US annuity group pushes for Rila registration reform

The Insured Retirement Institute (IRI) has voiced its support for the enactment of the Registration for Index Linked Annuities (Rila) act, which would oblige the SEC to develop a registration process better suited to insurance products.

Calls for a change in framework were first put forward in mid-2020 by four industry trade associations that included the IRI, American Council of Life Insurers, Committee of Annuity Insurers and National Association of Insurance and Financial Advisers.

The act requires the SEC to modernize and replace the forms currently being used to file Rilas with a new registration form that is more closely tailored to this product.

The SEC does generally recognize that they need to be adaptive to innovation - Tamiko Toland, Connex

It would only possess the relevant information that clients need to make an informed choice about purchasing a Rila and eliminate details that complicate the filing process and affect clients’ understanding of the product.

In a letter to the lawmakers who introduced the bill to Congress, Wayne Chopus (pictured), president and chief executive officer of the IRI, reiterates that Rilas are an innovative vehicle for consumers who want to protect their investments from losses due to stock market volatility.

Chopus states that current forms being used to file Rilas are designed for use in connection with Initial Public Offerings and require the disclosure of financial information in line with generally accepted accounting principles (GAAP), as well as other extensive information that is irrelevant for prospective annuity purchasers.

The extra information which is usually provided through disclosures complicates a consumer’s understanding of the product and therefore, limits their ability to obtain a Rila for growth potential and protection against market losses.

‘The bill you have introduced will eliminate the most significant impediment now constraining insurers from issuing Rilas as well as consumers’ use of Rilas. It would direct the SEC to promulgate a new form to replace the largely inapplicable forms annuity issuers are currently required to use when filing Rilas with the Commission,’ said Chopus in the letter.

According to Tamiko Toland (right), annuity director at Cannex, one of the problems is that filing of Rilas  happens through one of two ways: either as part of a variable annuity or as part of a very generalized filing which can be used for anything.

“In this case, there's no format, whereas when the format is geared for a particular product, then there's a framework for that. This just doesn't align well with people understanding what the product does considering that the filing type for a variable annuity is geared for that specific product,” she said.

Toland notes that this is where the need for a Rila filing arises because typically, companies don't want to shove a Rila into a variable annuity framework unnaturally. However, there are also cases where they desire a fully-fledged VA that also has Rila options.

“The SEC does generally recognize that they need to be adaptive to innovation and so this is one way of achieving progress. I don't see a reason to push back on this because it is in the interest of better disclosure, as well as ease of filing for the product manufacturer,” she said.

According to the Secure Retirement Institute , Rila sales in the US increased to a record level of US$10.1 billion in the second quarter of 2021, , a 122% jump from the same period a year prior.

During the first half of 2021, Rila sales stood at US$19.3 billion, 105% higher than the prior year.

Fixed indexed annuity (FIA) sales also grew by 28% in the second quarter to total US$15.4 billion. Year to date, FIA sales stand at US$28.9 billion, reflecting a slight increase of two percent from the same period of 2020.

Fixed annuity sales jumped by 27% to US$35.1 billion in the quarter. Year to date, total fixed annuity sales are at US$66.2 billion, 15% above the first half of 2020.

Click the link to read the IRI letter of support and the Congress registration for index linked annuities act.