Insurers Hope to Change Annuity Regulation Draft - ThinkAdvisor

For regulators, one concern is how to deal with the fact that an ILVA contract issuer ties changes in the crediting rate to changes in the value of one or more investment indexes that occur between the start of an “index term” period and the end of the index term.

The index term could last week, a month, a quarter, a year or longer.

Regulators want to set rules for reporting what an ILVA contract is worth in the middle of an index term, on any given day that an annuity holder checks the contract value.

Fees vs. Spreads

David Hanzlik, an executive with CUNA Mutual Group, is one of the life insurance company executives who commented on the draft.

Hanzlik praised the subgroup for working to develop interim value calculation rules.

Making interim values available could increase consumer interest in ILVAs, he wrote in the comment letter.

But Hanzlik objected to a note in the original draft that states that “any profit provisions, spreads, and expenses should be reflected as explicit charges disclosed in the contract.”

ILVAs are fundamentally based on a spread, or gap, between the performance of the investment indexes used in a contract and the crediting rate, Hanzlik said.

A spread-based design “enables simplicity, transparency, and the financial value our customers seek,” he added.

Jonathan Clymer, an actuary with Prudential Financial, also emphasized that many ILVA contracts are spread-based products, not fee-based products.

The original ILVA actuarial guideline draft “could be interpreted to require that the profit provisions, spread, and expenses be presented as an explicit fee disclosed in the contract, which differs from the design of the product in the marketplace,” Clymer said. “The explicit fee approach would remove simplicity and result in an unnecessary disruption to the ILVA marketplace and impact consumer product choice.”