Registration for Index-Linked Annuities and Registered Market Value Adjustment Annuities; Amendments To Form N-4 for Index-Linked Annuities, Registered Market Value Adjustment Annuities, and Variable Annuities; Other Technical Amendments, 59978-60162 [2024-14925]

Download as PDF 59978 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230, 232, 239, and 274 [Release No. 33–11294; 34–100450; IC– 35273; File No. S7–16–23] RIN 3235–AN30 Registration for Index-Linked Annuities and Registered Market Value Adjustment Annuities; Amendments To Form N–4 for Index-Linked Annuities, Registered Market Value Adjustment Annuities, and Variable Annuities; Other Technical Amendments Securities and Exchange Commission. ACTION: Final rule. AGENCY: The Securities and Exchange Commission (‘‘Commission’’) is adopting rule and form amendments to provide a tailored form to register the offerings of registered index-linked annuities (‘‘RILAs’’). Specifically, the Commission is amending the form currently used by most variable annuity SUMMARY: separate accounts, Form N–4, to require issuers of RILAs to register offerings on that form as well. To facilitate this amendment, the Commission is also amending certain filing rules and making other related amendments. These changes will implement the requirements relating to RILAs contained in the Consolidated Appropriations Act, 2023. The Commission is also extending the registration, filing, and disclosure requirements that the Commission is adopting for RILA offerings to the offerings of registered market value adjustment annuities. Further, the Commission is adopting other amendments to Form N–4 that will apply to all issuers that use that form. The Commission is applying to RILA and registered market value adjustment annuity advertisements and sales literature a current Commission rule that provides guidance as to when sales literature is materially misleading under the Federal securities laws. Finally, the Commission is adopting technical amendments to Forms N–6 and N–3 to correct errors from prior Commission rulemakings. DATES: Effective date: This rule is effective September 23, 2024. Compliance dates: The applicable compliance dates are discussed in section II.J of this Release. FOR FURTHER INFORMATION CONTACT: Pamela Ellis, Alexis Hassell, Rachael Hoffman, Michael Khalil, Amy Miller, or Gregory Scopino, Senior Counsels; Bradley Gude, Branch Chief; Amanda Hollander Wagner, Senior Special Counsel; or Brian McLaughlin Johnson, Assistant Director, Investment Company Regulation Office, at (202) 551–6792; Min Oh, Senior Counsel; or Elizabeth Bentzinger or Michael Kosoff, Senior Special Counsels, Disclosure Review and Accounting Office, at (202) 551– 6921, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Commission is amending the following rules and forms: CFR citation (17 CFR) Commission reference Securities Act of 1933 (‘‘Securities Act’’): 1 Rule 156 ................................................................................................................................................................ Rule 172 ................................................................................................................................................................ Rule 405 ................................................................................................................................................................ Rule 415 ................................................................................................................................................................ Rule 424 ................................................................................................................................................................ Rule 433 ................................................................................................................................................................ Rule 456 ................................................................................................................................................................ Rule 457 ................................................................................................................................................................ Rule 485 ................................................................................................................................................................ Rule 497 ................................................................................................................................................................ Rule 498A .............................................................................................................................................................. Regulation S–T: Rule 313 of Regulation S–T .................................................................................................................................. Rule 405 of Regulation S–T .................................................................................................................................. Forms: Form N–3 .............................................................................................................................................................. Form N–4 .............................................................................................................................................................. Form N–6 .............................................................................................................................................................. Form 24F–2 ........................................................................................................................................................... ddrumheller on DSK120RN23PROD with RULES2 Table of Contents I. Introduction and Background A. Overview of RILA Features B. Overview of Registered MVA Annuity Features C. Current Registration Requirements for RILAs and Registered MVA Annuities D. Developments and Analysis Informing Final Amendments 1. Investor Testing Informing Final Amendments 2. Analysis of Comments on Recurring Disclosure Topics Informing Final Amendments 1 15 E. Overview of the Final Amendments II. Discussion A. Use of Form N–4 for RILAs B. Use of Form N–4 for Registered MVA Annuities C. Contents of Form N–4 1. Front and Back Cover Pages (Item 1) 2. Overview of the Contract (Item 2) 3. Key Information Table (Item 3) 4. Principal Disclosure Regarding IndexLinked Options and MVA Options (Items 6 and 17) 5. Principal Risks of Investing in the Contract (Item 5) 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 § 232.313. § 232.405. § 239.17a and 274.11b. § 239.17b and 274.11c. § 239.17c and 274.11d. § 239.66 and § 274.24. 