Russel Hasan

Abstract

This note critiques the July 2009 D.C. Circuit decision in American Equity Investment Life Insurance Co. v. SEC, in which the court rejected a challenge to SEC Rule 151A and held that the Securities Act of 1933 section 3(a)(8) exemption for insurance did not exclude fixed index annuities from SEC regulation. The note begins by examining in detail the case law interpreting the Act’s insurance exemption, then traces the rise of fixed index annuities and the economic theory underlying index investing—the investment strategy that created demand for such products. It proceeds to analyze contemporary case law addressing whether fixed index annuities fall within section 3(a)(8)’s exemption. The note argues substantively that fixed index annuities should be exempt as insurance because they transfer stock-picking risk from the insured to the insurer, and because the distinction between beta and non-beta risk in index investing theory supports regulating index annuities differently from variable annuities. According to the note, fixed index annuities present solvency and contract-interpretation challenges—core insurance regulatory concerns—but do not raise the disclosure issues that animate SEC oversight. The author contends that the D.C. Circuit fundamentally misunderstood the economics of fixed index annuities and concludes with policy arguments favoring state, rather than SEC, regulation of these products.

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