Prescribed U.S. Statutory and Tax Interest Rates for the Valuation of Life Insurance and Annuity Products. September 2012
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1 Prescribed U.S. Statutory and Tax Interest Rates for the Valuation of Life Insurance and Annuity Products
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3 i Table of Contents Section 1 : Introduction... 1 Section 2 : Key Results... 2 Section 3 : Statutory Calculations... 3 Section 4 : Tax Calculations... 6 Section 5 : Reliances and Limitations... 8 Section 6 : Contact Information... 9 Appendix 1: Statutory and Tax Prevailing Interest Rates for Issues Since Appendix 2: Statutory and Tax Prevailing Interest Rates for Pre-1983 Issues Appendix 3: Valuation Interest Rate Sensitivity by Product Type Appendix 4: Definitions... 43
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5 2012 Prescribed U.S. Valuation Interest Rate Report Section 1: Introduction Annually, Towers Watson publishes a summary of prescribed U.S. valuation interest rates for life insurance and annuity products. These interest rates are used in determining minimum U.S. statutory reserves, minimum life policy nonforfeiture values and tax reserves. This report updates the maximum statutory valuation and nonforfeiture interest rates for calendar year 2013 issues of life insurance products and the maximum statutory valuation interest rates for calendar year 2012 issues of annuity products. The Applicable Federal Interest Rate used in the calculation of tax reserves for 2012 issues is also provided.
6 Prescribed U.S. Valuation Interest Rate Report Section 2: Key Results The recent, historically low interest rate environment has resulted in a significant reduction in maximum U.S. statutory valuation interest rates for life insurance and annuity products. In general, valuation interest rates have not been at these levels since the early to mid-1970s. Highlights include: The maximum statutory valuation interest rate for calendar year 2013 issues of whole life insurance products dropped by 50 basis points, from 4.00% to 3.50%. The maximum statutory valuation interest rate for calendar year 2012 issues of single premium immediate annuities dropped by 75 basis points, from 5.00% to 4.25%. The maximum statutory valuation interest rates for calendar year 2012 issues of other annuities and guaranteed interest contracts dropped by 25 to 75 basis points (varying by annuity plan type and other such factors). The Applicable Federal Interest Rate for 2012 remained below the prevailing maximum statutory valuation rates. The greater of these two interest rates should be used for the computation of taxbasis reserves for 2012 issues of most life and annuity products. towerswatson.com
7 2012 Prescribed U.S. Valuation Interest Rate Report Section 3: Statutory Calculations The 1980 Amendments to the Standard Valuation and Nonforfeiture Laws provide for dynamic valuation interest rates. As a result, the maximum statutory valuation and nonforfeiture interest rates will vary from year to year depending on published corporate bond yield averages. The maximum statutory valuation interest rates for some typical life insurance and annuity products are as follows: Maximum Statutory Valuation Interest Rates for Typical Life and Annuity Products Year of Issue Whole Life Insurance Typical Single Premium Deferred Annuity Single Premium Immediate Annuity % 5.50% 6.50% % 6.00% 7.25% % 5.50% 6.75% % 5.50% 6.75% % 5.25% 6.25% % 5.25% 6.25% % 5.75% 7.00% % 5.50% 6.75% % 5.50% 6.50% % 5.00% 6.00% % 4.75% 5.50% % 4.50% 5.25% % 4.50% 5.25% % 4.75% 5.50% % 4.75% 5.50% % 5.00% 6.00% % 4.50% 5.25% % 4.25% 5.00% % 3.75% 4.25% % n/a n/a The maximum statutory valuation interest rates for all life and annuity products issued since 1983 are found in Appendix 1.
8 Prescribed U.S. Valuation Interest Rate Report Before the 1980 Amendments, the process for changing the maximum valuation interest rate was much more cumbersome, requiring amendments to the Standard Valuation Law. So the valuation interest rate changed less frequently. A summary of maximum statutory valuation interest rates for life insurance policies and annuity contracts issued before 1983 is found in Appendix 2. Explanation of Interest Rate Calculations Under the 1980 Amendments, maximum statutory valuation interest rates are dependent upon the values of reference interest rates. Reference interest rates vary by product type and guarantee duration. Some reference interest rates for annuity products are calculated using the 12-month arithmetic mean of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc. (Moody's), for the period ending June Reference interest rates for all life insurance products and other annuity products are calculated using the lesser of the 12-month and 36- month arithmetic means of the Moody's corporate bond yield indices. The reference interest rates are rounded to the nearest basis point as outlined in an April 13, 1999 American Council of Life Insurers (ACLI) note from William Carroll. As of June 30, 2012, the corporate bond yield indices had a 12-month mean of 4.55% (82 basis points lower than last year) and a 36-month mean of 5.22% (75 basis points lower than last year). The reference interest rate is used in specified formulas for calculating the valuation interest rates for various product types. The resulting value is rounded to the nearest 0.25%. For annuity products, this rounded value becomes the new maximum statutory valuation interest rate. For life insurance products, if the rounded value is not at least 0.50% different from the prior year's value, the maximum statutory valuation interest rate remains at the prior year's level. Maximum nonforfeiture interest rates for life insurance products are calculated by multiplying the maximum statutory valuation interest rate by 125% and rounding to the nearest 0.25%. There is a one-year grace period for nonforfeiture interest rate changes; a new interest rate is optional for the following year but mandatory for the succeeding year. Maximum Statutory Valuation Interest Rates for Future Years' Issues The formulas used to determine maximum statutory valuation interest rates for life insurance products generally require large swings in the corporate bond yield indices before a change in the maximum valuation rate will occur. As stated before, the maximum statutory valuation interest rate for calendar year 2013 issues of whole life insurance products will be 3.50%. For the whole life maximum statutory valuation interest rate to change for calendar year 2014 issues, one of the following scenarios must occur: towerswatson.com
9 2012 Prescribed U.S. Valuation Interest Rate Report Calendar Year 2014 Whole Life Valuation Interest Rate Sensitivity Target Maximum Statutory Valuation Interest Rate Required 12-Month Mean for July 2012 to June % 3.35% 4.00% 6.60% Recently, Moody's average corporate bond yields have been around 4.00% to 4.50%. The mean yield over the next 12-month period would have to drop to 3.35% to cause the maximum statutory valuation interest rate to decline to 3.00% for calendar year 2014 issues of whole life insurance policies. Likewise, the mean yield over the next 12-month period would have to rise to 6.60% to cause an increase in the maximum statutory valuation interest rate to 4.00% for calendar year 2014 issues of whole life insurance policies. Appendix 3 presents the results of similar interest rate sensitivity calculations for other products and other magnitudes of change. An example of how to interpret the sensitivity results is also included in Appendix 3.
