Needham, Mass. - In June 2008, the U.S. Securities and Exchange Commission (SEC) 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 Needham, Mass.-based TowerGroup Inc. finds that this proposal has far-reaching implications for the insurance companies and agents selling the products.

Indexed annuities have offered investors a middle-ground option between low-return fixed annuities and market-volatile variable annuities, according to TowerGroup. 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.

Insurers issuing indexed annuities will see a drastic decline in sales immediately following the enactment of the rule, TowerGroup says. New licensing requirements will force many insurance agents and marketing organizations out of business. Yet, new opportunities for broker/dealer firms and insurers to issue and sell indexed annuities will emerge as the products lose their ambiguous regulatory status.

TowerGroup contends 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 company says.

Source: TowerGroup Inc.

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