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| February 16, 2009: (US) NAIC and NCOIL petition to block SEC's Indexed Annuity Rule. The outcome may also influence regulatory proposals in Canada... |
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State insurance regulators, represented by the National Association of Insurance Commissioners (NAIC), and insurance legislators, represented by the National Conference of Insurance Legislators (NCOIL), have filed a court petition seeking to block implementation of a U.S. Securities and Exchange Commission (SEC) rule that would define most indexed annuities as securities products.
The associations dispute rule 151A of the SEC that defines indexed annuities as securities when the amounts payable by an insurer are more likely than not to exceed the amounts guaranteed under the issued contract. Returns on fixed annuities are set at inception. Returns on variable annuities fluctuate with investment returns. Equity-indexed annuities typically guarantee a certain amount of principal, protected from losses. Equity-indexed annuities were introduced in 1995, with 2007 sales growing to $25 Billion. SEC rule 151A is based on the argument that "purchasers obtain indexed annuity contracts for many of the same reasons that individuals purchase mutual funds and variable annuities, and open brokerage accounts," and the inductive reasoning that this therefore means that "the majority of the investment risk for the fluctuating, securities-linked portion of the return is borne by the individual purchaser, not the insurer." From the consumer's perspective, indexed annuities add a measure of insurance protection for the principal - a welcome feature, particularly in an economy where stock prices are in a free-fall. On the other hand, the variable component introduces concerns insofar as the suitability of these instruments for seniors as well as transparency of disclosure regarding the products' fees, returns and surrender charges. Many insurers in the US are not eager to provide open and free disclosure of products that is sufficiently transparent for independent comparison. In contrast, Canadian insurers are notably more open and transparent regarding such disclosure. From the "business end", the matter of control (and ownership?) of the sales force, appears to be quite obvious. If implemented, the rule will require insurance agents who wish to sell indexed annuities to become registered representatives under the SEC, adding approximately 45% of the agents who currently sell these instruments but who are not currently SEC registrants, to the role of SEC registrants. E.&O.E. |
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