WASHINGTON - Insurance companies are soon to find enforcement actions against them aired for all to see. The Securities and Exchange Commission is working on cases in which insurers made special arrangements for market timing, according to Ari Gabinet, district administrator of the SEC's Philadelphia District Office. "You may expect to see more cases rising up," he told attendees at the Regulatory Affairs Conference sponsored by the National Association of Variable Annuities.
One case Gabinet is familiar with involves an insurance company that, in addition to offering its policy to hedge funds to use as a market-timing vehicle, cut a revenue-sharing deal with the fund families managing the underlying funds. "The funds agreed to split a piece of the advisory fee [for those assets], making it doubly lucrative for the insurers," Gabinet said.
He also is looking at a case in which the carrier allowed market timing in its own proprietary sub-accounts, considered especially egregious because it harms investors in sub-accounts within the same corporate family. Problems are not limited to market timing, Gabinet said. Late trading also plays a role in one of the three cases he is examining.
While carriers have not been involved in these activities across the board, there is ample evidence that these are not isolated incidents, he said. "Not every [insurance] company is tainted, but there are enough so there are those of us who think it is a widespread problem that needs to be looked at," Gabinet said.
Gabinet recommended that insurers proactively take care of the problem now.