Protect Annuity Issuers From Bad Advisor Affiliates: Regulators

What You Need to Know

Questions came up because of an influx of private equity firm owners.
Regulators say that similar concerns could apply to any type of insurance company owner.
A handbook panel notes that insurers should always monitor investment guideline compliance.

State insurance regulators want to keep the owners of life insurance and annuity issuers from charging the issuers too much for investment advice or stuffing the issuers full of bad assets.

That effort starts with asking insurers tough, focused questions about potential ownership-related problems with their investment advisors.

Members of the Risk-Focused Surveillance Working Group, an arm of the National Association of Insurance Commissioners, talked about the issue Sunday in Phoenix at the NAIC’s spring national meeting.

Working group members heard from a team that’s tackling the matter by drafting changes to the examiners’ handbooks.

What it means: While state and federal regulators are wrestling over the standards of care that should apply to advisors and their clients, state regulators are also thinking about the quality of the investment advice that the annuity issuers themselves are getting.

The background: U.S. federal law leaves regulation of the business of insurance to the states. The NAIC is a Kansas City, Missouri-based group that helps state regulators share the resources needed to regulate insurance.

The group has been getting questions from life insurance agents, financial advisors, consumers, members of Congress and others about the private equity firms that have used Bermuda-based reinsurers to buy U.S.-based life and annuity issuers and invest in blocks of in-force life insurance policies and annuities through reinsurance agreements.

Regulators’ perspective: Members of the NAIC’s update drafting team indicated that they are trying to stick to the group’s longstanding practice of addressing potentially risky behavior without favoring or criticizing any particular type of insurance company owner.