October 6, 2008
Re: Proposed Rule 151A
Equity Indexed Annuities are FIXED annuities which guarantee return of principal to the client, a concept completely foreign to the securities markets. It is entirely appropriate for the Insurance Commissioners of the 50 states and U.S. territories to solely regulate such a product. EIAs, being fixed annuities, make no direct investment in securities, but rather are backed by the relatively safe General Account investments of the issuing company. Contract values are also protected to some degree from insurance company failure through the various State Life and Health Guaranty Associations.
Because of the guarantees provided consumers in EIAs, the insurance industry needs better oversight of these products than that demonstrated by the SEC as it presided over the recent collapse of Wall Street. Hundreds of billions of dollars of value have been lost in their clients' 401(k)s, savings, QRPs, educational fund, etc. accounts. That kind of regulation is not needed in the insurance industry.
Perhaps a better role addressing EIA problem would be the SEC making "friend of the industry", non-binding suggestions to the National Association of Insurance Commissioners regarding their concerns on product presentations and disclosures. Allow that organization to do its job by considering needed changes to current standards.
I think it would be much more appropriate for the SEC to become involved in the regulation of EIAs when Wall Street begins including guarantee of principal and account values in its products similar to the insurance industry's legal reserve system. Until then, please stay away. You can't do it any better.