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SEC Official: Improve Disclosure on Variable Annuities

Variable annuities are back in the news again, with the Securities and Commission (SEC) calling on life insurers to improve their disclosures on the products, protect legacy variable annuity clients and ensure that swapped benefits are suitable for them.

“When a company discontinues the sale of a contract, one option is to orphan the contract, allowing investments to dwindle,” said Susan Nash, associate director for disclosure and insurance product regulation at the SEC, during a presentation earlier this week of the Insured Retirement Institute’s Government, Legal and Regulatory Conference. “I urge you to focus on the long-term interests of your existing contract owners, as well as the reputation of your company.”

As reported June 26 by Investment News, Nash also commented on how some life insurers with large books of legacy variable annuity business are now offering clients the option of dropping the accumulated living or death benefits in exchange for an incentive, including an increase in the account’s value.

“In some cases, incentives may be offered to contract holders when they relinquish contracts that have living benefits,” Nash said in the Investment News article. “These exchanges may raise questions of suitability.”

Nash called for improved disclosure to clients and advisers on variable annuity contracts. The improvements should “provide information to the contract purchaser that helps them make informed purchase decisions,” as well as “provide information to existing contract owners to help them understand how their investment has performed and changed,” Nash said.

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