10 Prescribed U.S. Valuation Interest Rate Report Section 4: Tax Calculations The Revenue Act of 1987 amended Section 807(d)(2)(B) of the Internal Revenue Code (IRC) and set the interest rate used in the calculation of tax reserves as the greater of the Applicable Federal Interest Rate or the prevailing maximum statutory valuation rate for the contract's calendar year of issue. The amendment became effective for contracts issued in taxable years beginning after December 31, The Applicable Federal Interest Rate is determined annually by the Secretary of the Treasury and is based on federal midterm rates (those with terms greater than three years but not greater than nine years) during the test period, which is the most recent 60-calendar-month period ending before the beginning of the calendar year for which the determination is made. No month prior to August 1986 is included in this calculation. towerswatson.com
11 2012 Prescribed U.S. Valuation Interest Rate Report Applicable Federal Interest Rates Issue Year Rates % % % % % % % % % % % % % % % % % % % % % % % % %
12 Prescribed U.S. Valuation Interest Rate Report Section 5: Reliances and Limitations Towers Watson relied upon data and information provided by external parties to develop this report. The report and appendices are intended to provide information to professionals who are technically competent in the areas addressed. Judgments as to the data and information contained in this report should be made only after studying the report (including appendices) in its entirety. Towers Watson professionals are available to answer any questions about information contained in the report and appendices. It is assumed that users of this report will seek such explanation as to any matter in question. The prescribed statutory, tax and nonforfeiture interest rates provided in this report are based on Towers Watson's understanding of current law and regulations. Towers Watson is not responsible for the outcome of any use of the information contained in the report or appendices. towerswatson.com
13 2012 Prescribed U.S. Valuation Interest Rate Report Section 6: Contact Information The sensitivity analyses shown in Appendix 3 are updated monthly as new corporate bond yield index values are released. For further information or an updated version of this document, please contact: Chuck Souza, FSA, CERA, MAAA Senior Consultant Towers Watson 101 South Hanley St. Louis, MO Direct: Main: chuck.souza@towerswatson.com
14 Prescribed U.S. Valuation Interest Rate Report Appendix 1: Statutory and Tax Prevailing Interest Rates for Issues Since 1983 Reference Period Ending: June 2012 towerswatson.com
15 2012 Prescribed U.S. Valuation Interest Rate Report Life Insurance Products Guarantee Duration of 10 Years or Less Issue Year Statutory Tax Nonforfeiture % 7.25% 9.00% % 7.25% 9.00% % 7.25% 9.00% % 7.25% 9.00% % 6.50% 8.25% % 7.77% 7.50% % 8.16% 7.50% % 8.37% 7.50% % 8.42% 7.50% % 8.40% 7.50% % 8.10% 7.50% % 7.45% 7.00% % 6.99% 7.00% % 6.63% 7.00% % 6.33% 7.00% % 6.31% 7.00% % 6.30% 6.25% % 6.09% 6.25% % 6.00% 6.25% % 5.71% 6.25% % 5.27% 6.25% % 5.00% 6.25% % 5.00% 6.25% % 4.50% 5.75% % 4.50% 5.75% % 4.50% 5.75% % 4.50% 5.75% % 4.50% 5.75% % 4.50% 5.75% % 4.50% 5.75% % n/a 4.75%
16 Prescribed U.S. Valuation Interest Rate Report Life Insurance Products Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Statutory Tax Nonforfeiture % 6.75% 8.50% % 6.75% 8.50% % 6.75% 8.50% % 6.75% 8.50% % 6.00% 7.50% % 7.77% 7.50% % 8.16% 7.50% % 8.37% 7.50% % 8.42% 7.50% % 8.40% 7.50% % 8.10% 7.50% % 7.45% 6.50% % 6.99% 6.50% % 6.63% 6.50% % 6.33% 6.50% % 6.31% 6.50% % 6.30% 6.00% % 6.09% 6.00% % 6.00% 6.00% % 5.71% 6.00% % 5.27% 6.00% % 4.82% 6.00% % 4.75% 6.00% % 4.25% 5.25% % 4.25% 5.25% % 4.25% 5.25% % 4.25% 5.25% % 4.25% 5.25% % 4.25% 5.25% % 4.25% 5.25% % n/a 4.75% towerswatson.com
17 2012 Prescribed U.S. Valuation Interest Rate Report Life Insurance Products Guarantee Duration of More Than 20 Years Issue Year Statutory Tax Nonforfeiture % 6.00% 7.50% % 6.00% 7.50% % 6.00% 7.50% % 6.00% 7.50% % 5.50% 7.00% % 7.77% 7.00% % 8.16% 7.00% % 8.37% 7.00% % 8.42% 7.00% % 8.40% 7.00% % 8.10% 6.25% % 7.45% 6.25% % 6.99% 5.75% % 6.63% 5.75% % 6.33% 5.75% % 6.31% 5.75% % 6.30% 5.75% % 6.09% 5.75% % 6.00% 5.75% % 5.71% 5.75% % 5.27% 5.75% % 4.82% 5.75% % 4.50% 5.75% % 4.00% 5.00% % 4.00% 5.00% % 4.06% 5.00% % 4.06% 5.00% % 4.00% 5.00% % 4.00% 5.00% % 4.00% 5.00% % n/a 4.50%
