NAIC, NCOIL Petition to block SEC indexed annuity rule

 

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NAIC, NCOIL Petition to block SEC indexed annuity rule

Raymond J Lehmann

WASHINGTON



State insurance regulators and a group representing state legislators have filed a petition seeking to block implementation of a U.S. Securities and Exchange Commission rule that defines most annuities indexed securities.

Filed in the court of appeal from the DC Circuit, the petition for review by the National Association of Insurance Commissioners and the National Conference of Insurance Legislators challenges the authority of the SEC to implement the SEC rule 151A, which defines as evidence of indexed annuities in the amounts payable by the insurer are more likely than not to exceed amounts guaranteed under the contract.

Published in the January 16, 2009, edition of Federal Register, and put into force in January 2011, the rule states that because "the buyers to obtain indexed annuity contracts for many of the same reasons that individuals d purchase of mutual funds and variable annuities, and open brokerage accounts, which means "the majority of the investment risk of the fluctuation, the securities linked to the return is borne by the 'individual purchaser, not the insurer. "

"NAIC members do not agree with this rule and have taken appropriate legal measures," said NAIC President and New Hampshire Insurance Commissioner Roger Sevigny, adding that "it is a legal issue pending the Consideration of the court, it would be inappropriate for us to comment further at this time. "

Regulators petition follows a lawsuit filed by the Coalition for Indexed Products, whose members include insurers American Life Insurance Co., Midland National Life Insurance Co., National Western Life Insurance Co. and OM Financial Life Insurance Co., as well as independent marketing and Tucker BHC Marketing Advisory Group.

The industry groups contend the SEC rule violates the Securities Act of 1933 and before the Supreme Court precedent and the commission itself violated the Administrative Procedures Act in adopting the rule without taking into account objections raised by regulators, legislators, insurers, agents and some members of Congress.

Earlier this month, the circuit court granted the Coalition of the request for expedited review, setting the stage for oral arguments in the case to be heard from May.

Although fixed annuities is fixed at creation, and those of variable annuities fluctuate with the return on investment, equity-indexed annuities typically guarantee a certain amount of capital protected against losses. First introduced in 1995, equity-indexed annuities have increased by $ 14 billion dollars in sales in 2003 to 25 billion in 2007, with over $ 123 billion invested in products today according to the SEC.

Called the Federal regulations on products for reasons that there are concerns about the relevance of the indexed annuity sales for many seniors, as well as over whether information about the products performance fees and costs of disposal are sufficiently transparent for consumers.

If implemented, the rule would require officers who want to continue selling indexed annuities to become registered representatives overseen by the Financial Industry Regulatory Authority, a status held by only about 55% of those who currently sell products. Insurance carriers should new products with the SEC and to offer through a prospectus.

(By RJ Lehmann, director of the Washington office: raymond.lehmann @ ambest.com)

14 February 2009

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