NAIC Focuses On Proprietary Indices In Annuity Illustration Changes

By John Hilton

State insurance commissioners are getting closer to final rule revisions allowing insurers to illustrate indexed annuities using indices that have been around less than 10 years.

The Annuity Suitability Working Group wrapped up a comment period July 1 on revisions to Annuity Disclosure Model Regulation 245. The group is a National Association of Insurance Commissioners committee.

“We will be setting up a conference call sometime in the September timeframe,” said chairman Mike Yanacheak, actuarial administrator for the Iowa Insurance Division.

Yanacheak shared an update on group efforts Aug. 5 during the NAIC Summer Meeting in Boston.

The working group is tackling two issues:

• Under regulation #245, there is no way to illustrate indexes on fixed indexed annuities that have not been in existence for the previous 10 years.
• The definition of “non-guaranteed elements” could be construed to include participating income annuities because of the formula used to calculate the dividend scale.

Insurers say the 10-year requirement isn't necessary if index components have been around that long.

The issue rose in importance as many insurers developed their own proprietary indices in recent years to respond to the popularity of indexed annuities with cautious clients.

'A Lot Of Validity'

Insurers are not wrong, Bobby Samuelson, former Brighthouse Financial executive, told InsuranceNewsNet in June.

"I think there’s a lot of validity to saying that even if the index itself hasn’t been around for 10 years, if the constituent parts of it have been, then you can pretty accurately recreate historical performance even if the index itself did not exist," said Samuelson, executive editor for The Life Product Review, an industry product evaluation service.

Birny Birnbaum, executive director of the Center for Economic Justice, strenuously opposed both the changes and the indexes altogether.

The changes will “invite gaming of the illustration to set up unrealistic expectations,” Birnbaum said in comments this summer. The products are too complex for the additional disclosures to be meaningful for the consumer, he added.

Finally, Birnbaum questioned why the indexed products are not regulated similar to securities and sold under a fiduciary obligation.

The parent Life Insurance and Annuities Committee must vote to accept any amendments recommended by the working group. Then the NAIC Executive Committee must approve it before it is sent to the states for adoption.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.