On November 3, 2011, Eileen Rominger, Director of the SEC’s Division of Investment Management (the “Division”), in a speech to attendees of the ALI-ABA Conference on Life Insurance Company Products, focused on several issues regarding the regulation of variable insurance products and how the current market has seen a multitude of product design innovations.  The following are the key issues discussed by Director Rominger:

  • The benefits of an optional variable annuity summary prospectus, similar to the successful optional mutual fund summary prospectus provided for by SEC regulations adopted in 2009.
  • The Division’s ongoing study to examine the effectiveness of mutual fund shareholder reports in communicating useful information to individual investors.
  • The Division’s ongoing study regarding financial literacy among investors that is mandated by the Dodd-Frank Act.
  • Disclosure of limitations that insurers place on living benefits products (e.g., promised minimum contract values regardless of investment performance of the underlying funds, or withdrawal privileges that provide for a stream of income during retirement years).
  • Disclosure of the impact of limitations on investment options upon investor upside.
  • Disclosure of the unilateral right of insurers to change asset allocation based on asset allocation models and the potential impact on investment return.
  • The use of the word “guaranteed” in marketing living benefit products.
  • Disclosure of an insurer’s use of derivative instruments in their general accounts to hedge their risk exposure to pay guaranteed living benefit.

In addition, Director Rominger spoke about the concept release issued by the SEC on August 31, 2011 titled “Use of Derivatives by Investment Companies under the Investment Company Act of 1940” (the “Concept Release”).  The Concept Release seeks broad public comment from all interested persons on a wide range of issues that funds face when investing in derivatives.  November 7, 2011 is the deadline for comment period.

For a full transcript of Director Rominger’s speech, please click here.

For a copy of the Concept Release, please click here.