WASHINGTON — The U.S. Securities and Exchange Commission has proposed a definition of “risk” that is “overbroad,” the National Association of Insurance Commissioners says in a court brief.

The state insurance regulators that the NAIC, Kansas City, Mo., represents “have a congressionally-recognized interest in exclusive regulation of insurance [under the McCarran-Ferguson Act],” as specified under Section 3(a)(8) of the Securities Act of 1933, the NAIC says.

Federal regulation in these spheres by virtue of Rule 151A, which would classify many EIAs as securities and put them under the SEC’s jurisdiction, “constitutes injury per se” to each state insurance regulator, the NAIC says.

The brief was submitted last week, in connection with a federal court suit brought by EIA underwriters and marketers as well as by the NAIC.

The SEC published Rule 151A, the regulation that sparked the dispute, in January. The rule is set to take effect in January 2012.

The suit, American Equity Investment Life Insurance Company, et al, vs. SEC, No. 09-1021, was filed in the U.S. Court of Appeals for the D.C. Circuit. Oral arguments in the case are scheduled for May 8.

The NAIC’s lawyers contend that in seeking to impose federal regulation on EIAs, the SEC is asking the court to assume that “a product exposing a purchaser to any degree of risk is a security.”

“Exposure to some risk, especially a ‘risk’ that one may receive an amount greater than that guaranteed” under what the petitioners in the case are now calling a “fixed index annuity” contract “does not logically lead to a conclusion that a product is a security,” the NAIC says in the brief.

The SEC’s definition of risk “would cause products, such as indexed bank certificates of deposit and indexed universal life insurance, which share many characteristics with FIAs and are not regarded as securities, to fall within the SEC’s jurisdiction,” the NAIC says.

The SEC has not complied completely with the law’s requirement that the agency consider the impact on efficiency, competition and capital formation in formulating, and, as a result, the NAIC says, the SEC’s “failure to follow statutory requirements for rule-making is arbitrary, capricious and in violation of substantive and procedural requirements.”

Performing the required analysis of Rule 151A’s impact on efficiency, competition and capital formation “necessarily requires the SEC to evaluate state insurance regulatory regimes,” the NAIC argues.

Another reason the rule fails to comply with the law is that the SEC contends that several Supreme Court cases on the issue “stand for the proposition that the efficacy of state insurance laws and regulation of new products are irrelevant to the determination of whether a product qualifies” for the Section 3(a)(8) exemption from federal regulation of fixed rate annuities,” the NAIC argues.

The provisions in the two cases cited by the SEC certainly do not mean that the state definition of “insurance” and “annuity” are irrelevant to the federal definition, the NAIC says.