State Roundup: State of the States – 2015 Year in Review
2015 is “in the books,” with the 2016 legislative sessions just getting underway in most states across the nation. NAFA tracks the legislative and regulatory activity undertaken at the state and federal level, following from introduction to adoption scores of proposed bills and rules that do, or have the potential to, impact the fixed annuity industry. A number of state legislatures carry over introduced bills from one year to the next within a legislative cycle, and, of course, agency activity occurs throughout the calendar year. NAFA is currently tracking approximately 90 “live” proposed bills and regulations across the states and on a wide variety of issues, but, before we get too much deeper into the New Year, let us take a look at some of the new laws and rules that were put into effect in 2015.
Annuity Disclosure Rule and/or Annuity Buyer’s Guide
Several states moved to adopt the revised 2011 NAIC Annuity Disclosure Model Rule and/or the updated 2013 NAIC Annuity Buyer’s Guide(s). Maine had been operating under a Maine Bureau of Insurance bulletin since October 2013, which allowed producers to use either the new 2013 Annuity Buyer’s Guide(s) or the 1998 version of the guide. However, on June 5, 2015, the Bureau adopted final amendments to ME Insurance Rule 915, adopting both the 2011 NAIC Annuity Disclosure Model Rule as well as the 2013 NAIC Annuity Buyer’s Guide(s). The new rule went into effect November 1, 2015. And, on April 24, 2015, West Virginia adopted both the updated NAIC Annuity Disclosure Model Regulation and the Annuity Buyer’s Guide(s). For sales of fixed annuities, either the “2013 Buyer’s Guide for Deferred Annuities” or the “2013 Buyer’s Guide for Deferred Annuities – Fixed” can be used. The new rule became effective July 28, 2015; however, the W. VA Insurance Commissioner allowed a phase-in period for compliance with the new rule, but the rule’s provisions became mandatory for all annuity contracts issued or renewed on or after January 1, 2016. Wisconsin has adopted the 2013 NAIC Annuity Buyer’s Guide only. The changes to § Ins 2.15, Wis. Adm. Code, repeal the outdated state-specific guide; however, insurers and agents may continue to use the state-specific guide until March 1, 2016.
Interstate Insurance Product Regulation Compact
California, one of just a handful of states that have not yet joined the Interstate Insurance Product Regulation Compact, passed California Assembly Bill 387 (Ch. 691) requiring the CA Insurance Commissioner to commission an independent study to examine the extent to which the uniform standards set forth in the IIPRC provide consumer protections that differ from those already established under California law for annuity and other insurance products. The study is to be completed no later than January 1, 2017. (And, Connecticut introduced legislation on February 4, 2016, CT House Bill 5051, to join the Compact. Similar legislation failed in Connecticut in 2015.)
In January, Congress finally passed and the President signed into law, ‘NARAB II’ – the National Association of Registered Agents and Brokers Reform Act of 2015. NARAB would function as an independent, non-profit corporation, providing insurance agents and brokers who do business in multiple states a “one-stop” mechanism to satisfy the licensing and other requirements and conditions that exist in their non-resident states. Essentially, membership in NARAB would become the equivalent to a non-resident insurance producer license. However, while NARAB would simplify the licensing process for multi-state producers, states would retain their jurisdiction over producer discipline and supervision, as well as the regulation of the marketplace in their respective state. NARAB will not be part of any federal agency, nor will it receive any federal funding. For a more detailed review of NARAB II, please see the Annuity Outlook March/April magazine, Vol. 4, Issue 2.
