What You Need to Know
- The NAIC team is calling index-linked variable annuities ILVAs, not RILAs.
- Any NAIC model regulation produced could have a major influence on state annuity rules.
- The model drafting team says the value of an ILVA is the sum of the value of a proxy for the bonds in the portfolio and a proxy for the derivatives in the portfolio.
State insurance regulators are trying to figure out what longtime holders of variable indexed annuities should get when they give up their contracts.
For financial professionals who work with annuities, the real, lasting impact may be that the insurance industry will be more likely to settle on calling those many-named products “index-linked variable annuities,” or ILVAs.
Members of the Index-Linked Variable Annuity Subgroup increased the odds that ILVAs will be called ILVAs earlier this month, when they posted a draft of a new ILVA Actuarial Guideline.
The subgroup is preparing to talk about the draft Nov. 23, in a conference call meeting.
What Your Peers Are Reading
The subgroup’s work could get extra attention because ILVAs have been annuity sales all stars. Wink — a life and annuity tracking firm that has been calling the products structured annuities — says sales increased 118% between the second quarter of 2020 and the second quarter of this year, to $9.9 billion. The products now account for close to one-third of variable annuity sales.
The ILVA Subgroup is part of the National Association of Insurance Commissioners, a Kansas City, Missouri-based group for state insurance regulators.
The NAIC has no direct ability to set states’ annuity rules, but states usually start with NAIC “models,” or samples of bill or regulation language, when developing their own annuity reserve laws and regulations.
Annuity Nonforfeiture Rules
In the United States, a fixed annuity is a product designed so that the issuer promises to pay a guaranteed crediting rate to the annuity holder, and to protect the holder against loss of contract value.
The NAIC’s Standard Nonforfeiture Law for Individual Deferred Annuities (Model Number 805) provides sample fixed annuity “nonforfeiture” rules, or ideas for rules that determine how much cash a fixed annuity holder can get back if the holder gives up the annuity.
The issuer of a traditional variable annuity offers the holder the chance to get a crediting rate that depends more directly on the performance of a portfolio of assets. In exchange for offering the holder a chance to earn more money, the issuer may provide only limited protection, or no protection, against loss of contract value.
The NAIC’s Variable Annuity Model Regulation (Model Number 250) sets the nonforfeiture rules for traditional variable annuities.
The Securities and Exchange Commission regulates variable annuities as securities.
Congress has blocked the SEC from regulating annuities that are classified as nonvariable annuities.
General Account Assets and Separate Account Assets
In recent years, life insurers have started selling products that are registered with the SEC as variable annuities and that offer crediting rates linked to the performance of one or more investment indexes.