RILA revolution: SEC adopts tailored registration framework for RILAs and MVAs
July 29, 2024
On July 1, 2024, the Securities and Exchange Commission (SEC) adopted rule and form amendments to provide a tailored registration framework for registered index-linked annuities (RILAs) and registered market value adjustment annuities (MVAs). The new framework will require RILAs and MVAs to be registered on Form N-4, the same form used to register variable annuities (VAs). To address the risks and feature functionalities of RILAs and MVAs, the SEC significantly amended Form N-4, although certain of the amendments are also applicable to VAs.
This alert summarizes the most important aspects of the SEC rulemaking. It assumes a working knowledge of the RILA and MVA product designs. If needed, a helpful overview of how RILAs and MVAs generally work can be found in the Adopting Release, available here.
The new Form N-4 framework is a welcome and long-awaited regulatory overhaul. For decades, insurance companies in the RILA or MVA market have been navigating the complexities and burdens of registering securities on Form S-1 or Form S-3 – the SEC’s default registration forms under the Securities Act of 1933 (1933 Act), and the same registration forms used by public companies selling stocks and bonds. Foremost among the many ill-fitted aspects of the S-1/S-3 framework, RILA/MVA issuers are required to prepare GAAP financial statements (absent exemptive relief) as well as robust company-related disclosures (designed for investors in stocks or bonds, not purchasers of insurance contracts). The burdens associated with the S-1/S-3 framework are so complicating and resource-intensive for insurers that they have been a serious barrier to market entry and innovation, even as RILA sales ballooned in recent years.
Fortunately, the new Form N-4 framework will largely eliminate these concerns, and in that sense, the new Form N-4 framework is indeed a revolution.
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