American Equity Opposes SEC Rules on Equity-Indexed Annuities

WEST DES MOINES, Iowa, Jun 27, 2008 (A. M. Best via COMTEX) -- AEL | Quote | Chart | News | PowerRating -- American Equity Investment Life Holding Co., the third-largest seller of equity-indexed annuities, will oppose changes proposed by the U.S. Securities and Exchange Commission that could redefine the products as securities.

In a statement, American Equity (NYSE: AEL | Quote | Chart | News | PowerRating) said it "intends to oppose this change through all available channels during the rule-making process, which will include a comment period and a later opportunity for judicial review."

"Based on the existing law, index annuities are insurance products, not securities, to the same extent as traditional fixed-rate annuity products," American Equity said.

Earlier this week, the commission voted 3-0 in favor of a proposed rule that would amend definitions used by the Securities Act of 1933 and the Securities Exchange Act of 1934 to reclassify annuities that fail to meet certain "safe harbor" thresholds for fixed benefits and returns as securities, similar to variable annuities.

SEC Chairman Christopher Cox said the move would help reduce regulatory uncertainty about the products, and would subject companies and advisers who sell them to existing SEC and Financial Industry Regulatory Authority rules (BestWire, June 26, 2008).

In the first quarter, American Equity ranked No. 3 in the United States in sales of equity-indexed annuities, at $506.4 million, according to AnnuitySpecs.com (BestWire, May 30, 2008). American Equity's field force is made up of licensed, independent insurance agents.

In an October 2006 interview with BestWire, David J. Noble, chairman, chief executive officer and president of American Equity, said "one of the principle ? if not the principle reason" that equity-indexed annuities should not be treated as securities is because the insurance company or the company issuing the product bears the responsibility for the risk of the principal that is invested. Noble said American Equity's indexed annuities "are fixed annuities" (BestWire, Oct. 9, 2006).

Meanwhile, Wisconsin Insurance Commissioner Sean Dilweg said state regulators aren't necessarily opposed to some SEC oversight role in the market, but they want the agency to coordinate its efforts in tandem with work already being done on the state level, notably on the issue of suitability, which the National Association of Insurance Commissioners has been pushing since early 2002 (BestWire, June 26, 2008).

The American Council of Life Insurers has not yet taken a position on the proposal.

With an equity-indexed annuity, an insurer invests most of the principal in bonds to ensure the policy will generate a small annual return, but the insurer uses a small portion of the premium to buy options in a stock market index, primarily the S&P 500 index. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.

On the afternoon of June 27, American Equity's stock was trading at $8.10 a share, up 1.12% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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