Court Delays SEC Regulation of Equity Indexed Annuities
The US Court of Appeals for the District of Columbia Circuit stopped the SEC from regulating equity indexed annuities as securities. The Court ruled that the proposed SEC Rule 151A was arbitrary, capricious, and an abuse of discretion because the SEC did not adequately consider the Rule’s effect on efficiency, competition, and capital formation. The Court remanded to the SEC to address these deficiencies. In a partial victory for the SEC, the Court determined that the SEC was reasonable in determining that indexed annuities are “securities,” subject to securities regulation.
OUR TAKE: The insurance industry probably won the battle but lost the war. The big issue was whether equity indexed annuities are “securities.” By producing some empirical evidence that the Rule will help efficiency and capital formation (a fairly low bar), the SEC should ultimately be able to implement Rule 151A. The question is whether the SEC will push this agenda now that former Chairman Cox is no longer pressing this issue.