NAFA Response To “States Continue Push For Annuity Commission Disclosure”

Linda Koco

Contributing Editor

Dear Linda,

Thank you for your coverage about the Buyer’s Guide in your most recent article in Insurance News Net (INN) titled “States Continue Push for Annuity Commission Disclosure” on February 18.   Revising the NAIC Annuity Buyer's Guide (the "Buyer's Guide") has been on NAFA's radar since the NAIC began the process back in 2009, and it has been our mission to ensure that the information about fixed annuities is accurate and informative to the consumer. 

The reason for our determination and ongoing passion to rewrite the Buyer’s Guide dates back to our 151A fight when NAFA was present in court, listening to the SEC lawyer presenting their case on Rule 151A.  The lawyer held up the current version of the Buyer's Guide and stated “even their own industry is confused about these products.”  He was referencing the Buyer's Guide’s section in which "risk" was discussed,  identifying the variable annuity as having the “most risk,” the “equity” index annuity having “moderate risk” and the fixed (non-indexed) annuity having “low risk.”

It has been NAFA’s goal since that day to remove the discussion of market risk from the fixed annuity conversation completely, as well as educate and correct regulators understanding of the simple fact that the only difference between the fixed indexed annuity and the fixed non-indexed annuity is how interest is determined. 

For readers not familiar (and those needing to be reminded): 

For fixed non-indexed annuities - the interest credited is determined based on the performance of the carrier’s investment portfolio, taking into account income and expenses, and the interest is declared in advance of the earning period and - is credited throughout the period. 

For fixed indexed annuities – the interest credited is determined based on the performance of the carrier’s investment portfolio, taking into account income and expenses, and the formula used to calculate interest is declared in advance of the earning period and is credited at the end of the period.

-In all fixed annuities, once the interest has been credited it is locked into the contract and cannot be lowered because of future performances of the index or the carrier’s investment portfolio. 

- In all fixed annuities the minimum interest to be earned is guaranteed and stated in the contract. 

- In all fixed annuities the annuitant's income payments are fixed and guaranteed and will not be outlived--as stated in the contract.

NAFA has spent long and impassioned hours to include this same truth in the new NAIC Buyer’s Guide.  NAFA has led the charge to ensure that consumers understand there are TWO types of annuities – fixed and variable.  Within the fixed community you have many different products and book value, multi-year guarantee and indexed are among them.  Consumers want clarity and certainty when purchasing a fixed annuity.  The Buyer’s Guide should provide information that satisfies both needs. 

Finally, we would like to add that your report of the February 5 meeting where you stated “NAFA simply said no” was not complete, and we want to be sure our membership and your readers understand NAFA’s position on the compensation language suggested by California's staff counsel.  All should be informed that this teleconference was the third with the working group since the November 28 meeting in D.C.  In between the D.C. meeting and the February 5  teleconference, NAFA has met with its trade partners ACLI, IRI and NAIFA on many occasions, as well as with the NAIC Consumer Representatives working directly on this project. NAFA has objected to the language California suggested at each and every meeting both verbally at the meetings and also in writing during the Guide’s editing process. 

The language California is advocating is nothing less than full compensation disclosure.  The NAIC has not adopted, proposed, or even expressed interest in exploring a compensation disclosure model law.  Since this is the NAIC Buyer’s Guide, including California’s language would be tantamount to establishing law by fiat without due process.  NAFA’s comment at the February 5 meeting was “NAFA would oppose that language, Jim for reasons we have previously stated.”  This background information is important for readers to understand the context of NAFA’s opposition and the compelling argument why the language to date does not include California’s suggestion.

All of us, the trade associations and the consumer representatives, have put in countless hours discussing, reworking, and wordsmithing the language.  It has been a very collaborative process and the most recent draft submitted February 22 to Mr. Mumford represents the final language agreed upon by both the trades and the consumer representatives…now THAT’S a STORY! 

Since NAFA led the discussion on February 5, we don’t understand why INN didn’t call us for background or an explanation of our position.  We are always available for an interview, to provide comment or for information to share that may provide your readers background on the topic being addressed.  When it comes to fixed annuities and the issues facing fixed annuities, there is no greater resource than the association that focuses exclusively on these valuable products – NAFA, the National Association FOR Fixed Annuities.

Kim O’Brien

President & CEO

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].