Fair Value along with the Book/Adjusted Carrying Value.  Given the revisions to both factors and structure, carriers should review their Real Estate portfolios ahead of year end 2021 to assess if the changes will have a positive or negative impact on RBC.

These changes will be applicable to year-end 2021 reporting. 

Montana Unisex Requirement

June 28, 2021

Montana recently enacted HB 379 which permits the use of sex distinct insurance rates effective January 1, 2022. HB 379

Deadline for 2021 PBR Life Exemption

June 28, 2021

Background

The current Valuation Manual adopted by the National Association of Insurance Commissioners (NAIC) allows companies to file for an exemption from calculating Principle Based Reserves (PBR) on applicable ordinary life policies subject to VM-20.  The exemption must be filed annually prior to July 1 of that year with the domiciliary commissioner and be included with the second quarter statement.  The exemption is based on the prior calendar year annual statement and must indicate that the company “has less than $300 million of ordinary life premiums, and if the company is a member of an NAIC group of life insurers, the group has combined life premiums of less than $600 million.” It should be noted that the exemption is not applicable for universal life policies with secondary guarantees or polices that contain a rider with a secondary guarantee that does not meet VM-01’s definition of a “non-material secondary guarantee”.  The exemption is only applicable for policies issued or assumed in the current year and is valid for all future valuation dates for those policies.  The domiciliary commissioner maintains the ability to reject the statement of exemption prior to September 1 and require the company to follow the requirements of VM-20.

Update

Beginning with the 2022 Valuation Manual, the NAIC has implemented an amendment that will eliminate the requirement that carriers file the exemption on an annual basis if they continue to meet the requirements that resulted in the original exemption.  If the requirements continue to be met in subsequent years, the originally filed statement of exemption will be deemed “not rejected” by the domiciliary commissioner.  Additionally, the company will not be required to submit the statement of exemption with each second quarter statement  but instead will indicate that they are subject to an ongoing statement of exemption.