U.S. Court of Appeals Rules
on SEC’s Rule 151A
July 21, 2009…Today, the U.S. Court of Appeals of the District of Columbia ruled on the case of American Equity Investment Life Insurance Company, et al, v. the Securities and Exchange Commission (SEC).
This lawsuit challenged SEC’s Rule 151A that would classify fixed indexed annuities as securities and subject them to SEC regulations. The Insurance Coalition, of which Life Insurance Company of the Southwest is a member, sponsored the lawsuit. The Coalition sought to cancel Rule 151A.
The Court denied the argument to cancel Rule 151A, and said the SEC has the authority to classify fixed index annuities as securities. The Court gave the SEC the authority because the laws that would exempt an annuity contract as a security was ambiguous as to what exactly is an “annuity.” According to the Court, Section 3(a)(8) of the Securities Act of 1933 did not specifically mention fixed indexed annuities within the definition of being an annuity. To give the SEC the power to so classify indexed annuities, the Court merely had to conclude the SEC was reasonable in its approach – and the Court agreed.
As to the plaintiff’s argument that the SEC did not properly consider the effect of Rule 151A on efficiency, competition and capital formation, the Court agreed that the SEC had not met its burden and sent the matter back to the SEC for it to perform the analysis or to explain why it does not apply in this rule making situation.
What does all this mean?
- The effective date of Rule 151A is January 12, 2011, two years after its initial adoption. At this time, the Court's decision does not change the effective date.
- Any indexed annuity issued before January 12, 2011 is not effected even if the policy receives premiums after the effective date. Also, Rule 151A has no effect on LSW’s traditional fixed annuities.
Next Steps
- LSW will contact the SEC to find out the time period that the SEC will need before responding to the Court, and what action the SEC will take on the competition/efficiency issue.
- Bipartisan Legislation Could Nullify Rule 151A
Meanwhile, Senator Ben Nelson (D-Neb.) introduced bipartisan legislation that would nullify the Commission’s adoption of Rule 151A before it has a chance to take effect. The Fixed Indexed Annuities and Insurance Products Classification Act, S. 1389, provides that Rule 151A will have no force or effect. There is a companion bill in the House, HR 2733, introduced by Rep. Gregory Meeks.
The draft legislation expresses a congressional sense that the SEC’s adoption of Rule 151A interferes with state insurance regulation, harms the insurance industry, reduces competition, and creates unnecessary and excessive regulatory burdens. The measure also embodies a congressional finding that indexed insurance and annuity products offered by insurance companies are subject to a wide array of state laws and regulations. These include non-forfeiture requirements that provide for minimum guaranteed values, by protecting consumers against market related losses.
It is more important than ever that you contact members of Congress and urge them to support HR 2733 in the House and SB 1389 in the Senate. Go to www.sec151A.com for information on how to respond quickly to your Member of Congress.
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IMPORTANT UPDATE:
Delayed Implementation
of Maximum Issue Age Changes to Platinum, Accumulator 5, FPDA 4, and RetireFour
Because of the recent developments in the market, LSW will delay changing the maximum issue ages for SecurePlus Platinum, FPDA 4 and RetireFour and SecurePlus Accumulator 5 until further notice. We previously had announced that the new issues ages for these products would be effective August 1, 2009. The maximum issue ages in most states for Platinum and Accumulator 5 will remain at age 80. |
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