On June 4th, a bill was introduced in the U.S. House of Representatives that would nullify the Securities and Exchange Commission’s recently adopted Rule 151A. The bill would also amend Section 3(a)(8) of the Securities Act of 1933 to make clear that fixed indexed annuities and life insurance policies are not securities and are therefore excluded from all provisions of the 1933 Act. In addition, Section 3(a)(8), as amended, would cover all general account products satisfying state nonforfeiture requirements.
More specifically, H.R. 2733, the Fixed Indexed Annuities and Insurance Products Classification Act of 2009, would amend Section 3(a)(8) so that the exemption includes “any insurance or endowment policy or annuity contract or optional annuity contract (A) the value of which does not vary according to the performance of a separate account, and (B) which satisfies standard nonforfeiture laws or similar requirements.” The bill also provides that “Rule 151A … shall have no force or effect.”
The bill includes findings that (1) primary jurisdiction for regulating life insurance and annuities is vested with the states; (2) indexed insurance and annuity products are subject to a wide array of state regulation, including nonforfeiture requirements that provide for minimum guaranteed values, thereby protecting consumers against market losses; and (3) adoption of Rule 151A by the Commission “interferes with State insurance regulation, harms the insurance industry, reduces competition, restricts consumer choice, creates unnecessary and excessive regulatory burdens, and diverts Commission resources.”
The bill was introduced by Rep. Gregory Meeks (D-NY), a senior member of the House Committee on Financial Services and cosponsored by 21 members from 11 states. The bill has been referred to the House Committee on Financial Services, chaired by Rep. Barney Frank (D-MA).
The full text of the bill may be found at http://www.sutherland.com/files/upload/HR2733.pdf. In addition, to review a memo from the Congressional Research Service that provides background on Rule 151A and relevant state regulation and contains a brief discussion of the pros and cons of the proposed legislation, please access http://www.sutherland.com/files/upload/CRSMemo.pdf. Finally, a letter that Rep. Meeks and Rep. Tom Price (R-GA) used to solicit co-sponsors for the bill may be accessed at http://www.sutherland.com/files/upload/MeeksNotice.pdf. (We note that the letter refers to the short title of the bill as the “Indexed Annuities and Insurance Products Classification Act of 2009.” The title was subsequently modified to add the word “Fixed.”)
Whether or when any hearings on the bill might be scheduled, what position the Commission and other interested parties might take regarding this bill, and what if any consequences this bill might have, including its effect on the case pending at the U.S. Court of Appeals for the District of Columbia Circuit, are unclear at this time.