Four industry trade groups are urging Congress to move on legislation introduced in the House and Senate to lower barriers of entry for buffered annuities, also called registered index-linked annuities.
The legislation—the Registration for Index Linked Annuities (RILA) Act--directs the Securities and Exchange Commission to devise an easier, industry specific form for annuity issuers to use when filing new buffered annuity products. House and Senate versions of the legislation were introduced in May.
“This legislation will serve consumers by reducing regulatory barriers, facilitate the offering of innovative annuity products such as Registered Index Linked Annuities (RILAs), and ensure pertinent information is provided to consumers to make knowledgeable decisions about an annuity product they may choose to purchase,” Wayne Chopus, president and CEO at the Insured Retirement Institute (IRI), said in a letter to the lawmakers sent yesterday.
Sales of RILAs soared 38% year over year to reach $4.9 billion for the first quarter, according to the Limra’s Secure Retirement Institute. The volume was nearly the highest of any quarter since the products first launched in 2010, and Limra predicts RILA sales will rise by more than 10% this year.
The bills were introduced by by Sen. Tina Smith (D-MN), Sen. Thom Tillis (R-NC) in the Senate and Rep. Dean Phillips (D-Minn.) and Rep. Steve Stivers (R-Ohio) in the House.
The American Council of Life Insurers, Committee of Annuity Insurers and National Association of Insurance and Financial Advisors joined IRI on the letter urging lawmakers to advance the legislation.
Registered index-linked annuities allow investors to participate in some market growth associated with an index, while reducing exposure to market loss. Say, for instance, an annuity is linked to the performance of the S&P 500 Index, and has a 10% upside and downside cap. If the S&P 500 rises 7% in one year, the investor gets the whole gain. But if it rises 15%, he or she only gets the first 10% of that gain because of the upside cap.
On the downside, if the index falls by 10%, the client loses nothing because of the downside cap. If the index falls 12%, the client would lose just 2% because the insurance company would absorb the first 10% of losses.
Under current SEC rules, RILAs must be registered using forms that are designed primarily for equity offerings. The trade groups contend the SEC forms erroneously require “extensive information that is not relevant to prospective annuity purchasers. These forms also require disclosure of financial information prepared in accordance with generally accepted accounting principles (“GAAP”), which many insurers are not otherwise required to produce,” the groups said in a press release.
The bill requires the SEC to modernize and replace the current forms being used to file RILAs with a new registration form more closely tailored to this product. It would contain “only the relevant information consumers need to make an informed choice about purchasing a RILA, eliminating extraneous information that currently makes the filing process more onerous and understanding the product more difficult,” the groups said.
Low interest rates drew clients to structured products in the first quarter, boosting the fastest-growing segment of the annuities market, Sheryl Moore, CEO of Wink, wrote in the research firm’s quarterly sales report.