Apr. 5, 2024
Thank you once again for the opportunity to meet in person on April 13 to discuss the pending RILA rulemaking. It was a productive discussion focusing on the rulemaking items that are most important to the CAI and the insurance industry generally. We look forward to further collaborating with the SEC and the staff as the rulemaking progresses. We are following-up on a topic that was a major focus of the meeting: the proposal’s requirement for a registrant to include the current upside feature rates in the statutory prospectus and to update those rates when they change via Rule 497 filings (the “497 approach”). As reflected in the CAI’s comment letter, this is a critically important issue, and we deeply appreciate the careful thought that the SEC and the staff have given it. The universal consensus among the CAI’s members continues to be that the 497 approach would be unworkable, extraordinarily costly, and confusing to investors. As such, we remain hopeful that the SEC is open to possible alternatives. The CAI continues to believe that the existing approach under the Form S-1/S-3 framework – disclosing guaranteed minimum upside rates in the prospectus and providing the current rates (subject to guaranteed minimums) to customers at the point-of-sale and prior to a new crediting period – to be the best option for RILAs, which are uniquely long-term contracts with multiple crediting options and terms. This approach has been proven to work, over the course of many years, for both investors and insurance companies. Furthermore, the CAI continues to believe that a viable alternative to the 497 approach would be incorporating by reference into the prospectus the specific website address appearing in the index option appendix, where the current upside rates would be posted, as the proposal would already require companies to host such a website (the “website approach”). We envision that a registrant could have a choice between following either the 497 approach or the website approach, though we expect that registrants would universally opt for the website approach, if made available, given the impracticality of the 497 approach, as well as the fact that most RILA issuers already host such websites today. During discussions at the above-referenced meeting, the staff raised questions about whether and how historical upside rates would be memorialized under the proffered website approach. The staff generally indicated that rate trends may be of interest to investors, other market participants, and the SEC. The staff further indicated that access to historical rates would be necessary if one sought to confirm the rates that were previously incorporated by reference into the current or a prior prospectus. In light of the staff’s questions, the CAI has since further considered the memorialization of historical rates in conjunction with the website approach. We confirm that if the SEC were to adopt the website approach as an alternative to the 497 approach, the CAI would support a requirement to include historical upside rates as part of the website that is incorporated by reference into the prospectus. For example, companies could include both a “current rate” and “historical rate” tab on the incorporated website, and the historical rate tab could reflect prior rates for a specified length of time, all presented in a clear, investor-friendly way, subject to prospectus liability, and based on each RILA issuer’s unique product offering and website format. With regard to the length of time, the length could be, e.g., the length of the longest crediting period offered by the registrant plus three years. We believe a requirement to post and maintain both current and historical upside rates as part of the website approach could address the staff’s potential concerns regarding the memorialization of upside rates that have been incorporated by reference into the prospectus. This would be a pragmatic solution in making the website approach a realization. Indeed, several member companies include the historical rates on their websites today, and while there are significant costs associated with maintaining a website archive of historical rates, companies agree the website approach (with a historical rate requirement) would be far preferable than the 497 approach. Lastly, during the meeting, it was also discussed that other approaches may warrant consideration, such as the filing of an annual report with the SEC disclosing the upside rates offered during the previous one-year period (or ranges of such rates) (the “report approach”). While the CAI’s members generally favor the simplicity, elegance and utility of the website approach, members agreed that a report approach would generally be far preferable to the 497 approach. If you have any questions, or if it would be helpful to discuss, please do not hesitate to contact Steve, Dodie, or me. Best, Ron Ronald Coenen Jr. | Partner Biography Eversheds Sutherland Helping our clients, our people and our communities to thrive Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com.