SEC OKs proposed annuity rule

Equity index annuities could be regulated as securities if a proposal approved 3-0 today by the Securities and Exchange Commission is finalized. Such annuities — insurance contracts under which payments to the purchaser are dependent on the performance of a securities index — would fall under federal securities regulations if payments under the annuity were expected to exceed the minimum payment guaranteed under the plan. “Unfortunately, many equity-indexed annuities appear to have been marketed to investors who are the least able to scrutinize the details or who are simply not suitable purchasers of these products,” SEC Chairman Christopher Cox said at the meeting. The rule would be effective only for annuities sold starting one year after the regulation were finalized. Annuities issued before that time would not be affected. The SEC played a segment of an April 13 “Dateline NBC” television show in which abusive sales practices were televised. A common problem is that equity index annuities have been sold to seniors who did not understand that they would forfeit large amounts of their investment if they withdrew money within a certain time frame, which can be as long as 15 years. Requiring such annuities to be regulated under federal securities rules would compel issuers and agents to abide by federal securities disclosure and sales practice rules. Nearly $25 billion was invested in equity index annuities in 2007. Under the proposal, insurance companies issuing these annuities would not have to file financial statements with the SEC if they were regulated as annuities under state law.