18 Prescribed U.S. Valuation Interest Rate Report Single Premium Immediate Annuities (SPIAs) All SPIAs Issue Year Statutory Tax % 11.25% % 11.25% % 11.00% % 9.25% % 8.00% % 8.75% % 8.75% % 8.37% % 8.42% % 8.40% % 8.10% % 7.45% % 7.25% % 6.75% % 6.75% % 6.31% % 6.30% % 7.00% % 6.75% % 6.50% % 6.00% % 5.50% % 5.25% % 5.25% % 5.50% % 5.50% % 6.00% % 5.25% % 5.00% % 4.25% towerswatson.com
19 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of Five Years or Less Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.25% 9.25% 9.25% 8.25% 8.25% % 11.25% 9.25% 9.25% 8.00% 8.00% % 11.00% 9.00% 9.00% 8.00% 8.00% % 9.25% 7.75% 7.75% 6.75% 6.75% % 8.00% 6.75% 6.75% 6.25% 6.25% % 8.75% 7.50% 7.77% 6.75% 7.77% % 8.75% 7.25% 8.16% 6.50% 8.16% % 8.37% 7.00% 8.37% 6.25% 8.37% % 8.42% 7.00% 8.42% 6.25% 8.42% % 8.40% 6.50% 8.40% 6.00% 8.40% % 8.10% 6.00% 8.10% 5.50% 8.10% % 7.45% 5.75% 7.45% 5.25% 7.45% % 7.25% 6.25% 6.99% 5.75% 6.99% % 6.75% 5.75% 6.63% 5.25% 6.63% % 6.75% 5.75% 6.33% 5.25% 6.33% % 6.31% 5.50% 6.31% 5.00% 6.31% % 6.30% 5.50% 6.30% 5.00% 6.30% % 7.00% 6.00% 6.09% 5.50% 6.09% % 6.75% 5.75% 6.00% 5.25% 6.00% % 6.50% 5.75% 5.75% 5.25% 5.71% % 6.00% 5.25% 5.27% 4.75% 5.27% % 5.50% 5.00% 5.00% 4.75% 4.82% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.50% 4.75% 4.75% 4.50% 4.50% % 5.50% 5.00% 5.00% 4.50% 4.50% % 6.00% 5.25% 5.25% 5.00% 5.00% % 5.25% 4.75% 4.75% 4.25% 4.25% % 5.00% 4.50% 4.50% 4.25% 4.25% % 4.25% 4.00% 4.00% 3.75% 3.75%
20 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than Five Years but Not More Than 10 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 10.75% 9.25% 9.25% 8.25% 8.25% % 10.75% 9.25% 9.25% 8.00% 8.00% % 10.50% 9.00% 9.00% 8.00% 8.00% % 8.75% 7.75% 7.75% 6.75% 6.75% % 7.75% 6.75% 6.75% 6.25% 6.25% % 8.50% 7.50% 7.77% 6.75% 7.77% % 8.25% 7.25% 8.16% 6.50% 8.16% % 8.37% 7.00% 8.37% 6.25% 8.37% % 8.42% 7.00% 8.42% 6.25% 8.42% % 8.40% 6.50% 8.40% 6.00% 8.40% % 8.10% 6.00% 8.10% 5.50% 8.10% % 7.45% 5.75% 7.45% 5.25% 7.45% % 7.00% 6.25% 6.99% 5.75% 6.99% % 6.63% 5.75% 6.63% 5.25% 6.63% % 6.50% 5.75% 6.33% 5.25% 6.33% % 6.31% 5.50% 6.31% 5.00% 6.31% % 6.30% 5.50% 6.30% 5.00% 6.30% % 6.75% 6.00% 6.09% 5.50% 6.09% % 6.50% 5.75% 6.00% 5.25% 6.00% % 6.25% 5.75% 5.75% 5.25% 5.71% % 5.75% 5.25% 5.27% 4.75% 5.27% % 5.50% 5.00% 5.00% 4.75% 4.82% % 5.00% 4.75% 4.75% 4.50% 4.50% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.50% 5.00% 5.00% 4.50% 4.50% % 5.75% 5.25% 5.25% 5.00% 5.00% % 5.00% 4.75% 4.75% 4.25% 4.25% % 4.75% 4.50% 4.50% 4.25% 4.25% % 4.25% 4.00% 4.00% 3.75% 3.75% towerswatson.com
21 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 8.25% 7.00% 7.00% 6.75% 6.75% % 8.25% 7.00% 7.00% 6.75% 6.75% % 8.25% 7.00% 7.00% 6.50% 6.50% % 7.50% 6.50% 6.50% 6.00% 6.00% % 7.00% 6.00% 6.00% 5.75% 5.75% % 7.77% 6.25% 7.77% 6.00% 7.77% % 8.16% 6.25% 8.16% 6.00% 8.16% % 8.37% 6.25% 8.37% 5.75% 8.37% % 8.42% 6.25% 8.42% 5.75% 8.42% % 8.40% 6.00% 8.40% 5.75% 8.40% % 8.10% 5.50% 8.10% 5.25% 8.10% % 7.45% 5.25% 7.45% 5.00% 7.45% % 6.99% 5.50% 6.99% 5.25% 6.99% % 6.63% 5.25% 6.63% 5.00% 6.63% % 6.33% 5.25% 6.33% 5.25% 6.33% % 6.31% 5.00% 6.31% 4.75% 6.31% % 6.30% 5.00% 6.30% 4.75% 6.30% % 6.09% 5.25% 6.09% 5.00% 6.09% % 6.00% 5.25% 6.00% 5.00% 6.00% % 6.00% 5.25% 5.71% 5.00% 5.71% % 5.50% 4.75% 5.27% 4.75% 5.27% % 5.00% 4.75% 4.82% 4.50% 4.82% % 4.75% 4.50% 4.50% 4.25% 4.44% % 4.75% 4.50% 4.50% 4.25% 4.25% % 4.75% 4.50% 4.50% 4.25% 4.25% % 5.00% 4.50% 4.50% 4.25% 4.25% % 5.25% 4.75% 4.75% 4.50% 4.50% % 4.75% 4.25% 4.25% 4.25% 4.25% % 4.50% 4.25% 4.25% 4.00% 4.00% % 4.00% 3.75% 3.75% 3.75% 3.75%
22 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 6.75% 5.75% 5.75% 5.75% 5.75% % 6.75% 5.75% 5.75% 5.75% 5.75% % 6.50% 5.75% 5.75% 5.75% 5.75% % 6.00% 5.50% 5.50% 5.50% 5.50% % 5.75% 5.25% 5.25% 5.25% 5.25% % 7.77% 5.25% 7.77% 5.25% 7.77% % 8.16% 5.25% 8.16% 5.25% 8.16% % 8.37% 5.25% 8.37% 5.25% 8.37% % 8.42% 5.25% 8.42% 5.25% 8.42% % 8.40% 5.00% 8.40% 5.00% 8.40% % 8.10% 4.75% 8.10% 4.75% 8.10% % 7.45% 4.50% 7.45% 4.50% 7.45% % 6.99% 4.75% 6.99% 4.75% 6.99% % 6.63% 4.50% 6.63% 4.50% 6.63% % 6.33% 4.75% 6.33% 4.75% 6.33% % 6.31% 4.50% 6.31% 4.50% 6.31% % 6.30% 4.50% 6.30% 4.50% 6.30% % 6.09% 4.50% 6.09% 4.50% 6.09% % 6.00% 4.50% 6.00% 4.50% 6.00% % 5.71% 4.50% 5.71% 4.50% 5.71% % 5.27% 4.25% 5.27% 4.25% 5.27% % 4.82% 4.25% 4.82% 4.25% 4.82% % 4.44% 4.00% 4.44% 4.00% 4.44% % 4.25% 4.00% 4.00% 4.00% 4.00% % 4.25% 4.00% 4.00% 4.00% 4.00% % 4.25% 4.00% 4.06% 4.00% 4.06% % 4.50% 4.25% 4.25% 4.25% 4.25% % 4.25% 4.00% 4.00% 4.00% 4.00% % 4.00% 3.75% 3.75% 3.75% 3.75% % 3.75% 3.50% 3.50% 3.50% 3.50% towerswatson.com
