Firms offering variable annuities and variable life insurance contracts could face new disclosure requirements with rule changes proposed by the Securities and Exchange Commission.
The proposal “is intended to help investors better understand these contracts' features, fees, and risks, and to more easily find the information that they need to make an informed investment decision,” the Commission says.
“Providing key summary information about variable annuities and variable life insurance contracts to investors is particularly important in light of the long-term nature of these contracts and their potential complexity,” Chairman Jay Clayton said in a statement.
The proposal would, for the first time, permit these insurance contracts to use a summary prospectus to provide disclosures to investors. “This document would be a concise, reader-friendly summary of key facts about the contract,” the SEC says. More detailed information about the contract would be available online, and an investor also could choose to have that information delivered in paper or electronic format at no charge.
Firms offering variable annuities and variable life insurance contracts could face new disclosure requirements through a rule change proposed late last month by the SEC.
Mutual funds have been permitted to use a similar layered approach to disclosure—with investors receiving a summary prospectus, and more-detailed information available on request—since 2009.
Proposed new rule 498A under the Securities Act would permit the use of two distinct types of contract summary prospectuses: initial summary prospectuses covering variable contracts currently offered to new investors and updating summary prospectuses for existing investors.
The initial summary prospectus would include: an overview of the contract; a table summarizing certain key information about the contract’s fees, risks, and other important considerations; and more detailed disclosures relating to fees, purchases, withdrawals, and other contract benefits.
The updating summary prospectus would include a brief description of certain changes to the contract that occurred during the previous year, as well as the key information table from the initial summary prospectus.
In certain types of variable contracts, investors allocate their investment to one or more underlying investment options (typically, mutual funds). Certain key information about these funds would be provided in both the initial summary prospectus and updating summary prospectus.
Amendments to existing reporting registration forms for variable contracts “are intended to improve the content, format, and presentation of information to investors, including by updating the required disclosures to reflect industry developments,” the Commission says.
In addition, the Commission proposed amendments to require the use of the Inline eXtensible Business Reporting Language (Inline XBRL) format for the submission of certain required disclosures in the variable contract statutory prospectus.
“This would provide a mechanism for allowing investors, their investment professionals, data aggregators, and other data users to efficiently analyze and compare the available information about variable contracts,” the Commission says.
A public comment period on the proposals will remain open through Feb. 15, 2019. A fact sheet on the plan can be found on the SEC’s Website.