A NAIC key subgroup is ready to recommend to its parent committee that contingent deferred annuities can be sold by life insurers as synthetic hybrid income annuities (SHIA.)
But the group’s chair, New Jersey’s head actuary Felix Schirripa, in the last minutes of the conference call with industry and consumer advocates, also called into question the regulatory standing of variable annuities with guaranteed lifetime withdrawal benefit (GLWB) riders, citing regulatory concerns on all guarantee products in this new market.
He hinted that scrutiny of even these products may be underway as part of the charge of a new working group he is recommending be formed, in statements revealing his concerns about market risk and insurers’ reserve adequacy for some guaranty products now being sold.
The majority of the NAIC Contingent Deferred Annuity (A) Subgroup’s agree with interested parties that much of the regulatory structure is already in place to regulate these hybrid annuities, but still recommended establishing a new working group to review and develop recommendations for all hybrids annuities, not only SHIAs, specifically targeting solvency and consumer protection-related issues raised by consumer advocates, regulators, and some company actuaries.
Although the industry members on the call were unclear on his intention, and whether it was spread across the NAIC, they were clearly flummoxed at the suggestion that these older, more accepted products were now under a possible review for their suitability for underwriting by life insurers.
It is still early in the process, and the intention is still unclear, but Schirripa will be asking the NAIC Life Insurance and Annuities (A) Committee to review what he terms all hybrid annuity products.
The NAIC – and industry – took pains to define terms during a call today on the controversial products.
A CDA is an annuity which guarantees a lifetime of periodic income payments based on the value of a covered Asset Account, as the industry defines it. CDA income payments are contingent on the survival of the CDA owner/annuitant and the depletion of the covered asset account.
Schirripa defined a “hybrid income annuity” as a contract that provides lifetime income benefits triggered by the depletion of, or change in the value of, assets held in an account for the annuitant. (An example of a hybrid income annuity is a guaranteed lifetime withdrawal benefit rider, or GLWB, added to a variable annuity.)
A “synthetic hybrid income annuity” as a hybrid income annuity, except that the assets in the account are not owned by the insurer, as in CDAs, according to Schirripa.
Both are now under scrutiny, even though the former have been sold for some time and many policies are in force.