The Securities and Exchange Commission has asked a number of insurance companies for information about how they market equity indexed annuity products, industry sources say.
Two insurers contacted by National Underwriter say they have received the information requests from the SEC and are cooperating with them.
Two other EIA carriers say the SEC has not been in touch with them about their indexed products.
EIAs guarantee a set interest rate and shield the buyer’s principal against loss. They also offer the buyer a chance to make additional interest based on the performance of a securities market index, such as the S&P 500.
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Because of the guarantees, they are sold as a fixed annuity, making them eligible to be sold by insurance agents, rather than only by licensed securities broker-dealers. It also makes EIAs subject to oversight by state insurance regulators rather than the SEC.
A spokeswoman for Allianz Life Insurance Company of North America, Minneapolis, says the SEC recently asked it for “voluntary cooperation” in providing marketing materials and contract forms for its EIAs.
“We welcome the opportunity to be involved in this dialogue and are in the process of providing the information that is requested,” says Jody Hilgers, a spokeswoman for Allianz. “We understand the SEC is gathering information and does not have any predetermined outcome to this request.”
Martin P. Ketelaar, vice president, investor relations for AmerUs Group Co., Des Moines, says the agency also has contacted his company.
“We are certainly cooperating with the SEC and are in the process of providing them with the marketing information they have requested,” Ketelaar says. “This is not a formal investigation or anything like that. It’s just a fact gathering at this point.”
For the first quarter of 2005, Allianz ranked No. 1 in index annuity sales, while AmerUs ranked fourth. Rounding out the top five were American Equity at No. 2, Old Mutual at No. 3 and ING at No. 5.
The SEC would not comment or even acknowledge sending the letters.
Observers say the agency appears to be responding to protests from some financial advisors that EIAs should be classified as securities.
The Financial Planning Association, Atlanta, asked the SEC in March to rule on the issue.
“Equity indexed annuities are increasingly marketed as largely risk-free investment products with little or no purported downside to the annuitant,” Mark J. Davis, an assistant director of the FPA, argued in a letter to William H. Donaldson, then SEC chairman. “FPA believes that any annuity product should, at a minimum, be subject to suitability and disclosure requirements that are generally absent in state insurance laws.”
The FPA sent a similar letter to the National Association of Securities Dealers, which also has been looking into whether EIAs should be deemed securities.
Mary L. Schapiro, NASD vice chairman, said in a talk at an NASD conference in Chicago on May 25 that if an EIA is a security, then broker-dealers may have “a selling away problem.”