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Life Health > Annuities

NAIC: CDAs are Annuities to be Sold by Insurers

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Contingent Deferred Annuities are annuities, best written by life insurance companies, but the adequacy of laws and regulations protecting consumers and insurers’ solvency must be examined, according to an NAIC group.

The NAIC’s CDA Subgroup had suggested also revisiting reserves and capital rules of not only CDAs but variable annuity riders with guaranteed lifetime withdrawal benefits (GLWB), but Connecticut Insurance Commissioner Tom Leonardi said a new group charged with examining the adequacy of solvency and consumer protection laws is confined only to CDAs.

The Life and Annuities (A) Committee of the NAIC adopted the recommendation of the CDA Subgroup determination that CDAs are life insurance products subject to existing state laws and regulations applicable to annuities, but created a new working group to explore these products’ risk further.

It appears the subgroup exploration just carves out CDAs for its work, not GLWB, although there was uncertainty at the meetings as to the scope, with one person saying it is yet to be determined.

The A Committee designated Wisconsin Insurance Commissioner Ted Nickel to establish and charge a new CDA Working Group to evaluate the adequacy of existing laws and regulations applicable to the solvency and consumer protections of annuities as such laws are applied to CDA.

MetLife has been a staunch opponent of CDAs as insurance products, and call the products very risky, warning regulators about other insurers who might underwrite them. New York, where MetLife is domiciled, views the products as financial guaranty products under a 2009 opinion. Other insurers, including Prudential (which is headquartered in New Jersey), support classifying CDAs as annuities.

However, New York Superintendent of Financial Services Benjamin Lawsky, a member of the A Committee, told National Underwriter here that the state Department of Financial Services might have to review the 2009 department opinion, written before Lawsky joined the department. CDA Subgroup Chair and New Jersey’s chief actuary Felix Schirripa said in a presentation to the A Committee that “now is the time” to revisit the rules on the books and make sure they are foolproof to make certain new entrants do not make the same costly mistakes 10 to 20 years from now.

CDAs and GLWBs are hybrid/leveraged products best written by life insurers, he said, classifying them as insurance products at the same time as apparently calling them up for a review.

Life (A) Committee members expressed concern that although Schirripa had said it was unfortunate if people thought the subgroup had solvency concerns, he was at the same time suggesting regulators examine solvency and reserves of these guaranty-style products.

The American Council of Life Insurers, despite MetLife’s misgivings, had broadly supported the CDA classification as an annuity to be sold by life insurers, as did other insurance advocacy groups. Prudential has been a big proponent of these type of products.

Stated Insured Retirement Institute (IRI) General Counsel Lee Covington, “we are also very pleased that the Committee has decided to use the existing solvency and consumer protection rules applicable to annuities, including those applicable to Guaranteed Living Withdrawal Benefits (GLWB), to evaluate the adequacy of such laws as applied to CDAs.”


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