Scroll down for a discussion on Breaking News on Rule 151A within the Annuities Forum.
Court Tosses SEC Ruling
By [COLOR=#0066cc]ARTHUR D. POSTAL[/COLOR]
Published 7/21/2009
[COLOR=#0066cc]Subscribe to Life & Health[/COLOR]
[COLOR=#0066cc]Print This Article[/COLOR]
[COLOR=#0066cc]Return To Article[/COLOR]
[COLOR=#0066cc]Normal Text[/COLOR]
[COLOR=#0066cc]Large Text[/COLOR]
...
WASHINGTON BUREAU -- A 3-judge federal appeals court panel today sent back for reconsideration a U.S. Securities and Exchange Commission regulation that could have put some indexed annuity contracts under SEC jurisdiction.
The judges, who sit on the U.S. Court of Appeals for the D.C. Circuit, ruled that the SEC used a reasonable interpretation of the term “annuity contract” when it drafted Rule 151A, a proposed rule that would have classified many indexed annuities as securities.
A Supreme Court precedent gives federal agencies the flexibility to interpret their own regulations, and the SEC was within its rights when it stated that the definition of “annuity contract” excludes annuities with returns linked to the performance of a group of securities or a securities index, Chief Judge David Sentelle writes in an opinion for the court concerning American Equity Investment Life Insurance Company et al., Petitioners, vs. Securities and Exchange Commission.
We grant the [plaintiffs’] petitions, however, with respect to petitioners’ alternate ground that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation,” Sentelle writes.
We hold that the Commission’s consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious,” Sentelle writes. “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.”
The court notes that the SEC believes its proposed regulation would be better than a patchwork of state laws.
"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," Sentelle writes for the court.
So after the commission goes through the motions of examing how the rule will "promote competition, efficiency, and capital formation" then they can go forward with 151A? Is anyone else reading it like that or just me? Sounds like a minor victory for SEC. grumble grumble
I am sure that it will be challenged again when they do make try to press on based on what they come up with so this will continue to drag on which is also a minor victory for the American Equity and the coalition I suppose. Along with the efforts to have it blocked by Congress...
So after the commission goes through the motions of examing how the rule will "promote competition, efficiency, and capital formation" then they can go forward with 151A? Is anyone else reading it like that or just me? Sounds like a minor victory for SEC. grumble grumble
I am sure that it will be challenged again when they do make try to press on based on what they come up with so this will continue to drag on which is also a minor victory for the American Equity and the coalition I suppose. Along with the efforts to have it blocked by Congress...
The effective date of Rule 151A is January 12, 2011, two years after its initial adoption. At this time, the Court's decision does not change the effective date.
Any indexed annuity issued before January 12, 2011 is not effected even if the policy receives premiums after the effective date. Also, Rule 151A has no effect on LSW’s traditional fixed annuities.
Bipartisan Legislation Could Nullify Rule 151A
Meanwhile, Senator Ben Nelson (D-Neb.) introduced bipartisan legislation that would nullify the Commission’s adoption of Rule 151A before it has a chance to take effect. The Fixed Indexed Annuities and Insurance Products Classification Act, S. 1389, provides that Rule 151A will have no force or effect. There is a companion bill in the House, HR 2733, introduced by Rep. Gregory Meeks.
The draft legislation expresses a congressional sense that the SEC’s adoption of Rule 151A interferes with state insurance regulation, harms the insurance industry, reduces competition, and creates unnecessary and excessive regulatory burdens. The measure also embodies a congressional finding that indexed insurance and annuity products offered by insurance companies are subject to a wide array of state laws and regulations. These include non-forfeiture requirements that provide for minimum guaranteed values, by protecting consumers against market related losses.
It is more important than ever that you contact members of Congress and urge them to support HR 2733 in the House and SB 1389 in the Senate. Go to SEC151a.com - Proposed SEC Rule 151a News & Information for information on how to respond quickly to your Member of Congress.
The effective date of Rule 151A is January 12, 2011, two years after its initial adoption. At this time, the Court's decision does not change the effective date.
Any indexed annuity issued before January 12, 2011 is not effected even if the policy receives premiums after the effective date. Also, Rule 151A has no effect on LSW’s traditional fixed annuities.
Bipartisan Legislation Could Nullify Rule 151A
Meanwhile, Senator Ben Nelson (D-Neb.) introduced bipartisan legislation that would nullify the Commission’s adoption of Rule 151A before it has a chance to take effect. The Fixed Indexed Annuities and Insurance Products Classification Act, S. 1389, provides that Rule 151A will have no force or effect. There is a companion bill in the House, HR 2733, introduced by Rep. Gregory Meeks.