6. Addition of Contract Adjustments and Other Amendments to Fee and Expense Disclosures (Items 4, 7, and 22) 7. Information About Contracts With Index-Linked and/or MVA Options (Item 31A) 8. Other Amendments and Provisions 9. Remaining Form N–4 Items 10. Inline XBRL D. Option To Use a Summary Prospectus 1. Overview—Use of Summary Prospectus for Non-Variable Annuities 2. Initial Summary Prospectus 3. Updating Summary Prospectus U.S.C. 77a et seq. VerDate Sep<11>2014 § 230.156. § 230.172. § 230.405. § 230.415. § 230.424. § 230.433. § 230.456. § 230.457. § 230.485. § 230.497. § 230.498A. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 4. Online Accessibility of Contract Statutory Prospectus and Certain Other Documents Relating to the Contract 5. Other Requirements for Summary Prospectus and Other Contract Documents E. Accounting (Items 16 and 26) F. Filing and Prospectus Delivery Rules 1. Fee Payment Method and Amendments to Form 24F–2 2. Post-Effective Amendments and Prospectus Supplements 3. Prospectus Delivery G. Communication Rules Applicable to Non-Variable Annuities Sales Literature (Rule 156) 2. Free Writing Prospectuses and Advertisements (Rules 433 and 482) H. Existing Commission Letters I. Technical Amendments to Forms N–3 and N–6 J. Effective and Compliance Dates III. Other Matters IV. Economic Analysis A. Introduction B. Baseline 1. Affected Parties 2. Current Regulatory Requirements 3. Market Practice C. Benefits and Costs 1. Benefits 2. Costs D. Effects on Efficiency, Competition, and Capital Formation E. Reasonable Alternatives Considered 1. Creating an Entirely New Registration Form for RILAs 2. Alternatives to Specific Form N–4 Amendments 3. Limiting Scope of Structured Data Requirements V. Paperwork Reduction Act A. Rule 498A B. Form N–4 C. Form 24F–2 D. Investment Company Interactive Data VI. Regulatory Flexibility Act Certification Statutory Authority ddrumheller on DSK120RN23PROD with RULES2 I. Introduction and Background The Commission is adopting rule and form amendments (‘‘final amendments’’) that are designed to help investors make informed decisions regarding RILAs. To modernize and enhance the registration and disclosure framework for RILAs, we are adopting amendments that will require offerings of RILAs to be registered on Form N–4, the registration form for most variable annuities, as well as adapt that form to accommodate RILAs. These amendments finalize rule and form amendments that the Commission proposed in September 2023.2 2 See Registration for Index-Linked Annuities; Amendments to Form N–4 for Index-Linked and Variable Annuities, Investment Company Act Release No. 35028 (Sept. 29, 2023) [88 FR 71088 (Oct. 13, 2023)] (‘‘Proposing Release’’ or ‘‘proposal’’). The Commission voted to issue the Proposing Release on September 29, 2023. The release was posted on the Commission website that day, and comment letters were received beginning VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 The amendments implement Congress’ directive to the Commission in Division AA, Title I of the Consolidated Appropriations Act, 2023 (‘‘RILA Act’’) to adopt a new registration form for RILAs within 18 months of enactment.3 The RILA Act requires the Commission to design the form to ensure that a purchaser using the form receives the information necessary to make knowledgeable decisions, taking into account (1) the availability of information; (2) the knowledge and sophistication of that class of purchasers; (3) the complexity of the RILA; and (4) any other factor the Commission determines appropriate. The Commission’s amendments will result in disclosure requirements for RILAs that are tailored to the particular characteristics of RILAs and comparable to variable annuity disclosure. We are also adopting related amendments to various Commission rules to effectuate the new disclosure requirements for RILAs and for further consistency in the registration, filing, and disclosure framework for RILAs compared to other similar annuity products. These amendments include, among other things: amendments permitting RILA issuers to use summary prospectuses; amendments that will result in the same requirements for RILAs and variable annuities in terms of updating the issuer’s prospectus each year; and amendments that address how RILAs will register and pay for new shares, as well as other aspects of the registration and offering process. Furthermore, we are adopting amendments to extend the registration, filing, and disclosure approach we are adopting for RILAs to annuity contracts that offer fixed investment options and apply market value adjustments (‘‘MVAs’’) to amounts withdrawn from a fixed option before the end of the fixed option’s term, where the offering is required to be registered with the Commission because of the MVA (‘‘registered MVA annuities’’ and, collectively with RILAs, ‘‘non-variable annuities’’).4 We are the same day. The comment period closed on November 28, 2023. We have considered all public comment received through May 28, 2024. The comment letters on the Proposing Release are available at https://www.sec.gov/comments/s7-1623/s71623.htm. 3 Publix Law 117–328; 136 Stat. 4459 (Dec. 29, 2022). The RILA Act provides that, if the Commission fails to adopt the form within 18 months of enactment, RILA issuers can begin registering RILA offerings on existing Form N–4. 