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The concept of "insurance" involves some investment risk-taking on the part of the company.
In a suit by the Securities and Exchange Commission to enjoin the respondent issuers of variable annuity contracts from offering their contracts to the public without registering them under the Securities Act and complying with the Investment Company Act, the United States District Court for the District of Columbia denied relief, holding that the variable annuity contracts fell within the "insurance" exemption stated in the McCarran-Ferguson Act, the Securities Act, and the Investment Company Act. The Court of Appeals for the District of Columbia Circuit affirmed. Certiorari was granted.
Did the variable annuity contracts fall within the "insurance" exemption stated in the McCarran-Ferguson Act, the Securities Act, and the Investment Company Act?
The court held that the “variable annuity” contracts were "securities" which must be registered with the Securities and Exchange Commission under the Securities Act of 1933, and the issuers were subject to regulation under the Investment Company Act of 1940, since such contracts were not insurance" policies or "annuity" contracts and respondents were not "insurance" companies or engaged in the "business of insurance," within the meaning of the exemption provisions of those Acts or the McCarran-Ferguson Act. According to the court, the issuer of a "variable annuity" contract that has no element of fixed return did not assume any investment risk, which was inherent in the concepts of "insurance" and "annuity." Accordingly, the court reversed the judgments of the lower courts.