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If complaints about an agent’s sale of “ABC” mutual fund are handled by the state securities commissioner… Why should complaints about the same agent’s sale of a variable annuity invested in “ABC” mutual fund be handled exclusively by the state insurance commissioner? Are state laws enacted 35 years ago still relevant today when most agents who sell variable annuities are also licensed to sell mutual funds?

Although annuitization provides insurance against longevity risk that can benefit households, researchers have uncovered an annuitization puzzle, which suggests households are reluctant to annuitize their wealth. This study contributes to the discussions on the annuitization puzzle by examining investor sophistication and owning annuities in non-retirement accounts.

The study utilizes data from the 2018 U S National Financial Capability Study (NFCS). The empirical analyses are based on logistic regression estimates of annuity ownership on investor sophistication. Interpretations are based on odds ratios.

The findings indicate that investor sophistication contributes to the annuity puzzle. Investors with low objective and high subjective investment knowledge (overconfident investors) are more likely to own annuities compared to those with low objective and low subjective investment knowledge. However, investors with high objective and low subjective investment knowledge (under-confident investors) are less likely to choose annuity ownership compared to those with low objective and low subjective investment knowledge. The findings and ensuing discussion highlight the importance of annuitization when planning for retirement, with implications for financial service professionals.

The measure of investor sophistication does not assess the difficulty level of each financial knowledge question. The questions used to construct the investor sophistication variable are based on general investment knowledge. In addition, the annuity ownership variable used in this study pertains to investments outside retirement accounts. Despite these limitations, the findings highlight the importance of annuitization when planning for retirement.

Unlike prior studies, the authors consider four mutually exclusive measures of investor sophistication constructed from measures of objective and subjective investment knowledge to understand the effect of investor sophistication on annuity ownership in the United States.

The life insurance industry has been exposed to high levels of longevity risk born from the mismatch between realized mortality trends and anticipated forecast. Annuity providers are exposed to extended periods of annuity payments. There are no immediate instruments in the market to counter the risk directly. This paper aims to develop appropriate instruments for hedging longevity risk and providing an insight on how existing products can be tailor-made to effectively immunize portfolios consisting of life insurance using a cointegration vector error correction model with regime-switching (RS-VECM), which enables both short-term fluctuations, through the autoregressive structure [AR(1)] and long-run equilibria using a cointegration relationship. The authors also develop synthetic products that can be used to effectively hedge longevity risk faced by life insurance and annuity providers who actively hold portfolios of life insurance products. Models are derived using South African data. The authors also derive closed-form expressions for hedge ratios associated with synthetic products written on life insurance contracts as this will provide a natural way of immunizing the associated portfolios. The authors further show how to address the current liquidity challenges in the longevity market by devising longevity swaps and develop pricing and hedging algorithms for longevity-linked securities. The use of a cointergrating relationship improves the model fitting process, as all the VECMs and RS-VECMs yield greater criteria values than their vector autoregressive model (VAR) and regime-switching vector autoregressive model (RS-VAR) counterpart’s, even though there are accruing parameters involved.

The market model adopted from Ngai and Sherris (2011) is a cointegration RS-VECM for this enables both short-term fluctuations, through the AR(1) and long-run equilibria using a cointegration relationship (Johansen, 1988, 1995a, 1995b), with a heteroskedasticity through the use of regime-switching. The RS-VECM is seen to have the best fit for Australian data under various model selection criteria by Sherris and Zhang (2009). Harris (1997) (Sajjad et al., 2008) also fits a regime-switching VAR model using Australian (UK and US) data to four key macroeconomic variables (market stock indices), showing that regime-switching is a significant improvement over autoregressive conditional heteroscedasticity (ARCH) and generalised autoregressive conditional heteroscedasticity (GARCH) processes in the account for volatility, evidence similar to that of Sherris and Zhang (2009) in the case of Exponential Regressive Conditional Heteroscedasticity (ERCH). Ngai and Sherris (2011) and Sherris and Zhang (2009) also fit a VAR model to Australian data with simultaneous regime-switching across many economic and financial series.

