Brian Cartwright, the general counsel of the U.S. Securities and Exchange Commission, says he is “very confident” about the strength of the SEC’s position on its ability to regulate indexed annuities.
Cartwright expressed that view Wednesday in response to a suggestion by Commissioner Luis Aguilar that insurers might sue to overturn SEC efforts to participate in regulation of many indexed annuities.
Cartwright said he had heard some “saber rattling” from the industry regarding the rule.
But Cartwright said the SEC’s approach is consistent with a “couple of” Supreme Court cases.
Cartwright said, however, that the cases are “fairly old” and do not directly address indexed annuities.
In related news, more details about the SEC decision and more reactions to the decision are emerging.
SEC commissioners decided Wednesday to define the terms “annuity contract” and “optional annuity contract,” and to state that indexed annuities are not eligible for the exemption from securities regulation given to ordinary life insurance policies and fixed annuities.
SEC Chairman Christopher Cox said the SEC was acting because improving regulation of indexed annuities is a matter of great interest to senior investors.
Commissioner Kathleen Casey, who also voted for the change, said it will end a long period of uncertainty as to whether indexed annuities are insurance products or securities.
The current state regulatory approach provides insufficient protection for investors, Casey said.
Casey said the current market downturn has added urgency to the need for the rule because, she said, investors seeking to recoup losses will turn to “hybrid products,” such as indexed annuities.
The regulation approved Wednesday was a modified version of a draft released in June.
The SEC made 3 changes before adopting the regulation, according to lawyers at Jorden Burt L.L.P., Washington.
The SEC limited the application of the rule to indexed annuity contracts that specify that, “Amounts payable by the issuer under the contract are calculated at or after the end of one or more specified crediting periods, in whole or in part, by reference to the performance during the crediting period or periods of a security, including a group or index of securities.”
The language, “at or after the end of one or more specified crediting periods,” and “during the crediting period or periods of a security,” was added to address many commenters’ concerns that the proposed rule was overly broad and would apply to traditional fixed annuities and other annuities that are not indexed annuities, the Jorden Burt lawyers write.
The SEC also eliminated a proposed requirement that would have mandated that an issuer determine “not more than 3 years prior to the date on which a particular contract is issued whether the amounts payable under the contract are more likely than not to exceed the amounts guaranteed under the contract,” Jorden Burt lawyers write.