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