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IN THIS EDITION:

• Introduction
• Contingent Deferred Annuity (A) Working Group
• Unclaimed Life Insurance Benefits (A) Working Group
• Receivership and Insolvency (E) Task Force (RITF)
• Life Insurance and Annuity (A) Committee

Introduction

The following is a report on relevant activities in conjunction with the NAIC’s Summer National Meeting, which was held on August 16–19.

Contingent Deferred Annuity (A) Working Group

The working group met to review and discuss issues related to the regulation of contingent deferred annuities (CDAs). The group heard a presentation by the Center for Economic Justice (an NAIC-funded consumer representative) regarding 10 enumerated concerns related to CDAs. One of the concerns related to guaranty associations providing coverage for CDAs because they posed investment risk. In response, working group members noted that resolution of non-forfeiture issues and the release of the working group’s draft Guidelines for Financial Solvency and Market Regulation of Insurers Who Offer Contingent Deferred Annuities (the “Guidelines Document”) would help address these concerns.

In regard to the Guidelines Document, the working group heard preliminary comments from the ACLI and the Insured Retirement Institute (IRI). In particular, the IRI urged the working group to defer adoption of the Guidelines Document until all pending charges related to CDAs had been completed. Members of the working group countered that consumers would be better served if the Guidelines Document were made available to the states to provide direction on the issues that have been resolved while efforts to address the remaining issues continue. With respect to the issue of non-forfeiture benefits, the working group requested comments from regulators and interested parties by September 30 on whether and how non-forfeiture requirements should apply to CDAs and what role the working group should play with respect to non-forfeiture issues.

Unclaimed Life Insurance Benefits (A) Working Group

The working group met to discuss possible recommendations concerning the regulation of unclaimed life insurance benefits. The group received a briefing from the ACLI concerning a recent ACLI White Paper addressing unclaimed life insurance benefits. The ACLI urged the working group to take a leadership role in crafting a uniform solution to unclaimed life insurance benefit issues and further recommended the development of an NAIC model (based on a revised version of the current NCOIL model) to serve as the basis for a national framework.

The working group plans to review the ACLI White Paper further and to obtain additional information concerning NCOIL’s model and analysis. They also will be reaching out to the National Association of Unclaimed Property Administrators for input on these issues. The working group scheduled a conference call for September 17 to continue its discussion of these issues.

Receivership and Insolvency (E) Task Force (RITF)

The RITF discussed the following:

Guidance on Separate Account Products: The SEC Considerations Working Group presented its report providing guidance for the handling of separate account products in receivership, including the application of federal securities laws. Upon motion, the guidance was adopted unanimously for inclusion in the NAIC’s Receiver’s Handbook.

Receivership Model Laws Working Group: The working group advised that it will solicit comments on which provisions from the receivership and guaranty association model acts should be viewed as critical for uniformity across the states. One working group member noted that this project is in follow up to the working group’s prior work on IRMA critical elements and also is in response to the December 2013 FIO report that included recommendations on state law uniformity.

Contingent Deferred Annuities: NOLHGA made a presentation to the RITF on guaranty association coverage of contingent deferred annuities (CDAs). In summary, NOLHGA advised that if CDAs are treated as annuities for state regulatory purposes, and assuming the products are issued by a member insurer of the guaranty association, then they would appear to be eligible for coverage like other annuity contracts under the life and health guaranty association model (i.e., subject to the same types of limitations and exclusions that apply to annuity contracts generally).

Following discussion, the Chair advised that he had drafted a response to the Life and Annuity (A) Committee with respect to the RITF’s charge to investigate guaranty association coverage of CDAs under the NAIC Model Act. The draft response, which was previously reviewed and commented on by NOLHGA, was exposed for a two-week comment period.

Large Insurer Resolution Plans: During months of discussion, the RITF heard significant opposition from industry with regard to developing resolution plan requirements. In an August 17 draft memorandum to E Committee, the RITF recommended tabling this charge and focusing instead on developing a list of information that companies could provide to regulators for pre-receivership planning for possible inclusion in the NAIC’s Troubled Company Handbook.

Life Insurance and Annuity (A) Committee

In addition to hearing reports from its various working groups, the committee discussed developments with respect to federal regulatory issues relating to use of the U.S. Social Security Death Master File and IRS regulations regarding the use of longevity annuities for retirement planning. With respect to the Social Security Death Master File, NAIC staff reported on the status of the certification program being developed by the Department of Commerce and the federal Office of Management and Budget for permitting access to the Death Master File. Staff noted that the National Technical Information Service of the Department of Commerce has established a temporary certification program that may be used for immediate access to the Death Master File pending adoption of final regulations. No timeline has been established for completion of the final regulations.

Staff also reported on final regulations recently issued by the IRS allowing employees to use deferred annuities for conversion of part of their IRA or 401(K) account balances. Under the new regulations, prior impediments relating to minimum distribution rules have been resolved. According to staff, these new regulations have the potential to impact the insurance market for deferred annuity products.