WASHINGTON — A federal appeals court panel today heard lawyers talk about responsibility for the risk associated with equity indexed annuities.
The lawyers presented oral arguments concerning American Equity Investment Life Insurance Company, et al, v. SEC, Number 09-1021, to a three-judge panel at the U.S. Court of Appeals for the D.C. Circuit.
The plaintiffs are challenging Rule 151A, a regulation approved by the U.S. Securities and Exchange Commission that would classify some EIAs as securities and put them under SEC jurisdiction starting Jan. 12, 2011.
Rodney Page represented two of the plaintiffs, the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y. Eugene Scalia represented the insurers that challenged Rule 151A.
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Page and Scalia argued that EIAs provide a guaranteed return of principal, pose little investment risk, are not securities and are adequately regulated by the states through a comprehensive set of regulations that include suitability requirements.
Insurers, not insureds, bear most of the investment risk associated with EIAs, and state regulation adequately protects consumers against the risk of EIA losses, Page said.
Rule 151A is an inappropriate attempt by the SEC to “trump state regulation,” Page said.
Scalia also argued that most of the risk is borne by the issuer, not the insured.
Judge David Sentelle, chief judge of the D.C. Circuit appeals court, responded to Page’s argument about responsibility for EIA risk by saying, “We have not said how much risk is too much risk.”
At another point, Sentelle asked, “Isn’t it [the SEC's] job to determine if there is investment risk?”