Writing sample

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MEMORANDUM
TO: Christine K. Benefield
FROM: Clarence F. Mitchell
DATE: March 2, 2010
RE: Arkansas Rule 82 & Florida Senate Bill 2082: Review and summarize key points/Compare and
contrast with the NAIC Suitability in Annuity Transactions Model Regulation and point out any significant
differences
Suitability In Annuity Transactions-Arkansas Rule 82: requires insurers to be responsible for ensuring that
any producer that markets its product has received at least four (4) hours of annual training that addresses
suitability requirements for the State of Arkansas and the mechanics of annuity products. These required
hours are part of, and not in addition to, the regular continuing education requirement. Training may be
provided in either a classroom setting or via home study (print textbook, CD or online).
Within this rule, the outlined requirements of annuity and life insurance requirements as they pertain to the
suitability of the recommended product to the needs of consumers, duties of insurance agents in
determining the objectively-reasonable basis for recommendations of annuities; additionally the agent
responsibility to provide a comparison of different annuity contracts is outlined, including potential tax
implications and disclosure of risk factors.
This trend of states requiring annuity suitability training can be expected to accelerate over the next year.
The reason for this new requirement is a finding by the Insurance Department that many producers, who
are the face of the insurance company whose products are being sold, when investigated regarding annuity
complaints cannot articulate the state requirements related to suitability and do not show a clear
understanding of the products. The training provision was adopted to assure that Arkansas citizens are
presented with professional advice. Insurers must design and adopt a procedure enabling them to certify
that the producers to whom they entrust the sales of their products have the necessary knowledge prior to
marketing annuities to the public. Insurers have great flexibility in determining whether the producer has
been presented with this training and that they have the knowledge necessary to present accurate and
educated information related to annuities.
The annual training is not a requirement for licensure. However, failure to complete annual training could
result in sanctions against both the producer and insurer. All producers selling annuity products must
have completed the four hour training by July 15, 2010. Annual Annuity Training may be provided at the
company level and may be eligible for continuing education credit if the program has been pre-approved by
the Department. The training may also be obtained from an approved licensed Continuing Education
Provider. The program must be cumulatively at least four hours in length and address the mechanics of
annuity products, the types of annuity products, and how to determine suitability of annuity products. The
program should also address requirements related to placing or replacing annuity products in Arkansas.
Currently the following list, which is not inclusive, defines ways to meet the four hour training requirement:
• Continuing Education Seminars offered either by an insurance company or a private provider
who have pre-approved the program with the insurance department;
• Live presentations by an insurance company or private trainer;
• Pre-recorded presentations by an insurance company or private trainer; or
• Telephonic or Web broadcasts by an insurance company or private trainer.

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Should a producer be appointed with two or more insurance companies offering annuities, the insurer may
accept in lieu of administering its own training program to the producer a certified statement from the
producer affirming that four training hours have been completed with another company. This certification
should include a letter or some other document from the insurer providing the training verifying that the
producer has completed the Annual Annuity Training. Both the insurer and producer should maintain this
documentation for a period not less than seven (7) years. Insurers are directed to furnish a copy of this
Bulletin to their appointed producers in Arkansas.
Regarding the unlawful sales practices pertaining to annuities for seniors, the Arkansas Insurance
Department issues further authority that directed to remind life insurers and life insurance producers
conducting business in this state about required compliance with Ark. Code Ann. §§ 23-66-206(2) and 23-
66-307, Bulletin 8-2004, and Arkansas Rule 82. Please be advised that the Department interprets the
replacement requirements of Ark. Code Ann. §§ 23-66-206(2) and 23-66-307 and Arkansas Rule 82 to
apply to annuities. Therefore, insurers and producers are expected by the Department to insure to the best
of their abilities that their clients understand the overall expenses or charges for the contract. Furthermore,
the Department will expect that producers and insurers have reviewed and are familiar with Ark. Code Ann.
§ 23-66-206, 23-66-307, Arkansas Rule 82, and Bulletin 8-2004, as well as the insurer’s own guidelines for
product sales and solicitations to the elderly.
