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NAFA: Fixed Annuities Not Swaps

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WASHINGTON BUREAU — The National Association of Fixed Annuities says it believes federal regulators are classifying fixed annuities as swaps.

NAFA, Milwaukee, makes that point in a comment letter submitted to the Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) in a response to joint SEC-CFTC efforts to develop the definitions needed to implement the swaps provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

NAFA’s understanding of the proposed definitions is that a fixed annuity would be defined as a “swap,” or a “security-based swap” or “security-based swap agreement,” and therefore subject to SEC regulation, NAFA President Kim O’Brien says in the letter.

An amendment to the Dodd-Frank Act sponsored by Sen. Tom Harkin, D-Iowa, made it clear that fixed annuities are excluded from federal regulation, including regulation by the SEC, and that the products should be regulated by state insurance regulators, O’Brien says.

NAFA believes the proposed swaps definitions would classify a fixed annuity as a swap or security-based swap because, under the proposed swaps definitions, any insurance or annuity product that does not come within the exclusions set forth in the proposed rule is defined as a swap, O’Brien says.

NAFA believes an appropriate approach, consistent with congressional intent, would be to treat fixed annuities as insurance arrangements that are not swaps unless they fail to meet criteria set forth in Section 3(a)(8) of the Securities Act of 1933, O’Brien says.

Instead of presuming that “you are a swap until proven insurance,” the operative presumption should be “you are insurance until proven a swap, O’Brien says.

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