Most insurers have a little breathing room with the December 8th, 2009 SEC filing with the U.S. Court of Appeals for the District of Columbia Circuit.

In that filing, the SEC said it would place a two-year stay on the effective date of Rule 151A, thus postponing until at least January, 2013 any change to the status of index annuities and their salespersons. Persons close to the SEC say that the rule is on the SEC's agenda for the spring of 2010 and after their deliberations; they will re-submit a revised version of Rule 151A.

Previous court action on July 21st, 2009 had the D.C. Circuit court ruling that these annuities were, as claimed by the SEC, securities. But, the court also held that the SEC failed to do a proper analysis of costs and the effect on competition. When the SEC did not respond, Old Mutual Financial Life Insurance Co, one of the litigants in the case, petitioned the court for a delay in order to give the industry sufficient time to prepare for the changes necessary when it goes into effect.

Industry insiders are now marshalling their efforts behind gaining Congressional support of HR 2733 and S 1389, legislation that would effectively remove index annuities from the definition of securities and leave them totally under control of insurance regulators.

As we reported to you on May 8th, the U.S. District Court of Appeals heard arguments from a group opposed to the SEC's decision to classify indexed annuities as securities. The SEC presented their side as well.

On July 21st, the Court ruled that the SEC had failed to determine if Rule 151A would "promote efficiency, competition and capital formation." As a result, the plaintiffs in the case, a coalition of insurers and other interested parties, is claiming at least a partial victory.

This ruling, however, does not spell the end of the issue. The Court did agree with the SEC that indexed annuities should be properly regulated as securities by concluding that the SEC's assessment of "investment risk" was not unreasonable, and thus the SEC may choose to regulate these products. So it would appear that the issue is related more to procedure than substance. This is clear from the wording of the Court: "Having determined that the SEC's § 2(b) analysis is lacking, we conclude that this matter should be remanded to the SEC to address the deficiencies."

Now, the ball is back in the SEC's court. The task, should they decide to follow through, is to thoroughly analyze the effects that 151A will have on competition and costs. The SEC's original argument was that there was legal precedent relieving them of this responsibility, but the Court found otherwise.

The future of Rule 151A remains uncertain. The Court's remand to the SEC for further consideration will add to a growing list of issues facing the SEC, and whether addressing the flaws in Rule 151A will be given high priority is unknown. At a time when the global financial crisis has wiped out trillions of dollars of savings in the securities markets, the focus may be on the issues contributing to those losses rather than on regulating indexed annuities, which, for the most part, protected their holders from such losses.

One point the Court did not address in its 24-page decision was the fact that in both houses of Congress, legislation has been introduced that would, if passed, specifically exclude almost all indexed annuities from the definition of a security.

Stay tuned for further developments.

In the ongoing debate over whether or not the SEC overstepped its bounds by declaring that indexed annuities are securities in Rule 151A, a significant action was taken on June 4, 2009, with the introduction of H.R.2733, better known as the Meeks-Price Bill.

This legislation was sponsored by Rep. Gregory Meeks (D-NY) with the co-sponsorship of Rep. Tom Price (R-GA). Thus far, the bill has had almost an equal number of Democrats and Republicans sign on, indicating bipartisan support.

The bill has the "short title" of "The Fixed Indexed Annuities and Insurance Products Classification Act of 2009"; its stated purpose is the nullification of Rule 151A.

The bill takes the position that insurance has long been regulated by the states and that indexed annuities are insurance products with guaranteed minimum values. Furthermore, the bill argues that the SEC has enough to do without adding regulatory task that already has ample oversight.

The most recent activity in this debate occurred on June 25 with the introduction of Senate bill "The Fixed Indexed Annuities and Insurance Products Classification Act, S.1389", by Sen. Ben Nelson (D-NE) with the co-sponsorship of senators Saxby Chambliss (R-GA), Tom Harkin (D-IA), and Sam Brownback (R-KS).

Once again, note that this is a bipartisan effort. This proposed legislation, a companion to the Meeks-Price Bill discussed above, also intends to overthrow of Rule 151A.

Should both houses of Congress agree on a final form of legislation and have it signed by the president, Rule 151A would become null and void, and indexed annuity policies would continue to be sold as they have been since being introduced in the mid-1990s.