Life Insurance Law Blog : New York Life Insurance Compliance Lawyer & Attorney : Currin Compliance Services LLC : Annuity Compliance & Insurance Regulation

There is so much to write about, and I anticipate future posts on this topic, but to start, the materials accompanying the final rule seems to draw a line in the sand on state regulation and federal:  solvency lies with the state and product regulation with the feds. 

At this point, the SEC does not go beyond Indexed Annuities with this rule, but as I discuss in much greater length in an article scheduled to appear in the National Underwriter's special January 19th edition on this Rule, the legal analysis could easily extend beyond indexed annuities and apply to many life and annuity products. (Unfortunately, the article's deadline was earlier than the release of the final rule, so it will be outdated upon publication.)

A key quote: "state insurance laws, enforced by multiple regulators whose primary charge is the solvency of the issuing insurance company, cannot serve as an adequate substitute for uniform, enforceable investor protections provided by the federal securities laws." 

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The New York State Insurance Department recently issued "Equity index annuity contract or life insurance policy paid dividend disclosure under Section 3209(b)(2)(C)."  

Section 3209(b)(2)(C) was amended in the last legislative session to require a disclosure statement  "indicating whether paid dividends are included in changes in the equity index, together with a description of how such dividends, or lack thereof, would affect the changes in the equity index; the statement must provide the average dividend rate over the lesser of ten years or the calculable life of the index."  The guidance issued is to assist in "calculating and communicating" the average dividend rate.  

Several companies have posed questions to us over the last couple of months regarding the nature and timing of such disclosures.  In addition to providing a sample of satisfactory disclosure, the guidance states that the communication is required "by the first of the month following the end of the latest completed calendar year (i.e., by February 1 the average dividend rate for the most recent 10 completed calendar years would be provided in the disclosure required by Section 3209(b)(2)(C))."  Adding the required disclosure to these annual statements for indexed products (remember this applies to both life and annuity products) could take significant programming for some companies, so prompt attention to this guidance is strongly recommended.   

Companies can be sure that the Department will be asking to see these disclosures during post-approval reviews, market conduct exams or upon receipt of a consumer complaint.  

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Here in Boston at the LHCA conference, one major topic of discussion has been the SEC's proposed Rule 151A and the possible federal regulation of indexed annuities as securities.  At this morning's annuities session, there were several questions on this topic and the discussion closed with the hope that the comment period would be extended.  Barbara Price of the ACLI indicated that the trade association  had requested an extension.  So did some individual companies and the National Governor's Association, in a letter signed by Gov. Jon S. Corzine and Gov. M. Michael Rounds.  One LHCA speaker indicated he understood that comments were running at over 85% against the SEC's proposal.

But despite the requests for extension, the SEC closed the comment period.  The process now moves to closed deliberations. 

A review of the website suggests that The Hartford had the last public word of comment and that was generally in favor of proposal.  That comment indicates that while the Proposed Rule is overbroad as currently drafted, federal regulation would be a welcome and valuable addition to regulation by the states. 

And now we wait.....

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