The decision of the Securities and Exchange Commission to concede in court documents that it will provide a full two-year implementation period for federal regulation of indexed annuities under Rule 151A is being greeted as a positive by industry officials.

However, as the SEC and the industry await a determination by a federal appeals court as to the next step in the case, these same industry officials are making clear that their ultimate objective is for the product to remain state-regulated.

For example, officials of the National Association for Fixed Annuities said in a statement, that the trade group and its partners “have maintained from the beginning that Rule 151A is an unnecessary intrusion on the existing, strong insurance regulatory framework.”

The statement continued, “Adding a second bureaucratic layer of securities regulation on top of the already effective insurance regulation will cause great harm to consumers by crippling the distribution and access to insured annuity products that guarantee principal, prior credited interest and income during retirement.”

Specifically, the group said it will ask the court to set aside the rule, as well as pursue a legislative solution.

The SEC’s December 8 brief was in response to a November court order asking the parties in the case to brief the panel on whether implementation of Rule 151A should be delayed beyond January 2011and also whether the rule should be vacated based on “the SEC’s failure to properly consider the effect of Rule 151A upon efficiency, competition, and capital formation.”

The court, a panel of the U.S. Court of Appeals for the D.C. Circuit, has promised that it will decide what to do next based on briefs filed by the SEC as well as Old Mutual Insurance Company, Baltimore, Md.

In response to the request to comment, the SEC said in its filing that remanding the case back to the agency without vacating it “is the most equitable and appropriate remedy in this case.”

In part, it cited an earlier decision by one of the judges in the case, Judge Janice Rogers. The case is American Equity Investment Life Insurance Company, et al, v. the Securities and Exchange Commission, No. 09-1021.

A lawyer for Old Mutual, whose request to a panel of the appeals court prompted the SEC brief, said he saw the SEC decision “as a positive development,” although adding that Old Mutual “will continue all efforts on all fronts to defeat the rule.”

In its July 21st decision, the appeals court panel held that the SEC decision to regulate EIAs as annuities was reasonable, but that it did not comply with Sec. 2(b) of the Securities and Exchange Act of 1933, which requires the SEC to study the effect of the rule upon efficiency, competition, and capital formation, and to include that information in its proposed rule.

In September, Old Mutual asked the court to consider delaying implementation because of the need for the Sec. 2b analysis.

In response, the court asked Old Mutual to submit a brief not only on the issue of implementation delay, but also on whether the court should consider vacating the entire SEC order.

Old Mutual filed a Nov. 24 brief, saying that vacating the order and requiring the SEC to start over again was the proper course.

However, Frederick Bellamy, a partner at Sutherland, Asbill and Brennan, Washington, D.C., who is familiar with the case but is not representing the industry in the case, said the SEC has also consented through its court brief in the case to conduct a notice-and-comment period on the Sec. 2b analysis of the effect on efficiency, capital formulation and competition, which the court panel used as the basis for sending the rule back to the SEC for further action.

“That will make it much harder” for opponents of federal regulation of indexed annuities to challenge the Sec. 2b analysis, Bellamy said.

Responding to the SEC brief, Eric Marhoun, Old Mutual’s chief legal counsel, said, “We are pleased that the SEC has seen fit to grant a two-year stay for a implementation period if they proceed with the rule.”

He added that the SEC “seems to recognize that a minimum of two years is necessary to implement any rule that should they choose to proceed.”

At the same time, he said, “We are hopeful that the court will vacate the rule ultimately based on the petition, which is the question before the court.

“It appears that the SEC in its brief may be considering proceeding with this ill-advised and unnecessary rule,” he said.

Old Mutual “hopes that the SEC will ultimately conclude that the rule is not justified and that they cannot satisfy the efficiency, capital formulation and competition requirement applicable to the rule and the SEC will not proceed with the rule,” Marhoun said.

“We are hopeful that the analysis that they are about to conduct will demonstrate that that there is a sufficient level of state regulation, that they cannot justify the rule,” he said, and any federal regulation “would be much more detrimental than any potential benefit that might occur under the rule.”