Insurers and producers will be expected to be able to show that prior to recommending to a senior
consumer the purchase or exchange of an annuity there existed reasonable grounds for believing that the
recommendation was suitable for the senior consumer on the basis of the facts disclosed by the senior
consumer as to his or her investments, other insurance products and his or her financial situation and
needs. Communications with the consumer forming the basis for the suitability determination must be
documented in a written memorandum, which may be supplemented by other records, and should include
information concerning:
• The age of the person for whom the product will be purchased;
• The senior’s financial status and current assets, including any existing life insurance contracts;
• The senior's risk tolerance (when considering a fixed annuity versus a variable annuity);
• The senior’s investment objectives;
• The senior’s monthly financial needs;
• The likely need of the contract owner to access cash values in the near future;
• That the senior was notified that there may be tax implications to the sale or exchange and that he should
contact his personal tax advisor;
• A breakdown of any fees, costs, features, and surrender or penalty charges associated with partial
withdrawals and surrenders, and any limits or conditions for waiving those penalties or charges;
• The amount of the premium enhancement to be credited;
• The trade-off between bonus credits, if any, and product fees and charges must be explained to the
senior;
• Information provided by the senior;
• Whether the senior decided to enter into the transaction against the advice of the producer;
• Any other information that may reasonably show suitability of the product for the senior.
Additionally, agents/producers will also document the following information when replacing an existing
investment
or life insurance product with an annuity:
• Notice sent to the existing contract provider;
• The death benefit, subaccount choices, withdrawal privileges, liquidity, and special features of each
contract;
• A comparison of costs, fees, features, surrender charges and benefits associated with each contract and
how a bonus feature, if any, may affect these features.
• The rate of return for each contract, if available, or the guaranteed rate of return for each contract, if
applicable.
• The current value of the existing contract compared to the initial value of the replacing contract;

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• An explanation as to why the replacing contract will better serve the interests of the senior;
The Department also reminded insurers and producers that pursuant to Ark. Code Ann. § 23-66-307 and
Arkansas Rule 82, written memoranda, which may be supplemented by other documents to reflect the
above required suitability requirements, is required to be maintained for a period of five (5) years. Records
required to be maintained by this regulation may be maintained in paper, photographic, microprocess,
magnetic, mechanical or electronic media or by any process that accurately reproduces the actual
document. Any violation may be deemed to be an unfair method of competition or an unfair or deceptive act
and practice in this state, in violation of Ark. Code Ann. §§ 23-66-201, et seq. However, annuities that are
for an amount less than $15,000.00 for the sole purpose of funding prepaid funeral contracts or contracts for
funerals and related funeral expenses shall be exempted from these requirements. If a senior consumer has
questions and wishes to gain outside information before purchasing an annuity, producers should
encourage and facilitate the involvement of adult family members, this Department’s Life and Health
Division personnel at 501-371-2800 or 1-800-224-6330, any of the local Arkansas Area Agencies on Aging
(AAAs) counselors, attorneys, or other appropriate assistance. Producers should never attempt to dissuade
seniors from seeking further assistance from their regular insurance producer, family member, friend, or the
types of agencies noted above.
Effective Date / Compliance Date to comply with the new educational requirement is July 15, 2009. In
reference to UNLAWFUL SALES PRACTICES PERTAINING TO ANNUITIES FOR SENIORS dated on
December 6, 2006. The Arkansas Insurance Department (“Department”) issues that Directive to remind life
insurers and life insurance producers conducting business in this state about required compliance with Ark.
Code Ann. §§ 23-66-206(2) and 23- 66-307, Bulletin 8-2004, and Arkansas Rule 82. Please be advised that
the Department interprets the replacement requirements of Ark. Code Ann. §§ 23-66-206(2) and 23-66-307
and Arkansas Rule 82 to apply to annuities. Therefore, insurers and producers are expected by the
Department to insure to the best of their abilities that their clients understand the overall expenses or
charges for the contract. Furthermore, the Department will expect that producers and insurers have
reviewed and are familiar with Ark. Code Ann. § 23-66-206, 23-66-307, Arkansas Rule 82, and Bulletin
8-2004, as well as the insurer’s own guidelines for product sales and solicitations to the elderly.
