SEC ruling could amp up RILA accessibility, encourage competition

After months of deliberation, the U.S. Securities and Exchange Commission has adopted tailored disclosure requirements and offering processes for registered index-linked annuities (RILA) and registered market value adjustment annuities.

RILAs must now use the same Form N-4 that variable annuities use, intending to make the registration process more transparent, accessible and efficient. The annuity market was already experiencing record-high sales, but this new ruling could see that growth climb even higher in the months ahead.

The Insured Retirement Institute, which played a major role in advocating for this change, welcomed the ruling as a “long-awaited improvement” that will help American consumers understand and evaluate whether to purchase a popular type of annuity that combines growth potential with protection against market volatility.

“This rule will ensure that prospective purchasers can readily find the essential information they need to understand RILAs and their risks and benefits,” Wayne Chopus, president and CEO, IRI, said in a statement. “The changes made by this rule change should also eliminate barriers to entry and encourage more competition and innovation in this critical market segment.”

Streamlining the RILA registration process

IRI noted that up until this new ruling, RILAs and other “other innovative, new insured retirement products” had to be registered with the SEC using forms that were tailored for equity offers.

This meant they required a lot of information that was irrelevant to prospective annuity buyers, and also required insurers to prepare financial disclosures in accordance with generally accepted accounting principles, which they otherwise may not have had to.

The new ruling builds on the existing process for variable annuities. Issuers will now be required to use the same Form N-4 to register RILAs and contracts that offer a combination of index-linked options and variable options. They also have to prepare financial disclosures in accordance with statutory accounting principles rather than GAAP.

“These changes will streamline the registration process for issuers already using Form N-4 for other investment products,” Gary Gensler, SEC chair, noted in a statement. “Further, this would make disclosures among similar investment products more consistent.”

According to the SEC, it’s designed to modernize and enhance the registration, filing, and disclosure framework, maximizing efficiency for insurance companies that offer both variable and non-variable annuities and for the SEC, by extension, when it comes time to review those filings.

The SEC initially proposed these changes back in September 2023, in line with a Congress mandate to create a specific registration form for RILAs. While the final ruling was handed down on July 1, 2024, filers have until May 1, 2026, to comply.

The SEC said it also plans to adopt other technical amendments to other insurance product registration forms, based on relevant investor testing and the SEC staff’s historical experience in administering such forms.

Increased transparency

With annuity products significantly growing in popularity over the past few years, regulators and consumer advocates emphasized the need for a more transparent, informative and effective process.

According to IRI, annuities are “among the fastest-growing insured retirement products” because investors can balance their retirement portfolios, allowing them to participate in market growth while limiting their exposure to market loss.

“A RILA-specific registration form is both timely and essential, considering the growing prominence of RILAs in the marketplace,” Jason Berkowitz, chief legal and regulatory affairs officer, IRI, said in an earlier statement. “The [amendment] would substantially improve the effectiveness of the disclosures provided by RILA issuers to prospective purchasers in conveying essential information to help them better understand RILAs and their risks and benefits.”

Data from LIMRA’s 2023 U.S. Individual Annuity Sales Survey found total annuity sales reached a record-high $385 billion, unseating the $313 billion record-high of 2022. Additionally, LIMRA’s LIMRA Quarterly Annuity Report 2023 found that RILA sales specifically have steadily increased for the past nine consecutive years.

“The market for these complex products has grown significantly in recent years,” Gary Gensler, SEC chair, said in a statement. “Sales of RILAs reached approximately $47.4 billion in 2023 alone, more than quintupling since 2017. It is important that investors receive the information they need — in plain English — to make informed investment decisions.”

He explained that annuities are a complex product, and investors can experience losses if they are not well-informed about how the product works and careful about their approach.

“These amendments will benefit investors by providing a tailored disclosure regime and permitting investors to compare and contrast different types of annuity contracts,” he added.

The final amendment outlines new guidelines on when sales literature may be “materially misleading.” Both RILA and MVA issuers must additionally comply with SEC Rule 156, which addresses truth in advertising in sales literature.

“Taken together, these amendments will improve the disclosure process for these complex products to benefit investors,” Gensler said.

The Insured Retirement Institute is an American trade association focused on the insured retirement industry. It conducts research, provides information and advocates for retirement security.

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