Standard Non-Forfeiture Law

Proposed New Standard Nonforfeiture Law For Life Insurance
(Preliminary Work By American Academy of Actuaries Committee on Life Insurance and Other Professional / Regulatory Bodies) - From Randy Mire

Table of Contents

  • 1. Summary of Nonforfeiture Laws and Related Regulations for Selected Insurance Markets Outside of the United States including Exhibit 1, Disclosure Requirements in the United Kingdom
  • 2. Excerpt from Society of Actuaries (SOA) Report on Outside United States
  • 3. Summary of Regulators' Written Comments Regarding the Proposed Second Nonforfeiture Law
  • 4. Nonforfeiture value calculations

Policyholder Expectations:

  • Mr. Summers felt the regulators' main concern should be helping to meet policyholder expectations, but the current draft could lead to more dissatisfaction.
  • Others questioned whether the law removes a policyholder's ability to rely on guaranteed cash values and subjects them to "a lottery for RPU/ETI."
  • There is a very real limit in the ability of most consumers to understand why NF values are based on future assumptions.
  • Public confidence would certainly be shaken if consumers are expected to "Take what we give you and don't ask why."

1996-1, NAIC Proceedings

  • Nonforfeiture Value - The contemplated minimum cash surrender value requirement is based on a retrospective approach, since future premiums are not known.

1982-1, NAIC Proceedings

Section 3: Interest

A. The nonforfeiture interest rate for any life insurance policy issued in a particular calendar year beginning on and after the operative date of the Valuation Manual shall be equal to 125% of the calendar year statutory valuation interest rate defined for the NPR in the Valuation Manual for a life insurance policy with nonforfeiture values, whether or not such sections apply to such policy for valuation purposes, rounded to the nearer one-quarter of 1%, provided, however, that the nonforfeiture interest rate shall not be less than the applicable interest rate prescribed to meet the definition of life insurance in the Cash Value Accumulation Test under Section 7702 (Life Insurance Contract Defined) of the U.S. Internal Revenue Code. 

  • Guidance Note: For flexible premium universal life insurance policies as defined in Section 3.D of the Universal Life Insurance Model Regulation (#585), this is not intended to prevent an interest rate guarantee less than the nonforfeiture interest rate.  (p02-1)

2021 - NAIC Valuation Manual

Report of the American Academy of Actuaries

Executive Summary

  • Historical Developments

The original Standard Nonforfeiture Law for Life Insurance (SNFL) was developed in the 1940's. Prior to the NAIC annuity nonforfeiture law, the states of New Jersey, New York and Washington had annuity nonforfeiture rules. All sets of rules resembled the SNFL.3,5

In August of 1975, the NAIC appointed a subcommittee to explore development of a model nonforfeiture requirement for annuities.

2005-2 NAIC Proc. (p1687)