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Prescribed U.S. Statutory and Tax Interest Rates for the Valuation of Life Insurance and Annuity Products (2020)

Insurance Consulting and Technology|Reinsurance
Insurer Solutions

November 26, 2020

Annually, Willis Towers Watson publishes a summary of prescribed U.S. valuation interest rates for life insurance and annuity products. These interest rates are used in determining minimum U.S. statutory reserves, minimum life policy nonforfeiture values and tax reserves.

This report updates the maximum statutory valuation rate and nonforfeiture interest rate for calendar-year 2021 issues of life insurance products and the maximum statutory valuation interest rates for calendar-year 2020 issues of annuity products.

VM-22 was adopted with an effective date of January 1, 2018, and prescribes the interest rates to be used when valuing single premium immediate annuities and other similar contracts or supplementary contracts.

The Tax Cuts and Jobs Act of 2017 amends the requirements of reserves calculated under section 807(d) for taxable years beginning after December 31, 2017. Section 13517 of the act no longer requires reserves to be computed using the greater of the Applicable Federal Interest Rate and the prevailing state assumed interest rate. Section 807(d) as amended requires the use of the rate used for statutory reserving, as life insurance reserves for taxable years beginning after December 31, 2017, are determined, in part, based on the reserve computed as required by the National Association of Insurance Commissioners (NAIC) at the time the reserve is determined. We will no longer update the Applicable Federal Interest Rate due to this change.

VM-20 was adopted with an effective date of January 1, 2017. Companies were given a three-year window to adopt VM-20, with mandatory adoption by January 1, 2020. VM-20 prescribes the interest rates to be used when valuing certain life insurance products issued after the mandatory adoption date or company adoption date, if earlier.

Key results

Bond yields generally decreased with a sharp increase in March of 2020 when corporate bond spreads spiked, after which the decreasing trend continued.

Highlights include:

  • Under VM-20, statutory valuation interest rates for life insurance products that are categorized as term or universal life still in the secondary guarantee period will be different from interest rates for other life insurance products.
  • The maximum statutory valuation interest rate for calendar-year 2021 issues of whole life insurance products (i.e., life insurance products with guarantee duration of more than 20 years) decreased from 3.50% to 3.00%
  • The nonforfeiture interest rate for calendar-year 2021 issues of term and universal life still in the secondary guarantee period is 5.00% for products with guarantee duration of 20 years or less and 4.75% for products with guarantee duration of more than 20 years. The nonforfeiture rate for all other life insurance products decreased to the VM-02 floor of 4.00%.
  • The maximum statutory valuation interest rates for calendar-year 2020 issues of other annuities and guaranteed interest contracts (not subject to VM-22) decreased to 3.25%.
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Title File Type File Size
2020 Prescribed US Valuation Interest Rate Report PDF 1.1 MB
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