Recent OGC opinion on Reg 60 raises concerns

Posted on August 21, 2007 by Cailie Currin
On August 20, 2007, the NYSID posted 13 new OGC opinions.  Included in these was a new Reg 60 opinion.  Two questions were presented and the Department's position on the first was not really a surprise to me, but their position on the second could lead to some difficult decisions in the future.  The question was:  "If an annuitant surrenders or otherwise terminates an individual annuity contract before its maturity date, and at a later time purchases a new individual life insurance policy, which is delivered or issued for delivery in New York State by an authorized insurer, is there a replacement as defined by section 51.2(a)(1) of Regulation 60?"   The response was "It depends on the facts.  If the producer and the annuitant had a plan that an a new individual life insurance policy would be purchased from the same producer at a later time after the annuity contract was surrendered or otherwise terminated, then there is a replacement within the meaning of section 51.2(a)(1) of Regulation 60."  www.ins.state.ny.us/ogco2007/rg070712.htm,

The Department focuses its analysis on the requirement that the producer state whether or not a replacement is involved in the transaction.  This opinion seems to make little of the word transaction.  It goes on to state:  "If there is evidence of communications between the annuitant and the producer about the advantages or disadvantages of an annuity contract as compared to a life insurance policy, and the new individual life insurance policy is purchased from the same producer who sold the annuity contract, then the replacement provisions of Regulation 60 apply. "  

It is unclear to me how mere discussions of advantages and disadvantages could be construed as a plan to replace which is the suggestion of the opinion.  Further, the statement goes to the role of the producer who sold the annuity contract.   This suggests that the transaction is somehow more suspect when the original annuity contract - the contract being surrendered before maturity - is sold by the same producer as the new life insurance policy and there has been a discussion of the advantages and disadvantages of annuities vs. life insurance policies than a transaction would be if the new life insurance policy was sold by a different producer than the original annuity. 

That view may not take into consideration that a producer selling both products may have a longer term relationship with the purchaser and  therefore would have more occasion to discuss the advantages and disadvantages of many different products.  But the bottom line is that as a result of this opinion, it may be necessary to know what communications have occurred between producer and applicant over an extended period of time, to know whether an apparently isolated transaction may be somehow linked to an earlier one,  thereby triggering Reg 60. 

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