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Suitability in Annuity Transactions: Status Update on State Adoption of the NAIC Model Regulation
At this April 2012, twenty-three States and the District of Columbia1 have enacted, in full or in part, the 2010 revisions to the Suitability in Annuity Transactions Model Regulation #2752, which was adopted by the National Association for Insurance Commissioners in March 2010 (the “NAIC model regulation”). The NAIC adopted the revisions to strengthen the previous version of the model regulation “to better protect consumers from inappropriate and abusive marketing practices.3”  An additional half-dozen States4 have introduced legislation or rule-making to enact the model regulation.

Driving this phenomena are two events: the first, of course, is the March 2010 adoption by the NAIC of the model regulation itself, and the second is passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub.L 111-203) (hereafter, “Dodd-Frank”), which was signed into law by President Obama on July 21, 2010. Specifically, Section 989G of Dodd-Frank, reflecting the adoption of an amendment sponsored by Iowa Senator Tom Harkin (the “Harkin Amendment”), promotes the adoption of the revised NAIC model regulation and sets forth a three-prong test, whereby fixed indexed annuity contracts (“FIAs”) would continue to be treated as insurance products to be regulated by state insurance officials–and would, therefore, be exempt from regulation as a security under the Securities Act of 1933 (15 U.S.C. § 77c(a)(8).

The first two prongs of the Harkin Amendment require that, in order to meet the statutory “safe harbor” for securities exemption, (1) the product’s value must not vary according to the performance of a separate account; and (2) the product must be compliant with the applicable State Nonforfeiture laws or requirements. The third prong of the Harkin Amendment links the securities exemption for annuities with the adoption of the NAIC model regulation (or its equivalent), requiring that the annuity contract must be either:

(A) Issued in a State that adopts or by an insurance company domiciled in a State that adopts, by July 16, 2013, suitability requirements that meet or exceed the minimum requirements set forth in the NAIC model regulation and adopts any modification to the regulation within five (5) years of adoption by the NAIC of any successor modification; or

(B) Issued by an insurance company that adopts and implements practices on a nationwide basis that meet or exceed the minimum requirements set forth in the NAIC model regulation and any successor thereto, where the insurance company is subject to examination to by the State of domicile of the insurance company or other State where the company conducts sales of the product.

While the third prong of the Harkin Amendment can be satisfied by (B) an insurance company adopting and implementing nationwide practices that meet or exceed the standards set forth in the NAIC model regulation, with a little more than a year to go before the July 2013 deadline, a majority of States have elected to move toward (A): State adoption of the model regulation.

Although the majority of the States have adopted the model regulation in its entirety–or at least its substantive equivalent–some States deviate from the model regulation in significant ways. For instance, California took the “meets or exceeds” mandate in the Harkin Amendment to heart, adopting suitability standards that are even more aggressively consumer-oriented, including a broader definition of what constitutes an annuity “recommendation”, extending the “look back” period for annuity replacements and exchanges that, at 60-months is nearly double the 36-month period proscribed in the model regulation, and expanding the 12-point list of “suitability information” to include whether the consumer has a reverse mortgage. Furthermore, unlike the vast majority of other States that have adopted the model regulation’s approach to reciprocity, California does not permit producers to use “substantially similar” course work in another State to satisfy California’s annuity training requirements.

Another way where some States differ from the model regulation is in their treatment of the six-month “grace period” for existing insurance producers (i.e., those who hold a life insurance line of authority on the effective date of the regulation) to complete the required one-time annuity course; a number of States extend this grace period to apply to both the one-time course and the product specific training, some States (IA, CA, e.g.) did/do not recognize the six-month grace period for either training, and several States (AK, ND, OK, e.g.) allow for a different time period altogether to complete the training.

These are just a handful of examples of the ways in which some States differ, in small and significant ways, from the NAIC model regulation. For a more in-depth survey of the state-by-state adoption of the NAIC Model Regulation on Suitability in Annuity Contract Transactions, including links to the individual state’s statute or rule, NAFA members may access the report at As the July 13, 2013 deadline approaches, and as more state legislatures come back into session this year and next, we can anticipate a great deal of activity at the state level in adopting the NAIC model regulation.


1 AK, CA, CO, CT, DC, HI, IL, IN, IA, KY, MD, NJ, NY, ND, OH, OK, OR, RI, SC, SD, TX, WA, WV, and WI.  NOTE: NY has adopted temporary Emergency Regulation #187, requiring insurers to train insurance agents who solicit and sell annuity products. It has also proposed legislation (AB 563) which would more broadly adopt the NAIC model regulation; to that extent, NY can be considered both an “enacted” State and a “Pending” State.  For purposes here, we consider NY an enacted State.

2 A copy of the 2010 revised Model Regulation can be found here:

3 Press Release, National Association of Insurance Commissioners, “Regulators Tighten Annuity Marketing Protections” (March 28, 2010), available at

4 FL, MI, MN, NE, TN, and UT. (However, the Florida legislation died in committee when the regular legislative session adjourned.)

NAFA, the National Association for Fixed Annuities, is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. NAFA is the only association whose sole purpose is advocating for the fixed annuity product.

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