The authors develop a longevity swap using nighttime data instead of usual income measures as it yields statistically accurate results. The authors also develop longevity derivatives and annuities including variable annuities with guaranteed lifetime withdrawal benefit (GLWB) and inflation-indexed annuities. Improved market and mortality models are developed and estimated using South African data to model the underlying risks. Macroeconomic variables dependence is modeled using a cointegrating VECM as used in Ngai and Sherris (2011), which enables both short-run dependence and long-run equilibrium. Longevity swaps provide protection against longevity risk and benefit the most from hedging longevity risk. Longevity bonds are also effective as a hedging instrument in life annuities. The cost of hedging, as reflected in the price of longevity risk, has a statistically significant effect on the effectiveness of hedging options.

This study relied on secondary data partly reported by independent institutions and the government, which may be biased because of smoothening, interpolation or extrapolation processes.

An examination of South Africa’s mortality based on industry experience in comparison to population mortality would demand confirmation of the analysis in this paper based on Belgian data as well as other less developed economies. This study shows that to provide inflation-indexed life annuities, there is a need for an active market for hedging inflation in South Africa. This would demand the South African Government through the help of Actuarial Society of South Africa (ASSA) to issue inflation-indexed securities which will help annuities and insurance providers immunize their portfolios from longevity risk.

In South Africa, there is an infant market for inflation hedging and no market for longevity swaps. The effect of not being able to hedge inflation is guaranteed, and longevity swaps in annuity products is revealed to be useful and significant, particularly using developing or emerging economies as a laboratory. This study has shown that government issuance or allowing issuance, of longevity swaps, can enable insurers to manage longevity risk. If the South African Government, through ASSA, is to develop a projected mortality reference index for South Africa, this would allow the development of mortality-linked securities and longevity swaps which ultimately maximize the social welfare of life assurance policy holders.

The paper proposes longevity swaps and static hedging because they are simple, less costly and practical with feasible applications to the South African market, an economy of over 50 million people. As the market for MLS develops further, dynamic hedging should become possible.

The purpose of this paper is to highlight not only the pre‐closing, but also the continuing due diligence required of all parties in private placement life insurance or annuities invested in hedge funds.

This technical paper describes the due diligence process for these high‐end offerings, illustrating key concerns through case studies.

Recent events have caused the advantages, disadvantages and timing issues to crystallize, together with what issues require pre‐closing and post‐closing due diligence.

This paper provides timely guidance from experts approaching the issues from multiple disciplines – law, accounting, and financial analysis – to yield a comprehensive analysis of the position of all parties to the transaction.

To analyze the SEC’s newly adopted Rule 498 A, the variable contract summary prospectus rule, and concurrently adopted prospectus disclosure requirements in order to propose to insurance companies issuing variable contracts a project implementation plan for companies seeking SEC approval for summary prospectuses compliant with the new rules.

Discusses the history, requirements, effects, and expected implementation timeline of the new rules, then offers a detailed project plan and timeline for compliance.

The Rule does not require insurers to use summary prospectuses, but there are several compelling reasons for doing so. The Rule allows insurers to use a new concise and brief selling document, and by so doing to begin generating very significant cost savings as soon as May 1, 2021. The article provides a detailed implementation plan for insurance companies that want to comply with the new prospectus disclosure requirements and implement policies and procedures to begin using summary prospectuses.

A coordinated project implementation plan like that outlined in the article might assist insurance companies to make the requisite statutory prospectus revisions and prepare and obtain SEC approval of summary prospectuses by May 1, 2021.

Analysis from experienced attorneys who frequently advise insurance companies issuing fixed and variable annuities, and assist clients in navigating the complex regulatory requirements governing insurance and securities products.

Using data from the Health and Retirement Study, we examine behavioral responses to a new generation of retirement policies that on average are actuarially neutral. Although many conventional models predict that actuarially neutral policies will not affect retirement behavior, our model allows those with high-time preference rates to find that the promise of an actuarially fair increase in future rewards does not balance the loss from foregone current benefits. Thus together with liquidity constraints facing those with high-time preference, we find that actuarially neutral policies do affect retirement behavior. One such policy follows on the elimination of the Social Security earnings test for those over normal retirement age, and would eliminate the earnings test between early and normal retirement age. Another of these policies would increase the ages of benefit entitlement. Still another such policy emerges from a central focus of the past few years on the adoption of personal accounts. Although Social Security benefits are currently paid in the form of an annuity, benefits from either defined benefit plans or from personal accounts may be made available as an annuity or as a lump sum of equivalent actuarial value. A related policy choice between actuarially equivalent benefits emerges on the pension side. There has been discussion of relaxing the current IRS prohibition against paying a pension benefit when a person remains at work, instead allowing partial pension benefits to be paid to those who partially retire on a job.

