Subject: File No. S7-14-08
From: Pete Caneer
Affiliation: CSA

July 29, 2008

Perhaps the SEC should have read the National Association of Insurance Commissioners Buyers Guide to Fixed Deferred Annuities before suggesting that the SEC regulate Fixed Indexed Annuities. The SEC suffers so many misconceptions its hard to know where to start.

Lets start with semantic precision. The SEC says the FIA buyers are investors. Wrong. Saying that the fixed indexed annuity client is investing in these products is analogous to saying that a person who buys a home for his family to live in is a real estate investor. The buyer of an FIA is buying safety and security, and guaranteed income -- not investing. The SEC proposal says that indexing is an investment feature. FIA buyers are exposed to significant investment risk. Wrong. They are exposed to interest rate risk. The SEC report says that FIAs are similar to variable annuities that have death benefit protection features. Wrong. This is patently false since guarantees of principal are not the same as death benefit guarantees.

The SEC proposal spends virtually no time at all on the primary marketing focus for FIAs today: guaranteed income from income accounts independent from the cash account. The SEC has redefined FIAs as a way to accumulate money rather than as a way to provide guaranteed income, and they need to be challenged and challenged hard.

The SEC itself admits that the regulatory burden for its success amounts to an additional $72,000,000 and additional untold work-hours. A troubled economy is not the time to foist these additional indirect taxes on our industry. The answer lies in better state insurance department regulation, plus the use of much more aggressive marketing scrutiny – perhaps home office interviews of each and every client from the home office to assure suitability. The cost of this would be worth it since it would probably also root out the bad apple/agents out there more quickly.

Challengers to SEC 151A should start by ripping apart every misstatement in the proposal. If the SEC is successful, then they can certainly say that anyone who buys an indexed UL contract with lifetime guaranteed death benefit protection is also an investor even if minimally funding the policy.