SEC Rules that Equity-Indexed Annuities are Securities
The SEC voted to approve new rules regulating equity-indexed annuities as securities. Under the new rules, equity-indexed annuities will be subject to securities regulation if payments are dependent on the performance of a securities index and the amounts payable by the insurer are more likely than not to exceed the amounts guaranteed under the contract. The determination of amounts payable shall be determined by the insurer using a reasonable principles based methodology. The consequence of securities regulation is that all indexed annuities will be subject to the anti-fraud rules, all sales personnel will have to be licensed, and all sales will be subject to FINRA sales practice rules.
OUR TAKE: The SEC’s action is a big blow to the insurance industry, which resisted securities regulation, arguing that equity indexed annuities are purely insurance products subject to state regulation. The most significant result is that sales people will need to obtain their licenses and affiliate with a broker-dealer.