January 28, 2009

Issue Update from Washington

While much of the country is mired in snow and ice, Congress and the nation's regulatory bodies are busy at work trying to respond to the existing economic climate.

Because of the tremendous activity over the past few weeks, NAILBA wants to take a minute to keep you informed of any activity involving key issues that could impact your agency's success.

Annuities Sales –Section 151A

On Wednesday, December 17, 2008, the U.S. Securities and Exchange Commission (SEC) passed a new rule on Section 151A that requires anyone selling an equity indexed annuity to possess a securities license.  Absent an injunction in court, SEC 151A and the new rules surrounding the sale of equity indexed annuities are scheduled to go into effect on January 12, 2011.

NAILBA does not accept the premise that an equity indexed annuity is a security.  Despite our written comments to the SEC opposing the rule and the over 700 letters sent to Members of Congress by NAILBA member agencies and their agents, the SEC moved forward with rule 151A. Recently, the National Association of Insurance Commissioners (NAIC) has filed suit in the District of Columbia to overturn this rule. This move was expected and we can anticipate protracted legal action before the issue is resolved. NAILBA will continue providing updates of the process to our members.

Tax Reform/Inside Build-up

Despite all of the attention that taxes received on the campaign trail, the current economic climate has made any sweeping changes to the tax code unlikely. Given the industry's key role in the retirement security of Americans, we believe any tax on the "inside build-up" of life insurance benefits is off the table for now.

As part of our ongoing efforts to proactively explain the importance of "inside build-up" to Members of Congress, NAILBA and its industry partners have laid out a strategy to engage Capitol Hill. 

Given the large number of new Members of Congress, NAILBA's government affairs team will conduct an extensive round of meetings to educate all Members of Congress on the key role NAILBA members and the broader life insurance industry play in the economy.  If you would like to schedule a meeting with your Congressman, please contact Janay Rickwalder at jrickwalder@nailba.org. 

Estate Tax

Due to the fact that the Estate Tax is set to expire on December 31, 2010, Congress must pass meaningful estate tax reform this year. NAILBA has followed this issue closely and expects congressional leaders to negotiate estate tax reform around a deal that provides a $3.5 million exemption with a 45% tax rate on all estates above the exempted level.

Regulatory Reform

The failure of the current regulatory system in the latest economic crisis has spurned significant Congressional action. Once Congress completes legislation designed to stimulate the economy, the House Financial Services and Senate Banking Committees will begin the process of updating our regulatory system. 

NAILBA has been supportive of an Optional Federal Charter (OFC) approach to the regulation of insurance, however, in light of the current economic climate, it is not clear if Congress has the will to create an additional federal agency with the singular mission of regulating the insurance industry.

Capital/Surplus Issues

NAILBA members should be aware that in November 2008, the American Council of Life Insurers (ACLI) put forth a proposal to the NAIC that would change surplus and capital rules. Given the absence of liquidity in the markets, the ACLI has argued that altering the rules on capital and surplus would allow insurers to use capital more efficiently and provide the public with a clearer picture of their financial strength.

While this issue is specific to the carriers, NAILBA believes this is becoming increasingly significant to producers. In this environment producers want to ensure they are providing the best guidance to consumers.

The NAIC is scheduled to vote on ACLI's proposal on Thursday, January 29. NAILBA will continue to keep you informed on this issue.

If you have any questions regarding these or any other legislative issues or are you are interested in participating on NAILBA's Government Affairs committee, please contact Janay Rickwalder at jrickwalder@nailba.org.

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