SEC updates annuity disclosure rules for RILAs, MVAs

The SEC has unveiled new disclosure requirements and registration processes for registered index-linked annuities and registered market value adjustment annuities as it hopes to provide investors with clearer and more specific information about the products.

In a statement Monday, the regulator explained that the final rule will mandate issuers of non-variable annuities register offerings using Form N-4, traditionally used for variable annuities, as it updates and enhances the registration, filing, and disclosure framework for non-variable products.

“The market for these complex products has grown significantly in recent years. Sales of RILAs reached approximately $47.4 billion in 2023 alone, more than quintupling since 2017,” SEC Chair Gary Gensler, citing figures from Limra.

“It is important that investors receive the information they need – in plain English – to make informed investment decisions,” he said, noting that the amendments “will improve the disclosure process for these complex products to benefit investors.”

Non-variable annuities, offered by insurance companies to retail investors, include RILAs and MVA annuities. Because both typically involve charges and penalties for early withdrawals, the ability of investors to understand the products can be a point of concern.

The conversation around RILA disclosures has been going on for years, with lobbying and advocacy around the issue going as high up as Capitol Hill.

By adapting the existing framework for variable annuities to include disclosures for non-variable annuities, the new rules aim to provide better understanding and efficiencies for issuers and the SEC, the regulator maintained.

The amendments permit the use of a summary prospectus framework, which highlights key information for investors while making additional details available upon request. The Commission is also extending Rule 156 to non-variable annuity advertisements and sales literature to ensure these materials are not materially misleading under federal securities laws.

“This rule will ensure that prospective purchasers can readily find the essential information they need to understand RILAs and their risks and benefits,” Wayne Chopus, president and CEO at the Insured Retirement Institute, said on Monday in reaction to the news.

According to IRI, the framework that the SEC had heretofore been using required RILAs and other new insured retirement products to be registered with forms designed primarily for equity offerings, forcing issuers to provide information that's irrelevant to would-be annuity buyers. They also require the disclosure of GAAP-compliant financial information, something many insurers aren't otherwise required to produce.

“The changes made by this rule change should also eliminate barriers to entry and encourage more competition and innovation in this critical market segment,” Chopus said.

In another statement Monday, SEC Commissioner Hester Peirce supported the general approach to implementing the congressional mandate but voiced some concerns.

"I … would have preferred a more merits-neutral approach and a greater focus on facilitating the use of creative disclosure techniques to foster deeper investor understanding," she said.

Peirce noted that the new N-4 regime provides numerous benefits, including allowing insurance companies to file financial statements in accordance with statutory accounting principles when GAAP financial statements are not prepared.

However, she also highlighted potential biases in the new rule, including the possibility that required disclosures, such as the maximum potential loss on the front cover page, might unduly dissuade investors from purchasing RILAs.

"The Commission insists that the disclosure 'is not intended to suggest the maximum loss is likely to occur,' but, absent necessary context, the disclosure seems designed to dissuade investors from purchasing RILAs," Peirce said.

She also pointed out that the rule's hypothetical caps and buffers could mislead investors as they do not reflect industry practice. Another possible source of confusion, she argued, comes from a requirement to declare caps that limit potential returns under “Ongoing Fees and Expenses.”

“RILA investors knowingly give up potentially higher returns for ‘some ability to customize a level of risk with which they are comfortable.’ That give-up is no more a fee than the downside buffer is a rebate,” she said.

“By characterizing these caps as ‘implicit fees,’ we have abandoned the plain language we demand of registrants,” she said.

The features of RILAs, Peirce added, lend themselves to new opportunities to approach disclosure, including the use of decision trees and interactive technologies, while shedding antiquated approaches like requiring issuers to file ten copies of forms.

"My hope is that the Commission will commit itself to working with the public to see how our disclosure regime can be improved to take advantage of approaches and technologies that will enhance investor engagement and understanding," she concluded.

The amendments will take effect 60 days after publication in the Federal Register, with compliance required by May 1, 2026, for most of the final amendments to Form N-4 and related rule and form amendments. Insurance companies must comply with amendments to Rule 156 on the effective date.