Prescribed U.S. Statutory and Tax Interest Rates for the Valuation of Life Insurance and Annuity Products (2021)

This report updates the maximum statutory valuation rate and nonforfeiture interest rate for calendar year 2022 issues of life insurance products and the maximum statutory valuation interest rates for calendar-year 2021 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.

The Consolidated Appropriations Act of 2021 was passed December 27, 2020, and changes the rates used for 7702 testing of life insurance contracts for issues on or after January 1, 2021. The rate used for the Cash Value Accumulation Test is also the minimum for the nonforfeiture interest rate for life insurance under VM-02. This document reflects that change.

Section 2: Key results
Bond yields generally increased with a sharp increase in February and March 2021, after which the corporate bond spreads started to decrease somewhat, but remained well above levels in July 2020 through January 2021.

Average of Moody's Seasoned Corporate Bond Rates reflects that interest rates generally increased with the exception of a sharp increase in February and March 2021, after which the corporate bond spreads started to decrease somewhat.

Average of Moody's Seasoned Corporate Bond Rates

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 are different from interest rates for other life insurance products.
• The maximum statutory valuation interest rate for calendar year 2022 issues of whole life insurance products (i.e., life insurance products with guarantee duration of more than 20 years) remained level at 3.00%.
• The nonforfeiture interest rate for calendar year 2022 issues of life insurance is 4.00% for products with guarantee duration of 20 years or less and 3.75% for products with guarantee duration of more than 20 years.
• The maximum statutory valuation interest rates for calendar year 2021 issues of annuities and guaranteed interest contracts (not subject to VM-22) decreased to 3.00%.

Contact

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Lori Helge

Director, Insurance Consulting and Technology

email Email phone +1 312 873 5085

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