When the Securities and Exchange Commission declared that equity index annuities are securities last year, it ignored the McCarran-Ferguson Act, which grants states the right to regulate the insurance industry, state insurance regulators and legislators told a U.S. appeals court Tuesday.
The National Association of Insurance Commissioners of Kansas City, Mo., and the National Conference of Insurance Legislators of Troy, N.Y., joined with a group of equity index annuity companies in asking the U.S. Court of Appeals for the District of Columbia Circuit to overturn the SEC rule, which extended securities regulation over the products last year, arguing that such protection is needed to protect investors.
There is no widespread abuse in the sale of equity index annuities, the NAIC and NCOIL argued in their brief. The SEC ignored “significant evidence that a robust state regulatory scheme was already in place” that regulated the products, they said.
“The commission did not consider the protections already provided by the state regulatory system,” which include heightened disclosure requirements and sales practice protection rules, the brief said.
Equity index annuities are essentially insurance products, not securities, as they have a minimum guaranteed value, argued a group of petitioners led by American Equity Investment Life Insurance Co. of West Des Moines, Iowa.
The companies filing that petition also argued that equity index annuities differ from variable annuities, which are regulated as securities under federal securities law. The value of variable annuities is determined entirely by the performance of the underlying investment fund, their brief said.
Equity index annuities “are annuities, not regulated securities,” the brief said. “They are uniformly recognized as such by the states and are subject without exception to the state laws that exist to assure that insurance products provide protections against risk commensurate with the name,” it said.
The SEC is to file its response April 6.