Fitch: FIA Inclusion in DOL Ruling to Affect US Annuity Sales

NEW YORK & CHICAGO--(BUSINESS WIRE)-- The US Department of Labor's (DOL) finalized ruling, which now includes fixed index annuities (FIAs) along with variable annuities (VAs) under the new best interest standards, will mostly affect FIA writers, according to Fitch Ratings.

The DOL Wednesday issued its Conflict of Interest Rule, also referred to as the fiduciary rule. The inclusion of FIAs under the more onerous requirements of the Best Interest Contract was unexpected. As such, Fitch believes FIA writers are not as prepared as VA writers, who have already spent considerable time and effort preparing for the new standards. FIA writers also tend to be less diversified, so many of the negative aspects of the new regulations will have a greater impact on them.

Final regulations are less onerous than expected, which should diminish the negative impact on VA sales relative to initial expectations. Fitch expects the new regulations to drive changes in product offerings over time, to lead to changes in distribution strategies and compensation structures and to increase litigation risks and operational costs for companies.

However, Fitch believes that, over the longer term, both FIA and VA writers will be able to adapt to the new standards due to the relative attractiveness of these products in a low interest rate environment. Additionally, the longer phase-in period may lessen the disruption to the sales process that was envisioned and may dampen the impact of the unexpected inclusion of FIAs.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Source: Fitch Ratings

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