FINAL RULES RELEASE

Indexed Annuities and Certain Other Insurance Contracts

On January 8, 2009, the SEC published a new rule that clarifies the status of indexed annuities (insurance products where payments to purchasers are, or can be, based on the performance of a securities index) under the federal securities laws. The objective of new Rule 151A under the Securities Act of 1933 is to make sure that investors that purchase insurance products that are ultimately securities-like in nature get the benefit of the US securities laws. The new rule flows from a fundamental reassessment of indexed annuities which have not historically been treated as securities. This reassessment “hinges upon a familiar concept: the allocation of risk;” with the SEC effectively determining that indexed annuities, which have “many of the same risks and rewards that investors assume when investing their money in mutual funds, variable annuities, and other securities,” are in fact securities.

Therefore, Rule 151A will require all insurance companies that issue equity indexed annuities to register those annuities as securities under the Securities Act and to sell them pursuant to a prospectus. The rule will also require any insurance agent that sells these annuities to pass FINRA tests and become a registered representative associated with a broker-dealer.

As proposed this rule would become effective January 12, 2011 and it will apply prospectively, ie to indexed annuities contracts issued on or after the effective date.

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