SEC to Let Insurers Register RILAs on a Simpler Form

The SEC seal on a wall in the SEC's offices

The U.S. Securities and Exchange Commission has adopted a final rule that will let annuity issuers register market-value-adjusted and registered index-linked annuities on a much simpler form.

The new SEC rule means that issuers of RILAs and MVA contracts can create new products using the same relatively short SEC Form N-4 that issuers of traditional variable annuities typically use.

Up till now, insurers have registered RILAs and MVA contracts with the SEC on the same kind of complicated Form S-1 or Form S-3 filings that MetLife used to turn Brighthouse Financial into a separate, publicly traded company in 2018.

The American Council of Life Insurers, the Insured Retirement Institute and other financial services groups and the groups' members have been pleading with the SEC for more than 20 years to let them use Form N-4 for products other than traditional variable annuities that are subject to SEC registration requirements. Congress called for the SEC to make that happen in a provision in an appropriations bill passed in 2022.

At press time, the ACLI and IRI were still reviewing the final rule.

What it means: If life insurers like the new final rule, they could introduce more annuities more quickly, because creating them will be easier and cost less.

The SEC final rule impact analysis shows insurers will spend about $180 million to comply with the new Form N-4 regulations, suggesting the cost of complying with the current registration requirements is much higher.

RILA and MVA basics: A RILA is a contract with a crediting rate that can be tied to the performance of one or more investment indexes and that can expose the holder to the risk of loss of principal.

Life insurers sold about $47 billion in RILA contracts in 2023, according to LIMRA.

An MVA contract is a fixed-rate deferred annuity with a feature that may cut the value of the annuity if the owner takes out much cash before the contract's surrender penalty period ends.

The most recent available Beacon Annuity Solutions figures published by IRI show ithat insurers sold generated about $22 billion in MVA sales in 2021.

Regulation details: The SEC notes that it will require issuers to disclose information that's important to the annuity holders.

On a RILA N-4, for example, the SEC is asking insurers to disclose any "material aspects of the index-linked option.

"This will include disclosure related to limitations on transfers to or from index-linked options, rate holds, 'bail-out' provisions, start dates, and holding accounts," according to the preamble, or official introduction, to the final rule.

Exclusions: Some commenters asked the SEC to let issuers use Form N-4 or a similar simple form for indexed life insurance products and contingent deferred annuities.

CDAs are annuity-like features that can be attached to an ordinary investment portfolio.

The SEC declined to change the registration form rules for indexed life products and CDAs, saying they are too different from RILAs and MVA contracts and would require the registration forms to be changed too much.

Credit: Diego M. Radzsinchi/ALM