How Transferable Are Annuity Guarantees?

An annuity subgroup that is working to create uniform standards for annuity filings, particularly those with guarantees, focused part of its discussion on whether there should be floors in guaranteed benefits, particularly on negative resets in guaranteed minimum death benefits for deferred variable annuities. Arkansas regulator Joe Musgrove was one of several regulators who expressed concern that a guaranteed benefit with floors could be meaningless guarantee.

The subgroup is part of a the Interstate Compact National Standards (EX) working group of the National Association of Insurance Commissioners, Kansas City, Mo.
The issue of creating a standard is considered important enough to delay adopting the standard so more work can be done on reaching an agreement that is acceptable to all parties. Life insurers have expressed concern that if contracts are sold to institutional parties, that the use of the guarantees associated with those contracts would be different from the use by individuals: i.e. more likely to be exercised.

Brian Staples of Right LLC, Versailles, Ky., raised the issue of contract holder rights by limiting guarantees and asked regulators what the regulatory benefit would be. Regulators offered several reasons why a standard is needed. One argument stated that if the guarantee is not regulated, it will be priced out of the market and consumers will lose. Regulating the guarantee when it is sold to an institutional investor “strikes a balance.” It was also pointed out that there are consumers who want these contracts and nothing should be done to limit them.

And Florida noted that in addition to protecting consumers, regulators also have the responsibility to protect insurance companies from uses of life insurance that they were never intended for.

Staples said that the issue will be brought up at the state level.