Press Release - JUNE 16, 2017

A.M. Best Briefing: Opposition to Department Of Labor’s Fiduciary Rule Continues Despite Initial Implementation

 Thomas Rosendale
+1 908 439 2200, ext. 5201
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - JUNE 16, 2017
The delayed initial compliance deadline for the Department of Labor (DOL) fiduciary rule has passed, and as a result, portions of the rule have become effective immediately, including the Best Interest Contract Exemption (BICE), the Class Exemption for Principal Transactions (CEPT) and final regulations specifying who is a fiduciary.

A new Best’s Briefing, titled, “Opposition Continues Despite Initial Implementation of Department Of Labor Fiduciary Rule,” states that during this transition period, which runs from June 9, 2017, through Jan. 1, 2018, when the rule is scheduled to go into full effect, individuals relying on the exemptions for covered transactions are required to adhere only to “impartial conduct standards.” However, the practical impact of the initial implementation is mitigated by the DOL’s indication that it will not enforce the fiduciary rule during the transition period, so long as fiduciaries are acting in good faith to comply with the regulations.

A.M. Best has observed that despite the ongoing uncertainty surrounding the DOL fiduciary rule and the prospects for other related changes to fiduciary standards, most companies continue to execute their compliance plans assuming full and timely implementation of the DOL fiduciary rule as it was originally designed. Many view the prospects of an expansion of fiduciary standards to be inevitable, arguing that implementing changes to comply with the current rule is in their own best interests from a risk management perspective, regardless of the outcome.

It remains clear that the Trump administration and many in Congress still are strongly opposed to the rule. The DOL could make changes to the rule during this transition period as a result. Accordingly, legislation was recently introduced in the House of Representatives to overturn the DOL fiduciary rule. Additionally, on June 8, the House passed H.R. 10, the Financial CHOICE Act, which repeals or amends much of the Dodd-Frank Act, and would also repeal the DOL’s fiduciary rule and require the DOL to substantially conform any new ERISA fiduciary rules to the SEC’s standards.

A.M. Best notes that impact on sales of products most affected by the new rule, such as variable annuities (VA) and fixed indexed annuities (FIA), have been somewhat less than some companies had projected in their 2017 financial plans. However, industrywide sales of variable annuities and fixed indexed annuities have been on the decline since last year.

A.M. Best’s ratings on certain life/annuity companies could be negatively affected if a decline in sales volume dampens the operating performance of companies with business profile concentrations in the FIA or VA markets, regardless of what the future may hold for the DOL fiduciary rule. However, rating pressure could be mitigated if, shortly after clear resolution of any changes to fiduciary standards, sales recover meaningfully.

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