Subject: File No. S7-14-08
From: Mark Schaffer, Ph.D.
Affiliation: associate professor of finance

August 13, 2008

Mark Schaffer, Ph.D., associate finance professor.

I am in favor of this rule for several reasons.
1. Individuals purchase such products in order to participate in U.S. Capital Market performance.
2. The products are more often than not marketed as securities.
3. Many who sell these products are unfamiliar with how they operate particularly the crediting methodology and the exclusion of dividends.
4. The commissions charged and the benefits conferred (through low guaranteed interest rates, caps, spreads and participation rates) make these products not particularly attractive, but for false promises of insurance agents.
5. The products are far inferior to CDs and treasury instruments as far as return on investment based on average market performance and the benefits conferred by the typical indexed annuity contract.
6. Guaranteeing premiums after a 13 year surrender period is not risk-free, as the products do not keep up with the time-value of money.
7. Indexed annuities are derivatives of securities and therefore are themselves securities. Insurers also guarantee contract value, which would make the insurers guarantee also a security.
8. 3(a)(8) exempts annuities however, since less than 1.5% of indexed annuities are annuitized, one cannot really call this product an annuity. This product should be considered an accumulation vehicle (where an annuity is a payout vehicle).