EIAs, SEC, Risk, Regs, and Company Accounting ???

[scagnt83]

The word on the street for a while now has been that EIAs are going to fall under jurisdiction of the SEC and become a registered product running through a B/D.

Currently premiums from fixed life products fall under the companies general account and the regulations/holding requirements surrounding it.
If this becomes a registered product I assume that will not be the case anymore??

Does anyone think that this would make EIAs a riskier product by that happening?
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When I say riskier, I dont necessarily mean just for the client. Can the company not leverage premiums from VAs more than fixed products? I was under the impression that they can. I could see them possibly getting underwater on investments related to EIAs if they become a registered product. And being able to leverage more money, could lead to higher caps or higher guarantees....

Is my reasoning flawed? Im no expert on the internal workings of Insurance company holdings....

 

[Ichiban]

Well nothing will happen for at least 2 more years as stated by the SEC. There are 2 bills going through the Senate and House trying to define an Indexed Annuity as a Fixed product thus out of the hands of the SEC. Contacting your local reps and asking them to support these bills would make this something that will never need to be considered.

 

[JMO Fan]

If hedge investments backing indexed products make the other general account products more risky, all the more reason to move them to separate accounts. General account customers shouldn't have to bear the risk that stock options become too expensive to support index contract guarantees. The SEC has already delayed this decision too long.

 

[scagnt83]

If hedge investments backing indexed products make the other general account products more risky, all the more reason to move them to separate accounts. General account customers shouldn't have to bear the risk that stock options become too expensive to support index contract guarantees. The SEC has already delayed this decision too long.

So your in favor of them being a registered product. Interesting.
You dont think that will make them fall out of favor as a safe investment?

 

[Death Cab For Tootie]

Registering EIAs as securities has ZERO to do with how they are managed and everything to do with a power grab by FINRA and the SEC. If EIAs are eventually filed as securities, nothing will change on how they're simply fixed annuities with a different crediting method.

 

[scagnt83]

Registering EIAs as securities has ZERO to do with how they are managed and everything to do with a power grab by FINRA and the SEC. If EIAs are eventually filed as securities, nothing will change on how they're simply fixed annuities with a different crediting method.

Yes, but does it not give them the opportunity to change at that point?
Will the capital requirements not change for them if they are not part of the general account?

 

[BNTRS]

If they are not part of the general account, it'll effect capitalization ratios for the insurance companies. Being part of a seperate account is advantageous to the owner of the contract from the standpoint of failure of the insurance company. However, it would be strange to see gauratees kept on these products if they weren't allowed to keep the funds as part of the general account. If part of the general account, those funds can be included in total assets and improve things like surplus and AVR. If part of a seperate account, the insurance company is only going to make money on the funds if they start charging fees like a variable annuity.

I think this is one of the issues they have with making this a regulated product. The guaratnees that are being made with an EIA would create a much larger liability to the insurance company if the money sat in a seperate account. When that takes place, the money actually sits in the investment products that the owner has chosen. Funds from EIA's go into the general account where a large share of the proceeds go towards options contracts that the insurance company purchases to make the good on the promises it makes for EIAs. Huge advantage to being able to keep it in the general account and keep total assets higher.