SEC Says More Insurers to Face Punitive Action

More U.S. insurers will be disciplined for allowing market timing in mutual funds linked to variable annuities, a Securities and Exchange official said Thursday.

Trading improprieties in the insurance industry were uncovered during the SEC’s investigation of market timing in the mutual fund industry.

Conseco Inc. and Inviva Inc. paid $20 million in August to settle charges that they marketed annuities to professional market timers who jump in and out of funds at the expense of long-term investors.

“These cases may not represent all of the wrongdoing related to the late trading and market timing in the variable-product context,” Paul Roye, head of the SEC’s investment management division, said in a speech to insurance industry lawyers in Washington.

Market timing is more harmful for the investments included in annuities than in stand-alone mutual funds because the retirement-savings contracts are marketed to small investors and billed as long-term investments, Mark Schonfeld, head of the SEC’s New York office, said at the time of the Conseco and Inviva settlement.

Variable annuities are tax-deferred contracts that include insurance benefits and an option to invest in mutual funds.

Last week ING, the Dutch financial-services giant, said the NASD, formerly the National Assn. of Securities Dealers, might take action against its U.S. investment unit for improper trading involving variable annuities.

Regulators also are investigating Hartford Financial Services Group Inc., Prudential Financial Inc. and MetLife Inc.

In June, the NASD ordered Davenport & Co., a Richmond, Va.- based investment firm, to pay $738,000 for helping two hedge-fund clients make improper variable annuities trades. The fine was the first imposed upon a variable-annuity broker.

“A hedge fund component” probably will be involved in future cases involving the insurance industry, Roye told reporters after his speech.