Legal Battle for Fixed Indexed Annuities should begin in May

 

Friday, Mar 06,2009, 4:38:08 PM   Click:

20 February 2009

SOURCE: InsuranceNewsNet, Inc.

The argument to an action challenging the Securities and Exchange Commission, section 151A has been scheduled for May 8

The American Equity Investment Life Insurance Co. costume petitioners argue that the SEC had overstepped its powers under section 3 (a) (8) of the Securities Act of 1933 ( "Securities Act"), which states:

Section 3. (a) Except as expressly provided below, the provisions of this title shall not apply to any of these categories of securities:

(8) Any insurance or endowment policy or annuity contract or optional
annuity contract issued by a company subject to supervision by the
insurance commissioner, bank commissioner, or any agency or officer performance
to functions of any state or U.S. territory or the District of
Colombia [.]

In addition, petitioners argue that the SEC violated the Administrative Procedure Act (APA). The APA is the federal law that governs how administrative agencies of the federal government in May and proposes to regulate.

Legal experts described the trial as a bold and decisive move that raises the technical flaws in the rule and the regulatory process, the fight for consumers to access to indexed annuity products, and maintain accessibility financial contracts.

Arguments expected in the case are as follows:

The action of the SEC directly contradicts a decision of the Federal Court Malone v. Addison Insurance Marketing Inc. indexed annuities are not securities. In this case, the court focused on the management of investment risk by the insurer, stating that "the insurer is acting in a role similar to a savings institution." The court also rejected the argument that the insured was in danger because the return can be determined by an index because the insurer has provided a return of capital and a minimum rate of return guarantee.
The decision in conflict with two decisions of the Supreme Court, which said that "the distribution of investment risk between the insurer and the buyer is one of the three main determinants of whether a product is an annuity or a title. The Committee has also ignored two other components of the Supreme Court three-part test if the product is regulated by states, and how it is marketed.
The Committee suggested that there were practices involving the mis-selling fixed indexed annuities when he first proposed the rule, but did not find in the issuance of the final rule. Instead, said that "the presence or absence of practice, abuse of sale is irrelevant" to his decision to act.
The Commission gave sufficient attention to the costs of its rule to require insurance companies, agents, and consumers during these difficult financial times. An evaluation of the projects first year revenue loss of retailers at $ 1.5 billion and 300 million dollars the first year of the loss of income of insurance companies.
Clothing, American Equity Investment Life Insurance Company, et al, v. SEC Number. 09-1021, was filed with the Court of Appeals for the District of Columbia Circuit for 16 January.

In addition to the U.S., the color of the names of other applicants as BHC Marketing, Midland National Life Insurance Company, National Western Life Insurance Company, OM Financial Life Insurance Company and Tucker Advisory Group.
The court also allowed the National Association of Insurance Commissioners (NAIC) to join the case as a petitioner, and the NAIC has also filed a brief. Meanwhile, the National Conference of Insurance Legislators (NCOIL) will present a friend of the court brief.

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