California Mulls Lower Minimum Annuity Rate

By Trevor Thomas

June 11, 2002 at 08:00 PM

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NU Online News Service, June 11, 12:03 p.m. – The California Senate Insurance Committee is debating a bill, A.B. 2169, that would reduce the minimum interest rate insurers must pay on nonforfeiture amounts under annuity contracts.

The bill, sponsored by state Sen. Edward Chavez, D-Industry, Calif., has only a "fair" prospect of being passed by the Senate, says Brad Winger, lobbyist for the Association of California Life and Health Insurance Companies, Sacramento. The state Assembly approved the bill last month.

ACLAHIC asked Chavez to sponsor the bill because its 40 members insist they can't make money on a 3% interest rate, considering that the federal discount rate is at a 40-year-low of 1.75%, Winger notes.

"No one imagined when the 3% rate was set decades ago that we would ever approach this situation," Winger says. "We want 1.5% only for two years, by which time we expect [the National Association of Insurance Commissioners] to propose a more durable solution."

Keri Bailey, a senior consultant in Chavez's Sacramento office, says the statute's two-year sunset provision was requested by the California Department of Insurance to give the NAIC time to advance its model state law governing annuity nonforfeiture rates. That rate would be indexed to federal discount rates rather than pinned to a specific rate, she notes.

A total of 13 states, including California, are considering NAIC's model statute, and another six have already passed similar legislation, Bailey says.

The California Association of Insurance and Financial Advisors, Sacramento, and the San Francisco Office of Consumers Union say they have taken no position on A.B. 2169.

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