The Court of Appeals for the D.C. Circuit in American Equity Investment Life Insurance Company v. SEC vacated Rule 151A under the Securities Act of 1933, the SEC's rule that regulated indexed securities.
The rule was schedule to become effective in January, 2011. Indexed securities currently are regulated by state insurance law. Rule 151A would have brought the product under the SEC's jurisdiction.
Fixed indexed securities are life insurance policies that allow policyholders to tie accumulation values to a stock market index. Fixed indexed universal life insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option. Fixed indexed policies are designed to give policyholders the security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns.
The petitioners, a number of insurance companies, had asserted that the SEC failed to fulfill its statutory responsibility under the Administrative Procedures Act ("APA") to consider the effect of the new rule on efficiency, competition, and capital formation. The court stated that the APA required it to set aside agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." It held that the SEC's consideration of the effect of Rule 151A on efficiency, competition, and capital formation was arbitrary and capricious. The SEC purported to have analyzed the effect of the rule on competition, but the court found that it did not disclose a reasoned basis for its conclusion that Rule 151A would increase competition. The court was not persuaded by the SEC's argument that enacting the rule would resolve the present uncertainty prevailing over the legal status of fixed indexed securities. The SEC reasoned that the rule would "bring about clarity in what has been an uncertain area of law." The court was unsatisfied with the SEC's explanation that this newfound "clarity" brought about by the rule would enhance competition because insurers who may have been reluctant to issue fixed indexed annuities, while their status was uncertain, may decide to enter the market.
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