NAIFA Files Comments with SEC on Proposed Rule 151A

On September 10, NAIFA filed extensive written comments with the SEC opposing SEC proposed Rule 151A. The SEC proposal, which would result in most indexed annuities (and possibly other annuity and insurance products) being classified as “securities,” has generated a significant amount of heated debate over this issue.

If the proposed rule is adopted, the SEC and FINRA would have authority over indexed annuity sales, and someone who wishes to market/sell indexed annuities would need a series 6 or 7 securities license and be required to have IA sales supervised by a broker/dealer. An insurance producer license, by itself, would no longer be sufficient. 

While NAIFA strongly believes that people who engage in unscrupulous or misleading sales practices should be aggressively prosecuted and subject to appropriate and meaningful sanctions, in NAIFA's view indexed annuities do not meet the existing test for determining whether a product is a security. An insurance product that does not meet this test should be regulated by state insurance departments and should not be under the jurisdiction of the SEC or FINRA. This is an important principle which must be preserved in order to protect the appropriate regulation of all insurance products.

An additional concern that NAIFA has is that the application of proposed Rule 151A would not be limited to indexed annuities, and that other annuity and insurance products that fit the rule's criteria could be brought within the scope of the rule. In fact, the SEC had specifically asked for public comment on whether the proposal should apply to life insurance and/or health insurance.

In its comments, NAIFA noted its commitment to working with state insurance departments towards the goal of having every state adopt and vigorously enforce the NAIC's model regulations on annuity suitability and disclosure. In addition, we pointed out that existing state insurance laws and regulations addressing unfair trade practices and advertising are powerful additional weapons to use against inappropriate marketing practices. Finally, NAIFA also recommended to the SEC that a state regulatory body be designated to develop standards for indexed annuity product design that would be implemented by state insurance regulators and used to prevent inappropriate indexed annuity products from reaching the marketplace.

NAIFA’s comment letter to the SEC can be reviewed here.