US Indexed Annuity Writers See Small Victory in SEC Delay of ‘Securities’ Rule
December 29, 2009 by Fran Lysiak
US Indexed Annuity Writers See Small Victory in SEC Delay of ‘Securities’ Rule
WASHINGTON December 10 (BestWire) — The U.S. Securities and Exchange Commission has told a federal appeals court it will delay the effective date of its proposed rule that would reclassify equity-indexed annuities as securities.
“This is a victory for the indexed annuity industry, albeit a minor victory,” said Sheryl J. Moore, president and chief executive officer of annuityspecs.com, a firm that tracks industry sales data.
In a brief filed with the U.S. Court of Appeals for the District of Columbia Circuit, the SEC wrote it determined to consent to a two-year stay of Rule 151A’s effective date to run from the date of publication of a “reissued or retained” Rule 151A in the Federal Register.
Delaying the effective date, as OM Financial Life Insurance Co. initially requested, would address companies’ concerns regarding the rule’s January 2011 effective date, the SEC wrote.
With at least 37 months until Rule 151A goes into effect, the industry must channel its efforts on gaining Congressional support for HR 2733 and S 1389, Moore said, referring to proposed federal legislation that would ensure that 151A is undone and the fixed insurance status of indexed annuities and indexed universal life is permanently secured.
In December 2008, the SEC voted to reclassify indexed annuities, which are regulated at the state level as insurance, as securities.
Under Rule 151A, indexed annuities would be treated as securities if amounts payable by the insurer are more likely to surpass amounts guaranteed under the contract. Insurers would be required to file their products with the SEC and offer them via a prospectus. Agents would need to become registered representatives, meaning licensed to sell securities.
Several life insurers and the National Association of Insurance Commissioners, among others, challenged the SEC ruling in court.
In July, the appeals court required the SEC to reconsider its ruling — a partial victory for indexed annuity writers. It ruled “that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation. Accordingly, we remand the rule for reconsideration” (BestWire, July 21, 2009). But it didn’t find that the SEC had made a mistake in deciding that indexed annuities should fall under the Securities Act of 1933.
In the third quarter, the top five writers of indexed annuities in the United States were Allianz Life Insurance Company of North America, American Equity, Lincoln National Life, Jackson National Life and Aviva USA, according to annuityspecs.com (BestWire, Nov. 17, 2009).
Wendy L. Carlson, president and CEO of American Equity Investment Life, told BestWire that her company is pleased with the SEC’s decision.
“Its our understanding that such a rule could be adopted only after the SEC responds to the court’s decision to remand Rule 151A for further consideration of its effects on efficiency, competition and capital formation,” Carlson said.
The SEC also urged the court that remand without vacatur — an order of court by which a proceeding is set aside or annulled — is “the most equitable and appropriate remedy in this case.”
In a statement, Aviva USA said that “although the ultimate result is still subject to the court’s judicial review and ruling and, if the rule survives, the uncertainty in the timing of the rule’s effective date has been alleviated.”
Should Rule 151A one day become final, American Equity has taken steps to prepare, Carlson said.
These include forming a new life insurance subsidiary to issue registered index annuities through the broker-dealer distribution channel; the filing of a registration statement for a registered index annuity; working with its national marketing organizations and their agents to assist efforts to prepare for possible SEC and FINRA oversight of index annuity sales; and cultivating relationships with wholesalers to the broker-dealer distribution channel, Carlson said.
In addition to American Equity and OM Financial Life, a unit of Old Mutual Financial Network, other companies involved in the suit against the SEC are Midland National Life, Tucker Advisory Group and BHC Marketing, Moore said. There are companies in a group called the Coalition for Indexed Products that weren’t involved in this suit, Moore said.
Attempts to speak with Allianz Life weren’t successful.
(By Fran Matso Lysiak, senior associate editor, BestWeek:
fran.lysiak@ambest.com) BN-NJ-12-10-2009 1533 ET #