4 See facing page of final Form N–4 in final Form N–4; see also infra footnote 16 and accompanying text (discussing the operation of MVAs); Section II.B (discussing the final amendments’ requirement for registered MVA annuities to register on Form N– 4). The term ‘‘non-variable annuities’’ distinguishes these annuities from variable annuities whose PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 59979 additionally adopting other amendments to Form N–4 that will apply to all issuers that use that form, which are informed by the staff’s historical experience in administering the form and relevant investor testing.5 We are also adopting amendments that will apply a current Commission rule— which provides guidance as to when sales literature is materially misleading under the Federal securities laws—to RILA and registered MVA annuity advertisements and sales literature. Finally, we are adopting technical amendments to Forms N–6 and N–3 to update certain references used in those forms. The Commission received comments on the proposal from a variety of interested parties, including life insurance companies, professional and trade associations, a public interest advocacy organization, and individuals.6 Commenters broadly supported the proposal, including the proposed approach of requiring insurance companies to use Form N–4 to register RILA offerings, the amendments that would permit the use of summary prospectuses, and the amendments to filing and fee-payment rules. Some commenters suggested modifications and additions to the proposed approach, including changes to some of the specific disclosures that Form N–4 would require for RILAs. Others suggested we include registered MVA annuities (which currently, like RILAs, register on Forms S–1 and S–3) and certain other insurance products among those required to register on Form N–4. Some commenters also urged the Commission to extend rule 482 under the Securities Act, which addresses investment company advertising, to RILAs. After consideration of the comments received, we are adopting the proposed offerings are registered on Form N–4, in which investors allocate their purchase payments to a range of investment options—typically mutual funds—and the investor’s account value changes depending on the performance of the investment options selected. We understand that this term is understood in the industry to refer to annuities other than variable annuities. 5 See infra section I.D.1. 6 Some commenters raised topics that relate to various insurance product issues but not to the proposed rulemaking. See, e.g., Comment Letter of the Committee of Annuity Insurers (Nov. 28, 2023) (‘‘CAI Comment Letter’’) (suggesting the Commission adopt amendments for life insurance products that are similar to RILAs). Another commenter sought clarification on topics related to variable and non-variable annuities that are unrelated to the proposed amendments. VIP Working Group Comment Letter (e.g., seeking guidance on the application of Regulation D to certain offerings of variable and non-variable annuities). These comments are beyond the scope of this rulemaking. E:\FR\FM\24JYR2.SGM 24JYR2 59980 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations amendments, with certain modifications. The final amendments retain each of the key elements of the proposed rules—the required registration of RILA offerings on Form N–4, the core aspects of the proposed disclosure requirements, the optional use of summary prospectuses by RILAs, the amendments to filing and feepayment rules, and the amendments addressing materially misleading RILA sales literature. The resulting framework implements the RILA Act’s mandate while making the RILA offering process similar to that for other insurance investment products, enhancing the information insurance companies disclose about RILAs, and extending certain antifraud guidance to RILA advertisements. However, we have modified certain proposed disclosure requirements and other aspects of the proposal to address the comments the Commission received. Additionally, the final amendments, in a change from the proposal and in response to comments received addressing the Commission’s requests for comment about the registration of offerings of registered MVA annuities, will require these offerings to register on Form N–4. This, along with other amendments we are adopting extending the registration, filing, and disclosure framework we are adopting for RILAs to registered MVA annuities, and extending certain antifraud guidance to registered MVA annuity advertisements and sales literature, will result in greater uniformity in the regulation of nonvariable annuities. ddrumheller on DSK120RN23PROD with RULES2 A. Overview of RILA Features A RILA is one of several types of annuity contracts that insurance companies offer.7 An investor in a RILA allocates purchase payments to one or more investment options under which the investor’s returns (both gains and losses) are based at least in part on the performance of an index or other benchmark (collectively, ‘‘indexes’’) over a set period of time (‘‘crediting period’’). A RILA may be offered on a standalone basis with various indexlinked investment options (‘‘indexlinked options’’) that investors may choose.8 Alternatively, an insurance 7 An annuity contract (‘‘annuity’’ or ‘‘contract’’) is a type of insurance product in which an investor makes a lump sum payment or a series of payments in return for future payments from the insurance company to meet retirement and other long-term financial goals. 8 Depending on the context, this Release uses the term ‘‘RILA’’ to refer collectively to stand-alone RILAs and the index-linked options available in a combination contract. When referring to the entity registering the RILA, we use the term ‘‘RILA issuer’’ or ‘‘insurance company.’’ One commenter suggested VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 company may offer ‘‘combination’’ annuity contracts that provide indexlinked options together with other investment options, such as mutual funds (‘‘portfolio companies’’) offered as investment options under a variable annuity (‘‘variable options’’) or fixed investment options, including fixed options subject to an MVA (‘‘MVA options’’).9 The market for RILAs has grown significantly in recent years, with annual RILA sales of $47.4 billion in 2023 alone, 15% higher than in the prior year, and more than quintupling since 2017.10 RILAs are complex financial products that are sold to retail investors.11 The Proposing Release describes some of the most prevalent features that contribute to this complexity, and that might make it challenging for an investor to assess the features, risks, and possible return that the Commission should use a term other than ‘‘RILA,’’ as the term ‘‘registered’’ in ‘‘RILA’’ may serve to confuse investors because there are other investment products that are registered under both the Securities Act and the Investment Company Act of 1940 (the ‘‘Investment Company Act’’) that do not include the term ‘‘registered’’ (e.g., variable annuities, mutual funds, and exchange-traded funds). See Comment Letter of VIP Working Group (Nov. 10, 2023) (‘‘VIP Working Group Comment Letter’’). We continue to use the term ‘‘RILA’’ in the final amendments and in this Release for consistency with the RILA Act, as well as our understanding of common industry practice. See, e.g., The Design and Regulatory Framework of Registered Index-Linked Annuities, ALI CLE Conference on Life Insurance Products 2022. 