Subject: File No. S7-14-08
From: Brett Anderson
Affiliation: Author of Book on Index Life ('Last Chance Retirement) and Insurance Agent

November 17, 2008

I have been an agent in the insurance industry for over 25 years. I am opposed to bringing Index Annuities under the compliance of the SEC as it is important that Investors be able to obtain the underlying guarantees of a fixed insurance product, including and especially future guaranteed gains for future income, and how much that payout ratio will be based upon attained age.

Having said that, there are two major failings with most Index Annuities as they are currently marketed and designed. IA's are promoted by most agents as having "no market risk" when this is an outright lie IF the policy also has built into it Market Value Adjustment (MVA), which about 90% of them do. This means that if the policy is still in the surrender charge period, any monies withdrawn above the free withdrawal limit (usually 10% each year) is subject to an additional interest rate adjustment (or surrender charge). This is the penalty that the tv reporter on the NBC Dateline expose read to the state DA, but neither of them realized or understood this is what it was either.

This MVA can of course work both ways - a profit or a loss. But the point is that it is an aspect of real market risk built into the policy that most agents don't understand and have no idea how to explan to a prospect. As a result most customers have little if no idea it is part of the product, let alone how it works and what it may cost them. If a penalty it can be as much or more than the "surrender charge" Only 1 company that I'm aware of (Midland) spells this out in English instead of a calculus equation that no one could possibly understand.

If IA's have MVA on them I believe they should be regulated as a security because that is what they are because they do have real market risk. My preference though is that Insurance companies remove this aspect from the product instead (American Equity and LSW are two of only 8 companies that do not have MVA).

As to other issues with IA's -- mirepresenting how they work and potential returns -- this problem will NOT be solved just because they are a security. That solution is agent CE, agency and company education and just having a state required form signed by the client acknowledging they are aware of the real potential returns from an IA over the long term (which is only in the 5-6% range, NOT 8%, 9% or even more), along with possible surrender charge costs in $'s.

In short -- with removal of MVA -- Index Annuities offer far more potential income and other benefit gurantees that can not be obtained with a "security" and so should NOT be regulated as one. The returns are only linked to an index, not actually in the market -- an important distinction that should not require securities regulation and licensing. An analogy is if in the Dr.'s office and you only need to be weighed, get a medical history and a shot we do not require the Nurse/Assistant to also spend 8 years in medical school the same as the Dr., just to do this. The Cons far outweigh the Pros of the SEC taking over this part of the market, and it should not do so.

Brett Anderson