Watchdog Pushes for Stronger CDA Guidance

A financial watchdog and consumer group this week pushed for stronger financial protection in the form of disclosure that would apply to contingent deferred annuities (CDA).

Technical amendments offered by the Center for Economic Justice in Austin, Texas, seek to spell out in more detail the fiduciary and suitability requirements by which unregistered CDAs are sold.

National Association of Insurance Commissioners experts are considering a draft document on financial solvency and market conduct regulation of insurers offering CDAs.

Many group annuities offered to 401(k) plans rely on certain exemptions from Securities and Exchange Commission. Annuities that fund retirement plans, therefore, are not registered and “likely utilized by CDA insurers,” according to written comments submitted by the CEJ.

“Registered CDAs are subject to SEC disclosure requirements, including the delivery of a prospectus, and FINRA’s advertising and marketing rules. Non-registered CDAs are not subject to these requirements,” the organization wrote.

NAIC commissioners, who met last week in National Harbor, Md., issued guidance with regard to CDA insurer reserving and capital requirements, along with product-specific features necessary for producer training requirements.

CDAs are insurance products offering longevity risk protection through guaranteed lifetime payments.

In a joint statement, the American Council of Life Insurers and the Insured Retirement Institute supported the NAIC’s position on reserving and capital requirements. Also, both said they support previous recommendations made by the panel to amend Standard Nonforfeiture Law for individual annuities to exclude CDAs.

Neither the ACLI nor the IRI made any request for technical changes to unregistered CDAs.

The NAIC guidance serves as a reference for states that are either interested in modifying their annuity laws or interested in determining how to apply annuity laws and rules to CDAs.

The NAIC cannot enforce insurance regulations; only state insurance commissioners have that power.

CDAs are a relatively new innovation in the annuity market and panels of NAIC experts have spent the last two years discussing the finer points of CDA regulation and periodically revising NAIC guidance for financial solvency and market conduct for insurers offering CDAs.

The NAIC CDA Working Group, which consists of the insurance commissioners from eight states, also revised protection clauses with regard to the cancellation of CDA contracts and options available to consumers.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.