9 See Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts, Investment Company Act Release No. 33814 (Mar. 11, 2020) [85 FR 25964 (May 1, 2020)] (‘‘VASP Adopting Release’’) at nn.4–5, 8, and accompanying text (describing the key features of variable annuity contracts and variable life insurance contracts (together, ‘‘variable contracts’’)). An investor purchasing a combination contract, for example, may have the ability to allocate purchase payments under the contract to index-linked options; variable options that pass on the returns of mutual funds selected by the investor; and/or fixed account options for which the insurance company promises to pay a fixed and stated minimum rate of interest. 10 See LIMRA, ‘‘LIMRA: Record-High 2023 Annuity Sales Driven by Extraordinary Growth in Independent Distribution,’’ news release (Mar. 12, 2024) (reporting 2023 RILA sales of $47.4 billion), available at https://www.limra.com/en/newsroom/ news-releases/2024/limra-record-high-2023annuity-sales-driven-by-extraordinary-growth-inindependent-distribution/ (stating that high annuity sales were ‘‘largely due to broader engagement with independent distribution’’ and that ‘‘[r]ising interest rates have made annuities very attractive to a larger group of investors’’). The fourth quarter of 2023 marked the first time RILA product sales surpassed variable annuity sales. See also LIMRA, ‘‘LIMRA Secure Retirement Institute: Total Annuity Sales Continued to Decline in 2017,’’ news release (Feb. 21, 2018) (reporting 2017 sales of structured annuity products, i.e., RILAs, of $9.2 billion), available at https://www.limra.com/en/newsroom/ news-releases/2018/limra-secure-retirementinstitute-total-annuity-sales-continued-to-declinein-2017/. 11 We understand that RILAs are predominantly sold by broker-dealers. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 profile of a RILA.12 Under a RILA, the insurance company will credit positive or negative ‘‘interest’’ to the investor’s contract value at the end of each crediting period. The amount credited is based, in part, on the performance of a specified index, rate, or benchmark (e.g., the S&P 500).13 One aspect of RILAs’ complexity involves the various ways that interest may be credited, and how contract features that affect how interest is credited work together. The Proposing Release details RILAs’ traditional bounded return structure, which typically limits investors’ ability to participate in upside index performance (through features such as ‘‘cap rates’’ and/or ‘‘participation rates,’’ collectively ‘‘limits on gains’’), and also limits investors’ losses if the performance of the index goes down in value (through features such as ‘‘buffers’’ or ‘‘floors,’’ collectively ‘‘limits on losses’’).14 For many RILAs, the investor pays no direct or explicit ongoing fees and expenses under the RILA, and this is sometimes a feature communicated in RILA marketing materials. However, the RILA’s bounded return structure requires investors to agree to tradeoffs that come with their own economic costs. That is, RILAs limit or reduce downside risk, but also limit upside performance. In exchange for some protection against losses if the index goes down in value, investors must also agree to contractual provisions limiting the gains they will receive if the index goes up in value. RILAs allow investors some ability to customize a level of risk with which they are comfortable.15 But despite the bounded return structure, a RILA is not necessarily a low-risk investment product as the investor could lose a significant amount of money if the index performs poorly. Charges and penalties for early withdrawals are another prevalent feature of RILAs. Investors can lose significant money if they withdraw their money early from an investment option or from the contract. This can arise in 12 See Proposing Release at Section I.A. This paragraph and the paragraphs that follow summarize the RILA features that Section I.A of the Proposing Release discusses. 13 Insurance companies typically choose indexes for the RILA contract where any gains in the value of the index do not include dividends paid on the securities that make up the index. 14 See Proposing Release at paragraph accompanying n.10. A cap rate places an upper limit on an investor’s ability to participate in the index’s upside performance directly. A participation rate sets an investor’s return to some specified percentage of the index’s return. A buffer limits the investor’s exposure to losses up to a fixed percentage. A floor places a lower limit on the investor’s exposure to loss. 15 See infra Section IV.B.3. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 several circumstances: (1) ‘‘surrender charges’’ that apply when an investor withdraws money from the contract within a certain period following the investor’s last premium payment; (2) ‘‘interim value adjustments’’ (or ‘‘IVAs’’), which adjust the investor’s contract value if amounts are withdrawn (for instance, because of movements to a different investment option, movements out of the contract, or payment of certain benefits) from an index-linked option before the end of its crediting period; 16 and (3) a positive or negative MVA (collectively with IVAs, a ‘‘contract adjustment’’) to the amount paid to the investor resulting from changes in interest rates if the investor partially or fully withdraws amounts from the contract or from certain fixed options.17 Contract adjustments can occur in response to a number of contract transactions, such as a surrender, withdrawal, payment of the death benefit, or the start of annuity payments, and an investor could experience a negative contract