SEC Still Rattling Sabers at EIAs
June 29, 2008
The Securities and Exchange Commission has unanimously voted to consider a rule that would reclassify most equity-indexed annuities (EIAs) as securities and not as insurance products, as they have been.
If the rule is adopted, only those with securities licenses could sell EIAs, which would be regulated the same way securities are regulated. The change would likely disrupt the distribution of EIAs, because most EIAs are sold by independent producers without securities licenses and by registered reps who sell EIAs outside their broker/dealers’ supervision.
American Equity Investment Life Holding Co., the third-largest seller of EIAs, said it “intends to oppose this change through all available channels during the rule-making process, which will include a comment period and a later opportunity for judicial review.”
If the proposed new rule is passed, EIAs wouldn’t be considered an annuity contract under the Securities Act of 1933 and would not receive the Act’s insurance exemption as long as the amounts payable under the contract were likely to exceed the amount guaranteed under the contract. The implication is that if an EIA offers upside potential—which it’s designed to do—then it’s a security.
The rationale for the long-discussed reclassification is protect seniors and other investors from fraud and abuse associated with the sale of EIAs, according to the SEC. Marketers of EIAs with long surrender periods and high commissions have been the targets of several lawsuits in recent years.
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