NAIC Life and Annuity Illustration Subgroup and Suitability Working Group Construct More Guidance

At the NAIC Spring National Meeting, the Illustration Subgroup and the Suitability Working Group reported that they are building out the following additions:

• The Illustration Subgroup laid out its plans for proposed additions to Section 7 of Actuarial Guideline 49-A (AG 49-A).
• The Suitability Working Group is proposing to construct a new suitability/best interest training course for regulators and a centralized database of state interpretations of the Suitability in Annuity Transactions Model Regulation (#275). Still pending is the working group’s Safe Harbor Guidance Document, which remains under review by a small drafting group.

On April 2, the Illustration Subgroup exposed its proposed additions to Section 7. These additions followed illustration building code inspections by 13 life insurers offering whole life, universal life, and indexed universal life (IUL) products. These inspectors were reportedly “pleasantly surprised” to find that the illustrations checked all the boxes of the NAIC Life Insurance Illustrations Model Regulation (#582) and the AG 49-A checklist.

However, regulators found one unexpected item on their inspection punch list: the use of back-casted historical data for certain newly created indices. They concluded that 10-, 15-, or 20-year back-casted data in IUL illustrations — when the indices themselves had not existed for that long — should not be included. So, the regulators believed that the IUL illustration building code still needed “a little more guidance” to focus such illustrations on actual historical data.

As proposed, the code additions to Section 7:

• Limit the table showing the minimum and maximum geometric average annual credited rates to the benchmark index account only, preventing any side-by-side comparisons with other indices. (Section 7.A.ii).
• Limit the actual historical index changes and the corresponding hypothetical annual rate of index credits to the actual period that the index has been in existence, preventing the use of back-casted performance. The proposed changes make clear that the period must not include the period the underlying components of an index have been in existence if the index itself was not in existence. (Section 7.A.iii).
• Prohibit the basic illustration or any supplemental illustration from including material that is not expressly allowed by revised Section 7.A.ii and iii.
• Prohibit comparisons, or side-by-side presentations, of historical returns and maximum illustrated rates.

The proposed amendment has been exposed for public comment, with the period ending on June 30, 2025.

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