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.”
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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.