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CA Department of Insurance

Bulletin 94-7

Office of the Chief Actuary

APPENDIX A

Basis For Interest Rate Calculations
Reference Interest Rate R
Features in the determination of the value of R include:

  1. The source: Moody's Corporate Bond Yield Average - Monthly Average Corporates as published by Moody's Investors Services, Inc.
  2. The averaging period:
    1. Averaging over a period of twelve months. (12)
    2. The lesser of the average over a period of thirty-six months and the average over a period of twelve months. (12/36)
  3. The end of the averaging period is June 30 of the calendar year:
    1. of issue or purchase. (YI)
    2. next preceding the year of issue. (YI-1)
    3. of the change in fund. (YF)

Formula For Determining The Maximum Valuation Interest Rate, I

There are two formulae used to calculate:

(A) I = .03+W(R1-.03)+(W/2)(R2 -.09)

(B) I = .03+W(R-.03)

Where:  
  R1 is the lesser of R and .09
  R2 is the greater of R and .09
  R is the reference interest rate
  W is the weighting factor


 

Life Insurance (Formula A) Annuities
                           
Calendar
Year
R   R   R   Calendar
Year
  Formula A
R
1
R2   Formula B
R
1
R2
81 9.89   9.00   9.89   81   11.57 9.00   11.57 13.71
82 11.57   9.00   11.57   82   13.64 9.00   13.64 15.70
83 13.64   9.00   13.64   83   13.39 9.00   13.39 13.39
84 13.39   9.00   13.39   84   13.22 9.00   13.22 13.22
85 13.22   9.00   13.22   85   13.01 9.00   13.01 13.01
86 13.01   9.00   13.01   86   10.75 9.00   10.75 10.75
87 10.75   9.00   10.75   87   9.40 9.00   9.40 9.40
88 9.40   9.00   9.40   88   10.15 9.00   10.15 10.32
89 10.15   9.00   10.15   89   9.93 9.00   9.93 10.09
90 9.93   9.00   9.93   90   9.52 9.00   9.52 9.52
91 9.52   9.00   9.52   91   9.63 9.00   9.63 9.63
92 9.63   9.00   9.63   92   8.88 8.88   9.00 8.88
93 8.88   8.88   9.00   93   8.13 8.13   9.00 8.13
94 8.13   8.13   9.00   94   7.52 7.52   9.00 7.52
95 7.52   7.52   9.00                


STATE OF CALIFORNIA
DEPARTMENT OF INSURANCE

425 South Market Street
Sixth Floor
San Francisco, California 94105

Bulletin No. 94-7
Date:
September 1, 1994
To:
All Admitted Life and Disability Insurers and Other Interested Persons
SUBJECT: Rates of Interest for Minimum Reserves and Nonforfeiture Values - 1995 Life Insurance; 1994 Annuities

This replaces Bulletin No. 93-5.

Attached is Table 1 showing the rates of interest to be used fordetermining minimum reserves and nonforfeiture values accordingto Sections 10163.2(i) and 10489.4 of the California Insurance Code applicable to life insurance policies issued in 1995 and annuity contracts issued or undergoing a change in fund in 1994. Also shown in Table 1 are the interest rates applicable to life insurance policies issued in 1982 through 1995 and to annuity contracts issued or funded in 1981 through 1994. The Moody's Corporate Bond Yield Averages used in these calculations are those for the period ending June 30 for each calendar year shown. These were:

Average over period ending June 30
         
Calendar
Year
  Of a 12-Month
Period
  Of a 36-Month
Period
1979   9.49%   8.92%
1980   11.51   9.89
1981   13.71   11.57
1982   15.70   13.64
1983   13.39   14.26
1984   13.22   14.10
1985   13.01   13.21
1986   10.75   12.33
1987   9.40   11.05
1988   10.32   10.15
1989   10.09   9.93
1990   9.52   9.97
1991   9.63   9.74
1992   8.88   9.34
1993   8.13   8.88
1994   7.52   8.18


Appendix A is a brief background outline of the basis for the calculation of the interest rates shown in Table 1.

John Garamendi
Insurance Commissioner


 

TABLE 1

STATUTORY CALENDAR YEAR INTEREST RATES BASED ON NAIC STANDARD VALUATION AND NONFORFEITURE LAWS

A. Life Insurance Guarantee Duration (Years) Calendar Valuation Nonforfeiture Year Interest Rate

Interest Rate   (100%)   (125%)
         
10 or less    
82   6.75   8.50
83-86   7.25   9.00
87   6.50   8.25
88-93   6.00   7.50
94   5.50   7.00
95   5.50   7.00
         
More than 10, not more than 20
82   6.25   7.75
83-86   6.75   8.50
87-93   6.00   7.50
94   5.25   6.50
95   5.25   6.50
         
More than 20
82   5.50   7.00
83-86   6.00   7.50
87-92   5.50   7.00
93-94   5.00   6.25
95   4.50   5.75


B. Single premium immediate annuities, and annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options.

Calendar
Year
  Valuation
Interest Rate
  Calendar
Year
  Valuation
Interest Rate
81   11.50   88-89   8.75
82   13.25   90-91   8.25
83-84   11.25   92   7.75
85   11.00   93   7.00
86   9.25   94   6.50
87   8.00        