23 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of Five Years or Less Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.75% 9.75% 9.75% 8.75% 8.75% % 11.75% 9.75% 9.75% 8.50% 8.50% % 11.50% 9.50% 9.50% 8.50% 8.50% % 9.50% 8.00% 8.00% 7.25% 7.25% % 8.50% 7.25% 7.25% 6.50% 6.50% % 9.25% 7.75% 7.77% 7.00% 7.77% % 9.00% 7.50% 8.16% 7.00% 8.16% % 8.50% 7.25% 8.37% 6.50% 8.37% % 8.75% 7.25% 8.42% 6.75% 8.42% % 8.40% 6.75% 8.40% 6.25% 8.40% % 8.10% 6.25% 8.10% 5.75% 8.10% % 7.45% 6.00% 7.45% 5.50% 7.45% % 7.50% 6.50% 6.99% 6.00% 6.99% % 6.75% 6.00% 6.63% 5.50% 6.63% % 7.00% 6.00% 6.33% 5.50% 6.33% % 6.50% 5.75% 6.31% 5.25% 6.31% % 6.30% 5.50% 6.30% 5.25% 6.30% % 7.25% 6.25% 6.25% 5.75% 6.09% % 7.00% 6.00% 6.00% 5.50% 6.00% % 6.75% 6.00% 6.00% 5.50% 5.71% % 6.25% 5.50% 5.50% 5.00% 5.27% % 5.75% 5.00% 5.00% 4.75% 4.82% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.50% 4.75% 4.75% 4.50% 4.50% % 5.50% 5.00% 5.00% 4.75% 4.75% % 5.75% 5.00% 5.00% 4.75% 4.75% % 6.25% 5.50% 5.50% 5.00% 5.00% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.00% 4.50% 4.50% 4.25% 4.25% % 4.25% 4.00% 4.00% 3.75% 3.75%
24 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than Five Years but Not More Than 10 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.25% 9.75% 9.75% 8.75% 8.75% % 11.25% 9.75% 9.75% 8.50% 8.50% % 11.00% 9.50% 9.50% 8.50% 8.50% % 9.25% 8.00% 8.00% 7.25% 7.25% % 8.00% 7.25% 7.25% 6.50% 6.50% % 8.75% 7.75% 7.77% 7.00% 7.77% % 8.75% 7.50% 8.16% 7.00% 8.16% % 8.37% 7.25% 8.37% 6.50% 8.37% % 8.42% 7.25% 8.42% 6.75% 8.42% % 8.40% 6.75% 8.40% 6.25% 8.40% % 8.10% 6.25% 8.10% 5.75% 8.10% % 7.45% 6.00% 7.45% 5.50% 7.45% % 7.25% 6.50% 6.99% 6.00% 6.99% % 6.75% 6.00% 6.63% 5.50% 6.63% % 6.75% 6.00% 6.33% 5.50% 6.33% % 6.31% 5.75% 6.31% 5.25% 6.31% % 6.30% 5.50% 6.30% 5.25% 6.30% % 7.00% 6.25% 6.25% 5.75% 6.09% % 6.75% 6.00% 6.00% 5.50% 6.00% % 6.50% 6.00% 6.00% 5.50% 5.71% % 6.00% 5.50% 5.50% 5.00% 5.27% % 5.50% 5.00% 5.00% 4.75% 4.82% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.50% 5.00% 5.00% 4.75% 4.75% % 5.50% 5.00% 5.00% 4.75% 4.75% % 6.00% 5.50% 5.50% 5.00% 5.00% % 5.25% 4.75% 4.75% 4.50% 4.50% % 5.00% 4.50% 4.50% 4.25% 4.25% % 4.25% 4.00% 4.00% 3.75% 3.75% towerswatson.com
25 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 8.75% 7.50% 7.50% 7.00% 7.00% % 8.75% 7.50% 7.50% 7.00% 7.00% % 8.50% 7.50% 7.50% 7.00% 7.00% % 7.75% 6.75% 6.75% 6.50% 6.50% % 7.25% 6.50% 6.50% 6.00% 6.00% % 7.77% 6.50% 7.77% 6.25% 7.77% % 8.16% 6.50% 8.16% 6.25% 8.16% % 8.37% 6.50% 8.37% 6.25% 8.37% % 8.42% 6.50% 8.42% 6.25% 8.42% % 8.40% 6.25% 8.40% 6.00% 8.40% % 8.10% 5.75% 8.10% 5.50% 8.10% % 7.45% 5.50% 7.45% 5.25% 7.45% % 6.99% 5.75% 6.99% 5.50% 6.99% % 6.63% 5.50% 6.63% 5.25% 6.63% % 6.33% 5.50% 6.33% 5.25% 6.33% % 6.31% 5.25% 6.31% 5.00% 6.31% % 6.30% 5.25% 6.30% 5.00% 6.30% % 6.09% 5.50% 6.09% 5.25% 6.09% % 6.25% 5.50% 6.00% 5.25% 6.00% % 6.00% 5.50% 5.71% 5.25% 5.71% % 5.50% 5.00% 5.27% 4.75% 5.27% % 5.25% 4.75% 4.82% 4.75% 4.82% % 5.00% 4.50% 4.50% 4.50% 4.50% % 5.00% 4.50% 4.50% 4.50% 4.50% % 5.00% 4.50% 4.50% 4.50% 4.50% % 5.00% 4.75% 4.75% 4.50% 4.50% % 5.25% 4.75% 4.75% 4.75% 4.75% % 5.00% 4.50% 4.50% 4.25% 4.25% % 4.75% 4.25% 4.25% 4.25% 4.25% % 4.00% 3.75% 3.75% 3.75% 3.75%
26 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Issue Year Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 7.00% 6.25% 6.25% 6.25% 6.25% % 7.00% 6.25% 6.25% 6.25% 6.25% % 7.00% 6.25% 6.25% 6.25% 6.25% % 6.50% 5.75% 5.75% 5.75% 5.75% % 6.00% 5.50% 5.50% 5.50% 5.50% % 7.77% 5.75% 7.77% 5.75% 7.77% % 8.16% 5.50% 8.16% 5.50% 8.16% % 8.37% 5.50% 8.37% 5.50% 8.37% % 8.42% 5.50% 8.42% 5.50% 8.42% % 8.40% 5.25% 8.40% 5.25% 8.40% % 8.10% 5.00% 8.10% 5.00% 8.10% % 7.45% 4.75% 7.45% 4.75% 7.45% % 6.99% 5.00% 6.99% 5.00% 6.99% % 6.63% 4.75% 6.63% 4.75% 6.63% % 6.33% 5.00% 6.33% 5.00% 6.33% % 6.31% 4.75% 6.31% 4.75% 6.31% % 6.30% 4.50% 6.30% 4.50% 6.30% % 6.09% 4.75% 6.09% 4.75% 6.09% % 6.00% 4.75% 6.00% 4.75% 6.00% % 5.71% 4.75% 5.71% 4.75% 5.71% % 5.27% 4.50% 5.27% 4.50% 5.27% % 4.82% 4.25% 4.82% 4.25% 4.82% % 4.50% 4.00% 4.44% 4.00% 4.44% % 4.50% 4.25% 4.25% 4.25% 4.25% % 4.50% 4.25% 4.25% 4.25% 4.25% % 4.50% 4.25% 4.25% 4.25% 4.25% % 4.75% 4.25% 4.25% 4.25% 4.25% % 4.25% 4.00% 4.00% 4.00% 4.00% % 4.25% 4.00% 4.00% 4.00% 4.00% % 3.75% 3.50% 3.50% 3.50% 3.50% towerswatson.com
