Rule 151A and Life Insurance

[JMO Fan]

It appears EIUL and MVAs are probably securities, but probably not UL, interest-sensitive WL, or non-indexed annuities:

Group Warns SEC Rule May Affect Insurance BY ARTHUR D. POSTAL WASHINGTON—NU Online News Service, Dec. 22, 2008

The new Securities and Exchange Commission rule subjecting equity indexed annuities to federal oversight may also apply to indexed life insurance products, a trade group cautions.

The Association for Advanced Life Underwriting is warning its members that the same rules that spell out how to calculate and credit interest on EIAs could also cover indexed life insurance products.
...
The AALU bulletin said its interpretation of the new rule is that typical indexed annuity contracts will fall within the scope of the rule and be regulated as securities, but contracts declaring discretionary excess interest in advance generally would appear to fall outside the rule. ...

http://www.lifeandhealthinsurancenew.../12/22-aalu-ap This seems to leave indexed products issued prior to 2011 in limbo. If post-2010 indexed products are securities, the same product would seem to be a security. The SEC might leave them alone, but it's unclear whether courts would refuse lawsuits on indexed products issued since 1995.

 

[BiggitySwat]

This is stupid. The cost and expense to regular EIUL/IULs as securities would be insane. It costs good money to print out a 400 page paper prospectus and also freaks out the client because the first two pages usually say "THIS IS A HIGH RISK INVESTMENT NOT SUITABLE FOR ALL INDIVIDUALS."

So, by selling EIUL as an agent, you'll get less of a commish because now you have to run it through a b/d grid that takes their share of it, and the client gets a less competitive product because the SEC filing fees required to keep it going will be passed onto the client, not the insurance company.

The SEC/FINRA gang are greedy, incompetent, and corrupt. I hope to God that the insurance companies do the right thing and band together against "Big Brother" and win (or if not win, appeal 151A so many times that the SEC doesn't get their way into the next CENTURY!)

 

[xrac]

.....The SEC/FINRA gang are greedy, incompetent, and corrupt. I hope to God that the insurance companies do the right thing and band together against "Big Brother" and win (or if not win, appeal 151A so many times that the SEC doesn't get their way into the next CENTURY!)

AMEN! Preach it brother! That is what this is all about. It is about the SEC/FINRA greed for power and the B/D's greed for revenue. It has never been about protecting anyone. Look at the arbitration cases and tell me that the securities clients have better protection than those on the insurance side. The state insurance commissions do a better job than the SEC/FINRA.

 

[Charpress]

Scott Burns puts this in perspective in his column last week.

Madoff steals $50 billion under the noses of the SEC.

FBI statistics show that ALL personal and property crime losses in 2007 were something like $17 billion. That is, all burglaries from homes, muggings, computer fraud, credit card fraud, bank robberies, etc.

So, Madoff in a stroke steals more than every crook in the U.S. and the people who didn't notice are supposed to also regulate the insurance industry.

 

[JMO Fan]

Anything sold as an income-growing investment is a security. Insurance is supposed to protect people, not promise to make them money. Federal tax and securities exemptions are granted to life insurance & annuities because insurance helps people keep what they have, not because it makes more money.

The SEC's competence at regulating securities is irrelevant to whether there should be a Rule 151a.

EIA, EIUL, STOLI, BOLI, & COLI are jeopardizing the legal advantages of life insurance and annuities.

 

[bobson]

Anything sold as an income-growing investment is a security. Insurance is supposed to protect people, not promise to make them money. Federal tax and securities exemptions are granted to life insurance & annuities because insurance helps people keep what they have, not because it makes more money.

The SEC's competence at regulating securities is irrelevant to whether there should be a Rule 151a.

EIA, EIUL, STOLI, BOLI, & COLI are jeopardizing the legal advantages of life insurance and annuities.

You can't be serious? You think an incompetent regulatory body that can't regulate the industry it was set up to regulate, should single handily take over an industry that has had very few problems? And those problems that do creep up are generally dealt with swiftly. Do you think Madoff would have swindled $50,000,000,000 if 50 state regulators regulated invemstment adivsors with over $25,000,000 in assets? Not an f'ing chance.

Any type of financial product is designed to help grow money. CD's, savings account, interest bearing checking accounts, mortgages, life insurance, sticking money in a matress under a bed. Should the SEC take over everything?

 

[Charpress]

Amen, bobson.

 

[JMO Fan]

If the U.S. military is doing a bad job fighting a war, it doesn't mean the state highway patrols should take on the task.

It's the SEC's job to define what is a security. Courts might change that definition. State insurance departments can't.

If the SEC doesn't regulate securities well, it doesn't mean some other govt agency can or should do it.

The SEC decided after 12 years of prodding (and not just from securities dealers) that EIAs are securities. They also delegated the regulating/reporting to the state insurance departments, rather than keeping it or delegating to state securities offices. That's no power grab.

 

[Charpress]

Oh, it is strictly a power grab and don't think otherwise.

I see it all the time, even our local park commission now has it's own police force. It is always about the power.

The SEC DOES NOT HAVE AUTHORITY TO DEFINE WHATEVER IT WANTS AS A SECURITY.

Whenever politicians try to make a power grab, all you can hope is that the courts reign them in.

I don't have that much faith that will happen here, but it sure the hell should.

The FCC does this crap all the time and the courts slap them down. The difference here is that the FCC just doesn't have the money to spread around that the SEC does.

 

[djs]

Do you think Madoff would have swindled $50,000,000,000 if 50 state regulators regulated invemstment adivsors with over $25,000,000 in assets? Not an f'ing chance.

For the record, Modoff got by with what he did because it was a hedge fund. Hedge funds tend to run outside the watchful eye of the SEC, and are supposed to be invested in only by those 'experienced' investors who can afford to take the risk.

That said, no amount of reporting will stop a thief from being a thief. They can (and do) write phony reports. The auditors are supposed to catch this, but Madoff somehow never had an audited report. He always showed unaudited results.

Annuities of all types are usually sold as investments. Hard to claim their not. Indexed annuities have been marketed as indexed annuities to compete with the go-go years of the market. By doing this, the carriers opened up the door to have them marked as securities.

Personally, I don't care either way. I think MANY people misrepresent indexed annuities, it will continue to be a problem for the foreseeable future.

Heck, now they are being represented not as securities, but as better than securities. We need a new entitiy to regulate things that slice / dice / fold / spindle AND mutilate.

Dan