Changes to 7702 (b)(2)(A) Minimum Interest Rate

[scagnt83]

I agree. I bet Non-lapse GUL premiums are going to go up even higher for their increase risk... or see even less of them in the future?

I hope not. But it certainly looks like that could happen. Maybe something about the secondary guarantee will make them not be impacted as much. Perhaps someone with more actuarial experience can chime in here.

 

[ATM]

I agree. I bet Non-lapse GUL premiums are going to go up even higher for their increase risk... or see even less of them in the future?

If anything it will keep more companies in the GUL market because they can price for it.

The old rules didn't require them to stay in the market or to price with premium at certain low levels. Companies will be able to price without the constraint that the government rate placed on them. Consumers might not like the premiums, but that is a result of market interest rates more than anything else.

 

[DHK]

Just another thought: I doubt this will affect any companies in New York? Doesn't state law supercede the national law in these things?

(I know I'm taking my CLU Life Insurance Law right now, but I'm focusing on the material rather than the practical application for the moment. I may ask in the class discussion group.)

 

[ATM]

Just another thought: I doubt this will affect any companies in New York? Doesn't state law supercede the national law in these things?

(I know I'm taking my CLU Life Insurance Law right now, but I'm focusing on the material rather than the practical application for the moment. I may ask in the class discussion group.)

This is national tax law, so I doubt state law supersedes.

 

[Allen Trent]

This is national tax law, so I doubt state law supersedes.

I dont believe the federal law is a mandate in this case. it is merely permitting carriers to utilize the lower rate in their pricing & calculations. So, a state like NY can certainly be more restrictive, which might mean carriers could choose to not sell certain policies there.

But that is just an assumption on my part

 

[DHK]

I dont believe the federal law is a mandate in this case. it is merely permitting carriers to utilize the lower rate in their pricing & calculations. So, a state like NY can certainly be more restrictive, which might mean carriers could choose to not sell certain policies there.

But that is just an assumption on my part

That sounds right to me. It could also just affect the policies sold in New York, rather than ALL policies being sold?

I don't know. Just something else I thought of.

 

[scagnt83]

Just another thought: I doubt this will affect any companies in New York? Doesn't state law supercede the national law in these things?

No. Its the opposite. State law never supersedes the national tax code.

If that were the case, every state would have their own separate federal tax rate. And there would certainly be states with no MEC laws or 7702 at all.

 

[scagnt83]

I dont believe the federal law is a mandate in this case. it is merely permitting carriers to utilize the lower rate in their pricing & calculations. So, a state like NY can certainly be more restrictive, which might mean carriers could choose to not sell certain policies there.

But that is just an assumption on my part

GPT and CVAT calculation rates are not currently optional for carriers.... there is nothing in the code saying the new rates are optional.

The old rates are "replaced" by the new rates to use the exact terminology.

 

[scagnt83]

If anything it will keep more companies in the GUL market because they can price for it.

The old rules didn't require them to stay in the market or to price with premium at certain low levels. Companies will be able to price without the constraint that the government rate placed on them. Consumers might not like the premiums, but that is a result of market interest rates more than anything else.

What about this "requires them" to stay in the GUL market?

And what do you mean "the constraint that the government rate placed on them".

The new rate is set by the government. And there is no option not to use it. Its simply just a different government rate. And the actual rates being used are either set, or totally controlled by the government. So its the same thing, just different rate.

 

[DHK]

No. Its the opposite. State law never supersedes the national tax code.

If that were the case, every state would have their own separate federal tax rate. And there would certainly be states with no MEC laws or 7702 at all.

Agreed.

However, New York has always had a higher reserve requirement than every other state. I wonder if they're going to continue that requirement or not? I would assume they would.

Just pontificating, that's all.