ARIZONA STATE SENATE
Phoenix, Arizona
joint oversight committee on
corrections
(NOW: nonforfeiture;
deferred annuities)
Purpose
Reduces
the minimum guaranteed interest rate for individual deferred annuities.
Background
An annuity is a contractual
agreement with an insurance company by which an individual can receive a series
of payments paid at regular intervals over a specified period of time. An
individual pays the insurance company a single payment or a series of payments.
These payments earn interest that is either specified in the contract or
determined by investments made by the insurance company. The insurance company
then pays the individual an income, starting immediately or at a later date.
State law specifies minimum interest rates that individual deferred annuities
delivered or issued for delivery in this state must provide.
Individual deferred annuities that have flexible considerations
are guaranteed a minimum rate of interest of three percent per year. In 1976,
when the National Association of Insurance Commissioners (NAIC) adopted this
minimum guarantee rate, it was expected that interest rates would remain high
enough to maintain the minimum guaranteed interest rate’s sustainability. Last year, one-year U.S. Treasury bond rates
fell below two percent, under the minimum statutory guideline, and made the
minimum guarantee rate unprofitable.
This measure conforms
statute to NAIC model legislation that reduces the guaranteed minimum rate of
interest for individual deferred annuities with flexible considerations from
three percent to one and one-half percent per year.
There is no anticipated
fiscal impact to the state general fund associated with this measure.
Provisions
1. Reduces the minimum guaranteed interest rate for individual deferred annuities with flexible considerations from three percent to one and one-half percent.
2. Makes technical changes.
3. Provides for a general effective date.
FII 3/20/02 DPA/SE 10-0-0-0
3rd Read 4/4/02 51-3-6-0
Prepared by Senate Staff
April 16, 2002