NAIFA Opposes Stranger-Originated Annuities in Testimony Before NAIC
Contact:
Sheila Owens
Vice President, Communications & Marketing
703-770-8112
FALLS CHURCH, VA (May 20, 2010) — The National Association of Insurance and Financial Advisors (NAIFA) testified today in Washington, DC, before a hearing of the National Association of Insurance Commissioners’ (NAIC) Life Insurance and Annuities Committee to address the recent emergence of stranger-originated annuity transactions (STATs). In its testimony, NAIFA stated it opposed stranger-originated annuities and discussed some of its concerns about STATs.
“Based upon the limited information available, STATs seem to exhibit some of the same troublesome characteristics as stranger-originated life insurance transactions,” said Gary Sanders, Vice President for Securities and State Government Relations, who testified on NAIFA’s behalf. “In both situations the transaction is initiated for the benefit of an investor who has no relation to the person whose life the insurance policy or annuity is based upon, and once the transaction is completed, neither the insured nor his or her beneficiaries will have any further interest in the policy or annuity’s benefits. We believe that STATs are contrary to established public policy and could potentially undermine the intended use of life insurance and annuity products to the great detriment of the insurance industry and the American public, who rely on our products for protection and financial security.”
State lawmakers and regulators are showing considerable interest in STATs, which have come under broad scrutiny following a February 16, 2010, article in the Wall Street Journal. In addition to the NAIC’s public hearing, the National Conference of Insurance Legislators’ (NCOIL) Life Insurance Committee discussed STATs at the February 2010 NCOIL meeting and will examine the issue in greater detail at upcoming NCOIL meetings.
In a STAT, an unrelated investor is the purchaser and owner of a variable annuity that is purchased on the life of a terminally ill person. The annuitant typically receives an up-front payment for participating in the transaction, and receives no further payment or benefits from the annuity. The annuity contains a guaranteed death benefit (GDB) provision that guarantees that at the time of the annuitant’s death the owner will receive at least as much as was invested in the annuity, and possibly more depending on market performance and the terms of the GDB provision. Because of the protection provided by the GDB, the investor/owner will likely choose more speculative sub-accounts as the investment vehicles for the STAT. If the market performs well, the investor will benefit from the account’s performance; if the market underperforms, the investor’s investment is protected by the minimum return guaranteed by the GDB.
Read NAIFA’s full testimony at www.naifa.org/advocacy/documents/NAIC-05202010.pdf
About NAIFA: NAIFA comprises more than 700 state and local associations representing the interests of approximately 200,000 agents and their associates nationwide. NAIFA members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. The Association’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members.
NAIFA, 2901 Telestar Court, Falls Church, VA 22042-1205 | 877-866-2432 |