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Insurers Oppose Revision Of Securities Law That Impacts VAs

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Insurers Oppose Revision Of Securities Law That Impacts VAs


In an ongoing revision of the Uniform Securities Act, five words that have been added to the definition of what is not a security would bring variable contracts under the auspices of state securities regulators, say insurance trade organizations, who are fighting the change.

The draft model is the work of the National Conference of Commissioners on Uniform State Laws, based in Chicago. The group is comprised of lawyers and other professionals who develop model laws on a variety of issues that state legislators can enact.

The group aired its most recent draft of the Uniform Securities Act during its annual meeting earlier this month. The model will receive more work this year and could be adopted at NCCUSL’s next annual meeting in 2002.

Currently, producers who sell variable life insurance products, including variable life insurance and annuities, are subject to regulation of the Securities and Exchange Commission, the National Association of Securities Dealers in Washington and state insurance departments.

But if the draft is adopted as currently worded, the changes could be incorporated in state laws and bring variable insurance products under the purview of state securities regulators.

Versions of the Uniform Securities Act are in place in over 35 states. Draft revisions are under development to reflect changes made to federal securities laws over the last several years, says John McCabe, NCCUSL’s legislative director.

Federal and state securities requirements are like “twin trains going down the same track” that need to be streamlined, he adds. The draft will help eliminate duplicative requirements, McCabe explains.

Variable products are not excluded in the draft because changes to federal law include variable products as securities, he adds.

These insurance products, or at least the way that they are being marketed by the insurance industry, make it clear that what is being sold are more like mutual funds than the old fixed annuity, McCabe says.

The point of concern for insurers is a definition that includes an outline of what is not a security. The draft’s current definition states that a security does not include an insurance or endowment policy or annuity contract under which an insurance company promises to pay “a fixed sum of money” either in a lump sum or periodically for a life or other specified period.

Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers in Washington, says that the current wording would exclude fixed products but bring variable products under the scope of the Act.

“This is regulatory overkill,” Wilkerson says, noting the current layers of regulatory oversight.

Of the 675,000 producers under the auspices of NASD regulation, over half are associated with broker-dealers affiliated with life companies, according to Wilkerson.

These producers, he adds, would be subject to new regulatory requirements that would impact day-to-day operations. For instance, Wilkerson says there could be new continuing education requirements or additional administrative penalties if a violation such as a late required filing occurred.

Gary Sanders, associate general counsel with the National Association of Insurance and Financial Advisors in Falls Church, Va., says producers could come under securities laws that would be different in different states.

Sanders says there has been no real demonstrated need for additional regulatory oversight.

Work on the draft will continue during the year, with another two to three committee meetings planned, McCabe says. During that time additional comments will be heard and “all options” will be considered.

For a full text of the draft, visit

Reproduced from National Underwriter Life & Health/Financial Services Edition, September 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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