In 2009, two big stories dominated the index annuity business: The Securities and Exchange Commission’s proposed Rule 151A and capital constraints.
Both had a significant impact on product development, sales, and distribution.
Product development was at an all-time low for the industry. But sales are projected to set a year-end record. Meanwhile, distributors waited with bated breath to find out if their companies would make changes in their business.
Concerning IA products, never has this industry seen such dramatic stagnation in product development. The elusive Rule 151A is what directly impacted this.
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On December 17, 2008, the SEC issued Rule 151A, declaring IAs to be securities. If implemented, this would require insurance companies to spend millions to change fixed insurance products, filings, distribution and sales materials to function in a world of registered products.
The costly rule was slated to take effect on January 12, 2011, but earlier this month the SEC agreed to two-year stay of Rule 151A’s effective date, to run from the date of publication of a reissued or retained Rule 151A in the Federal Register.
Still, because of the pending status throughout most of the year, the 45 companies in the IA market held off on developing new products.
On the flip side, there have never been so many changes to existing IAs as in the past year. Annuities are capital-intensive products and capital became scarce when the United States economy hemorrhaged. The result was that all annuity insurers (fixed, indexed, and variable) retooled their portfolios to be viable in a capital-anorexic environment. In the IA market specifically, companies took the following measures to stay viable in 2009:
–Exit the IA market: 7 companies.
–Suspend IA products: 9 companies.
–Reduce issue ages: 5 companies.
–Change/increase minimum premiums: 7 companies.
–Discontinue sales of all guaranteed lifetime withdrawal benefits: 3 companies.
–Increase GLWB rider charges: 3 companies.
–Reduce GLWB accumulation benefit rollup rates: 2 companies.
–Restrict or discontinue uncapped crediting methods: 5 companies.