MetLife and Pru Square Off Over Contingent Deferred Annuities

During the call, one person called the product "risk on steroids."

"How can I convince the subgroup that it is longevity protection when it is instead charging for market risk?" asked Felix Schirripa, chief actuary of the New Jersey Department of Banking and Insurance, whose state heads the NAIC's CDA Working Group. Schirripa further asked how the product could be justified as an annuity.

When asked if he was concerned about reaching a conclusion that would anger his largest domestic, Prudential, New Jersey Commissioner (and former MetLife executive) Tom Considine responded: "No. We will go where the facts and our professional opinions take us, in our best judgment."

NAIC Managing Counsel Dan Schelp, also on the call, stepped in to note that while the NAIC had not formed a legal opinion yet, it cannot ignore a New York law pointed to by MetLife that classifies the product as financial guaranty insurance and said, while New York is not controlling, it needs to be reviewed.

New York State has a financial guaranty law that follows the NAIC model and New York regulators have determined that CDAs are financial guaranty insurance under Article 69 of the Insurance Laws of New York, its statute governing financial guaranty insurance. 

In addition to New York, the laws and/or regulations of numerous other states–including Alaska, California, Connecticut, Florida, Iowa and Maryland–have the same provision of the NAIC model law that would support a determination that a CDA contract constitute financial guaranty insurance, MetLife noted in its letter.  

Prudential and others, who support the classification of the product as an annuity, said New York had publicly stated it was reevaluating the 2009 rule. MetLife, on the call, said New York was doing so at the behest of companies like Prudential.

"It is?" surprised NAIC people asked.

However, the outcome may be neither one nor the other, as the product doesn't fit into an easy pcoket in some states. With this kind of product, additional regulations or guidelines are going to be needed to properly address contingent annuities, rather than try to fit them into  current regulations and guidelines, at least one actuary has expressed.

The letters came in advance of, and the discussion at the end of, a conference call of interested parties and regulators to hear a presentation by Cande Olsen representing the Contingent Annuity Work Group of the Life Products Committee of the American Academy of Actuaries (AAA).

Her presentation dealt with a comparison of the lifetime income generated by a typical contingent annuity design versus self-insurance (no benefits or fees).

Previously, the AAA group used its model to demonstrate that a typical CA design, similar to CA products in the marketplace today, includes a material life contingent component.

The NAIC Contingent Deferred Annuity Working Group will continue its discussion next week in a conference call, it promised. New York regulators had no comment to the press on whether they were seeking any reevaluation of (OGCOp. No 09- 06-11, dated June 25, 2009), that determined CDAs are financial guaranty insurance under Article 69 of the Insurance Laws of New York.