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Life Health > Annuities > Variable Annuities

Guardian Unveils Its First RILA, After Dialogue With SEC

By Allison Bell

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What You Need to Know

  • Insurers generated $47 billion in RILA sales in 2023, according to LIMRA.
  • The new Guardian RILA is a single-premium product.
  • The SEC had ideas about how to improve the prospectus.

The Guardian Life Insurance Company of America has entered one of the hottest U.S. retail annuity sectors, after exchanging a series of letters about prospectus warnings with the U.S. Securities and Exchange Commission.

The New York-based life insurer began marketing the Guardian MarketPerform contract Wednesday.

The new product is a single-premium registered index-linked annuity, or RILA.

The investment menu includes the SG Smart Climate index as well as a fixed-rate strategy and the S&P 500, Nasdaq-100 and MSCI EAFE indexes. Optional buffers can protect the holder against 10% of index-related losses, 20% of losses or 30% of losses.

What it means: A major annuity market player is in the RILA house.

Guardian: Guardian is a policyholder-owned mutual insurer that was founded in 1860. It has $76 billion in assets.

RILAs: An annuity is an arrangement that can turn a payment, or series of payments, into a stream of income.

A traditional variable annuity ties the annuity value growth to the performance of investment funds that resemble ordinary mutual funds. A traditional variable annuity is registered with the U.S. Securities and Exchange Commission as a security and can expose the owner to loss of value if the investment funds lose money.

A non-variable indexed annuity ties contract value growth to the performance of one or more investment indexes. Federal law classifies the products as fixed annuities that are regulated by state insurance departments, rather than as securities regulated by the SEC.

Because a non-variable indexed annuity is regulated as a fixed annuity, it must protect the holder’s premium payments against any losses related to the performance of investment indexes.

A RILA is like a cross between a traditional variable annuity and a non-variable indexed annuity.

A RILA issuer ties the product’s value to the performance of one or more investment indexes and registers the product as a security with the SEC. Because a RILA is a security, the issuer can expose the holder to the risk of losing money if the investment indexes go down.

Many consumers like RILAs because they provide some protection against investment risk along with a chance to earn relatively high crediting rates.

Annuity issuers like RILAs because they can power the index menus with derivatives, rather than having to develop investment fund management teams, and because they can use product features to control how much investment risk they assume.

RILA sales accounted for $47 billion of U.S. insurers’ $385 billion in individual annuity sales in 2023, according to LIMRA issuer survey data.

The Guardian annuity: Guardian is writing the new annuity through a Delaware-based subsidiary, The Guardian Insurance & Annuity Company.

In most states, the minimum premium payment that can be made without special approval is $25,000 and the maximum payment is $1 million.

The company will not sell the contract on Feb. 29, to avoid any leap year-related problems involving provisions linked to contract purchase anniversaries.

In 2022, Michael Kosoff, an SEC attorney, talked about the agency’s expectations for RILA disclosures at a Life Insurance Products Conference organized by American Law Institute Continuing Legal Education, and Guardian’s SEC filings show that it added several warnings that reflect Kosoff’s remarks.

Guardian responded to the SEC prospectus reviewers’ comments by adding these disclaimers:

• “The prospectus describes all material rights and obligations of annuity purchasers under the contract.”

• ”This is not an index fund or an investment in any underlying fund. Index-linked annuity contracts are complex insurance and investment vehicles. Investors should speak with a financial professional about the contract’s features, benefits, risks, and fees, and whether the contract is appropriate for the investor based upon his or her financial situation and objectives. You could lose money under the contract.”

• ”The company’s obligations under the contract are subject to the creditworthiness and claims paying ability of the company.

• ”If you invest in an IPCS [(index protection and crediting strategy)] with the lowest level of protection currently offered (the -10% buffer), you could experience losses up to 90% at the end of the strategy term due to negative index performance.”

Guardian also added an extensive description of what would happen if some of the indexes it uses go away and it has to replace those indexes or reduce the number of indexes available.

SEC headquarters building in Washington. Credit: Bloomberg

Allison Bell

Think_Allison

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