Registered Index Linked Annuities (RILA) expected to gain interest

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Overview

A Registered Index Linked Annuity (RILA) is one of several types of annuity contracts offered by insurance companies. An investor’s gains or losses are based on the performance of a selected benchmark, typically an index, over a set period of time. These annuities feature a “bounded return structure”, which means they usually limit an investor’s losses when the index declines, but limits an investor’s gains when the index rises .

While the market for RILAs has grown in recent years, the SEC’s disclosure requirements are not currently tailored specifically to RILAs and their features. In 2022, Congress directed the Commission to adopt a registration form for RILAs and to design the form to ensure that a purchaser using the form receives the information necessary to make knowledgeable decisions.

What is a RILA?

A RILA is a type of annuity contract that provides investors a return based on the performance of a market index. RILAs are retirement investment products geared towards retail investors and tend to offer higher growth potential than fixed-income instruments, combined with a degree of risk protection.

Unlike variable annuity contracts which file under Form N-4, RILAs currently register offerings and file with the SEC on Form S-1 or S-3.

In September 2023, the SEC proposed amendments to provide a tailored form to register RILAs. If passed as proposed, the rule would:

• Provide investors with disclosures tailored to RILAs;

• Highlight key information about these complex products; and

• Enhance the registration, disclosure, and advertising framework for RILAs.

Background

Since 1985, insurance companies offering variable annuities have provided their disclosures using Form N-4. Today’s proposal would require RILAs to use an amended Form N-4, reflecting RILAs’ particular characteristics. These changes would streamline the registration process for issuers already using N-4 for other investment products. Furthermore, this would make disclosures among similar investment products more consistent.

Proposed Amendments

Use of Form N-4 and Summary Prospectus for RILAs

  • The proposal would require insurance companies to register RILA offerings on Form N-4. It would also amend Form N-4 to specifically address the features and risks of RILAs.
    • For example, the proposal would amend the form’s “Key Information Table” (KIT) to highlight key features of RILAs that should be disclosed, enabling investors to determine if a RILA is an appropriate investment for them.
  • The proposal would also permit RILA issuers to use the summary prospectus framework applicable to variable annuities.

Updates to the Filing Rules

  • The proposal aims to establish a consistent registration process for issuers on Form N-4. This would require RILA issuers to follow the same rules for updating their registration statements and prospectus filings as those that apply to variable annuities.
  • The proposal would also require RILA issuers to pay fees in arrears on Form 24F-2 to accommodate RILA registrations on Form N-4.

Guy Stanzione - Director, SEC Compliance Services

Guy Stanzione provides deep insight on the Securities Act of 1933, the Investment Company Act of 1940 and SEC regulatory compliance, as well as investment company solutions for regulatory document preparation, filing and distribution including Tailored Shareholder Reports. Leveraging more than 40 years of financial services, shareholder communication, printing and compliance service expertise he is a vital resource for financial services professionals navigating the complexities and pace of SEC regulatory changes .

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