What If the Index in an Indexed Annuity Goes Away?

In the agreement with an index provider, an insurer will try to require that an index provider continue to make an index available until the end of all outstanding segments of the index crediting options based on the provider's index.

This, coupled with the contract or policy provision for index crediting option changes, allows for the orderly transition with respect to an index.

Have state insurance regulators prepared for the possibility of index option changes?

State regulators through the Interstate Insurance Product Regulation Commission (IIPRC) have also addressed this situation.

In particular, the IIPRC standards for FIAs, IULs and variable annuities with index account option require these contracts to include a provision addressing the following:

…. what occurs when any index is discontinued or the calculation of an index is substantially changed, [and ] the provision [must be] labeled as such.

[It must also] state that if the index is discontinued or if the calculation of the index is changed substantially, the company may substitute a comparable index subject to approval by the Interstate Insurance Product Regulation Commission.

[Finally, the] contract shall also specify that, before a substitute index is used, the company shall notify the owner and any assignee of the substitution.

Do typical indexed annuity and indexed universal life policies include the kind of provision described in the IIPRC standards?

Many FIAs and IULs set forth the required IIPRC standard language.

However, some may also specify what happens if there is a substitution — i.e., how the substitution impacts the values used to calculate the indexed-based interest.

This article has been updated to reflect the UBS agreement to acquire Credit Suisse.

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