November 17, 2008
The recent downturn in the stock market highlights the value of Fixed Indexed Annuities (FIAs). The SEC's timing could not be worse. While millions of Americans
are suffering huge financial losses as a result of the ongoing plunge in the stock market,FIA holders have not lost a penny in retirement savings because of this turmoiL. FIA holders have peace of mind that market fluctuations do not adversely affect their retirement savings. This is a product that should be encouraged - not discouraged, as 151A would do.
Fixed Indexed Annuities (FIAs) enhance financial security for millons of Americans. FIAs are insurance products that, like traditional annuities, provide consumers guarantee of principal and previously credited interest, flexibility, tax-deferral, and many other advantages to protect and enhance savings. FIAs have been regulated
by states as insurance products since their inception. The essential difference between a traditional fixed annuity and a fixed indexed annuity is the method provided for crediting interest. By simply taking into account movements in an external market index such as
the SP 500 -(not investing the customer's funds in the index), FIAs can potentially earn higher rates of interest on a customer's principal than traditional annuities. Sales of this innovative product have increased significantly in recent years because they give
consumers a unique combination of guaranteed protection and opportunity for higher accumulation.
Proposed Rule 151A would turn FIA insurance products into securities - and thereby subject them to an unnecessary, additional layer of regulation. This will have far-reaching negative consequences - stifling product innovation, hurting the livelihood of the small businesses and state-licensed insurance agents like myself who distribute FIAs, and providing little additional consumer protection at tremendous cost.
Proposed Rule 151A would disrupt decades of existing law and be inconsistent with Supreme Court precedent. The will cause confusion and is contrary to judicial precedents on what constitutes an "annuity" exempt from securities laws. In a nutshell, a product is considered a "security" when the investment risk is transferred from the issuer (or insurance company) to the consumer and when the product is marketed primarily for its ability to earn returns based on investment performance. FIAs simply do not transfer investment risk to purchasers as is the case
with mutual funds or variable products. Further, FIAs are marketed primarily for their stability, tax-deferral benefits, death benefits and other insurance features, not as tradable stock market investments.
FIAs are heavily regulated by state insurance departments. Through the NAIC (National Association of Insurance Commissioners), state regulators have developed
suitability and disclosure requirements that have been adopted in a substantial number of states and are generally followed universally by insurers in this market.
Past market abuses have been exaggerated. Abuses can be found in the marketing of all types of financial products, including many already regulated by the SEC. FIAs are
not unique in this regard. However, such concerns have been largely addressed by state regulations and higher standards of practice in the industry.
Therefore, for the above reasons, I strongly oppose rule 151a.