State Roundup

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At the time of this writing—mid-June—the vast majority of state legislatures have adjourned for the year—and many states that are still in regular session will adjourn in the next several weeks. Most legislatures that have already adjourned (or will adjourn shortly) will see their unpassed bills “fail” upon adjournment, although some states may, by their respective legislative rules, carry over bills that have been already introduced (but not yet passed) into the 2016 legislative session. In any case, now is a good time to look back on the legislative—and regulatory—activity by the various states during the first six months of 2015, insofar as that activity affects the fixed annuity industry.

Annuity Disclosure Model Regulation/Annuity Buyer’s Guide – NAIC Model Regulation 245

The NAIC amended its Annuity Disclosure Model Regulation (#245) in October 2011, revising the requirements related to the standards for and content of annuity disclosures and illustrations. The NAIC subsequently revised the Annuity Buyer’s Guide, which, under the Disclosure Rule, is required to be presented to a purchaser of an annuity “at or before” the time he or she completes the contract application. NAFA worked closely with the NAIC Disclosure Model Working Group in addressing its charge to create consumer-friendly, easy-to-read guides so that prospective buyers might better understand the functions and features of the two general types of deferred annuities – fixed and variable. Eventually three guides were created: one for deferred annuities generally (reflecting both variable and fixed annuities, the “combination guide”), one for fixed deferred annuities, and one for variable deferred annuities. The NAIC adopted these revised guides in August 2013 at its summer meeting (“Annuity Buyer’s Guide”).

A number of states have already adopted either the new disclosure rules or the updated buyer’s guide – or both – including Alabama, Colorado, Georgia (buyer’s guide only), Idaho (buyer’s guide only), Iowa, New Jersey (buyer’s guide only), Ohio, Oklahoma (buyer’s guide only), Rhode Island, Utah (buyer’s guide only), and West Virginia.

On April 24, 2015, the West Virginia Insurance Commission adopted the revised disclosure model, incorporating, by reference, the new Annuity Buyer’s Guide. The amended rule is effective July 23, 2015. On June 5, 2015, the Maine Bureau of Insurance adopted the updated Annuity Disclosure Model Regulation, including the updated Annuity Buyer’s Guide, effective November 1, 2015. In addition, the Wisconsin Commissioner of Insurance is currently considering adopting the 2013 Annuity Buyer’s Guide.

2012 Individual Annuity Reserve Table/Reserves Liabilities – NAIC Model Regulation 821

At its fall plenary meeting, the NAIC amended model regulation #821, relating to the Annuity Mortality Table for Use in Determining Reserve Liabilities for Annuities. The amended Model adopts the 2012 Individual Annuity Reserving Table (IAR), which was developed by the Society of Actuaries. Prior to the 2012 adoption of this table, the generational mortality table had not been updated since 2000. The NAIC recommended that states adopt the updated table for contracts issued on or after January 1, 2014; Virginia and Washington adopted it in 2013, but another 22 states adopted the 2012 IAR in 2014, effective January 1, 2015.1

Since January of this year, Colorado, the District of Columbia, Florida, Indiana, Iowa, Kentucky, Missouri, Wisconsin, and Wyoming have adopted the revised IAR. In addition, New Hampshire, North Dakota, Ohio, and Oklahoma have proposed its adoption.

Suitability in Annuity Transactions – NAIC Model Regulation 275

After the NAIC adopted the revised Suitability in Annuity Transactions Model Regulation (#275) in April 2010, and especially considering the June 16, 2013 adoption deadline imposed under the Harkin amendment to the 2011 Dodd-Frank Act, NAFA anticipated all states would adopt the 2010 Suitability Model. As of June 2015, 35 of the 50 states (plus the District of Columbia) have done so.

So far in 2015, only Maine has adopted the 2010 Suitability Model, effective November 1, 2015. Insurance producers who are licensed as of that date will have an additional six months – until May 1, 2016 – to complete the one-time, four-hour annuity CE course. Like most states, Maine recognizes reciprocity with other states in terms of this course requirement.

