Commenting Period Ends

The re-opened commenting period ended November 17, 2008.

Taking the fight to D.C.

Insurance Marketing firms join Indexed Annuity Carriers to fight SEC on Captial Hill in Washington DC.

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Washington Trip Update:

September 23, 2008

As American lawmakers wrestled with the largest bailout in US history, a select group of annuity marketing firms and life insurance carriers marched on Capitol Hill to defend the future of an industry.  The Security and Exchange Commission (SEC) seeks to make Fixed Indexed Annuities (FIAs) a registered security and therefore, under their supervision. 

As the SEC seeks to approve its own proposed rule 151a, this federal agency is reeling from allegations of inadequate oversight within the investment community that is leading lawmakers to consider an overwhelming $700 billion bailout for large Wall Street firms.

The turmoil within the investment community offers an interesting contrast to the safety and security we offer through our Fixed Indexed Annuities. FIAs are competitive savings vehicles that should continue to be regulated as an insurance product, not an investment.  If the SEC succeeds in capturing this product, consumers will lose the valuable minimum guarantee protections of the product that make it a fixed savings instrument to begin with.  In addition, the consumer will be exposed to a much weaker regulatory support when it comes to conflict resolution.

Under insurance regulation, a state department of insurance can pressure an insurer to refund annuity premiums to a policyholder if the department considers any sale inappropriate.  Under the SEC, an unresolved complaint must be decided by a judge or arbitrator.  This means the consumer must hire legal representation which adds more cost to the consumer.

Insurance companies point to the recent market turmoil and their consistent stability to demonstrate the value of their conservative approach.  Because insurers must maintain required solvency ratios, surplus levels and invest only in the most pristine bond portfolios, insurance companies have remained a foundational block to the US economy for hundreds of years.

Insurers state that during the extraordinary losses witnessed on Wall Street, their annuity owners experienced no loss at all. 

The lobbying effort in Washington, DC was organized by a coalition of insurance carriers who offer FIAs to consumers through a large network of independent insurance professionals.  Executives from American Equity, Old Mutual, Midland National, and LSW were present to take their message directly to lawmakers.  During the one day event, over 110 members of the house and senate were visited.  The coalition was aided by Washington, DC law firm, Baker and Hostetler who helped organize the effort. 

The day began with a brief meeting to discuss the approach.  Baker and Hostetler provided each participant with an information kit and talking points to share with lawmakers.  The law firm also reported that approximately 2,500 comments had been posted to the SEC during the short comment period.  "Ninety percent of these comments clearly opposed their proposed rule," stated Tom McDonald a partner in the firm

"I was pleased with the receptive attitude lawmakers showed to us during our visit," stated one participant.  "They understood what was at stake and could see the value of keeping a viable savings product in the market; one that has proven to protect against loss for over 10 years now.  If everything becomes a security, the savers will have no place to go to safely protect the assets they have worked so hard to accumulate over their lifetime."

Unlike other savings products such as certificates of deposit (CDs) or money market accounts, annuities offer additional benefits such as tax-deferred growth and income planning capabilities.  Many annuities also provide additional liquidity and enhanced benefits for personal emergencies such as a nursing home confinement.

The attendees feel there is a chance to keep the product out of securities registration. As one stated, "I am confident we can prevail.  If our lobbying effort is not successful, the coalition of indexed annuity carriers is prepared to litigate against this predatory rule.  Current law, our long history and the principal of consumer protection is all in our favor.  I am a firm believer in the independent agent and I am here in DC today to represent their interests."

Top 10 Reasons the SEC is Wrong

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What's Happening & What Does It Mean

The Securities and Exchange Commission (SEC) is proposing a rule now known as 151A that if adopted, would make Fixed Indexed Annuities a registered security.  Please note:  This is only a proposed rule.  It has not been adopted and therefore, no action is needed by you at this time.  You may continue selling Indexed Annuities without a securities license.

The rule is essentially looking at two tests to evaluate if an Indexed Annuity product would be considered a security. 

  1. the amounts payable are calculated in whole or in part by reference to a security or a group of securities or an index, and
  2. the amounts payable by the insurer are more likely than not to exceed the amounts guaranteed under the contract ("more-likely-than-not" test).

As you can see, the language is sufficiently vague so that it might be adapted to various versions of product.

The first test certainly affects all indexed annuities as amounts payable are calculated in whole or in part by reference to an index.

It is interesting to note that the second test likely affects all annuities because all fixed annuities are designed to exceed the legal guaranteed minimum.

Now here is an important point; to be considered a security under this rule a product must meet both tests. 

Again, we want to stress to you that this is a proposed rule at this point, not an adopted rule.  Prior to adopting a rule, the SEC will follow their prescribed process.

The entire language of the proposed rule has been released for public comment back to the SEC.  The public comment period closes on September 10, 2008.  This allows anyone interested to submit their opinions on whether this rule should be adopted or rejected.  As you navigate this website, you will see how you can immediately post your comments to the SEC.  We have even provided you with suggested language you may find useful in helping you compose your thoughts.

Once the public comment period is closed, the SEC will deliberate over the comments and then vote to adopt or reject the proposed rule.  They may also consider modifying or tabling this topic as well.

Should the SEC adopt the rule, immediate compliance is NOT required.  There is a 12 month period after the adoption of the rule to allow companies and agents to move toward compliance.  In other words, for the 12 months following adoption, agents, agencies and wholesalers may continue to operate as they currently do without violating the rule.  So, even if the rule were adopted today for example, you would have 12 months before you would be required to actually execute any changes.

We have received word from several insurance companies that they are prepared to file suit against this proposed rule should the SEC choose to adopt it.  Based on past case law and existing safe harbor rules, we believe there is an excellent opportunity to prove that a Fixed Indexed Annuity is NOT a security.  So, even if the rule is adopted by the SEC, it could be overturned in a legal proceeding.   

You may be wondering how things will change in the event that the rule is adopted and remains in force.  Those wishing to stay involved with Indexed Annuity sales would need to become securities licensed at that time.  It may also impact certain business models that do not match up well with securities regulations. 

We will be consulting with the legal experts and industry leaders to keep you apprised of the situation as it progresses as well as identify options you may need to consider in the future.  Just visit this site on a regular basis or register and we will notify you when anything changes on this important issue. 

If you would like to be included in any future communication regarding this mission critical topic, please register today by completing all the information requested on the right side of this web page.  Then, click the submit button.  We will be updating you each step of the way.

Today, it is business as usual but we must begin to keep a watchful eye on the horizon so that we can restructure where necessary to continue serving every consumer in an honorable and professional manner.