NAIFA Adopts Policy Opposing Stranger-Originated Annuities

Contact:

Gary A. Sanders
Vice President for Securities and State Government Relations
703-770-8192

FALLS CHURCH, VA (April 28, 2010) — The National Association of Insurance and Financial Advisors (NAIFA) today voted to adopt new NAIFA policy opposing a relatively new type of transaction involving variable annuities, referred to as stranger-originated annuity transactions (STAT).

In a STAT, an unrelated investor is the purchaser and owner of a variable annuity that is purchased on the life of a terminally ill person. The individual person typically receives an up-front payment in an amount ranging from $2,000-$10,000 for participating in the transaction, and receives no further payment or benefits from the transaction. The annuity contains a guaranteed death benefit rider (GDB) which guarantees that at the time of death, the owner/beneficiary will receive at least as much as was invested in the annuity, and possibly more depending on market performance and the terms of the rider. Because of the protection provided by the GDB, the investor/owner will likely choose more speculative sub-accounts as the investment vehicles for the STAT. If the market performs well, the investor will benefit from the account’s performance; if the market does not do well, the investor’s investment is protected by the minimum return guaranteed by the GDB.

State regulators are showing considerable interest in STATs. The National Association of Insurance Commissioners has announced it will hold a public hearing on STATs in Washington, D.C. on May 20, and the National Conference of Insurance Legislators will be examining the issue in greater detail at upcoming NCOIL meetings.

“Based upon the limited information available, STATs seem to share some of the same troublesome characteristics as stranger-originated life insurance transactions”, said NAIFA President Thomas D. Currey, CLU, ChFC, LUTCF. “Most significantly, in both situations the transaction is initiated for the benefit of an investor who has no relation to the person whose life the insurance policy or annuity is based upon, and once the transaction is completed, neither the insured nor his or her beneficiaries will have any further interest in the policy or annuity’s benefits. Much like with a STOLI transaction, it appears that a STAT is usually not being initiated for a typical or historically legitimate insurance purpose,” Currey said.

About NAIFA: NAIFA comprises more than 700 state and local associations representing the interests of approximately 200,000 agents and their associates nationwide. NAIFA members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. The Association’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members.