27 2012 Prescribed U.S. Valuation Interest Rate Report Annuities Without Cash Settlements Issue Year Valuations With or Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of Five Years or Less Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.25% n/a n/a n/a n/a % 11.25% n/a n/a n/a n/a % 11.00% n/a n/a n/a n/a % 9.25% n/a n/a n/a n/a % 8.00% n/a n/a n/a n/a % 8.75% n/a n/a n/a n/a % 8.75% n/a n/a n/a n/a % 8.37% n/a n/a n/a n/a % 8.42% n/a n/a n/a n/a % 8.40% n/a n/a n/a n/a % 8.10% n/a n/a n/a n/a % 7.45% n/a n/a n/a n/a % 7.25% n/a n/a n/a n/a % 6.75% n/a n/a n/a n/a % 6.75% n/a n/a n/a n/a % 6.31% n/a n/a n/a n/a % 6.30% n/a n/a n/a n/a % 7.00% n/a n/a n/a n/a % 6.75% n/a n/a n/a n/a % 6.50% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 5.25% n/a n/a n/a n/a % 5.25% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 5.25% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 4.25% n/a n/a n/a n/a
28 Prescribed U.S. Valuation Interest Rate Report Annuities Without Cash Settlements Issue Year Valuations With or Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than Five Years but Not More Than 10 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 10.75% n/a n/a n/a n/a % 10.75% n/a n/a n/a n/a % 10.50% n/a n/a n/a n/a % 8.75% n/a n/a n/a n/a % 7.75% n/a n/a n/a n/a % 8.50% n/a n/a n/a n/a % 8.25% n/a n/a n/a n/a % 8.37% n/a n/a n/a n/a % 8.42% n/a n/a n/a n/a % 8.40% n/a n/a n/a n/a % 8.10% n/a n/a n/a n/a % 7.45% n/a n/a n/a n/a % 7.00% n/a n/a n/a n/a % 6.63% n/a n/a n/a n/a % 6.50% n/a n/a n/a n/a % 6.31% n/a n/a n/a n/a % 6.30% n/a n/a n/a n/a % 6.75% n/a n/a n/a n/a % 6.50% n/a n/a n/a n/a % 6.25% n/a n/a n/a n/a % 5.75% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 5.25% n/a n/a n/a n/a % 5.25% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 5.75% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 4.75% n/a n/a n/a n/a % 4.25% n/a n/a n/a n/a towerswatson.com
29 2012 Prescribed U.S. Valuation Interest Rate Report Annuities Without Cash Settlements Issue Year Valuations With or Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 9.75% n/a n/a n/a n/a % 9.75% n/a n/a n/a n/a % 9.50% n/a n/a n/a n/a % 8.00% n/a n/a n/a n/a % 7.25% n/a n/a n/a n/a % 7.77% n/a n/a n/a n/a % 8.16% n/a n/a n/a n/a % 8.37% n/a n/a n/a n/a % 8.42% n/a n/a n/a n/a % 8.40% n/a n/a n/a n/a % 8.10% n/a n/a n/a n/a % 7.45% n/a n/a n/a n/a % 6.99% n/a n/a n/a n/a % 6.63% n/a n/a n/a n/a % 6.33% n/a n/a n/a n/a % 6.31% n/a n/a n/a n/a % 6.30% n/a n/a n/a n/a % 6.25% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 4.75% n/a n/a n/a n/a % 4.75% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 5.00% n/a n/a n/a n/a % 5.50% n/a n/a n/a n/a % 4.75% n/a n/a n/a n/a % 4.50% n/a n/a n/a n/a % 4.00% n/a n/a n/a n/a
30 Prescribed U.S. Valuation Interest Rate Report Annuities Without Cash Settlements Issue Year Valuations With or Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 20 Years Type A Type B Type C Issue Year Statutory Tax Statutory Tax Statutory Tax % 7.75% n/a n/a n/a n/a % 7.50% n/a n/a n/a n/a % 7.50% n/a n/a n/a n/a % 6.50% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 7.77% n/a n/a n/a n/a % 8.16% n/a n/a n/a n/a % 8.37% n/a n/a n/a n/a % 8.42% n/a n/a n/a n/a % 8.40% n/a n/a n/a n/a % 8.10% n/a n/a n/a n/a % 7.45% n/a n/a n/a n/a % 6.99% n/a n/a n/a n/a % 6.63% n/a n/a n/a n/a % 6.33% n/a n/a n/a n/a % 6.31% n/a n/a n/a n/a % 6.30% n/a n/a n/a n/a % 6.09% n/a n/a n/a n/a % 6.00% n/a n/a n/a n/a % 5.71% n/a n/a n/a n/a % 5.27% n/a n/a n/a n/a % 4.82% n/a n/a n/a n/a % 4.44% n/a n/a n/a n/a % 4.25% n/a n/a n/a n/a % 4.25% n/a n/a n/a n/a % 4.50% n/a n/a n/a n/a % 4.75% n/a n/a n/a n/a % 4.25% n/a n/a n/a n/a % 4.00% n/a n/a n/a n/a % 3.75% n/a n/a n/a n/a towerswatson.com
31 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of Five Years or Less Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 12.75% 11.75% 11.75% 8.75% 8.75% % 12.75% 11.75% 11.75% 8.50% 8.50% % 12.50% 11.50% 11.50% 8.50% 8.50% % 10.25% 9.50% 9.50% 7.25% 7.25% % 9.00% 8.50% 8.50% 6.50% 6.50% % 10.00% 9.25% 9.25% 7.00% 7.77% % 9.75% 9.00% 9.00% 7.00% 8.16% % 9.25% 8.50% 8.50% 6.50% 8.37% % 9.25% 8.75% 8.75% 6.75% 8.42% % 8.50% 8.00% 8.40% 6.25% 8.40% % 8.10% 7.25% 8.10% 5.75% 8.10% % 7.45% 6.75% 7.45% 5.50% 7.45% % 8.25% 7.50% 7.50% 6.00% 6.99% % 7.25% 6.75% 6.75% 5.50% 6.63% % 7.50% 7.00% 7.00% 5.50% 6.33% % 7.00% 6.50% 6.50% 5.25% 6.31% % 6.75% 6.25% 6.30% 5.25% 6.30% % 7.75% 7.25% 7.25% 5.75% 6.09% % 7.50% 7.00% 7.00% 5.50% 6.00% % 7.25% 6.75% 6.75% 5.50% 5.71% % 6.50% 6.25% 6.25% 5.00% 5.27% % 6.00% 5.75% 5.75% 4.75% 4.82% % 5.75% 5.25% 5.25% 4.50% 4.50% % 5.75% 5.50% 5.50% 4.50% 4.50% % 5.75% 5.50% 5.50% 4.75% 4.75% % 6.00% 5.75% 5.75% 4.75% 4.75% % 6.50% 6.25% 6.25% 5.00% 5.00% % 5.50% 5.25% 5.25% 4.50% 4.50% % 5.25% 5.00% 5.00% 4.25% 4.25% % 4.50% 4.25% 4.25% 3.75% 3.75%