adjustment even when the investor takes an otherwise permissible withdrawal, such as under a guaranteed living benefit. These adjustments also can negatively affect other values under the contract, such as the surrender value and death benefit. Moreover, these fees and adjustments are not always mutually exclusive.18 As a result of these charges and penalties, the investor could lose a significant amount of money in a RILA investment, even if the index has a gain at the time of the withdrawal. In addition to the complexities that RILAs’ bounded return structure and potential charges and penalties for early withdrawals entail, under virtually all RILA investments the insurance company may change or remove key features of index-linked options, such as the cap rates, floors, or even the index.19 Also, RILA contracts typically state that an investor will be automatically renewed at the end of a crediting period into the same or substantially similar index-linked option, often with a new limit on gains. Furthermore, special tax rules generally apply to RILAs and other 16 See id. at n.11 and accompanying paragraph. The IVA will adjust the contract value based, generally, on a complex formula where the IVA may change daily and can be positive or negative. 17 MVAs can apply to RILAs, but, as discussed below, they also can apply to a fixed option available under an annuity contract. See infra Sections I.B and II.B. 18 See Proposing Release at n.13 and accompanying paragraph. An investor may also be subject to income taxes and face a Federal income tax penalty if the investor withdraws money before a certain age. 19 See id. at paragraph following n.13. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 annuities, with both tax advantages and potential adverse tax impacts in certain circumstances.20 For all of these reasons, providing investors with key information is particularly important in the context of RILAs, since their features are typically complex and their risks may not be apparent or easily understood by prospective investors absent clear disclosure. B. Overview of Registered MVA Annuity Features Registered MVA annuities are annuity contracts that offer fixed investment options (where the insurance company promises to pay a fixed and stated minimum rate of interest) and apply MVAs to amounts withdrawn before the end of the fixed option’s term.21 The insurance company might apply an MVA, for example, when an investor withdraws money from the contract, transfers money among investment options, or annuitizes the contract. For these annuities, fixed options are either offered on their own or in a combination contract with index-linked options and/ or variable options. As the Commission explained in the Proposing Release, RILAs and registered MVA annuities differ only with respect to the manner in which interest is calculated and credited.22 Interest in a RILA contract is calculated and credited at the end of the crediting period based at least in part on the performance of an index or other benchmark, whereas interest in a registered MVA annuity is guaranteed and typically credited daily at a fixed rate.23 Registered MVA annuities, however, like RILAs, apply contract adjustments upon withdrawals prior to term maturity. An investor in a RILA or registered MVA annuity therefore can lose money—and potentially a significant amount of money—due to a contract adjustment, id. at n.14 and accompanying paragraph. Proposing Release at Section II.H. The Proposing Release referred to registered MVA annuities as ‘‘registered MVAs.’’ For clarity and parallelism with the terms ‘‘RILA’’ and ‘‘variable annuity’’ (which also refer to different types of annuities), we refer to these products instead as ‘‘registered MVA annuities’’ in this Release. 22 See id. One commenter stated that it largely agrees with this characterization. See CAI Comment Letter. No commenters disagreed with this characterization. See also infra section II.B (discussing more broadly the comments received on the Commission’s request for comment in the Proposing Release on whether to require insurance companies to register the offerings of registered MVA annuities on Form N–4). 23 See id.; see also CAI Comment Letter (agreeing with the Commission’s statement in the Proposing Release that RILAs and registered MVA annuities differ only with respect to the manner in which interest is calculated and credited). PO 00000 20 See 21 See Frm 00005 Fmt 4701 Sfmt 4700 59981 and the way in which these adjustments are calculated may be complex. Existing disclosure for registered MVA annuities has many similarities to disclosure for RILAs. Like RILA disclosure, registered MVA annuity disclosure describes the operation of contract adjustments and the risks associated with such contract adjustments.24 Disclosure for registered MVA annuities, like disclosure for RILAs and other annuity contracts, also describes basic annuity features (including, as for RILAs, information about surrender charges and applicable tax treatment) and the issuer’s financial strength.25 C. Current Registration Requirements for RILAs and Registered MVA Annuities RILAs are securities for purposes of the Securities Act.26 Unlike variable annuity contracts for which the Commission has adopted a specific tailored registration form, insurance companies currently register offerings of RILAs on Securities Act registration Forms S–1 or S–3.27 As the Proposing Release describes in detail and this Release summarizes, the current requirements for issuers offering RILAs and variable annuities (that is, the requirements prior to the amendments 24 See CAI Comment Letter. id. 26 Under the final amendments, the final Form N– 4 will not register the RILA or registered MVA annuity issuers themselves, only the offering of RILA or registered MVA annuity securities. Unlike separate accounts which register variable annuities, RILA and registered MVA annuity issuers are not investment companies, and thus need not register with the Commission as an investment company as separate accounts do. Index annuities that meet the requirements of section 989J of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111–203) or section 3(a)(8) of the Securities Act are treated as exempt securities for purposes of the Securities Act, but RILAs and registered MVA annuities do not