Rule 151A would require sales agents of FIAs to have securities licenses as well as insurance licenses
American Equity Investment Life Holding, a underwriter of fixed index annuities (FIAs), has obtained a remand of Rule 151A adopted by the Securities and Exchange Commission, earlier this year.
Rule 151A, which was to become effective in 2011, expands the SEC’s jurisdiction to include regulatory oversight of FIAs, and would require sales agents of FIAs to have securities licenses as well as insurance licenses.
American Equity, along with a coalition of industry participants, filed a lawsuit in the US Court of Appeals for the DC Circuit opposing Rule 151A on several grounds, including that FIAs and sales agents are already extensively regulated under state law.
FIAs provide consumers with a guaranty of principal and minimum interest comparable to other types of fixed annuities, which are regulated solely under the state insurance law.
In adopting Rule 151A, the SEC asserted that the probability of earning contract gains above guaranteed minimums was ‘investment risk’, justifying federal oversight of the products. In its ruling, the Court concluded that the SEC’s assessment of ‘investment risk’ was not unreasonable, and thus the SEC may choose to regulate these products.
The Court also ordered that the SEC failed to fulfill its legal obligation to analyse the effect of the rule upon ‘efficiency, competition and capital formation.’ The rule was remanded to the SEC for further consideration of this requirement.