Variable Annuities as Investment Companies
When insurance companies began selling variable annuities in the early 1950s, they suddenly were offering packages of securities to customers and exposing those customers, rather than themselves, to market risk. This disturbed federal regulators, who saw a need for federal oversight. Recall that an investment company is one whose primary business is to issue and invest in securities. Insurance companies argued that variable securities are not their primary business, and therefore, that variable annuities should be exempt from federal regulation. In a 1959 Supreme Court decision, however, the court held that the sale of a variable annuity creates a fund that does invest