Thank you for your coverage about the Buyer’s Guide in your most recent article in Insurance News Net (INN) titled “States Continue Push for Annuity Commission Disclosure” on February 18. Revising the NAIC Annuity Buyer's Guide (the "Buyer's Guide") has been on NAFA's radar since the NAIC began the process back in 2009, and it has been our mission to ensure that the information about fixed annuities is accurate and informative to the consumer.
The reason for our determination and ongoing passion to rewrite the Buyer’s Guide dates back to our 151A fight when NAFA was present in court, listening to the SEC lawyer presenting their case on Rule 151A. The lawyer held up the current version of the Buyer's Guide and stated “even their own industry is confused about these products.” He was referencing the Buyer's Guide’s section in which "risk" was discussed, identifying the variable annuity as having the “most risk,” the “equity” index annuity having “moderate risk” and the fixed (non-indexed) annuity having “low risk.”
It has been NAFA’s goal since that day to remove the discussion of market risk from the fixed annuity conversation completely, as well as educate and correct regulators understanding of the simple fact that the only difference between the fixed indexed annuity and the fixed non-indexed annuity is how interest is determined.
For readers not familiar (and those needing to be reminded):
For fixed non-indexed annuities - the interest credited is determined based on the performance of the carrier’s investment portfolio, taking into account income and expenses, and the interest is declared in advance of the earning period and - is credited throughout the period.
For fixed indexed annuities – the interest credited is determined based on the performance of the carrier’s investment portfolio, taking into account income and expenses, and the formula used to calculate interest is declared in advance of the earning period and is credited at the end of the period.
-In all fixed annuities, once the interest has been credited it is locked into the contract and cannot be lowered because of future performances of the index or the carrier’s investment portfolio.
- In all fixed annuities the minimum interest to be earned is guaranteed and stated in the contract.
- In all fixed annuities the annuitant's income payments are fixed and guaranteed and will not be outlived--as stated in the contract.
NAFA has spent long and impassioned hours to include this same truth in the new NAIC Buyer’s Guide. NAFA has led the charge to ensure that consumers understand there are TWO types of annuities – fixed and variable. Within the fixed community you have many different products and book value, multi-year guarantee and indexed are among them. Consumers want clarity and certainty when purchasing a fixed annuity. The Buyer’s Guide should provide information that satisfies both needs.
Finally, we would like to add that your report of the February 5 meeting where you stated “NAFA simply said no” was not complete, and we want to be sure our membership and your readers understand NAFA’s position on the compensation language suggested by California's staff counsel. All should be informed that this teleconference was the third with the working group since the November 28 meeting in D.C. In between the D.C. meeting and the February 5 teleconference, NAFA has met with its trade partners ACLI, IRI and NAIFA on many occasions, as well as with the NAIC Consumer Representatives working directly on this project. NAFA has objected to the language California suggested at each and every meeting both verbally at the meetings and also in writing during the Guide’s editing process.