The draft legislation expresses a congressional sense that the SEC’s adoption of Rule 151A interferes with state insurance regulation, harms the insurance industry, reduces competition, and creates unnecessary and excessive regulatory burdens. The measure also embodies a congressional finding that indexed insurance and annuity products offered by insurance companies are subject to a wide array of state laws and regulations. These include non-forfeiture requirements that provide for minimum guaranteed values, by protecting consumers against market related losses.
It is more important than ever that you contact members of Congress and urge them to support HR 2733 in the House and SB 1389 in the Senate. Go to SEC151a.com - Proposed SEC Rule 151a News & Information for information on how to respond quickly to your Member of Congress.
So on one hand, congress is working to pass health insurance legislation that tramples states rights on insurance regulation, and then on the other hand, working on these bills to protect them????
WASHINGTON BUREAU -- A 3-judge federal appeals court panel today sent back for reconsideration a U.S. Securities and Exchange Commission regulation that could have put some indexed annuity contracts under SEC jurisdiction.
Just to add to the mix of news,
Here's some not so good news .... LSW eNews
U.S. Court of Appeals Rules
On SEC’s Rule 151A
July 21, 2009…Today, the U.S. Court of Appeals of the District of Columbia ruled on the case of American Equity Investment Life Insurance Company, et al, v. the Securities and Exchange Commission (SEC).
This lawsuit challenged SEC’s Rule 151A that would classify fixed indexed annuities as securities and subject them to SEC regulations. The Insurance Coalition, of which Life Insurance Company of the Southwest is a member, sponsored the lawsuit. The Coalition sought to cancel Rule 151A.
The Court denied the argument to cancel Rule 151A, and said the SEC has the authority to classify fixed index annuities as securities. The Court gave the SEC the authority because the laws that would exempt an annuity contract as a security was ambiguous as to what exactly is an “annuity.” According to the Court, Section 3(a)(8) of the Securities Act of 1933 did not specifically mention fixed indexed annuities within the definition of being an annuity. To give the SEC the power to so classify indexed annuities, the Court merely had to conclude the SEC was reasonable in its approach – and the Court agreed.
As to the plaintiff’s argument that the SEC did not properly consider the effect of Rule 151A on efficiency, competition and capital formation, the Court agreed that the SEC had not met its burden and sent the matter back to the SEC for it to perform the analysis or to explain why it does not apply in this rule making situation.
My take on this is that it actually represents a set-back for us.
The court expressed no problems at this point with the substance of the change, only with some definitions.
I think the best way to fight this is still politically which is why I recently sent a letter to my senator basically saying this is a state regulation vs. federal regulation issue and pointed out that the SEC which claims to be in a better position to regulate an insurance product is the same bunch of clowns who did not see Madhoff or Stanford coming.
I know a lawyer who actually sent the SEC his whole file on Stanford four years ago (he sued them on behalf of a client) and warned the SEC that they needed to investigate. Needless to say, 4 years later the SEC is surprised by what went down.
I also want to know where FINRA gets it powers to make recommendations about non-security, insurance products on their website?
The 2007, IRS Form 990, for FINRA Investors Education Foundation says:
Under Part III Statement of Program Service Accomplishments - part a.
FINRA Investor Education Foundation's primary exempt purpose is to provide investors with high quality, easily accessible information and tools to better understand investing and markets.
So I ask, where in that statement does it say non-security products. Just as a State Department of Insurance would probably be outside their legal mission if they gave warnings about an IPO, is FINRA outside their bounds?
In my opinion it seems that FINRA thinks they can ride into any business they want to make comment. Usually regulatory agencies are loath to step outside their bounds of power but FINRA?????
Have you seen FINRA's ads on TV that have been coming out recently? They want the public to believe they are there for the sole purpose of protecting the public's interest against the industry.
If only they had to put a disclaimer at the end, like:
"We are actually a self-regulatory body and a part of the industry that we want you to believe we impartially regulate. This ad is primarily intended to lull you into a warm and fuzzy place so that when we support the SEC on something, like regulating insurance, you will support what we endorse. And by the way, we didn't see Madhoff or Stanford coming because nobody saw it coming, so don't blame us. That was maybe the fault of NASD which is spelled differently than FINRA and therefore not connected in any way."
I think it is very important for everyone to support the work being done by the coalition which is supporting two bills to classify FIA's as Fixed annuities. This will eliminate 151A. One is currently in the House and the other one is in the congress. Making calls and appointments to your local representatives should be on the top of everyones priority list that wants these products to stay around.
If the effective date doesn't change, this could just cut carriers' time to prepare.
I am sure that the carriers are prepared either way. In fact I was at a Jackson National seminar yesterday and I asked the National Sales Director what he thought about the bill and it was the only time in his hour speech that he seemed to be at a loss. They assured us that they were prepared either way.
Breaking News on Rule 151A
Linear Mode
