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NAIC Proceeds with Annuity Disclosure Model Regulation

Update: The Texas Department of Insurance (TDI) adopted new Subchapter PP, 3.9701 – 3.972, on March 1, 2011 concerning disclosures pertaining to annuities. Rules that effect section 3.9710, have a compliance date of March 1, 2012, which will require Variable Annuity applicants to be given a copy of the Securities and Exchanges Commission’s (SEC) “Variable Annuities: What you should know” guide at or before the time of application.

The National Association of Insurance Commissioners’ (NAIC) executive committee and plenary voted last week to proceed with the amendments to the Annuity Disclosure Model Regulation.  Different from the NAIC’s annuity suitability rule, the annuity disclosure model rule would require that clients receive a buyer’s guide when purchasing an annuity.  In the past, carriers haven’t had a standardized way of illustrating their policies, particularly those with living benefits.

The most prominent amendment to the disclosure model is the addition of standards for annuity illustrations.  For fixed indexed annuities, carriers would have to show how a given index performed over the previous 10 years, as well as the index’s best and worst historical performance over a decade.  Carriers also would have to include a disclosure form that described the contract, its benefits and how it worked.  For fixed indexed annuities, the disclosure would have to show the basis for caps, spread and participation rates.  Customers also would get an explanation of the impact of any riders, along with information on the contract’s federal tax status and the penalties that applied to withdrawals.