This updates our January 28, 2009 posting.

Earlier this year, American Equity Investment Life Holding Company (“American Equity”), together with a coalition of insurance companies and independent marketing organizations, filed suit in the U.S. Court of Appeals for the District of Columbia Circuit (the “Court”) seeking to overturn Securities and Exchange Commission (“SEC”) Rule 151A which classified certain indexed annuities, previously regulated as insurance, as securities, thus subjecting them to federal, rather than state, regulation.  American Equity sought review of Rule 151A arguing that: (1) the Rule conflicts with Section 3(a)(8) of the 1933 Securities Act (the “Act”) which excludes insurance from the definition of a security, previous Supreme Court decisions, and Rule 151; and (2) the SEC failed to fulfill its statutory responsibility to consider Rule 151A’s effect on efficiency, competition, and capital formation in accordance with the Act.

On July 21, 2009, the Court issued a ruling in this matter.  The Court was not persuaded by American Equity’s first argument.  However, it did agree with the second argument and  ordered the SEC to reconsider Rule 151A, stating that that while the Court supports federal oversight of the products, the SEC did not conduct a full evaluation as required by law prior to issuing the Rule. The Court noted that “[a]fter a more thorough review of the existing state law regime, the Commission may decide ultimately that Rule 151A will promote competition, efficiency, and capital formation”.  The Rule was remanded back to the SEC to address the deficiencies in its evaluation.

Click here for a copy of the opinion.