Insurers that sell fixed annuities have found themselves in a pickle. Investors are buying them like hot cakes, but the low interest rate environment has slimmed their margins considerably. The National Association of Insurance Commissioners has taken steps to ease the pressure on carriers because of the financial solvency risks associated with fixed annuities.
The NAIC this week approved a model state law that would convert the current minimum rates to an index. Until recently, the de facto minimum as established by nonforfeiture laws has been 3%, but under pressure from the insurance industry, some individual states reduced that minimum to 1.5% or have included sunset provisions with the knowledge that the interest rate environment will eventually improve.