As expected, the Securities and Exchange Commission approved the new Rule 151A, slightly amended from the proposed rule, which changes the way the SEC treats fixed-indexed annuities (FIAs); they are sometimes referred to as equity-indexed annuities under Section 3(a)(8) of the Securities Act of 1933. Despite significant congressional, state and industry opposition, the Commission voted 4-1 to enact this Rule, which, in effect, turns FIAs into securities -- subject to securities regulation. It also requires that all producers who sell FIAs have a securities license to do so. The SEC's new standard applies to indexed annuities issued on or after Jan. 12, 2011 and producers will need a securities license to sell FIAs from and after that date.

...We expect that litigation will immediately be filed by interested parties within the insurance industry, both to enjoin enforcement of the Rule and to overturn it as soon as possible. Indeed, at the hearing today, the SEC began its public relations campaign in anticipation of such litigation, with SEC staff criticizing the "saber-rattling" of the industry with respect to the regulation and its legal merit.

I endorse any and all efforts to challenge Rule 151A. It's misguided -- at best -- and counterproductive and dangerous at worst. As many within the industry have repeatedly pointed out, FIAs are fixed insurance products not subject to securities regulation. Indeed, the SEC reported receiving nearly 5,000 comments on its regulation proposal, the overwhelming majority of which opposed it. As the Commissioners noted, that number of comments is highly unusual...

Producer's Web: A response to the SEC's approval of Rule 151A