SEC Votes to Regulate Equity-Indexed Annuities
In a 4-1 vote on December 17th, the U.S. Security and Exchange Commission decided to expand their definition of securities to include annuity contracts and optional annuity contracts, affecting indexed annuities issued on or after January 12th, 2011. Reuters’ Rachelle Younglai explains that the ruling gives the SEC the right to regulate equity-indexed annuities, which are a hybrid of securities and insurance that offer both a guaranteed minimum return and a return linked to an equity market. Equity-indexed annuities are riskier than risked annuities but also offer a higher upside.
Christopher Cox, Chairman of the SEC, has been criticized for lax policing of the $120 billion (and rapidly expanding) industry, especially since it has been accused of marketing equity-indexed annuity products to senior citizens that wouldn’t benefit from their decades-long accumulation periods in their retirement. According to Rachelle, the ruling means that these annuities will now be regulated under the Securities Act and can’t be sold to inappropriate. Insurance agents and some conservative lawmakers oppose the ruling because they believe it will increase costs and decrease choices for consumers.
