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February 6, 2009updated 13 Apr 2017 8:57am

Insurers haul SEC into court

Opponents of the US Securities and Exchange Commissions (SEC) Rule 151A, under which it will assume regulation of indexed annuity products as securities in January 2011, are not taking the matter lying down Joining forces under the banner of the Coalition for Indexed Products (CIP), four insurance companies and two independent marketing organisations have filed suit in the US Court of Appeals for the District of Columbia Circuit to overturn Rule 151A. Rule 151A was published in the Federal Register and a suit was filed on 16 January this year.

By LII editorial

Opponents of the US Securities and Exchange Commission’s (SEC) Rule 151A, under which it will assume regulation of indexed annuity products as securities in January 2011, are not taking the matter lying down.

Joining forces under the banner of the Coalition for Indexed Products (CIP), four insurance companies and two independent marketing organisations have filed suit in the US Court of Appeals for the District of Columbia Circuit to overturn Rule 151A.

Rule 151A was published in the Federal Register and a suit was filed on 16 January this year.

At issue is the SEC’s opinion that individuals who purchase indexed annuities are exposed to “a significant investment risk” in the form of volatility of an underlying securities index.

The CIP takes an opposing view, arguing that because the purchaser of an indexed annuity is guaranteed the return of his or her principal with interest, subject to any surrender charges, indexed annuities are safer than securities products which expose principal to market fluctuations.

The CIP’s legal representative, Eugene Scalia, said: “The securities laws say explicitly that annuities are to be regulated by the states, not the SEC. Unfortunately, the Commission engaged in a flawed rule-making process whose result is a rule that conflicts with Congress’s intent and with two Supreme Court decisions.”

Spokesman for the CIP, former North Dakota insurance commissioner Jim Poolman, was equally uncomplimentary about the SEC.

“It is unfortunate the SEC seeks to duplicate state efforts to regulate indexed products when at the same time it has come under heavy criticism for failing to adequately meet its core mandate of overseeing the securities industry,” said Poolman.

He continued: “It is ironic that indexed annuities have fared so much better during the recent financial crisis than securities products, and yet the SEC now wants to regulate indexed annuities, even though nobody lost a dime on indexed annuities as a result of the market meltdown.”

The CIP is in with a fighting chance. The court in which it has filed suit typically hears cases about new SEC regulations and in the past has invalidated the SEC’s hedge fund registration rule and twice rejected the SEC’s mutual fund governance rule.

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