Life Insurance Law Blog : New York Life Insurance Compliance Lawyer & Attorney : Currin Compliance Services LLC : Annuity Compliance & Insurance Regulation

The edition of National Underwriter coming out today is devoted to Rule 151A.  I am excited to have a two-page article going into more depth regarding the legal analysis that "supported" the Rule and what I believe is an effort to lay a legal foundation for SEC regulation of insurance.  The general premise of my position is that while the current rule is clearly and definitively limited to indexed annuities, the analysis would apply to other products as well.  There is no logical reason to draw the line at indexed products once the SEC argument for looking at guarantees and crediting above those guarantees in this way is accepted.  The bright line was the minimum guarantee and that has now been crossed.  

As always I am interested in your feedback, either through comments to this blog or direct e-mails if you prefer:  ccurrin@currincompliance.com. 

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If the Coalition for Indexed Products has its way, Rule 151A will not take effect on January 12, 2011 as the SEC has slated.  In litigation filed today, the Coalition alleges that the SEC exceeded its authority and violated the Administrative Procedures Act. 

I agree with the assertions that there were significant flaws in the process and that the outcome goes against well-established principles.  Because of that, I have written that I believe much of what the SEC is doing is laying the analytical groundwork for pulling more and more insurance products into their regulatory net.  The commentary with the Rule clearly suggests that the SEC believes that they would be more effective regulators than state regulators have been.  They seem to be using this as a testing ground for a legal argument to erode the exemption for insurance products.  The outcome of this litigation will, I believe, be very significant in determining whether the SEC has developed an analysis that will allow them to reach into traditional insurance products that have previously been exempted from their regulatory authority.  

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There is so much to write about, and I anticipate future posts on this topic, but to start, the materials accompanying the final rule seems to draw a line in the sand on state regulation and federal:  solvency lies with the state and product regulation with the feds. 

At this point, the SEC does not go beyond Indexed Annuities with this rule, but as I discuss in much greater length in an article scheduled to appear in the National Underwriter's special January 19th edition on this Rule, the legal analysis could easily extend beyond indexed annuities and apply to many life and annuity products. (Unfortunately, the article's deadline was earlier than the release of the final rule, so it will be outdated upon publication.)

A key quote: "state insurance laws, enforced by multiple regulators whose primary charge is the solvency of the issuing insurance company, cannot serve as an adequate substitute for uniform, enforceable investor protections provided by the federal securities laws." 

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Here in Boston at the LHCA conference, one major topic of discussion has been the SEC's proposed Rule 151A and the possible federal regulation of indexed annuities as securities.  At this morning's annuities session, there were several questions on this topic and the discussion closed with the hope that the comment period would be extended.  Barbara Price of the ACLI indicated that the trade association  had requested an extension.  So did some individual companies and the National Governor's Association, in a letter signed by Gov. Jon S. Corzine and Gov. M. Michael Rounds.  One LHCA speaker indicated he understood that comments were running at over 85% against the SEC's proposal.

But despite the requests for extension, the SEC closed the comment period.  The process now moves to closed deliberations. 

A review of the website suggests that The Hartford had the last public word of comment and that was generally in favor of proposal.  That comment indicates that while the Proposed Rule is overbroad as currently drafted, federal regulation would be a welcome and valuable addition to regulation by the states. 

And now we wait.....

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