On August 3, 2011, the NAIC Life Insurance and Annuities (A) Committee adopted revisions to the Annuity Disclosure Model Regulation, Model 245 ("Annuity Disclosure Model" or "Model"). The revised Annuity Disclosure Model continues to require that consumers be provided a Buyer's Guide and a disclosure document. The revised Annuity Disclosure Model applies to fixed, fixed indexed and variable annuities.
Fixed and Fixed Indexed Annuities
The most substantive change to the Annuity Disclosure Model is the addition of the standards for fixed and fixed indexed annuity illustrations. New Section 6 applies to an "illustration," which is defined to mean "a personalized presentation or depiction prepared for and provided to an individual consumer that includes non-guaranteed elements of an annuity contract over a period of years." In addition to setting forth the parameters for non-guaranteed and guaranteed elements of illustrated values and the manner of presentation of such values, the new illustration standards require:
- A narrative summary (unless the information is provided at the same time in a disclosure document).
- A numeric summary.
- If the annuity contains a market value adjustment ("MVA"), a narrative explanation of the MVA, a demonstration of the MVA under at least one positive and one negative scenario, and actual MVA floors and ceilings.
New Section 6 includes additional specific requirements for a fixed indexed annuity illustration. These requirements include illustrating the nonguaranteed values for three different scenarios:
- The last continuous 10 calendar years.
- A continuous 10 calendar year period out of the last 20 that would produce the least index value growth.
- A continuous 10 calendar year period out of the last 20 that would produce the most index value growth.
If any index has not been in existence for at least 10 calendar years, then that index may not be illustrated.
The Model also was revised to include additional disclosure items for fixed indexed annuities.
Previously, the Annuity Disclosure Model did not apply to the sale of registered variable annuities. The Model was revised to require the following be delivered in connection with a sale of a registered variable annuity:
- A Buyer's Guide.
- After January 1, 2014, a disclosure document, unless prior to such date, the SEC adopts a summary prospectus rule or FINRA approves for use a simplified disclosure form applicable to variable annuities.
Variable annuity illustrations, however, are not subject to the revised Annuity Disclosure Model's new standards for illustrations.
The Annuity Disclosure Model was revised to include a new exception from the Model for non-registered variable annuities issued exclusively to accredited investors or qualified purchasers.
The Model was revised to include a requirement to maintain or make available to the insurance regulatory authorities records of the information collected from the consumer and other information provided in the disclosure statement (including illustrations).
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It is anticipated that the NAIC will consider for final adoption the Annuity Disclosure Model at the NAIC's Summer National Meeting later this month.