NAIC to Revise Annuity Disclosure Model Regulation

The National Association of Insurance Commissioners (NAIC) is considering changes to its Annuity Disclosure Model Regulation in response to concerns about unrealistic performance projections in annuity illustrations.

The NAIC's Life Insurance and Annuities Illustrations Working Group has taken up the task of revising Model #245 to ensure that consumers are presented with more realistic projections. This move comes after an informal review indicated that many indexed annuity illustrations showed projected rates between 11% and 27%. These high projections often stem from the use of proprietary indexes and backcasted data. To address these issues, the group is exploring a temporary actuarial guideline to bridge the regulatory gap until states can implement the revised model.

Industry and Regulatory Feedback

Industry feedback has been vocal, with contributions from major organizations like the American Academy of Actuaries and the New York State Department of Financial Services. Tomasz Serbinowski from Utah highlighted the risks associated with optional illustration features, suggesting they could lead to manipulation. There's a growing consensus on the need for standardized requirements, although consensus hasn't been reached on all fronts. The working group continues to scrutinize the use of hypothetical index returns, a central issue that has drawn varied opinions.

Possible Implications and Next Steps

One troubling practice under Model #245 is the use of newer indexes for illustration purposes, if they have sufficient historical components. The Indexed Annuity Leadership Council believes that newer indices can be included with the right safeguards. However, William Carmello from the NYDFS has raised concerns about the appropriateness of historical returns in illustrations. The group is still deliberating on how to manage illustrated rates of return and interim measures before updating Model #245.

While consensus has been reached on some aspects like illustration duration and accountability measures, final decisions on illustrated rates and interim approaches remain ongoing. The industry awaits further clarity as the NAIC continues its crucial deliberations, which are essential for safeguarding consumer expectations and ensuring regulatory transparency.