Oral arguments are scheduled for Friday May 8 in the U.S. Court of Appeals for the D.C. Circuit on a suit filed by underwriters of indexed annuities and state regulators to forestall regulation of these products by the Securities and Exchange Commission.
A three-judge panel of the Appeals Court that includes Chief Judge David Sentelle, along with Justices Douglas H. Ginsburg and Judith Rogers, will review the final SEC rule, which was approved on Dec. 17, 2008.
The industry has asked for expedited review of the SEC rule because, according to court documents, even the SEC admits that it could cost the industry up to $100 million to implement the rule “in the first year alone.” The agency also “did not dispute commenters’ estimates of lost revenues of $1.5 billion for independent marketing organizations and their agents and $300 million for insurance companies.”
Unless reversed by the courts, most EIAs will be subject to SEC regulation as of January 12, 2011.
The case is American Equity Investment Life Insurance Company, et al, v. the Securities and Exchange Commission.
The industry and the National Association of Insurance Commissioners contend in their briefs that merely because a product is marketed as an “annuity” and because “insurance” involves some-risk-taking doesn’t make the product subject to federal regulation.
Eugene Scalia, a lawyer with Gibson, Dunn & Crutcher in Washington, D.C., said he will contend in oral arguments that what he terms “fixed index annuities” should continue to be regulated by the states because they are recognized as insurance products by all 50 states “and satisfy all generally applicable state requirements for insurance products in the allocation of risk in insurance.”
Therefore, Scalia said, he will argue “they are exempt from regulation as securities by the SEC.”
The NAIC, representing state regulators, will also participate in oral arguments, according to a spokesperson.
In an interview, Scalia said he believes the SEC erred in adopting the rule because of a “mistaken belief that it can pick and choose and decide to regulate ‘certain annuities.’”