Annuity FYI Blog

Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net.  In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C.  The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  All states must comply by June 16, 2013.  States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.

There are 17 states and territories that already have laws mimicking NAIC 2010.  Six states have plans already in the works, and a total of 28 states are expected to have working plans this year.  The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments.  The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines.  In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model.  Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling.  All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.

Some tips for reducing your taxes were recently posted in the RIS Media article “7 Year-End Tax Planning Tips.”  The informative tips come from Ken Rubinstein of New York law firm Rubinstein & Rubinstein.  Gifting money to children or others is the best way to reduce your taxable estate, if that is something you are looking to do.  You can gift up to $13,000 per person and a husband and wife can even give gifts to the same people to help reduce their estate.  Of course everyone isn’t in the position where they are desperate to give out money so there are other tips to help you keep your funds to pay for your future while still reducing overall tax liabilities.  Since Congress is likely to change tax laws next year and income and capital gains taxes are supposed to rise, now is the time to make your tax changes whether you start to compare annuities or change up your 401k plan.

If you sell any property that has appreciated in value before the loss of capital gains treatment is in effect, you will avoid tax from Charitable Remainder Trust and other tax planning strategies.  Prior to the government taxing your 401k, convert it to a Charitable Remainder Unitrust IRA.  Take income this year rather that waiting until next year when taxes may be higher.  Before any tax increases, plan ahead and take advantage of favorable tax treaties now.  Look into the advantages of a Dynasty Trust that delays estate taxes for generations and protects assets.  You can avoid capital gains taxes by contributing to a Charitable Remainder Trust.  If you buy annuities with other assets, the capital gains on your annuities are not taxable and you can minimize the taxes on your assets overall.  These and other tips from the article can help you save money on your taxes in 2011 if you take advantage of them this year.

NAIC 2010 puts much more stringent requirements on insurers to ensure that annuities sold are meeting suitability standards.  According to Insurance News Net’s “Prepare for Tougher Annuity Standards,” because state insurance departments won their battle with the SEC over regulating annuities they will now have to comply with stricter rules.  Producers of fixed annuity products will have similar suitability standards to those already in place for variable annuity producers.  Insurers are fully responsible for following these standards and ensuring that the marketing done by their producers follows standards as well.  NAIC 2010, or the NAIC Suitability in Annuity Transactions Model Regulation, has a number of checks and balances to oversee annuities.

First of all, annuity producers have to look at 12 different pieces of information from customers to determine suitability and follow the new suitability requirements.  The product disclosure requirements mean that consumers must be able to understand all facets of information relating to their annuity, including death benefits, all riders attached, and annuity rates.  There will be an independent suitability review done by someone similar to an insurance underwriter to make sure that customers qualify for the annuity, even if they already have the money to purchase their product.  The record keeping and supervision of the record process will entail much more than in the past with states requiring documents to be kept and reviewed anywhere from four to ten years.  All of these new NAIC 2010 provisions are looking out for the best interest of consumers.

A new financial merger combines Ash Brokerage Corporation and InSource, Inc.’s annuity business.  According to Insurance News Net’s article “Ash Brokerage and InSource Combine Annuity Brokerage Businesses,” the new merger is operating as Ash InSource LLC.  Ash and InSource are two of the leading distributors of fixed and equity indexed annuities.  Joining the companies together offers a unique opportunity to offer financial professionals more expertise and resources.  The new brokerage business will have over $1 billion per year in sales of equity indexed and fixed annuity products.  The President and CEO of Ash Brokerage Corporation, Tim Ash, highlights the benefit that having such an expanded annuity portfolio will bring to the merged companies’ clients.

Both companies share similar cultures and a desire to be the most committed partner that financial professionals could desire.  Deck McCormick is the CEO of Ash InSource.  He says that this new company has an almost unlimited opportunity for growth and expansion because of its sales expertise in the annuity field.  Not much will change in the day to day operations for clients, but Ash InSource will be working diligently to ensure any transition is very smooth over the next few months.  Both merged companies have the intention of joining their life insurance business together in the near future as well.  While that is not a done deal, plans are in the works for Ash to take over InSource’s life insurance brokerage business as well.  They would like a full integration of InSource’s businesses with Ash.

It looks like the battle is over for fixed indexed annuities and other indexed annuity products.  The U.S. Securities and Exchange Commission said they would have to reevaluate their information after the U.S. Court of Appeals vacated the SEC’s Rule 151A.  The SEC had hoped to get indexed annuities classified as securities so they would be put under the SEC’s jurisdiction.  According to National Underwriter’s “Rater: Indexed Annuity Ruling Will Stick,” Standard & Poor’s Ratings Services believes that the SEC will not pursue their indexed annuity fight, at least for the next year and a half.

After the Court of Appeals announcement, President Obama signed H.R. 4173 forbidding the SEC from claiming jurisdiction over fixed indexed annuities and other annuity products in the general account of insurance companies.  The rule is known as the Dodd-Frank Wall Street Reform and Consumer Protection Act bill and states that you cannot compare annuities to the other stock market products that the SEC is in charge of.  Without H.R. 4173, the SEC’s Rule 151A would have taken effect next January.  Standard & Poor’s announced with their outlook improvement for American Equity Investment Life Holding Company that it is unlikely the SEC will revisit this issue in the next couple years, if at all.