Exchange Commission’s (SEC) proposed regulation that would classify
indexed annuities as securities, has far-reaching implications for
the insurance industry, believes Rachel Alt-Simmons, research
director in the insurance practice at consultancy TowerGroup. She
predicts that initial implications will be negative but longer term
the change will yield opportunities.
Alt-Simmons explained that indexed annuities have offered investors
a “middle-ground” option between low-return fixed annuities and
variable annuities that are fully exposed to market volatility.
However, she continued that ambiguity in the way indexed annuities
are regulated has led to lawsuits over unfair sales
Under the proposed Rule 151A, indexed annuities would be subject to
regulatory requirements similar to those for variable annuities and
other securities investments. This, stressed the SEC in a release,
is necessary because individuals who buy indexed annuities are
exposed to “a significant investment” risk in the form of
volatility of an underlying securities index.
According to the SEC sales of indexed annuities totalled $25
billion in 2007 and total assets invested in these products stood
at $123 billion at year-end.
If the SEC goes ahead with its proposed rule insurance companies
issuing indexed annuities will see a “drastic decline” in sales
immediately after its enactment, warned Alt-Simmons. Indeed, she
believes new licensing requirements will force many insurance
agents and marketing organisations out of business.
However, on a positive note Alt-Simmons concluded that Rule 151A
would result in indexed annuities losing their “ambiguous
She predicted that as a result of this the industry’s initial
difficulty in adjusting to the new regulation would be outweighed
by emergence of new opportunities for insurers and broker-dealer
firms to issue and sell indexed annuity products.
In the first quarter of 2008 UK insurer Aviva’s US unit ranked as
the top index annuity provider, notching up sales of $1.2 billion
to give it a market share of 21 percent.