C. Other Annuities and Guaranteed Interest Contracts

Contracts Valued On An Issue Year Basis
                         
Cash   Future   Guarantee       Valuation Interest Rate
Settlement   Interest   Duration   Calendar   For Plan Type
Options?   Guarantee?   (Years)   Year   A   B   C
                         
Yes   Yes   5 or less
            81   11.50   9.50   8.25
            82   13.25   10.50   9.25
            83   11.25   9.25   8.25
            84   11.25   9.25   8.00
            85   11.00   9.00   8.00
            86   9.25   7.75   6.75
            87   8.00   6.75   6.25
            88   8.75   7.50   6.75
            89   8.75   7.25   6.50
            90-91   8.25   7.00   6.25
            92   7.75   6.50   6.00y
            93   7.00   6.00   5.50
                         
        more than 5 but not more than 10
            81   11.00   9.50   8.25
            82   12.50   10.50   9.25
            83   10.75   9.25   8.25
            84   10.75   9.25   8.00
            85   10.50   9.00   8.00
            86   8.75   7.75   6.75
            87   7.75   6.75   6.25
            88   8.50   7.50   6.75
            89   8.25   7.25   6.50
            90-91   8.00   7.00   6.25
            92   7.50   6.50   6.00
            93   6.75   6.00   5.50
                         
        more than 10 but not more than 20
            81   7.75   6.75   6.25
            82   8.50   7.25   6.75
            83-84   8.25   7.00   6.75
            85   8.25   7.00   6.50
            86   7.50   6.50   6.00
            87   7.00   6.00   5.75
            88-89   7.25   6.25   6.00
            90-91   7.00   6.25   5.75
            92   6.75   6.00   5.75
            93   6.25   5.50   5.25
                         
        more than 20
            81   6.25   5.50   5.50
            82   6.75   6.00   6.00
            83-84   6.75   5.75   5.75
            85   6.50   5.75   5.75
            86   6.00   5.50   5.50
            87   5.75   5.25   5.25
            88-89   6.00   5.25   5.25
            90-91   5.75   5.25   5.25
            92   5.75   5.00   5.00
            93   5.25   4.75   4.75
                         
Yes   No   5 or less
            81   12.00   10.00   9.00
            82   13.75   11.25   10.00
            83   11.75   9.75   8.75
            84   11.75   9.75   8.50
            85   11.50   9.50   8.50
            86   9.50   8.00   7.25
            87   8.50   7.25   6.50
            88   9.25   7.75   7.00
            89   9.00   7.50   7.00
            90   8.50   7.25   6.50
            91   8.75   7.25   6.75
            92   8.00   6.75   6.25
            93   7.25   6.25   5.75
                         
        more than 5 but not more than 10
            81   11.50   10.00   9.00
            82   13.25   11.25   10.00
            83   11.25   9.75   8.75
            84   11.25   9.75   8.50
            85   11.00   9.50   8.50
            86   9.25   8.00   7.25
            87   8.00   7.25   6.50
            88   8.75   7.75   7.00
            89   8.75   7.50   7.00
            90   8.25   7.25   6.50
            91   8.25   7.25   6.75
            92   7.75   6.75   6.25
            93   7.00   6.25   5.75
                         
        more than 10 but not more than 20
            81   8.00   7.00   6.75
            82   8.75   7.50   7.25
            83-84   8.75   7.50   7.00
            85   8.50   7.50   7.00
            86   7.75   6.75   6.50
            87   7.25   6.50   6.00
            88-91   7.50   6.50   6.25
            92   7.00   6.25   6.00
            93   6.50   5.75   5.50
                         
        more than 20
            81   6.75   6.00   6.00
            82   7.25   6.25   6.25
            83-84   7.00   6.25   6.25
            85   7.00   6.25   6.25
            86   6.50   5.75   5.75
            87   6.00   5.50   5.50
            88   6.25   5.75   5.75
            89-91   6.25   5.50   5.50
            92   6.00   5.25   5.25
            93   5.50   5.00   5.00
                         
Yes   Yes or No   5 or less
            81   11.50   NOT
            82   13.25   APPLICABLE
            83-84   11.25   FOR ANY
            85   11.00   GUARANTEE
            86   9.25   DURATION
            87   8.00   FOR PLAN
            88-89   8.75   TYPES
            90-91   8.25   B AND C
            92   7.75        
            93   7.00        
                         
        more than 5 but not more than 10
            81   11.00        
            82   12.50        
            83-84   10.75        
            85   10.50        
            86   8.75        
            87   7.75        
            88   8.50        
            89   8.25        
            90-91   8.00        
            92   7.50        
            93   6.75        
                         
        more than 10 but not more than 20
            81   10.00        
            82   11.25        
            83-84   9.75        
            85   9.50        
            86   8.00        
            87   7.25        
            88   7.75        
            89   7.50        
            90-91   7.25        
            92   6.75        
            93   6.25        
                         
        more than 20
            81   7.75        
            82   8.75        
            83   7.75        
            84-85   7.50        
    &am


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