WASHINGTON—The Securities and Exchange Commission is paying close attention to the disclosures related to variable annuities that contain living benefit features.
These concerns include the disclosures related to VAs with a living benefit feature that use derivatives to enhance yields, about the “guarantees” included in these products, and about living benefit products that limit the investment options offered to purchasers.
In comments today at an investment conference in Washington, a SEC official “encouraged” insurers and their lawyers to assess the effectiveness of disclosures in VAs that feature living benefits and use derivatives to enhance yields.
Eileen Rominger, director of the SEC Invest Management Division said that this should include elimination of boilerplate disclosure that do not reflect the actual use of derivatives in a fund’s portfolio.
If necessary, Rominger added, insurers should “improve your disclosure so that it more clearly reflects the actual role that derivatives play in the overall investment strategy of your funds.”
Rominger made her comments at a Conference on Life Insurance Products sponsored by the American Law Institute/American Bar Association. The conference is being held in Washington.
Rominger made clear that the SEC views living benefits, “even when offered as riders’, to be an integral part of the contract offering.”
For that reason, Rominger said, insurers and their lawyers “should pay as much attention to disclosure concerning these benefits as you do to other features of a variable contract.”
Another issue is that the SEC finds that a number of living benefit products limit the investment options offered to purchasers.
“Indeed, purchasers of these optional benefits are facing increasing limitations on investment choices, reflecting an effort by insurers to limit volatility of the investments that are subject to the benefits,” Rominger said.
For example, she said variable annuity contracts often prohibit allocations to the more volatile funds, or require participation in a conservative asset allocation model that is designed and maintained with reference to the insurer’s exposure under its living benefits.
She said an important staff concern has been to ensure that investors are apprised of the trade-offs involved in such an arrangement.