STAND. COM. REP. 3069

Honolulu, Hawaii

, 2004

RE: H.B. No. 2139

H.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred H.B. No. 2139, H.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO INSURANCE,"

begs leave to report as follows:

The purpose of this measure is to extend the current one and one-half percent minimum nonforfeiture rate for two years and establish an indexed rate to be phased in over the next two years.

The Department of Commerce and Consumer Affairs, the National Association of Insurance and Financial Advisors, the American Council of Life Insurers, and AIG VALIC and AIG Annuity submitted testimony in support of this measure.

Your Committee finds that volatility in the economic environment produced low interest rates and prompted the enactment of Act 210, Session Laws of Hawaii 2002, which temporarily reduced the minimum forfeiture interest rate for individual fixed annuity contracts from three percent to one and one-half percent for a two-year period. An earlier version of the Model Act also mandated a one and one-half percent minimum interest rate guarantee for determining the value of individual fixed annuity contracts. However, the Model Standard Nonforfeiture Law for Individual Deferred Annuities, which was adopted by the National Association of Insurance Commissioners, was updated in 2003 in order to phase out the one and one-half percent minimum interest rate.

Under the current law, the utilization of a minimum one and one-half percent interest rate will not apply to individual fixed annuity contracts issued after July 1, 2004. Instead the law will revert back to mandating a minimum three percent interest rate. However, the current interest rates continue to remain dramatically low. The return to the utilization of a three percent interest rate minimum will require life insurance providers to offer contract rates in excess of that which they can earn on their short-term investments. Such a requirement may prove crippling for many companies, which may also adversely impact the availability of short-term retirement annuities in the marketplace.

Therefore, your Committee determines that a long-term solution must be crafted to provide reasonable minimum nonforfeiture rates, in light of the current low interest rates, while at the same time protecting consumers. Your Committee believes that establishing a rate that is determined using the Five-Year Constant Maturity Treasury Rate, reduced by 125 base points, that is not less than one percent nor more than three percent, will ensure the availability of short-term retirement annuities for consumers.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 2139, H.D. 1, and recommends that it pass Second Reading and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection and Housing,

____________________________

RON MENOR, Chair