The path for SEC 151A took a detour today when the U.S. Court of Appeals for the D.C. Circuit made a decision regarding the controversial ruling.

“Having determined that the SEC’s analysis is lacking, we conclude that this matter should be remanded to the SEC to address the deficiencies with its analysis,” wrote the three-judge panel.

The rule, which would securitize annuities, and was adopted in the final stages of the Bush administration, has been a lightning-rod within the insurance industry. Grassroots organizations have sprung up to combat 151A and Congressmen in both the House and Senate have drafted legislation to overturn it.

But this declaration by the D.C. Circuit was the first real blow delivered to the ruling, which, if implemented, would take effect Jan. 12, 2011.

“We hold that the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious,” the court wrote in its decision. “The SEC purports to have analyzed the effect of the rule on competition, but does not disclose a reasoned basis for its conclusion that Rule 151A would increase competition.”

All this does not mean 151A is over or that indexed annuities could not still be securitized; merely that the SEC has more work in front of it to get 151A implemented.

And, the court stated that although the SEC failed to fully analyze the impact of 151A, its federal regulation would be superior to a smattering of state laws.

As the court wrote in its conclusion – “After a more thorough review of the existing state law regime, the Commission may decide ultimately that Rule 151A will promote competition, efficiency, and capital formation.”