Insurers and producers will be expected to be able to show that prior to recommending to a senior
consumer the purchase or exchange of an annuity there existed reasonable grounds for believing that the
recommendation was suitable for the senior consumer on the basis of the facts disclosed by the senior
consumer as to his or her investments, other insurance products and his or her financial situation and
needs. Communications with the consumer forming the basis for the suitability determination must be
documented in a written memorandum, which may be supplemented by other records, and should include
information concerning:
• The age of the person for whom the product will be purchased;
• The senior’s financial status and current assets, including any existing life insurance contracts;
• The senior's risk tolerance (when considering a fixed annuity versus a variable annuity);
• The senior’s investment objectives;
• The senior’s monthly financial needs;
• The likely need of the contract owner to access cash values in the near future;
• That the senior was notified that there may be tax implications to the sale or exchange and that he should
contact his personal tax advisor;
• A breakdown of any fees, costs, features, and surrender or penalty charges associated with partial
withdrawals and surrenders, and any limits or conditions for waiving those penalties or charges;
• The amount of the premium enhancement to be credited;
• The trade-off between bonus credits, if any, and product fees and charges must be explained to the
senior;
• Information provided by the senior;
• Whether the senior decided to enter into the transaction against the advice of the producer;
• Any other information that may reasonably show suitability of the product for the senior.
Additionally, agents/producers will also document the following information when replacing an existing
investment or life insurance product with an annuity:

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• Notice sent to the existing contract provider;
• The death benefit, subaccount choices, withdrawal privileges, liquidity, and special features of each
contract;
• A comparison of costs, fees, features, surrender charges and benefits associated with each contract and
how a bonus feature, if any, may affect these features.
• The rate of return for each contract, if available, or the guaranteed rate of return for each contract, if
applicable;
• The current value of the existing contract compared to the initial value of the replacing contract;
• An explanation as to why the replacing contract will better serve the interests of the senior;
The Department also reminds insurers and producers that pursuant to Ark. Code Ann. § 23-66-307 and
Arkansas Rule 82, written memoranda, which may be supplemented by other documents to reflect the
above required suitability requirements, is required to be maintained for a period of five (5) years. Records
required to be maintained by this regulation may be maintained in paper, photographic, microprocess,
magnetic, mechanical or electronic media or by any process that accurately reproduces the actual
document. Any violation may be deemed to be an unfair method of competition or an unfair or deceptive act
and practice in this state, in violation of Ark. Code Ann. §§ 23-66-201, et seq. However, annuities that are
for an amount less than $15,000.00 for the sole purpose of funding prepaid funeral contracts or contracts for
funerals and related funeral expenses shall be exempted from these requirements. If a senior consumer has
questions and wishes to gain outside information before purchasing an annuity, producers should
encourage and facilitate the involvement of adult family members, this Department’s Life and Health
Division personnel at 501-371-2800 or 1-800-224-6330, any of the local Arkansas Area Agencies on Aging
(AAAs) counselors, attorneys, or other appropriate assistance. Producers should never attempt to dissuade
seniors from seeking further assistance from their regular insurance producer, family member, friend, or the
types of agencies noted above.
Specifically in this case, American National Insurance Company will not issue Arkansas annuity business
from a producer who has not met this requirement by July 15, 2010. This regulation imposes responsibility
on the Company to ensure that Arkansas-licensed annuity producers meet this educational requirement.
The following three online providers discussed above earlier meet the criteria and have an annuity training
course that (1) fulfills the Arkansas annuity training requirement, and (2) provides the necessary tracking of
course complete to allow the Company to fulfill its state-mandated tracking and record-keeping
requirements. Therefore it is strongly recommended that producers complete the required annuity training
course from these three approved providers: Brokers Education Sales & Training Inc., Kaplan Financial and
WebCE.
In comparing and contrast with the NAIC Suitability in Annuity Transactions Model Regulation, the NAIC
itself has established a Regulatory Modernization Working Group that is charged with the responsibility of
developing a general framework proposal for a model or a compact for states to join. Usurping state
authority, however, is ripe with logistical and operational consequences that would lessen the nation’s grasp
on good, industry-specific insurance practices.
Much like the American Constitution itself, the sustaining value in the state-by-state regulatory system is its
flexibility and adaptability. It can be improved, but the foundation itself is strong and a worthy baseline from
which to advance. In general, suitability requirements are more specific and enforcement remedies are
more likely to be specifically prescribed by securities regulators, or those who have a conduct of business
mandate limited to seniors’ directive 2-2006; bulletin 11-7-2007/11-2009.
In the final analysis; since this model was adopted in 2003, it has become increasingly apparent that
problems identified in the NAIC white paper are now expanding to include consumers under 65.

