NAIC Committee Moves Forward on AG 38, Begins Evaluating Contingent Deferred Annuities

March 10, 2012 by Jeff Jeffrey

The National Association of Insurance Commissioners’Life and Annuities Committeetook action March 4on several closely watched issues, including voting to approve a bifurcated approach to applying Actuarial Guideline 38 to universal life contracts with secondary guarantees and term universal life products. The committee also created a new working group to evaluate the solvency and appropriate consumer protections for contingent deferred annuities.

The AG 38 issue is one NAIC President Kevin McCarty, who serves as Florida’s insurance commissioner, has said is among the organization’s top priorities. The Life and Annuities Committee’s action is the first step in giving a joint working group made of members of that committee and the Financial Condition Committee the authority to figure out how to apply AG 38 to certain universal life products.

During a Feb. 21 conference call, the joint working group approved an initial approach to the AG 38 issue that includes taking a bifurcated approach to closed blocks of business and new business as well as hiring outside actuaries to help in the fact finding and analytical assessment of the products in question (Best’s News Service, Feb. 21, 2012).

Now that the Life and Annuities committee has signed off on that approach, the Financial Condition Committee will take it up on March 5. If it is approved there, it would still need the approval of the NAIC’s Executive Committee and the plenary to allow the joint working group to move forward.

“We weren’t surprised by the [Life and Annuities] committee’s vote because we have done so much work to be inclusive to our members and the industry,” Texas Insurance Commissioner Eleanor Kitzman, who chairs the joint working group, told Best’s News Service. “We have a couple more boxes to check. And we are hopeful for the [Financial Condition] Committee and the executive/plenary.”

Debate on the AG 38 issue reached a fevered pitch last year, prompting the NAIC to form the joint working group in November. The group was created in an effort to scale back the rhetoric on the issue that was set off last year after some state regulators questioned the legality of how companies were setting up reserves for certain universal life insurance products (Best’s News Service, Nov. 5, 2011).

In a separate vote, the Life and Annuities Committee approved a report that said contingent deferred annuities should be considered life insurance products and created a new working group to evaluate the solvency and appropriate consumer protections for CDAs. Tennessee Commissioner Julie McPeak, who chairs the committee, appointed Wisconsin CommissionerTed Nickel to lead the new working group.

That vote sparked a number of interested party comments from consumer and industry representatives, who voiced concerns about how CDAs should be treated.Bernie Birnbaum, of the Center for Economic Justice, said unlike guaranteed lifetime withdrawal benefit products, CDAs have “no consistent regulation across the states.”

Birnbaum said the NAIC should issue a directive to stop the sale of CDAs while the new working group conducts its evaluation of additional consumer protections. “It is inconceivable that a product is being sold on the marketplace that has solvency concerns but doesn’t have a regulatory framework in place,” he added.

McPeak said states should review CDA filings under existing annuity standards until the new working group is assembled and gets underway. “There are a lot of unresolved issues that need attention,” McPeak said, noting the new working group will look into those issues.

(By Jeff Jeffrey, Washington Correspondent: jeff.jeffrey@ambest.com)

Originally Posted at InsuranceNewsNet on March 4, 2012 by Jeff Jeffrey.