Wednesday, June 4, 2008

Whatever the Name, an Annuity Is A Much Needed Financial Product

On May 29, 2008, the Iowa Insurance Commissioner published Bulletin 08-07, which outlined procedures that insurance carriers should follow for annuity illustrations.

Interestingly, there has been an NAIC Model Life Insurance Illustration Regulation on the books for over a decade now, but there is no similar regulation on annuity illustrations. Fortunately, most carriers have carried the spirit of that life insurance regulation over to the annuity side, in that they have included detailed disclosures on their illustration output and have limited the latitude agents have in projecting future product performance. But apparently there have been some exceptions.

The most interesting aspect of the Iowa bulletin is this directive: “Illustrations for fixed annuities which contain a ‘fixed interest rate’ which is specified in the annuity contract must clearly state whether or not the ‘fixed interest rate’ is actually permanently fixed or based upon an index. Consumers must be told if the ‘fixed interest rate’ may in fact vary, as determined on a contract anniversary.”

What makes this interesting is that indexed annuities were originally called “equity indexed annuities” by the industry. Then, when some in the securities industry started asserting that these annuities should be regulated as securities because of the equity link, the industry switched its terminology to “fixed indexed annuities” and started emphasizing that they are a form of fixed annuity. Apparently, this has led to some confusion with consumers who expect the annual interest credit to be steady, i.e. “fixed”, from year-to-year.

The wonderful thing about equity indexed annuities, fixed indexed annuities, or whatever you would like to call them, is that they are innovative and much needed financial products. Wouldn’t it be wonderful if we could come up with a brand new name to describe them, one that would not confuse consumers, agents, or regulators? A rose by any other name would smell as sweet.

Click on the “add comment” link below to suggest a name or leave a thought.


m.cochran418 said...

Index-Linked Fixed Principle Annuities

Also, Google Sequence of Returns to prove that these products are viable for retirement.

Mike C

Cost of selling structured settlements said...

In every part of the world this judgement was live. Financial product much needed for annuity.