32 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than Five Years but Not More Than 10 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 12.25% 11.75% 11.75% 8.75% 8.75% % 12.25% 11.75% 11.75% 8.50% 8.50% % 12.00% 11.50% 11.50% 8.50% 8.50% % 10.00% 9.50% 9.50% 7.25% 7.25% % 8.75% 8.50% 8.50% 6.50% 6.50% % 9.50% 9.25% 9.25% 7.00% 7.77% % 9.50% 9.00% 9.00% 7.00% 8.16% % 8.75% 8.50% 8.50% 6.50% 8.37% % 9.00% 8.75% 8.75% 6.75% 8.42% % 8.40% 8.00% 8.40% 6.25% 8.40% % 8.10% 7.25% 8.10% 5.75% 8.10% % 7.45% 6.75% 7.45% 5.50% 7.45% % 8.00% 7.50% 7.50% 6.00% 6.99% % 7.00% 6.75% 6.75% 5.50% 6.63% % 7.25% 7.00% 7.00% 5.50% 6.33% % 6.75% 6.50% 6.50% 5.25% 6.31% % 6.50% 6.25% 6.30% 5.25% 6.30% % 7.50% 7.25% 7.25% 5.75% 6.09% % 7.25% 7.00% 7.00% 5.50% 6.00% % 7.00% 6.75% 6.75% 5.50% 5.71% % 6.25% 6.25% 6.25% 5.00% 5.27% % 6.00% 5.75% 5.75% 4.75% 4.82% % 5.50% 5.25% 5.25% 4.50% 4.50% % 5.50% 5.50% 5.50% 4.50% 4.50% % 5.75% 5.50% 5.50% 4.75% 4.75% % 6.00% 5.75% 5.75% 4.75% 4.75% % 6.50% 6.25% 6.25% 5.00% 5.00% % 5.50% 5.25% 5.25% 4.50% 4.50% % 5.25% 5.00% 5.00% 4.25% 4.25% % 4.50% 4.25% 4.25% 3.75% 3.75% towerswatson.com
33 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.25% 10.75% 10.75% 8.25% 8.25% % 11.25% 10.75% 10.75% 8.00% 8.00% % 11.00% 10.50% 10.50% 8.00% 8.00% % 9.25% 8.75% 8.75% 6.75% 6.75% % 8.00% 7.75% 7.75% 6.25% 6.25% % 8.75% 8.50% 8.50% 6.75% 7.77% % 8.75% 8.25% 8.25% 6.50% 8.16% % 8.37% 8.00% 8.37% 6.25% 8.37% % 8.42% 8.00% 8.42% 6.25% 8.42% % 8.40% 7.50% 8.40% 6.00% 8.40% % 8.10% 6.75% 8.10% 5.50% 8.10% % 7.45% 6.50% 7.45% 5.25% 7.45% % 7.25% 7.00% 7.00% 5.75% 6.99% % 6.75% 6.50% 6.63% 5.25% 6.63% % 6.75% 6.50% 6.50% 5.25% 6.33% % 6.31% 6.00% 6.31% 5.00% 6.31% % 6.30% 6.00% 6.30% 5.00% 6.30% % 7.00% 6.75% 6.75% 5.50% 6.09% % 6.75% 6.50% 6.50% 5.25% 6.00% % 6.50% 6.25% 6.25% 5.25% 5.71% % 6.00% 5.75% 5.75% 4.75% 5.27% % 5.50% 5.50% 5.50% 4.75% 4.82% % 5.25% 5.00% 5.00% 4.50% 4.50% % 5.25% 5.25% 5.25% 4.50% 4.50% % 5.50% 5.25% 5.25% 4.50% 4.50% % 5.50% 5.50% 5.50% 4.50% 4.50% % 6.00% 5.75% 5.75% 5.00% 5.00% % 5.25% 5.00% 5.00% 4.25% 4.25% % 5.00% 4.75% 4.75% 4.25% 4.25% % 4.25% 4.25% 4.25% 3.75% 3.75%
34 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations With Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 9.25% 9.25% 9.25% 7.25% 7.25% % 9.25% 9.25% 9.25% 7.00% 7.00% % 9.00% 9.00% 9.00% 7.00% 7.00% % 7.75% 7.75% 7.75% 6.00% 6.00% % 6.75% 6.75% 6.75% 5.50% 5.50% % 7.77% 7.50% 7.77% 6.00% 7.77% % 8.16% 7.25% 8.16% 5.75% 8.16% % 8.37% 7.00% 8.37% 5.50% 8.37% % 8.42% 7.00% 8.42% 5.75% 8.42% % 8.40% 6.50% 8.40% 5.25% 8.40% % 8.10% 6.00% 8.10% 5.00% 8.10% % 7.45% 5.75% 7.45% 4.75% 7.45% % 6.99% 6.25% 6.99% 5.25% 6.99% % 6.63% 5.75% 6.63% 4.75% 6.63% % 6.33% 5.75% 6.33% 5.00% 6.33% % 6.31% 5.50% 6.31% 4.75% 6.31% % 6.30% 5.50% 6.30% 4.50% 6.30% % 6.09% 6.00% 6.09% 5.00% 6.09% % 6.00% 5.75% 6.00% 5.00% 6.00% % 5.75% 5.75% 5.75% 4.75% 5.71% % 5.27% 5.25% 5.27% 4.50% 5.27% % 5.00% 5.00% 5.00% 4.25% 4.82% % 4.75% 4.75% 4.75% 4.00% 4.44% % 4.75% 4.75% 4.75% 4.25% 4.25% % 4.75% 4.75% 4.75% 4.25% 4.25% % 5.00% 5.00% 5.00% 4.25% 4.25% % 5.25% 5.25% 5.25% 4.50% 4.50% % 4.75% 4.75% 4.75% 4.00% 4.00% % 4.50% 4.50% 4.50% 4.00% 4.00% % 4.00% 4.00% 4.00% 3.50% 3.50% towerswatson.com
35 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of Five Years or Less Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 13.50% 12.25% 12.25% 9.25% 9.25% % 13.25% 12.25% 12.25% 9.25% 9.25% % 13.00% 12.00% 12.00% 9.00% 9.00% % 10.75% 10.00% 10.00% 7.75% 7.75% % 9.50% 8.75% 8.75% 6.75% 6.75% % 10.25% 9.50% 9.50% 7.50% 7.77% % 10.00% 9.50% 9.50% 7.25% 8.16% % 9.50% 8.75% 8.75% 7.00% 8.37% % 9.75% 9.00% 9.00% 7.00% 8.42% % 9.00% 8.25% 8.40% 6.50% 8.40% % 8.25% 7.50% 8.10% 6.00% 8.10% % 7.50% 7.00% 7.45% 5.75% 7.45% % 8.50% 8.00% 8.00% 6.25% 6.99% % 7.50% 7.00% 7.00% 5.75% 6.63% % 7.75% 7.25% 7.25% 5.75% 6.33% % 7.00% 6.75% 6.75% 5.50% 6.31% % 7.00% 6.50% 6.50% 5.50% 6.30% % 8.00% 7.50% 7.50% 6.00% 6.09% % 7.75% 7.25% 7.25% 5.75% 6.00% % 7.50% 7.00% 7.00% 5.75% 5.75% % 6.75% 6.25% 6.25% 5.25% 5.27% % 6.25% 6.00% 6.00% 5.00% 5.00% % 5.75% 5.50% 5.50% 4.75% 4.75% % 5.75% 5.50% 5.50% 4.75% 4.75% % 6.00% 5.75% 5.75% 4.75% 4.75% % 6.25% 6.00% 6.00% 5.00% 5.00% % 6.75% 6.50% 6.50% 5.25% 5.25% % 5.75% 5.50% 5.50% 4.75% 4.75% % 5.25% 5.25% 5.25% 4.50% 4.50% % 4.50% 4.50% 4.50% 4.00% 4.00%