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The Florida Senate Bill 2082 is based on the NAIC Suitability in Annuity Transactions Model Regulation, as
amended in 2006, which requires that life insurance companies ensure that their annuity products are
marketed and sold to suitable parties. Named the “John and Patricia Seibel Act”, this bill increases penalties
for specified unfair or deceptive insurance practices related to the sale of life insurance and annuity
contracts. It also strengthens the standards for making recommendations to seniors about the
appropriateness of purchasing annuities. Among other things, SB 2082:
· Requires persons selling life insurance to complete a continuing education course on suitability in
annuity and life insurance transactions;
· Provides administrative fines and criminal penalties for engaging in misleading representations,
fraudulent comparisons or omissions, or the use of fraudulent signatures;
· Incorporates direct or indirect purchases made for the purpose of earning fees or commissions into
the offense of “churning;”
· Increases the time allowed for unconditional refunds on annuity products;
· Requires that agents obtain financial information from senior consumers prior to executing sales or
exchanges of annuity products;
· Requires agents to perform and document a suitability analysis; and
· Requires agents to provide consumers with information about surrender changes and tax
consequences.
Florida Senate’s Banking and Insurance Committee for unanimously passing legislation (PCS/SB 2082) that
comprehensively addresses the issue of annuity fraud, including strengthening penalties against agents
who target Floridians, especially seniors and the mentally-disabled, using predatory annuity and life
insurance practices. Florida consumers, and especially seniors, are commonly targeted through the use of
unfair or deceptive life insurance practices and annuity sales practices known as “twisting” and “churning.”
Twisting occurs when an insurance agent knowingly makes misleading representations or material
omissions regarding insurance policies to induce a consumer to take out an insurance policy with another
insurer. Churning is similar, but involves the surrender of a current policy to buy a policy from the same
insurance company.
Specifically, the legislation makes twisting and churning a third-degree felony, and in instances where a
pattern or practice exists of victimizing consumers age 65 and older or who suffer from a mental incapacity,
penalties under the proposed legislation are increased to a second-degree felony. The bill also prohibits
insurance agents from submitting applications or policy-related documents bearing fraudulent signatures to
insurers, making such a violation a third-degree felony. Increases fines (administrative penalties) for these
practices:
• 5,000 for each non-willful violation (currently $2,500), up to a maximum aggregate amount of
$50,000 (currently $10,000).
• $30,000 for each willful violation (currently $20,000), up to a maximum aggregate amount of
$250,000 (currently $100,000).
• Makes it an unfair or deceptive insurance practice for an agent to use designations or titles that
falsely imply that he or she has special financial knowledge or training.
The legislation also strengthens suitability criteria and requires increased disclosure from the agent selling
the annuities or life insurance policies. The new suitability criteria will require agents to establish an

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objectively reasonable basis that the policies they recommend are suitable for the consumer, and to
document their suitability determination in writing prior to making any sale. The agent will also be required to
disclose important information about the new product, including a comparison of the consumer’s current and
proposed new policy, and to document for the consumer any surrender charges he or she will suffer as a
result of the proposed transaction.
During the past several years, there are a growing number of cases where Florida seniors have been
persuaded to purchase a life insurance or annuity product that is harmful or financially devastating. Florida’s
Department of Financial Services opened 351 investigations related to annuity transactions during the
2006-2007 fiscal year, a 41 percent increase over the previous year. Since July 1, 2007, Department of
Financial Services has already opened more than 260 annuity-related investigations, which point to a trend
that is indicative of a 58 percent cumulative increase since the 2005-2006 fiscal year.
During June 2006, the NAIC returned to the “wide-reaching standard” draft of the Suitability Model and
amended it to make it applicable to purchases and exchanges involving annuity consumers of all ages.
During Florida’s regular 2008 legislative session, Florida lawmakers reviewed Florida’s version of the
Suitability Model. Ultimately, they declined to adopt the NAIC’s amendments. Rather, the Florida Legislature
determined to enhance significantly the existing standards by which an agent must determine the suitability
of annuity transactions with seniors, convert a subjective measure to an objective standard for determining
whether the agent properly applied these standards, require that the agent’s suitability analysis be
documented, and invoke various other procedures. Florida would then move by alternate legislative and
administrative means to expand suitability analysis into product sales to other segments of Florida’s
population.
Florida’s new legislation amended the state’s 2004 suitability law effective on January 1, 2009.
Florida and Connecticut rules retain the same suitability standards as the 2004 Florida law and the
amended Suitability Model. Here within this state example, the Insurers should endeavor to assure that a
specific and clear supervisory system standard is clearly in operation established and followed so that
business may be produced by duly- authorized agents, for example at American National Insurance
Company standards emphasize the parameters of an agent’s authority are clearly delineated.
In analysis, Florida now appears to provide such a high level of scrutiny of course limited to its seniors at
this time.