For years, the annuities industry has complained that the registration for new annuities products was needlessly cumbersome because insurers are forced to use non-annuities registration forms and procedures.
Now, the Securities and Exchange Commission has proposed an overhaul designed to streamline the offering, disclosure and advertising framework insurers use for registered index-linked annuities (RILAs), including a new registration form designed for RILA characteristics.
The 420-page proposal, requested by Congress in December, 2022, would require RILAs to use a registration form that is tailored to their characteristics and “streamline offerings,” the SEC said.
For instance, it would also allow RILA issuers to use a limited exception, which would allow them to use statutory financial statements if the insurer does not otherwise prepare GAAP financial statements. The exception is already available to variable annuities issuers.
“I am pleased to support this proposal because it would align the RILA offering process with other insurance investment products," SEC Chairman Gary Gensler said in a statement. "Further, if adopted, this rule would implement Congress’s recent mandate to the SEC to adopt a registration form specific to RILAs.”
Investors’ returns in RILAs are connected, in part, to the performance of a market index, such as the S&P 500, but contractually returns are restrained in a growing market, while losses are mitigated in a declining market to provide a predictable stream of income.
Their popularity has exploded, with sales more than tripling in the last five years, hitting $41 billion in 2022, according to LIMRA.
Gensler, warned, however, that RILAs are complex products “since their performance is not the same as the performance of the underlying index.” In addition, investor returns often are subject to caps and floors set by isnurers, which can lead to losses if investors withdraw money early.
“Given these products’ complexity and growing popularity, it is important that investors receive the information they need—in plain English—to make informed investment decisions,” Gensler said.
The proposed disclosures would require RILA issuers to comply with the SEC’s truth in advertising rule. It is based on investor testing, which Gensler said the SEC’s Office of the Investor Advocate used to evaluate its effectiveness and design
Insured Retirement Institute spokesman Dan Zielinkski said the trade group for the annuities industry “advocated for this legislation, and we look forward to reviewing this proposed rule with our members and to providing input to the commission.”