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Complex VAs Draw SEC’s Attention

Samuels Yoelin Kantor LLP

SEC official Norm Champ has told a conference at the Insured Retirement Institute that the agency has been tracking the increased complexity of variable annuity contracts. The more complex they become, the harder it is for the financial industry to properly describe their risks, which is now a regulatory concern. Some VAs are now tied to market indices; some have withdrawal caps, like the one related to a $1.6M penalty the SEC assessed against Massachusetts Mutual Life Insurance last November; some have had product names which, in the SEC’s opinion, may have misled investors about their risks.

Most significantly the agency is interested in some issuers suspending or limiting payments, years after the initial contract, in ways that may or may not conform to the original prospectus — in other words, “changing the deal on the investor.” The SEC is gathering data about how many contracts are subject to these changes, and the exact legal basis for the practice.

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