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April, May, and June 2010.

The paper provides excerpts from FINRA Regulatory Notice 10‐18, Master Accounts and Sub‐Accounts; 10‐22, Regulation D Offerings; 10‐23, Trade Reporting and Compliance Engine (TRACE); 10‐24, Trade Reporting; 10‐27, Customer Complaint Reporting; and 10‐30, Trading‐Pause Pilot Program; provides summaries of selected disciplinary actions.

(10‐18) If a firm has notice that the sub‐accounts of a master account have different beneficial ownership (but does not know the identities of the beneficial owners) or the firm is privy to facts and/or circumstances that would reasonably raise the issue as to whether the sub‐accounts, in fact, may have separate beneficial owners, then the firm must inquire further and satisfy itself as to the beneficial ownership of each such sub‐account. (10‐22) A broker‐dealer has a duty – enforceable under federal securities laws and FINRA rules – to conduct a reasonable investigation of securities that it recommends, including those sold in a Regulation D offering. (10‐23) On February 22, 2010, the SEC approved the second major proposed expansion of TRACE to include Asset‐backed Securities as TRACE‐Eligible Securities, to require the reporting of Asset‐backed Securities transactions and to establish reporting fees. (10‐27) Starting on July 1, 2010, the beginning of the third calendar quarter, firms must use revised and new product codes to report statistical information regarding written customer complaints relating to annuities and life settlement products. (10‐30) On June 10, 2010, FINRA began a pilot program in which it will halt trading otherwise than on an exchange with respect to securities included in the S&P 500® Index where the primary listing market has issued a trading pause due to extraordinary market volatility. Selected disciplinary actions: FINRA announced that it has settled charges with two additional firms relating to the sale of auction rate securities (ARS) that became illiquid when auctions froze in February 2008. FINRA announced that it has fined five broker‐dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers.

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org.

The purpose of this paper is to remind investment company compliance professionals of common traps for unwary investors, to emphasize the importance of detecting and preventing fraud in the marketplace that may affect individual investors, and to review basic investor rights and the importance of suitability for investment company clients.

The paper explains the constant danger of investment fraud, lists the North American Securities Administrators Association's (NASAA's) top ten investor traps for 2007, reviews questions investment sales professionals should ask themselves concerning the suitability of every investment for a given client, and lists rights to which investors should be entitled before they make every investment.

The paper finds that the path to safe investing is littered with pitfalls likely to catch unwary investors. Investment fraud is on the rise. Before offering any investment, sales professionals should ask themselves several key questions. Investors can avoid becoming trapped in a fraudulent or unsuitable investment by recognizing that they have certain rights and demanding that these rights be upheld before they invest.

Compliance professionals should remember that the underlying purpose of most state and federal regulations governing investment companies is centered on investor protection and concerned with investment suitability and fraud prevention.

The paper provides useful information with regard to the pitfalls likely to catch investors who want to make successful investments.

This case provides students with an opportunity to practice a set of activity-based costing calculations. More importantly, it provides an instructor with the opportunity to challenge students to think about and to discuss the rationale used by the case protagonist to revise the means by which the company allocates corporate support costs to the product lines and to the business units. It is best used as an introduction to activity-based costing and/or the more general topic of cost allocations. As such, it is effective for undergraduate and graduate managerial accounting courses, as well as executive education financial management programs.

The article alerts investment companies and insurers of important SEC staff interpretive guidance regarding reliance on industry-standard exemptive relief.

Current industry practices and the SEC staff’s guidance are summarized, followed by a brief discussion of the potential implications to insurance companies and investment companies.

The SEC staff recognizes that the current approach to mixed and shared funding may be outdated, with the result that insurance companies and investment companies may be able to reduce compliance and regulatory burdens.

It is still too soon to gauge industry reaction, but insurance companies and investment companies should monitor industry practices relating to mixed and shared funding to determine whether they need to obtain and comply with industry-standard exemptive relief.

The SEC staff clearly recognizes that insurance companies issuing variable insurance contracts, and the funds that serve as their underlying investments, may be able to reduce compliance monitoring burdens and simplify their operations.