High Court Upholds Annuities Ruling

The Supreme Court on Monday let stand a ruling that put millions of so-called fixed annuities under the jurisdiction of federal securities laws.

Under the lower court ruling, fixed annuities paying fluctuating interest rates could be regulated the same as stocks and bonds.

Insurance industry officials had opposed the rule, claiming that it imposed a heavy regulatory burden that would raise company costs and translate into higher prices for consumers.

In other business-related actions Monday, the high court:

- Agreed to study the power of states to regulate natural gas production, including “use-it-or-lose-it” rules designed to stimulate production.

- Refused to unravel a merger between units of Eastman Kodak Co. and Fuqua Industries Inc. that created the nation’s largest wholesale photo finishing operation.

- Gave states some power to enforce safety codes at federal nuclear production facilities for hazards unrelated to radiation.

The insurance industry had been watching the annuities case closely since it issues policies held by millions of customers and representing billions of dollars.

Among these, fixed annuities traditionally have been regarded as insurance contracts because investors never risk their principal. Annuity holders are assured of receiving the money contributed plus a certain amount of interest in payments made at regular intervals.

Holders of fixed annuities are assured of a minimum rate of return on contributions. And most annuity plans provide for “excess interest” paid at the discretion of the annuity company.

In 1967, the Supreme Court ruled that so-called variable annuities, those that do not assure any minimum interest payments on contributions, may be treated as securities regulated by federal law.

But a ruling by the 7th U.S. Circuit Court of Appeals last April 15 marked the first time a fixed annuity was also treated as a security.