September 3, 2008
Peter Sloan
29 Sandpiper Drive
Hackettstown, NJ 07840
September 3, 2008
SEC Headquarters
100 F Street, NE
Washington, DC 20549
Ladies and Gentleman:
The proposed Rule 151A is flawed by the notion that the insurance company offering these types of products is allowing a direct investment by the consumer into the stock market.
The Indexed annuity allows a measured return, which is restated at the policies' anniversary by the insurance company. Policyholders are given the choice each year either to receive a fixed guaranteed rate of return or to participate in an opportunity to receive a return, which is limited as to its growth potential by the insurance company in advance. As with all insurance, policyholders are provided with the guarantee that at the conclusion of each policy anniversary, the rate of return will be no less than zero. Even though the product is marking the market indexes, the insurance company is driving the parameters of the return not the stock market.
The value in any of the "index" classes paid to the policyholder in excess of the guaranteed fixed rate of zero in a given year is simply a life insurance dividend, which is used to increase policy cash value.
Not to be confused with a dividend declared and paid by a publicly traded company, a life insurance company pays a dividend for several reasons including: Mortality Savings, which occurs if the actual death claims experience is less than what was expected in the product pricing Investment Earnings above the guarantee, which happens when earnings on company investments exceed the guaranteed interest required to build up death benefit reserves and meet contractual obligations Savings on Company's Operations, which result if actual operating expenses are less than those assumed in the premium rate.
The insurance company is guaranteeing that the policy cash value will not loose value by virtue of extraneous forces. This is by definition, pure insurance and not an investment.
If it walks like a duck and quacks like a duck, I would call it a duck. Release this product back into the life insurance pond where it came from. The insurance commissioners in each of the fifty states are perfectly capable of overseeing these types of insurance products in which the insurance company gauges the return, not the market.
Do not turn this into a turf war, over the Rights of States vs. the Federal Government. The Tenth Amendment to the Constitution, which is part of the Bill of Rights, defends a state law - oversight of insurance - that the federal government seeks to override. The Tenth Amendment opposes a perceived violation by the federal government of the bounds of federal authority.
Very truly yours,
Peter Sloan