Subject: File No. S7-14-08
From: Steve Rutkowski

August 4, 2008

I am against the proposed Rule 151A for several reasons. The reasoning behind such a proposition seems to be a very self-serving, without actually considering the actual consequences of such a drastic departure from established precedent.

The indexed annuity products fill a specific niche in the marketplace between the risk characteristics of equity-based investments (stocks, bonds, mutual funds, and other security products) and federally backed savings vehicles, including those insured under the FDIC and treasuries offered by the United States Government. By classifying these products as securities, many of these products will substantially change in nature.

As they are today, the underlying values of the premium deposits in indexed annuities are guaranteed, with respect to surrender charges, surrender values, and interest earned. These products are substantially different in nature from any other products being overseen by the SEC due to these underlying guarantees. Interest earned under these contracts is either based on the underlying investments made by the insurance company or specifically tied to interest strategies offered in the product.

The Securities Act of 1933 specifically defined these products as insurance products and should not be revised based on the market conditions that exist today. Further precedent exists with the SEC 1997 definition of Indexed Annuities. Based on three specific items, including the underlying guarantees and interest rates, these products were again defined as an insurance product and not a security. I would submit that there is no basis for this rule under precedent.

These products are highly regulated by the insurance departments of each state, which includes substantial reserves for these products, as well as the backing of each states Life Insurance Guarantee Fund. There is no such fund or reserves necessary in any security product. These apparatuses have to be maintained, and should be maintained by the state insurance departments who have the expertise necessary to continue oversight of them.

Would changing this regulation to the SEC benefit the consumer? I highly doubt that. When billions of dollars are leaving the equity markets because of an aging population wishing to secure their retirement, rather than have it in an un-secured security as the underlying investment, we can understand the pressure from the large brokerage houses to make a mad grab at the money, but there is no precedent or benefit to the ultimate consumer in this case.

We see financial problems plaguing the security and brokerage companies today. This simple fact would significantly alter the landscape of these particular products, as the insurance industry is substantially stronger and more secure than the equity counterparts. If these products are not maintained by the insurance industry, will the country be asked to bail out yet another bad investment choice by the fund managers and equity analysts when the retirement of millions of people is at stake?

The SEC proposed rule would not substantially change deceptive practices by individuals, indeed if you review the past data there are more improper dealings with securities than with insurance products, and on a much larger scale. Keep these product insurance products. Keep them substantially as they are to fill the need in the marketplace. Keep them guaranteed by financially strong insurance companies, backed by the Legal Reserve Insurance Companies required by state insurance departments.