State Run Retirement Savings Plans
Several states took action in 2015 to create state-run retirement savings programs for certain private sector employees. This is a slow-growing national movement that received a notable push from the federal government in November, when the United States Department of Labor published a notice of proposed rulemaking, along with an Interpretive Bulletin, intended to provide guidance to states as they consider the creation of such programs. In March, Oregon passed HB 2960 (Ch. 557, Laws of 2015), creating the Oregon Retirement Savings Plan and establishing a seven-member Oregon Retirement Savings Board. The Board is directed to create a defined contribution retirement plan for people employed in Oregon. In addition, the Board is directed to conduct market analysis, receive legal guidance, and undertake outreach to small businesses and future plan recipients. Once created, the Plan would be run by a private-sector provider, with a minimum employer role. The law directs the plan to be operational by July 1, 2017; unless it’s determined that the plan would not qualify under ERISA. Meanwhile, Washington enacted SB 5826 (Ch. 296, Laws of 2015), creating the Washington Small Business Retirement Marketplace. The new law authorizes the Director of the Washington Department of Commerce to contract with a private-sector entity to establish a voluntary program that connects eligible employers with qualifying plans. And, a bill that was introduced in New Jersey in 2015 became law in January 2016. The 2015 N.J. Public Law 298 creates the New Jersey Small Business Retirement Marketplace Act. Patterned after Washington’s plan, the New Jersey program is designed to provide private sector small business employees access to retirement plans by creating a voluntary public-private partnership marketplace that will educate small business employers on existing private sector retirement plan vendors, creating a market-based approach to encourage more workers to save for their retirement. The program will be run out of the state’s Department of Treasury, and the NJ State Treasurer is directed to design and implement a plan for the operation of the marketplace. Ultimately, the State Treasurer is charged with approving a diverse array of private retirement plan options that will be available to employers on a voluntary basis, including life insurance plans and products designed for retirement purposes. In addition to these three state program adoptions, Virginia passed legislation (Ch. 669), directing the state’s Secretary of Finance to convene a working group to review current state and federal laws and regulations that encourage citizens to save for retirement by participating in retirement savings plans.
Suitability in Annuity Transactions
Three additional states, Georgia, Maine, and Tennessee have adopted the 2010 version (current) of the NAIC Suitability in Annuity Transactions Model Regulation, MDL # 275. With the addition of these three states, a total of 37 states – plus the District of Columbia – have adopted the updated model. Currently, the Massachusetts Division of Insurance is considering its adoption, leaving just twelve states that have not yet adopted the revised model rule. These states are: Alabama, Arizona, Arkansas, Delaware, Missouri, Montana, Nevada, New Mexico, North Carolina, Pennsylvania, Vermont, and Virginia.
Annuity Mortality Tables/Reserve Liabilities
In 2012, the NAIC amended Model Regulation #821, relating to Annuity Mortality Table for Use in Determining Reserve Liabilities for Annuities, adopting the 2012 Individual Annuity Reserving Table as developed by the Society of Actuaries Committee on Life Insurance Research. Prior to the adoption of the 2012 IAR Table, the generational mortality table had not been updated since 2000. The current model dictates that the 2012 IAR mortality table shall use minimum standard of valuation for any individual annuity issued on or after January 1, 2014. A fair number of states had already adopted this revised model in 2013 and 2014, but many more states adopted the revised model in 2015, adjusting the effective date accordingly, generally to January 1, 2016. The states/jurisdictions that adopted the 2012 IAR Mortality Table in 2015 include: Delaware, the District of Columbia, Florida, Idaho, Indiana, Iowa, Kentucky, Maryland, Missouri, New Jersey, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, West Virginia, Wisconsin, and Wyoming. (Currently, Kansas and Pennsylvania are considering adopting the 2012 IAR mortality table.)
Standard Valuation/Standard Nonforfeiture Model Laws
NAIC Model Regulations #805 (Standard Nonforfeiture Law for Individual Deferred Annuities – “SNFL”) and #820 (Standard Valuation Law) were revised in 2012/2013 and 2009, respectively. The revised Standard Valuation Law (SVL) introduced a new method for calculating life insurance policy reserves: principle-based reserving (PBR) and included reference to a Valuation Manual, revising insurance and reserving requirements to reflect PBR. The Valuation Manual, in turn, was adopted by the NAIC in December 2012. However, in order for the Valuation Manual to become operational under the Standard Valuation Law, at least 42 states representing 75% of total U.S. premium must adopt the 2009 revisions to SVL. Many states have also chosen to adopt the revised SNFL as part of their implementation of principle-based reserving, but there is no requirement to do so. According to the NAIC, as of November 1, 2015, 39 states, representing 71.2% of U.S. premium, have adopted the revised model laws. It is anticipated that the Valuation Manual will become operative on January 1, 2017, although companies will be allowed a three-year transition time to implement PBR. States that adopted the revised SNFL and/or SVL in 2015 include the following: Arkansas, California, Colorado, Delaware, Georgia, Illinois, Kansas, Kentucky, Maryland, Missouri, Montana, North Carolina, North Dakota, Nevada, South Dakota, Texas, Virginia, Vermont, and Wisconsin. (To date in 2016, Alabama, Idaho, Massachusetts, and Washington are all considering adoption of the revised SVL.)