management of the contingent annuity guarantee, the insurer should specify asset restrictions and related requirements contractually, and establish the appropriate operational and legal protections in the event of violations by the asset manager. The group annuity contract and certificate may indicate that the life insurer has the right to terminate the income guarantee if the investments in the purchaser’s account deviate from the allowable investment allocations set forth in the annuity contract. While, most contingent annuities currently offered take the form of the group annuity contract described in the above paragraphs, the contingent annuity may also be offered as an individual fixed annuity. In this construct, the individual who owns the asset account will be the contract holder, while a service or administrative type of agreement may exist between the entity that manages such accounts and the life insurer. It should be noted that all comments in this letter are based on the contingent annuity group contract/individual certificate product structure described in this section. Because this structure is the most common, the CAWG has based all comments in this letter on the group annuity contract form. We understand that other product structures (e.g., individual rather than group, variable rather than fixed, separate account rather than general account) may have been filed and/or approved, but we are not commenting on those product structures in this letter. Differences in state laws and/or product designs may result in the filing of different product designs in different states. We are not in a position to comment on different company filing practices, but the CAWG sees the value of using a common product structure in all states. Regardless of policy form, the CAWG believes the company needs to disclose in the filing that the product is a contingent annuity. The contingent annuity product design introduces some new elements that distinguish the product from the typical GLWBs being sold in the current market. It is therefore important that both the elements that are similar and the elements that are different be clearly disclosed in product filings so that individual states are able to effectively review and monitor the products.
Holder of Invested Assets – The assets to which the contingent annuity guaranteed lifetime income payments are linked are external to the life insurance company; the assets are held by the purchaser in a personal account managed by an asset manager within parameters typically set in the agreement with the life insurance company. This procedure differs from variable annuity GLWBs, where the assets are held in a separate investment account owned and managed directly by the life insurance company. While this distinction results in some differences in contractual and operational requirements for the life insurance company, there is no impact on the characteristics of the lifetime income guarantee provided by the life insurance company to the individual purchaser and little or no impact on the management of the basis risk. For example, the insurance company may have the ability to substitute funds under a contingent annuity similar to what is allowed under a GLWB, although additional contractual and operational steps would need to be taken. 11