A coalition of insurance companies and independent marketing organizations has filed suit in federal court to overturn Rule 151A, the newly published rule by the Securities and Exchange Commission that classifies indexed annuities as securities.
The suit was filed in the U.S. Court of Appeals for the District of Columbia Circuit, the court that typically hears cases about new agency regulations. It is the court that invalidated the SEC’s hedge fund registration rule and twice rejected the Commission’s mutual fund governance rule.
Indexed annuities offer minimum guaranteed values and credit interest based on the performance of a market index such as the S&P 500. Because the purchaser is guaranteed the return of their principal with interest, subject to any surrender charges, indexed annuities are considered safer than securities products, which expose principal to market fluctuations.
Rule 151A was published in the Federal Register on Jan. 16, and suit was filed the same day.
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The petitioners’ lawyer, Eugene Scalia of Gibson Dunn & Crutcher LLP, commented, “The securities laws say explicitly that annuities are to be regulated by the states, not the SEC. Unfortunately, the Commission engaged in a flawed rulemaking process whose result is a rule that conflicts with Congress’ intent and with two Supreme Court decisions.”
Jim Poolman, spokesman for the Coalition of Indexed Products and former North Dakota Insurance Commissioner, noted that the SEC has decided to regulate indexed annuities at a time when the Commission has other pressing priorities.