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  #1  
Old 10-26-2016, 01:17 PM
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Cool Index Annuities vs SNFLIDA

The prospective test is part of the Standard Nonforfeiture Law for Individual Deferred Annuities (SNFLIDA). Prior to the SNFLIDA prospective test, some deferred annuities included a large guaranteed increase in cash surrender values at specific durations if certain conditions were satisfied. For example, a contract might guarantee that the cash value would double at the end of the 10 th year if no withdrawals had been made. This was commonly called a “spike bonus.”

Some felt that these designs were unfair to those who terminated the contract prior to the “spike” or “cliff.” The person who surrendered early should be guaranteed the present value of the 10th year guaranteed value, discounted at 1% plus the underlying guaranteed interest rate. The prospective test was created to ensure this minimum level of equity.

With a minimum interest guarantee, a 9-8-7-6-5-4-3-2-1% surrender charge pattern satisfies both the retrospective and prospective tests. It is worth noting that if this surrender charge pattern is used, increasing the guaranteed change in cash surrender value in any one year by 0.1% or more would violate the prospective test (thus prohibiting guaranteed spike bonuses).

The indexed contract guarantees a formula for values to follow an index. Note that it is not the index that is guaranteed in index annuities, but the obligation of the contract values to follow the index. The index could go up, go down, stay flat, or a combination.

Some say that indexes and MVAs can be ignored for SNFLIDA compliance because the future guaranteed values are not known. This is indefensible if any level of cash value change is guaranteed by use of an index or MVA formula.

Suppose a deferred annuity guaranteed cash surrender value will double in the 10th year if the contract persists, i.e., it has a “spike bonus.” This violates the prospective test. Now suppose the “spike” is conditional, only guaranteed if the S&P 500 stays above zero. We don’t “know” the value of the S&P 500 in 10 years, but this would be a subterfuge to subvert the prospective test

If we change the guarantee to doubling the value if the S&P 500 doubles after 10 years, the logic is the same, as it is for every other possible indexing formula. And if the deferred annuity has typical 1%- graded surrender charges, any guaranteed increase that could exceed 0.1% will violate the prospective test.
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Old 10-27-2016, 07:03 PM
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SNFLIDA desperately needs an update.
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Old 10-28-2016, 01:09 PM
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Is this a real product, or just pointing out the idea of how to get around the SNL?
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Old 10-28-2016, 01:20 PM
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Cool FIA or MVA

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Originally Posted by MathGeek92 View Post
Is this a real product, or just pointing out the idea of how to get around the SNL?
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Originally Posted by JMO Fan View Post
If we change the guarantee to doubling the value if the S&P 500 doubles after 10 years, the logic is the same, as it is for every other possible indexing formula. And if the deferred annuity has typical 1%- graded surrender charges, any guaranteed increase that could exceed 0.1% will violate the prospective test.
The first example matches products with 100% participation (rare). The second would apply to every indexed product that guarantees anything other than 0, implying that virtually all FIAs violate Nonforfeiture. Zero guarantees are not consumer friendly => SNFLIDA needs an update.
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Old 10-28-2016, 02:00 PM
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Cool Harkin Amendment = Trick, no Treat

This could require securities registration for most FIAs, which the Harkin Amendment was intended to exempt.

Quote:
Specifically, the provision requires the SEC to treat as, "exempt securities as described under Section 3 (a) (8) of the Securities Act of 1933" any insurance or endowment policy or annuity or optional annuity contract (a contract) that meets the following requirements: ...(ii) the contract satisfies applicable standard nonforfeiture laws at the time of issue ....
http://www.aba.com/issues/regreform/pages/rr9_24.aspx
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Old 11-01-2016, 02:19 PM
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Unhappy FIA or MVA => SEC, DOL, and FIO

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This could require securities registration for most FIAs, which the Harkin Amendment was intended to exempt.


http://www.aba.com/issues/regreform/pages/rr9_24.aspx
Exactly, and all the agents selling them would have to be securities licensed. The new DOL rule doesn't offer any comfort on that point, anyway. This all leads to Federal regulation of insurance, which the FIO would love.
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Old 11-10-2016, 02:32 PM
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Cool Trump trumps

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Exactly, and all the agents selling them would have to be securities licensed. The new DOL rule doesn't offer any comfort on that point, anyway. This all leads to Federal regulation of insurance, which the FIO would love.
I suspect the FIO, SEC, and FSOC won't get far with this under Trump.
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Old 02-10-2017, 03:03 PM
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LATF took NF modernization off of their list of charges. Utah proposed dropping the prospective test, but now Utah is off of LATF. The NAIC leaders are all Republicans now, so is any of this going anywhere?
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