May 15, 2006
NAFA’s view on the Annuity Roundtable – held May 5, 2006
Contact: Executive Director
FOR IMMEDIATE RELEASE
On May 5, 2006 NAFA and numerous of its members attended the highly anticipated Annuity Roundtable cohosted by NASD and the Minnesota Department of Commerce. The Roundtable, which had been proposed by Chairman Robert Glauber and other NASD officials proposed a "summit plan," provided an opportunity for NASD, state securities regulators, state insurance regulators and members of the securities and insurance industries to exchange there views on the rules governing sales of all annuity products. While NAFA found many of the comments made by the various presenters informative, NAFA believes that the Roundtable would have been enhanced if NAFA's numerous requests to participate had been granted.
Chairman Glauber, who had been calling to "harmonize the rules governing sales" for all annuity products, be they fixed, variable or indexed, in order to "level the regulatory playing field among and between these types of products," set the stage by introducing three types of annuity products: variable annuities, fixed annuities and unregistered indexed annuities. NAFA concurs with Chairman Glauber's statement that this is a "discussion that is long overdue" and believes that the Roundtable was a significant step for further education about fixed annuities. NAFA asserts most strongly, however, that indexed annuities are not a third type, but rather a subset of fixed annuities, varying only in the manner in which interest is calculated. It is important for NASD and state securities regulators, as well as the public at large, to understand the nature of these products and the related marketing and sales efforts and the effectiveness of current state insurance law regulation. Notably, from the Roundtable:
• After Chairman Glauber set the stage by introducing three types of annuity products, NAFA agrees with American Equity Investment Life's general counsel and chief financial officer, Wendy Carlson’s response that two not three types of annuity products exist: fixed annuities (of which indexed annuities are a subset) and variable annuities. Moreover, she explained that buyers of American Equity fixed annuities are looking for protection (which comes in the form of insurance guarantees) and for their savings to grow quietly.
• NASD Vice Chairman Mary Schapiro, a vocal opponent of annuity products, questioned why few owners annuitize their contracts, asking whether disclosure to this effect was adequate. Ms. Carlson explained that American Equity's forms of indexed annuity contracts offer other options for liquidity, such as annual 10% free withdrawals or interest only withdrawals and liquidity in the event of nursing home confinement or terminal illness. These features offer flexibility, which is not available once a consumer annuitizes. It was also noted that consumers are looking for guarantees of the fixed annuities, not necessarily annuitization. Moreover, NAFA asserts that it would be contrary to the public interest to deny this important insurance benefit to the public..
• When questions arose about the potential "regulatory gaps", Mr. Cliff Kirsch of Prudential remarked that, though the different regulatory systems that have developed for different products are not identical, they seek to achieve common disclosure and suitability goals. During the course of the discussions, NASD and state securities regulators learned about the state insurance regulation governing the sale of fixed indexed annuities and other initiatives to further enhance protection of consumers being taken by state insurance regulators and by the insurance industry. NAFA believes it would be unwise to dismantle the current regulatory systems or to attempt any reorganization in the name of uniformity unless it would be an unalloyed benefit to consumers. Our preference is for insurance regulation of insurance products, which fixed annuities are solely.
• North Dakota Commissioner Jim Poolman discussed the recent expansion of NAIC model suitability regulation to require a suitability analysis for annuity purchasers of all ages. Even though not all states have adopted the NAIC model, Iowa Deputy Commissioner Jim Mumford explained that 50 state adoption of the NAIC model was not necessary to protect consumers as 67% of all fixed index annuities are issued by Minnesota and Iowa domestic companies who have agreed with the states' insurance department to comply with the NAIC model. In addition, Deputy Commissioner Mumford explained that if four additional states imposed similar requirements on their domestic insurers, nearly 85% of all fixed index annuity consumers would be covered by the NAIC model.
• Commissioner Poolman also explained that to further enhance consumer protection the NAIC is in the process of evaluating an additional education component to the core training curriculum for insurance agents selling fixed index annuities.
• Deputy Commissioner Mumford discussed how state insurance regulators regulate advertising through market conduct exams and Commissioner Poolman noted that if an agent was using improper sales material, competitors would turn in the offender. Both explained that if an agent was using improper sales material, the insurance departments could hold the insurer responsible as well as the agent responsible, and the licenses of each could be in jeopardy.
• When questioned about the state insurance regulatory resources, Commissioner Poolman noted that state insurance departments have the flexibility to retain third parties to assist in market conduct reviews. It was also noted that the insurance regulators from different states often coordinate their effort in reviewing a company. It should be noted that in an examination, the insurer, not the state pays the cost of the review.
In concluding the Roundtable, Chairman Glauber called for the establishment of working groups to address: suitability, disclosure, advertisements, training, and state insurance department resources. He did not provide procedural details on the establishment of the working groups. Continuing education of NASD and state securities regulators, as well as the public at large, regarding the current regulation of fixed annuities and the initiatives being pursued by regulators and insurers will be a necessary component of the working group discussions.
NAFA subscribes to the goal of quality agent training, supervision, advertising, disclosure and suitability standards. While there are many other knowledgeable groups, NAFA's specific focus on fixed annuities, both declared and index rate products makes it uniquely qualified to represent these products and our membership constitutes a wide array of expertise and experience in each of the five disciplines the working groups will cover. NAFA’s membership represents 95% of the US market for indexed annuities. Most of the issuing insurance company members are also major issuers of declared rate and variable annuities as well, and function with a knowledge of the entire annuity marketplace. NAFA believes its participation in the working groups would ensure that the discussion and developments of the working groups do, as the objective stated, “improve the protections” of consumers. To this end, NAFA has submitted a request to be an active participant in the proposed working groups that Mr. Glauber suggested. NAFA also stands ready to provide assistance to the NAIC in promoting the various NAIC initiatives to improve consumer protection.
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NAFA is the National Association for Fixed Annuities
NAFA was created to foster a better understanding of traditional, payout and indexed annuities.
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