In March 2021, regulators announced the future cessation of various London Interbank Offered Rates (LIBOR) rates. The Secured Overnight Financing Rate (SOFR) is the recommended benchmark to replace LIBOR for U.S. dollars. We discuss risk-free curve selection and setting of the discounting spread for variable annuity fair valuation. The paper largely focuses on U.S. variable annuities, but the transition will impact fair valuation annuity products such as fixed-indexed and registered index-linked annuities. The paper covers:

• Evolution of the interest rate markets, and implications for risk free curve selection
• Fair valuation practices with respect to appropriate discount rates
• Emerging market practice