36 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than Five Years but Not More Than 10 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 12.75% 12.25% 12.25% 9.25% 9.25% % 12.75% 12.25% 12.25% 9.25% 9.25% % 12.50% 12.00% 12.00% 9.00% 9.00% % 10.25% 10.00% 10.00% 7.75% 7.75% % 9.00% 8.75% 8.75% 6.75% 6.75% % 10.00% 9.50% 9.50% 7.50% 7.77% % 9.75% 9.50% 9.50% 7.25% 8.16% % 9.25% 8.75% 8.75% 7.00% 8.37% % 9.25% 9.00% 9.00% 7.00% 8.42% % 8.50% 8.25% 8.40% 6.50% 8.40% % 8.10% 7.50% 8.10% 6.00% 8.10% % 7.45% 7.00% 7.45% 5.75% 7.45% % 8.25% 8.00% 8.00% 6.25% 6.99% % 7.25% 7.00% 7.00% 5.75% 6.63% % 7.50% 7.25% 7.25% 5.75% 6.33% % 7.00% 6.75% 6.75% 5.50% 6.31% % 6.75% 6.50% 6.50% 5.50% 6.30% % 7.75% 7.50% 7.50% 6.00% 6.09% % 7.50% 7.25% 7.25% 5.75% 6.00% % 7.25% 7.00% 7.00% 5.75% 5.75% % 6.50% 6.25% 6.25% 5.25% 5.27% % 6.00% 6.00% 6.00% 5.00% 5.00% % 5.75% 5.50% 5.50% 4.75% 4.75% % 5.75% 5.50% 5.50% 4.75% 4.75% % 5.75% 5.75% 5.75% 4.75% 4.75% % 6.00% 6.00% 6.00% 5.00% 5.00% % 6.50% 6.50% 6.50% 5.25% 5.25% % 5.50% 5.50% 5.50% 4.75% 4.75% % 5.25% 5.25% 5.25% 4.50% 4.50% % 4.50% 4.50% 4.50% 4.00% 4.00% towerswatson.com
37 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 10 Years but Not More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 11.75% 11.25% 11.25% 8.75% 8.75% % 11.75% 11.25% 11.25% 8.50% 8.50% % 11.50% 11.00% 11.00% 8.50% 8.50% % 9.50% 9.25% 9.25% 7.25% 7.25% % 8.50% 8.00% 8.00% 6.50% 6.50% % 9.25% 8.75% 8.75% 7.00% 7.77% % 9.00% 8.75% 8.75% 7.00% 8.16% % 8.50% 8.25% 8.37% 6.50% 8.37% % 8.75% 8.25% 8.42% 6.75% 8.42% % 8.40% 7.75% 8.40% 6.25% 8.40% % 8.10% 7.00% 8.10% 5.75% 8.10% % 7.45% 6.50% 7.45% 5.50% 7.45% % 7.50% 7.25% 7.25% 6.00% 6.99% % 6.75% 6.75% 6.75% 5.50% 6.63% % 7.00% 6.75% 6.75% 5.50% 6.33% % 6.50% 6.25% 6.31% 5.25% 6.31% % 6.30% 6.25% 6.30% 5.25% 6.30% % 7.25% 7.00% 7.00% 5.75% 6.09% % 7.00% 6.75% 6.75% 5.50% 6.00% % 6.75% 6.50% 6.50% 5.50% 5.71% % 6.25% 6.00% 6.00% 5.00% 5.27% % 5.75% 5.50% 5.50% 4.75% 4.82% % 5.25% 5.25% 5.25% 4.50% 4.50% % 5.50% 5.25% 5.25% 4.50% 4.50% % 5.50% 5.50% 5.50% 4.75% 4.75% % 5.75% 5.50% 5.50% 4.75% 4.75% % 6.25% 6.00% 6.00% 5.00% 5.00% % 5.25% 5.25% 5.25% 4.50% 4.50% % 5.00% 5.00% 5.00% 4.25% 4.25% % 4.25% 4.25% 4.25% 3.75% 3.75%
38 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlements Change in Fund Valuations Without Interest Guarantees on Considerations Received More Than One Year After Issue Guarantee Duration of More Than 20 Years Issue Year Type A Type B Type C Statutory Tax Statutory Tax Statutory Tax % 9.75% 9.75% 9.75% 7.75% 7.75% % 9.75% 9.75% 9.75% 7.50% 7.50% % 9.50% 9.50% 9.50% 7.50% 7.50% % 8.00% 8.00% 8.00% 6.50% 6.50% % 7.25% 7.25% 7.25% 6.00% 6.00% % 7.77% 7.75% 7.77% 6.25% 7.77% % 8.16% 7.50% 8.16% 6.25% 8.16% % 8.37% 7.25% 8.37% 6.00% 8.37% % 8.42% 7.25% 8.42% 6.00% 8.42% % 8.40% 6.75% 8.40% 5.75% 8.40% % 8.10% 6.25% 8.10% 5.25% 8.10% % 7.45% 6.00% 7.45% 5.00% 7.45% % 6.99% 6.50% 6.99% 5.50% 6.99% % 6.63% 6.00% 6.63% 5.00% 6.63% % 6.33% 6.00% 6.33% 5.25% 6.33% % 6.31% 5.75% 6.31% 4.75% 6.31% % 6.30% 5.50% 6.30% 4.75% 6.30% % 6.25% 6.25% 6.25% 5.25% 6.09% % 6.00% 6.00% 6.00% 5.00% 6.00% % 6.00% 6.00% 6.00% 5.00% 5.71% % 5.50% 5.50% 5.50% 4.75% 5.27% % 5.00% 5.00% 5.00% 4.50% 4.82% % 4.75% 4.75% 4.75% 4.25% 4.44% % 4.75% 4.75% 4.75% 4.25% 4.25% % 5.00% 5.00% 5.00% 4.25% 4.25% % 5.00% 5.00% 5.00% 4.50% 4.50% % 5.50% 5.50% 5.50% 4.75% 4.75% % 4.75% 4.75% 4.75% 4.25% 4.25% % 4.50% 4.50% 4.50% 4.00% 4.00% % 4.00% 4.00% 4.00% 3.75% 3.75% towerswatson.com
39 2012 Prescribed U.S. Valuation Interest Rate Report Appendix 2: Statutory and Tax Prevailing Interest Rates for Pre-1983 Issues Statutory and Tax Prevailing Interest Rates for Pre-1983 Issues Life Insurance Issue Years Annual Pay Single Pay Pre % Stat 3.50% Stat 4.00% Tax 4.00% Tax % 3.50% 1972 Amendments % 4.00% 1976 Amendments 5.50% Stat % 4.50% Tax % 5.50% The maximum statutory valuation interest rates for life insurance include ordinary, industrial, group and credit life products. For noncancellable accident and health insurance, there are no prevailing rates under IRC Section 807(d)(4)(A). Therefore, interest rates used in calculating noncancellable accident and health insurance reserves are those applicable to whole life insurance, in accordance with Section 807(d)(4)(D). Annuities Issue Years Individual SPIA Individual SPDA Other Individual Group and Pure Endowments Pre % Stat 3.50% Stat 3.50% Stat 3.50% Stat 4.00% Tax 4.00% Tax 4.00% Tax 4.00% Tax % 3.50% 3.50% 3.50% 1972 Amendments % 4.00% 4.00% 6.00% 1976 Amendments % 5.50% 4.50% 7.50%