In addition, Georgia, Massachusetts, and Tennessee are currently considering its adoption. NAFA is actively engaged with the state insurance departments in each of these states to support the adoption of suitability requirements that reflect, as closely as possible, the standards set forth in the NAIC Model Regulation.

The states that haven’t yet considered adoption of the 2010 Model include: Alabama, Arizona, Arkansas, Delaware, Missouri, Montana, Nevada, New Mexico, North Carolina, Pennsylvania, Vermont, and Virginia.

Standard Valuation Law – NAIC Model Regulation 820

During the 2015 legislative session, a number of states adopted the updated NAIC Standard Valuation Model Law (#280), which the NAIC updated in September 2009 at its Fall National Meeting. The updated Model Law changed the methodology used by life insurers to calculate the reserving requirements for life insurance policies and annuity contracts, replacing static formulas with a principles-based model. States that adopted the revised Model in 2015 include: Arkansas, Colorado, Georgia, Kansas, Kentucky, Maryland, Montana, Nevada, North Dakota, South Dakota, Texas, Vermont and Virginia. In addition, the following states have legislation pending, which would adopt the 2009 revised Model: California, Delaware, Illinois (sent to Governor), Massachusetts, North Carolina, South Carolina, and Washington.

Interstate Insurance Regulation Compact

California, Connecticut, and New York all have pending legislation that would move each of the respective states toward joining the Interstate Insurance Product Regulation Commission (IIPRC).2 CA A 565 would require the California Insurance Commissioner to commission an independent study to examine the extent to which the uniform standards set forth in the Interstate Insurance Product Regulation Compact provide consumer protections that are equivalent to those established under State law for annuity, life insurance, disability income, and long-term care insurance products. CT S 755 would require the Connecticut Insurance Commissioner to study and report on the NAIC’s Interstate Insurance Product Regulation Compact and submit a report no later than January 1, 2016. NY A 1262 would have New York affirmatively join the IIPRC, establishing in New York the interstate insurance product regulation compact to regulate certain insurance products among member states and to promote and protect the interest of consumers of individual and group annuity, life insurance, disability income and long-term care insurance products.

State-Sponsored Retirement Savings Plans for Private Sector Employees

Over the past several years, so-called “Secure Choice” legislation has been introduced in a number of states; for the most part, these initiatives have failed. While differing somewhat in the details, generally such legislation would create a state-sponsored retirement savings plan for certain private sector employers. Additionally, a number of states have authorized feasibility studies to explore the possibility of creating these state-run plans – in fact, California has been working on a feasibility study since 2012.

With the passage of Senate Bill 2758 in 2014, Illinois became the first state in the nation to establish such a program. The Illinois Secure Choice Savings Program requires Illinois businesses with 25 or more employees, which have been in business for at least two years, and don’t currently offer an employer-sponsored retirement plan, to offer an individual retirement savings plan either with a private entity or through the Program. Although the new law went into effect on June 1, 2015, there is much work to be done both logistically and financially to implement the Program. It is anticipated that employee enrollment may begin in 2017.

In the current 2015 legislative session, a number of states introduced bills to either create some type of state-run/state-sponsored private sector retirement plan or authorize a study or review of such a program. There are bills currently pending in Massachusetts (MA H 924 and H 939), New Jersey (NJ A 4275/S 2831), Oregon (OR H 2960/S 615), and Wisconsin (WI A 70/S 45). And, the State of Washington enacted WA S. 5826 on May 18, 2015, to create the Washington Small Business Retirement Marketplace. This program aims to educate small employers regarding plan availability and would promote – without mandated participation – qualified
low-cost retirement savings plans and MyRAs.

In addition to California’s ongoing feasibility study, the following states have convened task forces or have adopted study resolutions: Connecticut, Maryland, Minnesota, Vermont, Utah, and West Virginia.

Unclaimed Life Insurance and Annuity Benefits Act

Several states took up the issue of unclaimed life insurance and annuity benefits during this current 2015 legislative session. This issue is getting greater scrutiny in light of the regulatory settlement agreements (RSAs) reached with 18 of 40 targeted insurance companies, as well as the fact that the NAIC has established an Unclaimed Benefits Model Drafting Subgroup to work on the development of an NAIC model regulation. Using NCOIL’s Model Unclaimed Life Insurance Benefits Act as a starting point, the NAIC Subgroup is considering whether to modify the NAIC model law to make the law prospective only, whether large insurance companies should be treated differently than small and medium-size insurers, and whether some types of life insurance policies should be exempt from the Model Law requirements. Generally, the law would require insurers to perform a comparison of its insureds’ in-force policies, contracts, and retained asset accounts against a Death Master File, at least on a semi-annual basis.

