NOTE:  As provided in LFC policy, this report is intended only for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used for other purposes.

 

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F I S C A L   I M P A C T   R E P O R T

 

 

 

SPONSOR:

Stewart

 

DATE TYPED:

2/18/03

 

HB

592

 

SHORT TITLE:

Nonforfeiture Interest on Deferred Annuities

 

SB

 

 

 

ANALYST:

Wilson

 

APPROPRIATION

 

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

FY03

FY04

 

 

 

 

 

See Narrative

 

 

 

SOURCES OF INFORMATION

 

Responses Received From

Public Regulation Commission (PRC)

 

SUMMARY

 

     Synopsis of Bill

 

House Bill 592 amends the Standard Nonforfeiture Law--Individual Deferred Annuities by temporarily lowering the interest rate used to determine minimum nonforfeiture values.

 

 The interest rate is being lowered from 3% to 1 ½% for policies issued between July 1, 2003 and July 1, 2005.

 

     Significant Issues

 

Interest rates are lower today in the United States than they have been in a long time.  In particular, driven by the market and monetary policy, short- term interest rates have plunged. Insurers have requested relief from the requirements of the standard nonforfeiture law for deferred annuities.

 

 The National Association of Insurance Commissioners (NAIC) is working on developing an interest rate index to be incorporated into this law.  In the meantime, the NAIC supports this interim solution.  Without this interim approach annuity products may be withdrawn from the market and not be available to New Mexicans.  The ultimate solution of an indexed approach has a substantial affect on insurer solvency.

 

HB 592 fixes a short-term problem, but does not fix the longer- term issue of an appropriate index.  It is likely that future legislation will be needed when the NAIC completes its work.

 

FISCAL IMPLICATIONS

 

Annuity insurers will file new policy forms with the insurance division.  The PRC considers the fiscal impact of HB 592 to be minimal.

 

ADMINISTRATIVE IMPLICATIONS

 

Annuity insurers will file new policy forms with the insurance division.

 

DW/ls