Iowa Insurance Commissioner Susan Voss says she would like to have a chance to talk to members of the U.S. Securities and Exchange Commission about regulating indexed annuities.

The SEC today released a draft of proposed regulations that would classify most indexed annuities as securities, rather than as insurance products. The rule would take effects 12 months after it was published in the Federal Register.

One SEC staffer suggested Wednesday, during an SEC discussion of the proposed regulations, that the focus of state insurance regulators appears to be on making sure that insurers can meet their obligations more than on product suitability reviews and sales practices.

Voss, the chief insurance regulator in a state with a large indexed annuity industry and secretary-treasurer of the National Association of Insurance Commissioners, Kansas City, Mo., took time away from flood recovery efforts to express disappointment with the SEC proposal.

“At no time have any of the securities commissioners engaged insurance regulators in the nature of our regulation,” Voss says in a statement. “Letters have been sent to Commissioner Cox, and I’m hopeful for a meeting…. We should all be working to protect consumers in regard to the products we regulate, not spending time arguing over who regulates what.”

Voss says state insurance regulators have passed tough indexed annuity suitability standards and continuing education requirements.

“We take very seriously our consumer protection role, including [issuing] bulletins restricting use of senior designations that are without merit,” Voss says. “We monitor our companies very closely.”

In addition, an insurer backs an indexed annuity with its general fund, and the contract is not a security, Voss says.

“Of course there can be unsuitable sales with any product, including mutual funds, life insurance variable annuities and stock purchases,” Voss says.

Two of the carriers that Voss helps oversee, FBL Financial Group Inc., West Des Moines, Iowa, and American Equity Investment Life Holding Company, West Des Moines, say they are reviewing the SEC proposal..

“FBL will take the proper time to review and analyze this proposed rule and determine its course of action,” the company says. “FBL is prepared to adapt as necessary during the announced 12 months between publication and effectiveness of any final rule.”

FBL already writes products that are registered with the SEC as investment products, and indexed annuities make up only a portion of the company’s business, the company says.

American Equity, a company that has focused more intently on indexed products, says it intends to oppose the proposed regulations.

“Based on the existing law, index annuities are insurance products, not securities, to the same extent as traditional fixed-rate annuity products,” American Equity says.

But, “regardless of the outcome of the rule-making process, AEL believes that opportunities for growth in the fixed-rate and index annuity markets remain very attractive,” the company says.

The SEC, meanwhile, now has posted a 96-page document describing the proposed regulations on its Web site.

Comments on the proposed regulations are due Sept. 10.

Section 3(a)(8) of the Securities Act normally exempts annuities from securities registration requirements.

In a section on the background of the proposed regulations, SEC officials cite the variable annuity as an example of an annuity product that falls outside the Section 3(a)(8) definition of an annuity and must be registered as an investment product.

The U.S. Supreme Court has considered the Section 3(a)(8) annuity exemption in a 1959 case, SEC vs. Variable Annuity Life Insurance Company, and a 1967 case, SEC vs. United Benefit Life Insurance Company, SEC officials write.

“Under these cases, factors that are important to a determination of an annuity’s status under Section 3(a)(8) include (1) the allocation of investment risk between insurer and purchaser, and (2) the manner in which the annuity is marketed,” officials write.

In VALIC, the Supreme Court found that a product that provides no guarantee of fixed income is not entitled to the Section 3(a)(8) exemption, officials write.

In United Benefit Life, the Supreme Court found that a variable annuity would not qualify for the exemption even if the insurer assumed some investment risk.

When a consumer buys an indexed annuity, “the purchaser assumes the risk of an uncertain and fluctuating financial instrument, in exchange for exposure to future, securities-linked returns,” officials write. “The value of such an indexed annuity reflects the benefits and risks inherent in the securities market… These contracts may to some degree be insured, but that degree may be too small to make the indexed annuity a contract of insurance.”

The SEC does not discuss its views on whether there is a distinction between products linked to the performance of separate accounts and products backed by an insurer’s general account.