September 3, 2008
An indexed annuity is an insurance contract. It does not have the attributes of a security where the principal value will fluctuate based on market conditions. The only part of an index annuity that is not certain is the annual earnings on the product. This portion can be tied to a market value index. There is no market risk to principal similar to securities that are regulated by the SEC.
Indexed annuities provide insurance benefits to individuals in the same way fixed rate annuities do. Fixed rate annuities are not generally fixed. Insurance companies change crediting rates annually. Indexed annuities provide the same insurance benefits and guarantee of principal as fixed rate annuities.
Insurance products are strictly regulated by state insurance departments. Indexed annuities are also regulated in the same manner. Insurance companies have provided extreme stability and security in the insurance products that they provide to the public. The industry does not need more regulation on a product that has proven to be adequately regulated by the insurance industry.
The push to regulate indexed annuities as securities is coming from the securities investment community. They want this to reduce the movement of money from products they control to products available from licensed (and regulated) insurance agents. Their interests are self serving and not in the best interest to the public. If this rule is adopted it will decrease the safe investment options available to consumers and lower the returns available through the higher cost structures presented by securities investment advisors.
These are just some of the reasons that indexed annuities should not become subject to the same treatment as securities. They are not securities. Please do pass rules that subject index annuities to treatment as securities. It will decrease the availability of these products in a time when older investors need easy access to safer more secure options for their retirement funds.
Thank you.