2016 Legislative and Regulatory Roundup
NAFA tracks legislative and regulatory activity at the state and federal level on behalf of the fixed annuity industry. We follow a broad range of proposed bills and rules, including the adoption of NAIC model laws and regulations. The following is a brief summary of some of the new laws and regulations enacted or adopted during this past year.
Annuity Mortality Tables – Adoption of 2012 IAR Table
In 2016, Colorado, Kansas, New Hampshire, Montana, and Pennsylvania adopted the 2012 Individual Annuity Reserving (IAR) Table for use in determining the minimum standard of valuation for individual annuity or pure endowment contracts, and, in January 2017, Michigan adopted the updated 2012 IAR table, bringing all those states in line with the majority of states that have previously adopted the standards of the current NAIC Model Regulation #821.
Interstate Insurance Product Regulation Compact
In May, Connecticut became the latest state to join the Interstate Insurance Product Regulation Compact (IIPRC – NAIC Model Law #692)). Connecticut House Bill 5051 (CT Public Act No. 1-119) became effective July 1, 2016. In addition, South Carolina passed SC HB 4662 (SC 2016 Act No. 161), reenacting the IIPRC for that state and making the reenacted provisions retroactive to the June 1, 2014 expiration date of the previous statute. In a similar fashion, Tennessee has introduced legislation (2017 TN Senate Bill 81) to extend its participation in the Compact an additional five years, until June 30, 2022. Jurisdictions that have not yet joined the IIPRC include the states of California, Delaware, Florida, New York, North Dakota, South Dakota, and the District of Columbia. Both New York and D.C. introduced legislation during the 2015 – 2016 legislative session, but these measures failed upon adjournment; however, on February 7, 2017 the District of Columbia introduced DC Bill 112, to have the District of Columbia join the IIPRC.
Standard Valuation Act
A number of states adopted the 2009 NAIC Standard Valuation Law (MDL #820) in 2016, implementing the principle-based reserving requirements set forth in the revised model law, including Alabama (AL Act No. 2016-411), Idaho (ID 2016 Session Laws, Chapter No. 68), Minnesota (MN 2016 Session Law, Chapter 178), Pennsylvania (PA 2016 Act No. 59), South Carolina (SC 2016 Act No. 148) and Utah (UT 2016 Chapter No. 163).
On June 10, 2016, the NAIC voted unanimously to recognize that the implementation threshold to have the principle-based reserving (PBR) requirements operational had been satisfied: namely, that at least 42 states representing at least 75% of total U.S. applicable premium volume enact laws substantially similar to the model law; as of that date, 45 states, representing more than 79% of applicable premium volume had done so. Accordingly, principle-based reserving and the use the new NAIC uniform valuation manual became effective as of January 1, 2017.
With the adoption by the states listed above, only Alaska, the District of Columbia, Massachusetts, New York, and Wyoming have not yet adopted the current NAIC SVL. However, Wyoming 2017 House Bill 6 was introduced on January 10, 2017 and proposes to adopt the current PBR standards. Also, in 2016 Massachusetts had proposed legislation (MA SB 2450) to adopt the current 2009 NAIC Standard Valuation Model, but the bill was withdrawn at the adjournment of the legislature on December 31, 2016.
Suitability In Annuity Transactions
Only a handful of states remain that have not yet adopted the current (2010) version of the NAIC Suitability in Annuity Transactions Model Regulation (MDL #275). This past year, Alabama (AL Insurance Regulation 137 – Code of Alabama 482-1-137), Delaware (18 DAC 1214), and Massachusetts (MA 211 CMR 96.00) all adopted the revised suitability standards. The new regulations become effective in Alabama as of January 1, 2017; in Delaware on or after June 1, 2017; and in Massachusetts as of July 1, 2017 for the new producer training requirements and as of October 1, 2017 for the revised suitability standards.
The following states are currently considering the adoption of the current suitability regulation: Arizona, Missouri, Montana, and Virginia leaving only Arkansas, Nevada, New Mexico, North Carolina, and Pennsylvania to undertake this process.
In addition, California (CA 2016 Chapter No. 148) amended its suitability in annuity transactions law, Section 10509.913 of the California Insurance Code, to include one additional piece of information to the list of information that insurers and insurance producers must ascertain in order to determine whether an annuity sale is suitable: whether the consumer intends to apply for government benefits. California’s law is already more stringent than the NAIC model regulation, and the NAIC has indicated that it may look to states with heightened requirements, such as California, when it next updates the model regulation.
Unclaimed Life Insurance and Annuity Benefits
The NAIC continues its progress towards the adoption of a new model law relating to insurance carrier requirements surrounding unclaimed life insurance and annuity benefits. In the meantime, however, states continue to adopt their own new laws in this regard.
Florida enacted two related bills: the first, FL SB 908 (FL Chapter No. 2016—165) creates the Division of Unclaimed Property within the Florida Department of Financial Services, and the second, FL SB 966 (FL Ch. No. 2016-219) adopts the Unclaimed Life Insurance and Annuity Benefits Act, requiring insurers to annually compare its insureds against the U.S. Social Security Administration’s Death Master File. In addition, Illinois (2016 IL Public Act No. 893), Missouri (L. 2016 HB 2150), and Pennsylvania (PA 2016 Act No. 132) adopted Unclaimed Life Insurance and Annuity Benefits laws in 2016. So far in 2017, Nebraska, Oklahoma, and Texas have legislation to implement similar unclaimed benefits laws. For a more complete analysis and summary of state unclaimed life insurance and annuity benefit laws, please see the June/July 2016 issue of Annuity Outlook Magazine.