TowerGroup: SEC Proposal to Reclassify Annuities as Securities Products has Far-Reaching Implications for Industry and Consumers

Needham, MA, July 30, 2008 – In June 2008, the U.S. Securities and Exchange Commission released a proposal to reclassify the annuity products referred to as fixed indexed annuities or equity indexed annuities (indexed annuities) as securities. New research from TowerGroup finds that this proposal has far-reaching implications for the insurance companies and agents selling the products as well as for consumers, whom the proposal is primarily intended to protect.

For many individuals, an annuity is an important component of ensuring a livable income in retirement. Indexed annuities have offered investors a middle-ground option between low-return fixed annuities and market-volatile variable annuities. However, the ambiguity in the way the products are regulated has led to lawsuits over unfair sales practices. If the SEC’s proposal (Rule 151A) to reclassify indexed annuities as securities products is enacted, these vehicles will be subject to regulatory requirements similar to those for variable annuities and other securities investments.

Insurance companies issuing indexed annuities will see a drastic decline in sales immediately following the enactment of the SEC rule. In fact, new licensing requirements will force many insurance agents and marketing organizations out of business. Yet new opportunities for broker-dealer firms and insurance companies to issue and sell indexed annuities will emerge as the products lose their ambiguous regulatory status.

TowerGroup believes the enactment of SEC Rule 151A will be step in the right direction in helping consumers effectively meet investment goals with products that are suitable to their needs. The short-term pain felt by the industry in adjusting to the new regulations will be outweighed by the long-term benefits to consumers and brokers as well as to the insurance industry in general.

The TowerGroup report titled “Federal Proposal to Regulate Indexed Annuities: The Impact on Insurers, Agents, and Consumers” is authored by Rachel Alt-Simmons, Research Director in the Insurance practice at TowerGroup. To request a copy of the research or to arrange an interview with Alt-Simmons, please contact Jorge Lavina at +1.917.595.3047 or [email protected]. Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email [email protected].

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About TowerGroup: TowerGroup is the leading research and advisory services firm focused exclusively on the financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world’s leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America and Europe, TowerGroup serves a global client base. Visit for more information.