The recent debate among state insurance commissioners as to the regulatory status of contingent deferred annuities has focused advisors’ attention on new solutions that, if demand takes off, could significantly boost the market for insurance products in the retirement income planning space. Such an expansion, sources tell National Underwriter, is potentially a boon for life insurers marketing to fee-based financial professionals who have historically shunned annuities because of the products’ perceived high cost and complexity.
CDAs are meant to appeal to producers who do not specialize in annuities, explains Bruce Ferris head of sales and distribution, Prudential Annuities, a unit of Prudential Financial, Newark, N.J. Examples of non-annuity producers are fee-based advisors who offer advice and services for mutual fund wrap accounts, separate managed accounts, and fee-based platforms with broker-dealers. CDAs complement such advisors’ ability to provide asset selection, broad diversification recalibration and adjustment of investments.
The Products Up-Close
One example of CDAs on offer in the qualified plan arena, as NU reported in April of 2011, is the result of an unusual partnership between New York-based investment management firm Alliance Bernstein and three life insurers that collectively guarantee the product: AXA Equitable, Lincoln Financial Group, and Nationwide Financial. As the default option of a qualified plan, the CDA rides on a target date mutual fund that resets the portfolio’s asset mix according to a selected time frame. The insurance provides plans participants with a guaranteed lifetime income stream and access to their account balances at all times.
Why? Until recently, observers say, a stumbling block has been the lack of clarity from the National Association of Insurance Commissioners as to whether the hybrid products constitute insurance. Many critics, MetLife among them, questioned their status because insurers don’t hold the invested assets.
As reported by NU, the NAIC ruled in March that CDAs are insurance. The commissioners also established a subcommittee to determine whether reserving and capital rules requirements for CDAs need to be revised to ensure the product providers can make good on the guarantees.