A regulator subgroup is inching closer to a new actuarial guideline to shoehorn the hot-selling indexed-linked annuities into variable annuity nonforfeiture rules.
The Index-Linked Variable Annuity Subgroup was created last year by a National Association of Insurance Commissioners task force to focus solely on the index-linked annuity products -- known variously as structured, buffered or registered indexed-linked annuities.
While classified as variable annuities, the indexed-linked products do not fit into Model 250, which includes the nonforfeiture rules that determine how much money a contract holder can get back if they give up the annuity.
The new indexed-linked annuities do not fit neatly into Model 250 because their daily values are not based on the value of units of a separate account. Rather, the daily values are based on formulas set forth in the contract.
The addition of a market-value adjustment [MVA] to partial withdrawals and surrenders.
The effective date of the guideline.
Lack of consistency
Industry representatives were not enthusiastic about adding the MVA to the guideline, with Ryan Berends, vice president of product development for Athene, speaking on behalf of the American Council of Life Insurers.
"Our concern with having that sentence in there restricting market value adjustments to partial withdrawals and surrender increments is that it's inconsistent," Berends explained.
Withdrawals above the maximum penalty-free amount are subject to a market value adjustment for the period the surrender charges apply. An MVA is an amount by which a full or partial withdrawal is adjusted, resulting in a positive or negative impact on the withdrawal.
"That certainly happens on partial withdrawal and surrender, but it also happens on vest, annuitization and transfer," Berends said. "So rather than trying to pinpoint every single transaction that you could run into, our suggestion was just to delete that sentence."
Peter Weber is a life actuary for the Ohio Department of Insurance, and chairman of the subgroup. After an extended discussion about different language and aspects of the MVA, Weber moved to send the language back to the drafting group for clarification.
A second discussion focused on the effective date of any changes. A proposed "bifurcated" date would separate new indexed-linked annuities from those contracts that are already in force.
"We don't think a single date, certainly not an April 2023 date is manageable from either a company or regulatory perspective," said Stephen Roth of the law firm Eversheds Sutherland.
Roth is lead counsel for the Committee of Annuity Insurers, a coalition of 30 life insurance companies representing approximately 80 percent of the annuity business in the U.S. For new indexed-linked annuity contracts, meaning all the contracts submitted for first-time state regulatory approval, the April 2023 date works, Roth said.
"But for existing contracts, April 2023 would be unworkable," he added. "We're instead recommending a July 1, 2024 for the effective date."
It will minimize the market disruption to give companies a long lead time to make any changes to their indexed-linked annuity products, Roth explained.
"There will be at least some companies that are going to want to make significant changes to their existing [products] in order to be confident that they can demonstrate compliance in all states," he said.
Not all subgroup members were convinced that industry needs nearly two years to comply with the changes. Weber closed the meeting by announcing another draft exposure to come, adding his hopes that it's "the final one."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected] Follow him on Twitter @INNJohnH.