During 2015, Arkansas and Utah enacted the Unclaimed Life Insurance Benefits Act, which will be effective for policies and contracts issued after June 30, 2016. In addition, Colorado, Illinois, Massachusetts, North Carolina, and Oklahoma all have pending legislation. (A number of states have previously adopted the Act.)


  • Withdrawal and Surrender Fees. Oregon adopted legislation (Laws of 2015 – Chapter 85, introduced as OR H 2467) directing the Department of Consumer and Business Services to adopt rules to regulate the penalties, fees and charges that the insurer imposes for early withdrawal from an individual deferred annuity policy. The Department is directed to consider, inter alia, whether the penalty, fee, or charge is appropriate and whether there are other actions that an insurer might take to achieve the same purpose of the penalty, fee, or charge.
  • Advertising. California Assembly Bill 1515 would require amending Section 1725.5(b) of the California Insurance Code pertaining to the print size of the word “Insurance” on insurance business cards, print advertisements, and price quotations for insurance products, requiring the word “Insurance” to be in type size at least as large as the smallest telephone number on the card or in 12-point font, whichever is larger.
  • Contingent Deferred Annuity Contracts. Texas Senate Bill 1107 would direct the Insurance Commissioner to consider adoption of reasonable standards for contingent deferred annuity contracts, including standards for contract approval as well as replacement, suitability, disclosure and advertising standards. The Commissioner is directed to make those requirements consistent with NAIC model regulations.
  • Securities Act. New Hampshire Senate Bill 266 would adopt the Uniform Securities Act of 2002 as New Hampshire law. Current New Hampshire’s securities law, N.H. Rev. Stat. §§ 421-B, is based on the Uniform Securities Act of 1956.
  • Continuing Education. The Washington Department of Insurance is proposing two regulatory changes: one would amend WSR 15-10-102 to align current producer licensing requirements with the NAIC State Licensing Handbook, which was approved and adopted by the NAIC in 2013; and the other would require producers who are required to complete annuity suitability training to maintain certificates for as long as the producer transacts business for these products, but, in any case, not less than three years.
  • Insurance Guaranty Association. Massachusetts House Bill 954 would increase from $100,000 to $500,000 the contractual obligations under the MA State Insurance Guaranty Association for the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
  • Elder Abuse and Financial Exploitation. The trend to address elder financial abuse and exploitation continued into this legislative session. Montana passed legislation (Ch. 180, introduced as MT H 410) which would create the criminal offense of financial exploitation of an “older person,” here defined as someone aged 65 or older, and would provide for the admissibility of hearsay statements under circumstances where there is a reasonable guaranty of trustworthiness present. In addition, Massachusetts (MA H 1366) has a bill pending to create the criminal offense of financial exploitation of an “older person,” defined as someone aged 60 or older. New Jersey also has introduced legislation to create the criminal offense of theft by financial exploitation of a vulnerable person, which would include anyone age 62 or older. Many other states are actively considering bills addressing various facets of this issue, including additional reporting requirements, the expansion of larceny statutes, training, education, and outreach. NAFA will provide a roundup of state activity related to elder abuse and financial exploitation at the conclusion of the legislative calendar year.


1 In addition to VA and WA, the following states adopted the 2012 IAR Table during 2014, effective for contracts issued on or after January 1, 2015: Alaska, Alabama, Arkansas, Connecticut, Georgia, Idaho, Illinois, Louisiana, Maine, Maryland, Minnesota, Nebraska, New Jersey,
New York, North Carolina, Oregon, South Carolina, South Dakota, Texas, Utah, and Vermont.
2  Currently, 44 jurisdictions have joined the IIPRC. Compacting members are Alabama, Alaska, Arizona, Arkansas, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

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