The National Association of Insurance Commissioners (NAIC) held its Spring 2013 National Meeting from April 6 to 9 in Houston, Texas. This update provides a brief overview of the activities of certain NAIC working groups that focus on issues affecting retirement income products and their providers.
Contingent Deferred Annuity (A) Working Group
As discussed in our October 2012 newsletter, the Contingent Deferred Annuity (A) Working Group (CDA Group) was established to evaluate the adequacy of existing laws and regulations applicable to solvency and consumer protection issues in connection with contingent deferred annuities (CDAs). CDAs are a type of annuity contract that provides guaranteed lifetime income payments if designated investments not owned or held by the insurer are depleted due to permitted withdrawals, poor market performance, fees or other charges.
At the meeting, the CDA Group heard presentations from various regulators, industry and trade groups, consumer representatives, and other interested parties. In particular, a representative from the American Council of Life Insurers commented that the suitability rules of the Financial Industry Regulatory Authority (FINRA) do apply to sales of CDAs by brokers and, therefore, the Suitability in Annuity Transactions Model Regulation (#275) (Model Suitability Regulation) should not also apply because such application would result in two suitability reviews. In response, the CDA Group was of the view that FINRA does not apply its variable annuity suitability rules to CDAs, only its general suitability rules, which do not provide the same protections as the Suitability Model Regulation. Accordingly, the CDA Group recommended to the Life Insurance and Annuities (A) Committee (A Committee) that the Model Suitability Regulation be revised to specifically reference the sale of CDAs and make clear that certain training and product specific training requirements include CDAs.
In response to comments from several other insurance regulators regarding reserve requirements for CDAs, the CDA Group recommended to the A Committee that analyzing reserving requirements for CDAs should be referred to an NAIC Working Group with the appropriate subject matter expertise.
A representative from the Insured Retirement Institute commented that the CDA Group should make clear that the states do not have to wait until after the CDA Group and A Committee complete their work on CDAs before approving them. The CDA Group did not include this suggestion in its final report and recommendations to the A Committee.
Finally, the CDA Group also heard a presentation from the Executive Director of the Center for Economic Justice who urged the CDA Group to make clear in its report and recommendations that it was not endorsing CDAs and who advised the CDA Group that states may have approved CDAs without realizing that they were CDAs and should re-examine and, if appropriate, re-approve such products. The CDA Group considered these recommendations beyond the scope of its charge and did not include them in its report and recommendations to the A Committee.
The A Committee adopted the CDA Group’s final report and recommendations. A copy of the report is available here: http://www.naic.org/meetings1304/ committees_a_2013_spring_nm_additional_materials.pdf
Annuity Disclosure (A) Working Group
The A Committee appointed the Annuity Disclosure (A) Working Group (Annuity Disclosure Working Group) to consider changes to the NAIC Annuity Disclosure Model Regulation to improve the disclosure of information provided for annuity products and to provide insurance companies with uniform guidance on developing disclosure practices and monitoring the distribution of annuities. The Annuity Disclosure Working Group’s 2013 charge was to review and revise the NAIC Buyer’s Guides (Buyer’s Guides) which are consumer guides setting forth a general explanation of deferred annuities and fixed deferred annuities and some of their most common features. The model regulation requires that the Buyer’s Guides (as applicable) be delivered, along with an annuity disclosure document, to each prospective applicant for an annuity contract.
The Annuity Disclosure Working Group had previously discussed revisions to the Buyer’s Guides on a teleconference call on March 22, 2013 and, at the meeting, approved a slightly revised version of the Buyer’s Guides incorporating additional technical, non-substantive changes. The Annuity Disclosure Working Group submitted the revised Buyer’s Guides to the A Committee, which approved them as well as the re-appointment of the group to complete its work developing interactive electronic versions of the Buyer’s Guides for posting on insurance company websites.
The final versions of the Buyer’s Guides are available here: http://www.naic.org/meetings1304/ committees_a_2013_spring_nm_materials.pdf
ERISA Retirement Income (A) Working Group
The 2013 charge of the ERISA Retirement Income (A) Working Group (Retirement Income Group) was to work with representatives of the Department of Labor (DOL), the White House Council of Economic Advisors, the Department of the Treasury, and any other appropriate federal agencies, in coordination with the NAIC Government Relations Leadership Council, to consider possible options for easing plan sponsor concerns with the financial soundness of annuity providers as related to the DOL safe harbor for satisfying fiduciary responsibility requirements in selecting annuity providers. For more information about the DOL safe harbor, see our October 2012 newsletter.
At the meeting, the Retirement Income Group heard a presentation from the Variable Annuity Life Insurance Company on the different types of ERISA plans and tax-qualified plans. The group also heard a presentation from the National Organization of Life & Health Guaranty Association on the insurance guaranty system, the context in which it operates, and how core commitments of guaranty funds to consumers are honored when insurers become insolvent. The Retirement Income Group concluded the meeting by agreeing to hold conference calls prior to the NAIC’s Summer 2013 National Meeting to continue to work on its charge.
The A Committee adopted the report of the Retirement Income Group, which has not yet been made publicy available.
ERISA (B) Working Group
The ERISA (B) Working Group (ERISA B Group) reports to the Regulatory Framework (B) Task Force (B Task Force) which, in turn, reports to the Health Insurance and Managed Care (B) Committee. The ERISA B Group’s 2013 charges were to (i) monitor, report, and analyze developments related to ERISA and make recommendations regarding NAIC strategy and policy with respect to those developments, (ii) develop a white paper analyzing the potential impact of small employer self-insurance on the small group market beginning in 2014, and (iii) review and revise the Stop Loss Insurance Model Act (#92) to take into account medical inflation.
At the meeting, the ERISA B Group discussed surveying the states sometime in May to determine what, if anything, is occurring in the small group market in light of 2014 market reforms. Noting that state health insurance exchanges would not be fully operational until 2014, the ERISA B Group decided to postpone the state survey until 2014 and issue a white paper later that year, once the states and the working group have a better understanding of the impact, if any, of the health insurance exchanges on the small group market. For example, the ERISA B Group acknowledged that it could not fully analyze the impact of the exchanges until it was known which insurance companies and insurance products would be offered on the exchanges. The ERISA B Group also agreed to review existing literature on the impact of small group employer self-insurance on the goals of The Patient Protection and Affordable Care Act. Such literature may inform, or possibly obviate altogether the need for, the white paper. The ERISA B Group also briefly discussed the ability of states to possibly prohibit stop-loss coverage when the attachment point is too low. Finally, the group discussed its plan to continue review of the NAIC ERISA Handbook for possible modifications.
The B Task Force approved the re-appointment of the ERISA B Group and its report. A copy of the group’s report is available here: http://www.naic.org/meetings1304/ committees_b_2013_spring_nm_materials.pdf