On August 7, 2025, the National Association of Insurance Commissioners’ Annuity Suitability (A) Working Group issued draft safe harbor regulatory guidance with a comment period that ends on September 22, 2025. The draft guidance provides detail for insurers regarding their obligations when they rely on third parties, such as broker-dealers, investment advisers, or ERISA fiduciaries, to comply with the Suitability in Annuity Transactions Model Regulation (No. 275-1).
The draft guidance addresses insurers’ reliance on the safe harbor and on third parties to supervise sales under section 6(E) and 6(C)(3)(a), respectively. It outlines that insurers must:
- Verify that the safe harbor conditions are satisfied.
- Actively monitor the supervising entity.
- Report to the supervising entity the data necessary to maintain an effective oversight system.
The draft guidance recognizes that fixed annuities could fall within the safe harbor if the supervisory control system implementing the comparable standard (i.e., Regulation Best Interest, state and federal fiduciary standards, or ERISA fiduciary standards) contemplates fixed annuities. The draft guidance highlights that insurers “must ensure that policies of the supervising entities also address the unique features of annuity contracts, including their long-term guarantees and surrender charges.”
To effectively and “actively” monitor the supervising entity, the draft guidance recommends three key practices:
- The contract with the supervising entity should clearly impose the compliance obligations on the supervising entity. It may also be useful to convey the insurer’s expectations.
- The insurer should perform onboarding due diligence that includes a review of policies and procedures and regulatory actions. The review of policies and procedures should ascertain whether the policies apply to registered and unregistered annuities with appropriate modifications for product differences.
- Ongoing monitoring that includes (i) due diligence questionnaires; (ii) periodic engagement with the supervising entity on compliance; (iii) risk analysis of sales activity, including sales to older consumers, free-look cancellations, early surrenders, and replacements; (iv) a strong audit program of adequate sample size on a frequent, risk-based basis; and (v) meaningful annual certifications that are “detailed and active.”
The draft guidance also sets the regulatory expectation that insurers should provide periodic information and reports to supervising entities to support informed decisions. In addition to reports on customer demographics, annuity features, and “other relevant factors,” the draft guidance suggests that insurers share with the supervising entity a range of information on sales made by the supervising entities’ producers.
The draft guidance outlines the regulators’ expectations for insurers’ reliance on third parties in satisfying their suitability obligations. Additional clarification may be needed on certain aspects of the draft guidance, such as:
- What constitutes periodic engagement with the supervising entity?
- Can it be appropriate that a supervising entity is never audited, based on the insurer’s assessment of risk?
- What is meant by “audit frequency and depth will depend on the strength of other elements of the monitoring program”?
- What constitutes a meaningful certification that is “detailed and active”?
- To the extent that the supervising entity has the details of sales made by its producers, would it be duplicative for the insurer to provide such information?
