STAND. COM. REP. 2535

Honolulu, Hawaii

, 2004

RE: S.B. No. 2260

S.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 S.B. No. 2260 entitled:

"A BILL FOR AN ACT RELATING TO STANDARD NONFORFEITURE FOR INDIVIDUAL DEFERRED ANNUITIES,"

begs leave to report as follows:

The purpose of this measure is to adopt the latest version of the Model Standard Nonforfeiture Law for Individual Deferred Annuities (Model Act).

Testimony in support of this measure was received from the State Insurance Commissioner, American Council of Life Insurers, and Association of Insurance and Financial Advisors.

The Model Act was adopted by the National Association of Insurance Commissioners. Your Committee finds that volatility within the current economic environment has produced dramatically low interest rates. Most state laws are based on an earlier version of the Model Act, which mandates a 1.5 per cent minimum interest rate guarantee to determine the cash value of individual fixed annuity contracts. The Model Act was updated in 2003 to phase out the static 1.5 per cent nonforfeiture rate and replace it with a more dynamic index rate. According to testimony of the Insurance Commissioner, as of December 23, 2003, thirty states including Hawaii follow the 1.5 per cent rate, but at least nine states have adopted the most recent indexed rate as contained in this measure.

Your Committee further finds that whether and when rates will increase is uncertain. Without an adjustment to the minimum guaranteed rate, life insurers would be forced to offer contract rates in excess of what they can earn on their short term investments. This discrepancy would create a market imbalance and potential solvency problems for companies, and Hawaii consumers could lose access to an important retirement savings tool.

Your Committee has amended this measure on the recommendation of the Insurance Commissioner by clarifying the effective date for section 1 of the measure by deleting reference to a reenactment.

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 S.B. No. 2260, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2260, S.D. 1, 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