40 Prescribed U.S. Valuation Interest Rate Report Appendix 3: Valuation Interest Rate Sensitivity by Product Type As discussed in Section 3 of the report, maximum statutory valuation interest rates depend on the values of reference interest rates, which vary by product type and guarantee duration. The reference interest rates for some annuity products, such as SPIAs, are calculated using the 12-month arithmetic mean of the Moody's corporate bond yield indices. Reference interest rates for all life insurance products and certain other annuity products are calculated using the lesser of the 12-month and 36- month arithmetic means of the Moody's corporate bond yield indices. Given a specific number of months of historical, or "known," Moody's corporate bond yield indices data points, one can test the sensitivity of potential changes in valuation interest rates for the upcoming calendar year by considering a range of future, or "unknown," Moody's corporate bond yield averages for the remainder of the time period. In this appendix, we present the results of such sensitivity tests for calendar year 2014 issues of life insurance products and calendar year 2013 issues of annuities. This analysis assumes that the Moody's corporate bond yield index values are unknown for July 2012 to June Towers Watson updates these sensitivity analyses monthly as new corporate bond yield index values are released. towerswatson.com
41 2012 Prescribed U.S. Valuation Interest Rate Report Life Insurance Products Actual Rate Average Unknown Moody s Rates Needed to Change Rate by: % -0.50% 0.50% 0.75% 1.00% Guarantee Duration of 10 Years or Less 3.75% 3.25% 3.75% 5.85% 7.35% 8.85% Guarantee Duration of More Than 10 Years but Not More Than 20 Years 3.75% 3.27% 3.83% 6.60% 8.25% 9.93% Guarantee Duration of More Than 20 Years 3.50% 2.64% 3.35% 6.60% 8.73% 10.86% How to Read This Exhibit Example of a Projected Whole Life Statutory Maximum Valuation Interest Rate 2014 Projected Whole Life Maximum Rate not more than 2.64% 2.75% If the remaining unknown Moody s indices average is more than 2.64% but not more than 3.35% 3.00% more than 3.35% but less than 6.60% 3.50% at least 6.60% but less than 8.73% 4.00% at least 8.73% but less than 10.86% 4.25% at least 10.86% 4.50% Single Premium Immediate Annuities Actual Rate Average Unknown Moody s Rates Needed to Change Rate by: % -0.50% -0.25% 0.25% 0.50% All SPIAs 4.25% 3.78% 4.09% 4.40% 4.72% 5.04%
42 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlement Options Issue Year Valuation Basis With Interest Guarantees on Considerations Received More Than One Year After Issue Actual Rate Average Unknown Moody s Rates Needed to Change Rate by: Annuity % -0.50% -0.25% 0.25% 0.50% Guarantee Duration of Five Years or Less Type A 4.25% 3.78% 4.09% 4.40% 4.72% 5.04% Type B 4.00% 3.62% 4.04% 4.45% 4.88% 5.30% Type C 3.75% 3.25% 3.75% 4.25% 4.76% 5.26% Guarantee Duration of More Than Five Years but Not More Than 10 Years Type A 4.25% 3.83% 4.16% 4.50% 4.84% 5.17% Type B 4.00% 3.62% 4.04% 4.45% 4.88% 5.30% Type C 3.75% 3.25% 3.75% 4.25% 4.76% 5.26% Guarantee Duration of More Than 10 Years but Not More Than 20 Years Type A 4.00% 3.57% 3.96% 4.34% 4.74% 5.43% Type B 3.75% 3.25% 3.75% 4.25% 4.76% 5.85% Type C 3.75% 3.27% 3.83% 4.38% 4.95% 6.60% Guarantee Duration of More Than 20 Years Type A 3.75% 3.27% 3.83% 4.38% 4.95% 6.60% Type B 3.50% 2.64% 3.35% 4.07% 4.79% 6.60% Type C 3.50% 2.64% 3.35% 4.07% 4.79% 6.60% towerswatson.com
43 2012 Prescribed U.S. Valuation Interest Rate Report Annuities With Cash Settlement Options Issue Year Valuation Basis Without Interest Guarantees on Considerations Received More Than One Year After Issue Actual Rate Average Unknown Moody s Rates Needed to Change Rate by: Annuity % -0.50% -0.25% 0.25% 0.50% Guarantee Duration of Five Years or Less Type A 4.25% 3.73% 4.02% 4.32% 4.62% 4.92% Type B 4.00% 3.57% 3.96% 4.34% 4.74% 5.12% Type C 3.75% 3.22% 3.68% 4.13% 4.60% 5.05% Guarantee Duration of More Than Five Years but Not More Than 10 Years Type A 4.25% 3.78% 4.09% 4.40% 4.72% 5.04% Type B 4.00% 3.57% 3.96% 4.34% 4.74% 5.12% Type C 3.75% 3.22% 3.68% 4.13% 4.60% 5.05% Guarantee Duration of More Than 10 Years but Not More Than 20 Years Type A 4.00% 3.53% 3.89% 4.25% 4.61% 4.98% Type B 3.75% 3.22% 3.68% 4.13% 4.60% 5.22% Type C 3.75% 3.25% 3.75% 4.25% 4.76% 5.85% Guarantee Duration of More Than 20 Years Type A 3.75% 3.25% 3.75% 4.25% 4.76% 5.85% Type B 3.50% 2.68% 3.31% 3.93% 4.57% 5.64% Type C 3.50% 2.68% 3.31% 3.93% 4.57% 5.64%
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