The consequences likely to be faced by insurers crafting new products for the “baby boomer” generation are just a few of the issues the Securities and Exchange Commission will be examining in the coming months, according to one of its division directors.
The potential consequences for companies devising these new products include reform of the rules governing disclosure, revenue sharing and life under Sarbanes-Oxley, according to Andrew Donohue, director of the SECs Division of Investment Management in Washington.
He made his comments at the annual compliance and regulatory affairs conference of the National Association for Variable Annuities.
These products are being developed as the “baby boom” generation reaches its retirement years and seeks to belatedly deal with concerns that they might outlive their assets.
“In this regard, the staff is seeing interest in the idea of combining insurance guarantees with investment vehicles, other than variable insurance products, in order to protect investors from outliving their assets,” Donohue noted, adding that products such as these raise “interesting issues” for the SEC, and potentially serious consequences.
“If a contract is a security, it must be registered under the Securities Act and the insurer becomes subject to Exchange Act reporting and Sarbanes-Oxley requirements — not a minor consequence to potential insurance company issuers of these products who do not otherwise come under the Exchange Act,” he said.
“I anticipate an interesting dialogue about these issues as insurers position themselves to meet this new market.”
At the meeting Donohue outlined a number of other proposals that are “hot button” topics for the SEC right now.
“Sometimes the reason is obvious — when the Commission responds to specific problems within the industry by strengthening regulations,” he said. “This happened in response to the problems of late trading and market timing.”
At other times, “regulatory initiatives are proactive” he added, saying this is his preference.
“As part of the Division’s ongoing responsibilities, we review the regulations governing investment companies and investment advisors, and consider whether any of them need to be revised, updated, or eliminated,” he said. “With the passage of time and developments in the investment management industry, some regulations may need to be refined to serve their purposes in light of product developments and changes in industry practices.”