Products with elements of insurance and securities prompt questions

New Hampshire Insurance Commissioner Roger A. Sevigny says his department will start meeting informally with the New Hampshire Securities Bureau and other interested parties during the summer. The goal: to develop a protocol for regulating financial products that have elements of insurance and securities.

Such products include variable annuities, variable life insurance, equity index annuities and equity index life insurance, Sevigny says. “We’ll look at anything that lends itself to more than one component.”

The department views EIAs as insurance and considers them to be more like fixed annuities than VAs, due to their guarantees, floors and caps, Sevigny says.

However, indexed products will still be included in the upcoming discussions, he explains, due to their equity linking, the attention their sales are receiving, and concerns some people have about how complex products impact solvency, reserves and related areas.

His remarks to the National Underwriter came in reference to ongoing deliberations in the New Hampshire legislature about two bills, SB 111 and HB 716-FN.

As reported in the May 9, 2005, National Underwriter, these bills propose different approaches for disclosure of an advisor’s business relationships with broker-dealers and other entities. David A. Kutcher, an Alton, N.H., advisor, is promoting point-of-sale disclosure (which would be allowed under SB 111) while the state Securities Bureau wants securities reps to disclose their broker-dealer relationships on advertising, even if the ads are about insurance products such as EIAs (a position that it says current law supports and that would continue under HB 716-FN).

The insurance department considers EIAs to fall under its purview, for regulatory purposes, says Sevigny. As for sellers of EIAs, he says, “we retain the regulatory authority.”

He suggests the Securities Bureau shares this view, since the bureau previously has referred complaints concerning EIAs to the insurance department.

But the department does not object to the Securities Bureau enforcing its own requirements on securities-licensed advisors that advertise EIAs and other products, he says. Such disclosure retirements are “entirely a securities issue,” Sevigny explains.

However, how best to regulate financial products having elements of insurance and securities is an evolving area that needs attention, according to Sevigny. This is why he is calling the summer meetings.

“We need to develop some protocols–so if A happens, [we'll know] what is step 1, step 2 and step 3.”

‘We’ll look at anything that lends itself to more than one component’