A.M. Best Briefing: Future of Department of Labor's Fiduciary Rule Remains Uncertain

[March 15, 2017]

A.M. Best Briefing: Future of Department of Labor's Fiduciary Rule Remains Uncertain

Based upon discussions with insurers expected to be impacted by the U.S. Department of Labor's fiduciary rule, A.M. Best notes that the vast majority of these companies are moving ahead with implementation, despite the ongoing uncertainty given President Donald Trump's lack of support for the guidelines.

A Best's Briefing, titled, "Future of the Department of Labor's Fiduciary Rule Remains Uncertain," states that to date, the final deadline of Jan. 1, 2018, which is when all requirements of the rule must be met, should not be affected by a current delay of the initial compliance deadline to June 9, 2017, from April 10, 2017-a result of a recent directive from the Trump administration. The DOL's fiduciary rule essentially expands the responsibilities of financial professionals to that of a fiduciary and impact levels of compensation, mainly commissions. Given the relatively short duration of the delay, it is possible that the ruling might be further extended beyond the 60-day timeline, particularly since a new Labor Secretary has not yet been confirmed.

Given that qualified fixed-indexed and variable annuities are the retail products likely to be impacted the most by the rule, A.M. Best anticipates that a limited number of companies will de-emphasize these product lines or the distribution channels that sell them. Some companies are likely to experience a drag on earnings due to initial set-up costs of regulatory compliance as well as the cost of ongoig oversight. However, A.M. Best anticipates that sales would likely stabilize after an initial adjustment period, with a soft landing the year following implementation.

The briefing also notes that the U.S. Securities and Exchange Commission may still weigh in on its own interpretation of the fiduciary rule soon, which could extend the guidelines beyond retirement accounts and impose similar fiduciary standards on broker/dealers. As a result, many companies are being proactive in applying the same policies and procedures developed to address the DOL fiduciary rule to non-qualified annuity sales as well.

A.M. Best believes its ratings on certain life/annuity companies could potentially be negatively impacted by reduced sales volume affecting the operating performance of companies with business profile concentrations in the fixed-indexed and variable annuities markets. However, rating pressures could be mitigated should sales levels meaningfully recover shortly after the markets absorb the proposed changes.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=259597.

For a video interview with A.M. Best Director Thomas Rosendale on the DOL's fiduciary rule, please visit http://www.ambest.com/v.asp?v=fiduciary317.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.