Regulatory Support Growing For Insurance Regulators'
Model Annuity Suitability Regulation

The National Association of Securities Dealers, Inc. (NASD) and state insurance regulators from North Dakota, Iowa and Minnesota have issued a joint statement supporting a new rule to require that insurance companies and agencies recommend only "suitable" annuity products to their customers. All of the parties to the statement are members of the Annuity Working Group, a group established by the Minnesota Department of Commerce and the NASD last year to evaluate regulatory standards for annuities in a number of areas, including the suitability obligation of those who sell different types of annuity products. Formation of the Annuity Working Group followed an annuity roundtable, sponsored by the two regulatory bodies, to open a cross-jurisdictional dialogue on the regulatory framework, under which annuities are marketed and sold.

At this time, the sale of fixed annuities are regulated by state insurance commissioners. Sales of variable annuities are regulated by the Securities and Exchange Commission, the NASD, state insurance commissioners and state securities regulators. This regulatory framework results in consumers rarely realizing that the obligations of the selling company or agent and the protections available to consumers differ, according to which type of annuity they buy, and in which state they buy it.

It was the consensus of the more than 20 securities and insurance regulators and industry executives who participated in the annuity roundtable, that investors purchasing fixed, variable or indexed annuities should have suitability protection, regardless of which regulatory regime covers the particular product they buy. Thus, the statement issued by the Annuity Working Group reflects its support of the Suitability in Annuity Transactions Model Regulation, recently approved by the National Association of Insurance Commissioners (the "Model Suitability Rule"); that the Model Suitability Rule should be enacted on its own merits; and, that the Annuity Working Group would oppose any industry attempt to use it as a vehicle to impair the authority of state securities commissioners to regulate broker/dealer and investment adviser distribution of variable annuities.

By way of background, the Model Suitability Rule would impose a suitability requirement on the purchase or exchange of fixed annuities in those states that do not have such a requirement, and as other insurance regulations, would have to be adopted state-by-state. With respect to the purchase and exchange of variable annuities, the Model Suitability Rule would impose an express suitability standard on insurance companies, where none currently exists. Although broker/dealers and investment advisers are subject to the federal securities laws and certain state securities laws that impose suitability standards on broker/dealers and investment advisers, insurance companies have not been subject to an express suitability obligation. The Model Suitability Rule will change that, and insurance companies would, for the first time, have an express suitability obligation with respect to variable annuities.

The Joint Statement issued by the Annuity Working Group also urged every state that does not currently have a suitability standard applicable to the sale of annuities to enact the NAIC's Model Suitability Rule.