fall within this exemption due, in large part, to the shifting of a significant level of investment risk from the issuer to the investor. RILAs and index-linked options, as used in this Release, refer only to those index annuities that are securities for the purposes of the Securities Act. See, e.g., sections 101(a)(5) and (6) of the RILA Act. Similarly, registered MVA annuities and MVA fixed account options, as used in this release, refer only to annuities that are securities for the purposes of the Securities Act. See infra footnote 29 and accompanying text. 27 See, e.g., General Instruction I of Form S–1 (‘‘This Form shall be used for the registration under the Securities Act of 1933 (‘Securities Act’) of securities of all registrants for which no other form is authorized or prescribed’’). The registration forms for variable annuity contracts are Form N–3 (for variable annuity separate accounts structured as management investment companies) and Form N– 4 (for variable annuity separate accounts structured as unit investment trusts). See Proposing Release at n.6 and accompanying text. In this Release, we focus only on Form N–4 and not Form N–3, because Form N–4 is the registration form identified in the RILA Act and the form used to register most variable annuity contracts. 25 See E:\FR\FM\24JYR2.SGM 24JYR2 59982 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations the Commission is adopting in this Release) differ in many respects, both in terms of the disclosure issuers must provide and the registration process.28 Registered MVA annuities also are securities for purposes of the Securities Act. They are securities because the MVA feature imposes certain investment risks on purchasers.29 Like RILA offerings, offerings of registered MVA annuities are currently registered on Forms S–1 or S–3. While this section of the Release discusses the registration requirements for RILAs, the current registration requirements for registered MVA annuities are the same as those for RILAs and present the same considerations. In general, the disclosure requirements of Forms S–1 and S–3 are not specifically tailored to particular kinds of securities given the wide range of securities offerings that issuers can register on these forms.30 Forms S–1 and S–3 thus do not include specific lineitem requirements addressing disclosures about RILAs and their complex features. These forms also require issuers to disclose information about the offering itself as well as extensive information about the registrant issuing the securities that a RILA investor may view as less important than information about the contract’s features. Domestic registrants also must include financial statements prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’).31 The Form N–4 disclosure requirements for variable annuities, on the other hand, are tailored for variable annuities.32 Form N–4’s disclosure requirements are designed to provide investors with key information relating to a variable contract’s provisions, benefits, and risks, along with information about the insurance company and the offering. In addition, rule 498A and Form N–4 together implement a layered disclosure approach for variable annuities by permitting insurance companies and others to use a summary prospectus framework for variable annuities while making the more-detailed statutory ddrumheller on DSK120RN23PROD with RULES2 28 See Proposing Release at Section I.B. 29 See section 3(a)(8) of the Securities Act and 17 CFR 230.151; see also SEC v. Variable Annuity Life Insurance Co. of America, 359 U.S. 65, 77 (1959). 30 See Proposing Release at nn.15–17 and accompanying paragraph. 31 See 17 CFR 210.4–01(a)(1) (stating that financial statements filed with the Commission which are not prepared in accordance with GAAP will be presumed to be misleading or inaccurate unless the Commission has otherwise provided). See also Proposing Release at n.20. 32 See Proposing Release at nn.18–20 and accompanying paragraph. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 prospectus, as well as the contract’s statement of additional information (‘‘SAI’’), available online. Form N–4 also provides a limited exception for insurance companies to file financial statements prepared in accordance with statutory accounting principles (‘‘SAP’’), referred to as ‘‘statutory requirements’’ in the form instructions, rather than GAAP.33 Structured data requirements for RILA and variable annuity disclosure also differ.34 The Proposing Release also details key differences in the current registration process for RILAs versus variable annuities.35 While insurance companies pay registration fees at the time they register the offer and sale of RILA securities, a separate account that registers under the Investment Company Act and offers variable annuity securities on Form N–4 pays registration fees based on the net issuance of securities, no later than 90 days after each fiscal year end.36 Updates to RILA offering registration statements occur by filing a post-effective amendment to a Form S–1 registration statement (which must be declared effective, typically by staff acting pursuant to delegated authority) or by the filing of the insurance company’s annual report on Form 10–K containing audited financial statements, which operates as a posteffective amendment to a registration statement on Form S–3.37 In contrast, a variable annuity registration statement on Form N–4 may be updated by filing an immediately-effective post-effective amendment under rule 485. This permits the efficient registration of continuous offerings of variable annuities. D. Developments and Analysis Informing Final Amendments 1. Investor Testing Informing Final Amendments In addition to the RILA Act’s requirements described above, the RILA Act also requires the Commission to engage in investor testing as part of its rulemaking process and to incorporate the results of the testing in the design of the new registration form for RILAs, 33 Specifically, insurance companies, which act as the depositors of variable annuity separate accounts registered on Form N–4, may use SAP financials solely when the insurance company does not otherwise prepare GAAP financial statements or GAAP financial information for use by a parent in the parent’s Securities Exchange Act of 1934 (‘‘Exchange Act’’) reports or the parent’s registration statements filed under the Securities Act. See id. at n.20 and accompanying text. 34 See Proposing Release at n.25 and accompanying text, and text following n.26. 