by John Darer CLU ChFC CSSC RSP
The United States Court of Appeals for the District of Columbia has vacated SEC Rule 151A, the rule which would have treated fixed indexed annuities as securities for the purpose of federal regulation effective January 12, 2011.
As a result of the ruling licensed insurance agents may continue to offer and solicit the sale of fixed indexed annuity contracts without needing an active federal securities license.
What Are Fixed Index Annuities?
Fixed indexed annuities are generally characterized by:
- Minimum interest rate over time
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Can be either immediate or deferred
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Benefits that are linked to an external equity reference or an equity index. The value ofthe index might be tied to changes in a stock or other equity index such as the S&P 500. The value of any index varies from day to day and thus not predictable
American Equity Investment Life Insurance Company , as Petitioner against the SEC, argued that Section 2(b) of The Securities Act of 1933 states that for every making of a new rule the SEC "is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the actions will promote efficiency, competition and capital formation"
Despite efforts by the SEC, the Court rejected the SEC conclusions and stated that such conclusions were based significantly on a flawed presumption that enhanced investor protections under Rule 151A would increase market efficiency.
For further information on the case please refer to American Equity Investment Life Ins. Co. v. SEC, 572 F.3d 923 (D.C. Cir. 2009 Reissued July 12, 2010)
Comments
Many structured annuity issuers already manufacture fixed index annuities. Now that Rule 151A has been vacated, perhaps its time that such innovation already existing on their shelves be applied in a structured settlement scenario.
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