Last month, the Life Insurance and Annuities (A) Committee of the National Association of Insurance Commissioners (“NAIC”) formed a sub-group charged with reviewing issues surrounding contingent annuities.  The charge comes in response to industry disagreement over the classification of contingent annuities.

Some industry commentators and participants believe that contingent annuities should be treated as annuity products, whereas others consider them more akin to financial risk products, providing payment upon the happening of some specified financial event.  For example, the New York Insurance Department (now part of the Department of Financial Services) has taken the position, in a 2009 bulletin, that contingent annuities are an impermissible form of financial guaranty insurance, and therefore, prohibited.  See our July 29, 2009 blog post for details.  The American Academy of Actuaries (the “AAA”), on the other hand, believes that contingent annuities should be treated as annuities, and afford customers great advantages.  The AAA has prepared a report on the topic, discussing the benefits of contingent annuities.  The report was considered by the NAIC sub-group on December 22, 2011 during a conference call.  A copy of the report is available here, and a presentation by the AAA on contingent annuities is available here.

The issue of contingent annuities continues to be considered by the NAIC.  We will monitor this topic.