Metropolitan Life Insurance Company ^ ̂ • • ^501 Boylston StreetBoston, MA 02116

MetLife

Eric C. DuPontJanuary 18, 2012 vice President &

Government Relations Counsel

(617)578-3018edupont@metlife.comwww.metlife.com

Jolie H. Matthews Jennifer R. CookSenior Health and Life Policy Advisor and Counsel Senior Health Policy Analyst and CounselNational Association of Insurance Commissioners701 Hall of the States Building444 North Capitol Street, N.W.Washington, DC 20001-1509

RE: Comments for consideration by the Contingent Deferred Annuity (A) Subgroup

Dear Ms. Matthews & Ms. Cook:

MetLife has significant concerns with the product referred to as a contingent deferred annuity ("CDA").These concerns include that the product is financial guaranty insurance, sundry financial issues (includingthe difficulty in determining adequate reserves for the product), that common forms of the product fail toconform with group insurance laws, and suitability issues. A more detailed discussion of these concernsfollows.

Financial Guaranty InsuranceNAIC Model Law number 1626 addresses Financial Guaranty Insurance. Under this model, suchinsurance may only be issued by an insurer licensed to issue financial guaranty insurance and expresslymay not be issued by a life or property & casualty insurer.

New York State has a financial guaranty law that follows the NAIC model. The New York InsuranceDepartment (now the New York Department of Financial Services) issued an opinion (OGC Op. No 09-06-11, dated June 25, 2009), that determined CDAs are financial guaranty insurance under Article 69 ofthe Insurance Laws of New York, its statute governing financial guaranty insurance. The New Yorkdetermination was made with regard to New York insurance law that follows sections (1)(A) (l)(d) & (e)of the NAIC model.

In addition to New York, the laws and/or regulations of the following states have the same provision ofthe NAIC model law that would support a determination that a CDA contract constitutes financialguaranty insurance:

i. Alaskaii. California

iii. Connecticutiv. Floridav. Iowa

vi. Maryland

Jolie H. Matthews & Jennifer R. CookJanuary 18, 2012Page 2 of 3

Accordingly, it would not be unreasonable to expect that, if the question were presented in these states, asimilar determination would be made. In addition, we understand that the following states, which havenot adopted NAIC Model 1626, have determined that CDAs are not annuities, may be financial guarantyinsurance, or they otherwise do not fit within the state's existing statutory schemes:

i. Illinoisii. Kansas

iii. Minnesotaiv. Texasv. Utah

Supporters of CDAs have attempted, unsuccessfully so far, to amend New York law such that contingentannuities would not be classified as financial guaranty insurance in that state. We understand that effortsare underway to pass similar legislation in New York at this time. We also understand that supporters ofthe CDAs have also approached the New York Department of Financial Services about amending the2009 opinion on the characterization of this product.

In addition, we note that supporters of CDAs frequently indicate that the product is equivalent to avariable annuity with a guaranteed lifetime withdrawal benefits rider. We disagree. A variable annuitywith a living benefits rider is essentially two contracts - there is the base contract (an annuity) plus theoptional rider (not an annuity). That is not the case with a CDA. Unlike a CD A, where the "annuity" istriggered only upon depletion of the "designated funds," living benefit withdrawals can be triggered attimes other than when a pool of assets is depleted.

Financial IssuesAgain, supporters of CDAs stress the similarities they perceive to exist among CDAs and variableannuities with living benefits. In fact, there are fundamental differences between the financial aspects ofthese products, such as:

• In a variable annuity, the insurer offering the guaranty selects the available investment funds atissue, and on an ongoing basis. In a CDA, the same level of control may not exist. Regulatoryrules on the way that the investments are managed are lacking - and would be needed if thisproduct is permitted to be offered as an annuity.

• In a variable annuity, the issuing insurer receives fees and profits from the base annuity as well asthe guaranteed benefit. The fees on the base annuity can provide some risk mitigation andcushion. In a CDA, the insurer only receives the fees and profits from the guaranteed benefit.

• Measurement and management of the risk (including hedging) associated with the guaranty on aCDA can be a more difficult undertaking than with variable annuities with living benefits.

• While determination of the amount of capital and reserves may be covered by existing regulations(Actuarial Guideline 43, and C3 Phase 2), it needs to be understood whether these amounts tosupport the product would be adequate.

• Relative to variable annuities with living benefits, we believe the amounts required to supportCDAs would be potentially higher and more volatile (again, since these reserve and capitalrequirements look at both the base contract and the guaranty and the contingent annuity does nothave the base contract to provide stability).

The above concerns have contributed to MetLife's decision to not offer CDAs and we cannot understandwhy our peer companies are not as concerned with the amount of capital and reserves needed to supportthe product.

Jolie H. Matthews & Jennifer R. CookJanuary 18, 2012Page 3 of 3

Proponents of contingent annuities have indicated that there is a strong demand for such a product. Suchdemand (if it in fact exists), combined with the difficulty of determining adequate reserving, could lead tosolvency concerns for companies that have not adequately supported their CDAs.

Guaranty fund coverage of CDA benefits is not clear and the advice of NOLHGA on this question shouldbe sought. We understand that NOLHGA's Coverage Claims Committee is undertaking a review of thisissue.

Other IssuesGroup InsuranceCDAs are also offered as a group contract. Most, if not all, states maintain laws and regulations thatdefine what constitutes a "group" for the purposes of "group insurance." Among these requirements arethat there be an affinity or commonality among the members of the group and the group is not formed forthe purpose of purchasing insurance. Among the types of groups that frequently qualify under state lawsare employers, unions, and associations.

It has been suggested that the "groups" that CDAs are issued to are composed merely of individuals whohappen to invest in the same mutual funds and that they lack affinity or commonality. And, to the extentthat there is any purpose to such groups, the groups may be formed merely to purchase insurance.

In addition, we understand that with some CDAs, the certificates under the group policy are notdistributed until (and if) payments from the contingent annuity are triggered. This seems to violate abasic construct of group insurance and raises questions concerning adequate disclosure to the groupmembers.

Suitability ConcernsIf a CDA is determined to be an annuity, is not clear how the suitability of the CDA will be determinedand by who. There are concerns that purchasers may not appreciate conflicts that may arise with regardto how the funds are managed. Extremely detailed suitability review requirements apply to variableannuities under FINRA rules and State statutes that follow the NAIC Suitability in Annuity Transactionsmodel. However, no special suitability requirements exist for CDAs, which are at least as complex asvariable annuities given the interplay between the management of the underlying funds and the insuranceguaranty.

In light of the above concerns, MetLife suggests that CDAs are not a product that can be offered by a lifeinsurance company. If the Subgroup determines otherwise, considering the significant financial issueswith this product, MetLife strongly suggests the need for new regulatory controls to address the uniquefinancial risks associated with the product, as well as to assure adherence to existing laws addressinggroup insurance and sales practices. We would be happy to discuss these issues and/or answer anyquestions members of the Contingent Deferred Annuity (A) Subgroup or you may have. Thank you foryour consideration.

Sincerely,