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Senate Bill Could Change Index-Linked Annuity SEC Filings

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What You Need to Know

  • The measure would require the SEC to develop a registration form specifically for registered index-linked annuity (RILA) contracts.
  • Life insurers have been asking the SEC and Congress to give them a simpler filing form.
  • Letting insurers substitute SAP financial statements for GAAP financial statements could lead to big savings.

A Democrat and a Republican have introduced a Senate bill that could help life insurers save money.

The bill, S. 3198, would require the Securities and Exchange Commission to develop a registration form specifically for registered index-linked annuity (RILA) contracts.

The text was not available at deadline, but the Insured Retirement Institute (IRI) says it believes the new bill will be similar to H.R. 4865, a RILA registration form bill introduced in the House in July.

The RILA Paperwork Background

Offering a RILA contract is a way for a life insurer to sell an annuity that’s relatively simple to manage, gives the buyer a chance to earn more interest if an investment indexes well, and that lets the insurer limit how much investment risk it wants to take.

The issuer of a fixed annuity promises to protect the annuity holder’s account value.

The issuer of a RILA can pass all or some of the investment risk on to the annuity holder, or charge the account holder extra for full account value protection.

RILA contract sales have increased to $9.2 billion in the third quarter, from $4.8 billion just two years earlier.

Today, a RILA issuer must register the contract using the same S-1 and S-3 SEC registration forms that public companies use to register their stock with the SEC. That means that registering a RILA contract may take almost as much paperwork as preparing to launch an initial public offering for an insurance company’s stock.

Life insurers have been asking the SEC and Congress to give them a simpler filing form that would use the financial statements insurers submit to state insurance regulators, based on statutory accounting principles rules, rather than financial statements prepared using the U.S. generally accepted accounting principles rules that publicly traded U.S. companies use to communicate with shareholders.

Simply letting insurers substitute SAP financial statements for GAAP financial statements could lead to big savings, because many insurers prepare GAAP financial statements for RILA contracts solely for use in SEC filings.

More on this topic

Insurers have also argued that much of the information included in RILA S-1 and S-3 registration forms is irrelevant to RILA users, and may pull the users’ attention away from information that they do need to know.

The Bills

Sen. Tina Smith, D-Minn., joined with Sen. Thomas Tillis, R-N.C., to introduce S. 3198.

The Senate Banking, Housing and Urban Affairs Committee has jurisdiction.

Rep. Alma Adams, D-S.C., introduced the House version, H.R. 4865, the Registration for Index-Linked Annuities Act bill. Her version has six Democratic co-sponsors and six Republican co-sponsors.

Smith and Tillis have introduced the Senate version as lawmakers are struggling to pass a big infrastructure package and a big social welfare and environmental project package. In the past, many financial services bills have found their way into similar spending packages.

IRI’s View

IRI says S. 3198 will address the misalignment between what the current RILA registration forms require and what investors need.

“We see solid momentum to address an issue that is limiting consumer choice to innovative retirement planning products,” said Wayne Chopus, IRI president and CEO.

“The current rules and processes to register RILAs stymie innovation, create a barrier to entry into this growing market for insurers that do not produce GAAP financials, and impede consumer comprehension and choice with excessive and confusing information,” Chopus said in a comment included in IRI’s announcement of support for the bill.

A better-tailored form would help consumers get the information they need to make informed investment decisions, Chopus said.

Pictured: The SEC’s headquarters in Washington. (Photographer: Zach Gibson/Bloomberg)