This updates our December 22, 2008 posting.

On January 16, 2009, American Equity Investment Life Holding Company (“American Equity”) issued a press release announcing that it, together with a coalition of insurance companies and independent marketing organizations, filed suit in the U.S. Court of Appeals for the District of Columbia Circuit seeking to overturn Rule 151A adopted by the Securities and Exchange Commission (“SEC”).  Rule 151A changes existing law by classifying certain indexed annuities, previous regulated as insurance, as securities, and thus subjecting them to federal, rather than state, regulation.  American Equity also published a press kit (“Press Kit”) that summarizes the complaint and provides background information regarding the suit. The Press Kit references the Securities Act of 1933 which exempts any “annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State or Territory of the United States or the District of Columbia” from the definition of a security.  It also states that in reclassifying certain annuities previous regulated under state insurance law as securities, the SEC exceeded its statutory authority and violated the Administrative Procedure Act (“APA”). According to the Press Kit, arguments expected in the suit include the following:

  • The SEC’s action directly contradicts a federal court ruling that fixed indexed annuities are annuities, not securities.  
  • The SEC’s action contradicts Supreme Court decisions, which said that the “allocation of investment risk” between the insurance company and purchaser is one of three key determinants of whether a product is an annuity or a security.  
  • The SEC ignored the two other components of the Supreme Court’s three part test - whether the product is regulated by the states, and how it is marketed.  
  • When it first proposed the rule, the SEC suggested that there were improper sales practices involving fixed indexed annuities, but it made no such finding in issuing the final rule.  
  • The SEC gave insufficient attention to the costs its rule will impose on insurance companies, agents and consumers.

The case is American Equity Investment Life Insurance Co. v. U.S. Securities and Exchange Commission, 09-1021, U.S. Court of Appeals for the District of Columbia Circuit. The petitioners are seeking a ruling from the court before summer.

Click here for a copy of the Press Kit, which includes a copy of the petition.  

Click here for a copy of Rule 151A as published in the Federal Register. We will continue to monitor this issue and provide further updates on