35 See id. at paragraphs accompanying nn.21–26. 36 See id. at nn.21 and 26 and accompanying text. 37 See id. at nn.22–24 and accompanying text. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 with the goal of ensuring that key information is conveyed in terms that a purchaser can understand. Consistent with the RILA Act, the Commission received feedback on individuals’ comprehension and views on RILA disclosure through investor testing. Specifically, the Commission’s Office of the Investor Advocate (‘‘OIAD’’) conducted two rounds of qualitative interviews with a mix of investors across demographic characteristics, locations, and levels of financial literacy who either already owned annuities or had expressed interest in investing in an annuity product. The results of the two rounds of qualitative testing then helped inform a round of quantitative testing with approximately 2,500 participants. This investor testing, which the Proposing Release and a report describing investor testing that OIAD conducted describe in detail, helped us to identify areas of Form N–4 that we proposed to amend to help ensure that a RILA purchaser receives key information that the purchaser is able to understand.38 Feedback from both rounds of qualitative interviews generally showed that the interview participants did not have much, if any, familiarity with RILAs. Furthermore, interviews in both rounds illustrated that many participants struggled to understand the details of the RILA contract presented in sample disclosure that could appear in select rows of the ‘‘Key Information Table’’ (or ‘‘KIT’’) in RILA registration statements. Participants indicated significant confusion about the features and fees associated with RILAs, and often cited certain specific terminology, such as ‘‘index option,’’ ‘‘interim value adjustment,’’ ‘‘buffer,’’ and ‘‘investment term,’’ as confusing to them. Although interview participants may not have been able to understand RILA features and economic tradeoffs fully after reviewing sample KIT disclosure, some were able to identify certain potential drawbacks and explain certain aspects of RILA contracts following their review of this sample disclosure. The investor testing successfully identified a range of barriers to investor understanding of RILAs and associated disclosure. However, with few exceptions, the variations in RILA disclosures presented to participants did not result in significant improvements in investor 38 Office of Investor Advocate Division, Investor Testing Report on Registered Index-Linked Annuities (OIAD Working Paper 2023–01), (Sep. 2023) (‘‘OIAD Investor Testing Report’’) available at https://www.sec.gov/files/rila-report-092023.pdf; see also Proposing Release at Section I.C. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 comprehension.39 The Commission incorporated the investor testing results in its design of the proposed Form N– 4 amendments, endeavoring to give particular attention to: (1) disclosure variations that resulted in statistically significant improvements in investor comprehension (specifically, the use of Q&A KIT format); and (2) areas of identified investor confusion while leveraging existing disclosure requirements.40 Because investor testing did not, for the most part, provide persuasive evidence of superior disclosures, the Commission proposed largely to utilize the existing Form N– 4 disclosures that have been developed over time, and with which staff, investors, and RILA issuers are already familiar. The Commission sought comment on this proposed approach, and it also sought comment throughout the Proposing Release on specific areas for improvement that would aid investor comprehension. Furthermore, the Commission requested specific input from the retail investor community through a short feedback flyer seeking input on their experiences with annuities generally and RILAs specifically (‘‘Feedback Flyer’’).41 Commenters did not generally address the investor testing that informed the proposed approach, and the Commission received no Feedback Flyer responses.42 The Commission’s Investor Advocate also provided comments discussing the investor testing process and supporting the proposed rules, stating the belief that the proposed RILA registration form would make it easier for investors to understand RILAs.43 The Investor Advocate stated that the proposed rule’s registration form would be more helpful for investors than the forms currently used for RILA registration. The Investor Advocate also stated that modified Form N–4 ‘‘is likely to improve investor 39 See Proposing Release at n.58 and accompanying text, and paragraphs following n.58. 40 See id. (stating that the Q&A KIT format demonstrated a statistically significant, albeit quantitatively small, improvement over the nonQ&A KIT format, and stating that investor testing successfully identified a range of barriers to investor understanding of RILAs and associated disclosures). 41 See id. at n.59 and accompanying text; see also Feedback Flyer available at https://www.sec.gov/ files/rules/proposed/2023/rila-feedback-flyer.pdf. 42 One commenter, while not commenting on the investor testing substantively, discussed the RILA trends that the OIAD Investor Testing Report described, as discussed in more detail below. See infra footnote 305 and accompanying text. 43 See Comment Letter of Cristina Martin Firvida, SEC Investor Advocate (Dec. 22, 2023) (‘‘Investor Advocate Comment Letter’’). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 comprehension related to the features, costs, and risks of RILAs.’’ In addition to these statements, the Investor Advocate suggested areas in which ‘‘more work can be done to help investors make well-informed decisions about RILAs and other complex financial products.’’ The Investor Advocate stated that the proposed rule’s registration form for RILAs, while informed by investor testing efforts, was not tested itself, and that this represents a missed opportunity in the Commission’s rulemaking process. While the RILA Act directed the Commission to ‘‘engage in investor testing’’ when developing the registration form for RILAs, the Act did not require that the entirety of the form be investor tested, and doing so would have been impracticable under the circumstances due to the statutory rulemaking timeline, taking into account the time it takes to develop and execute well-designed and probative investor testing. As a result, investor testing efforts necessarily entailed strategic choices about topics on which to focus. These timing factors also required consideration of disclosure areas where maximizing comprehension could be particularly impactful. For these reasons, investor testing of RILA registration statement disclosure focused primarily on a sample of RILArelated disclosures that could appear in the KIT, if Form N–4 were amended to address RILA offerings.44 As discussed in the Proposing Release and below, the KIT—which provides summary disclosure in a specific sequence and in a standardized presentation—appears in variable annuity prospectuses, and the Commission proposed to include KIT disclosure in RILA prospectuses.45 The required ordering, contents, and standardization of KIT disclosure made the sample RILA-related disclosure especially amenable to investor testing, as these structural aspects made it possible to test variations on required disclosure elements easily. The summary disclosure in the KIT covers core features and risks of the annuity that the registration statement describes, with more detail elsewhere in the registration statement. For this reason, using the KIT to determine areas where investor comprehension could be enhanced was particularly impactful, as knowledge gained from this investor testing could be applied to disclosure in multiple other areas of the registration OIAD Investor Testing Report. Proposing Release at Section II.B.2; see also Item 2 of current Form N–4 (current KIT requirements); infra Section II.C.3 (describing amendments to current KIT requirements). PO 00000 44 See 45 See Frm 00007 Fmt 4701 Sfmt 4700 59983 statement. The KIT is one of the first disclosure items that appears not only in the statutory prospectus, but also in the summary prospectus for issuers that choose to use summary prospectuses. It is also formatted in a manner that is designed to enhance readability. The investor testing therefore focused on disclosure that could have maximal impact in terms of investor attention. While the Investor Advocate states that there is no ‘‘data to indicate whether the registration form effectively conveys the information necessary for investors to make well-informed investment decisions about RILAs,’’ the sample KIT disclosure did include topics that comprise the primary features and risks of RILAs, and the investor testing did identify aspects of this disclosure that investors may find particularly challenging to understand. This in turn provided helpful input in identifying the disclosure areas where clear language, and enhanced focus in the registration statement, could help investors understand unique, and often complex, aspects of RILAs. We discuss these disclosure areas in more depth in Section II below. The Investor Advocate further stated that, although the Commission has ‘‘made commendable efforts to improve the clarity and conciseness of disclosure provided to investors within the existing regulatory disclosure infrastructure,’’ new and innovative approaches to disclosure are encouraged to significantly reduce investors’ disclosure burden. The Investor Advocate encouraged the Commission ‘‘to explore more significant departures from the status quo in the realm of disclosure related to RILAs and other complex products.’’ We agree that exploring innovative disclosure approaches could enhance the investor experience for investors in complex products.46 A wholesale reimagining of disclosure for funds and other registered investment products, however, is outside of the scope of this rulemaking and impracticable in the context of this rulemaking given statutory time constraints. We also believe that requiring RILAs to use Form N–4, and adapting the current disclosure approach for variable annuities to RILAs, is consistent with the RILA Act’s mandate as discussed below.47 46 The Commission is continually considering ways to enhance disclosure and the retail investor experience. See, e.g., Request for Comment on Fund Retail Investor Experience and Disclosure, Investment Company Act Release No. 33113 (June 5, 2018) [83 FR 26891 (June 11, 2018)] (‘‘Investor Experience RFC’’). 47 See infra Section II.A. E:\FR\FM\24JYR2.SGM 24JYR2 59984 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Furthermore, we agree that continuing to test specific Commission-mandated disclosures, including to assess how investors respond to these disclosures, as well as continuing to analyze the Commission’s approach to its disclosure regime generally, are important complements to our regulatory program. We encourage Commission staff to incorporate these investor testing principles not only in the course of recommending new disclosure requirements, but also in continuing to develop its investor testing program outside of the confines of particular rulemaking actions. In addition to investor testing focused specifically on sample RILA disclosure, our final amendments—and the current disclosure requirements in Form N–4 that we are building upon—also draw on the Commission’s past investor testing efforts, outreach, and other empirical research concerning investors’ preferences. This includes, for example, information about summary content and layered disclosure approaches.48 The Commission has historically received feedback showing that investors generally prefer concise, layered disclosure.49 Investors participating in certain past quantitative and qualitative investor testing initiatives on the Commission’s behalf have also expressed preferences for, wherever possible, the use of a summary containing key information about an investment product or service written in clear, concise, and understandable language and presented in an accessible format.50 Each of these sources of evidence of investor preferences, understanding, and behaviors in response to disclosures specific to RILAs and other investment products more generally has provided important context and support for the final amendments’ approach to RILA disclosure. ddrumheller on DSK120RN23PROD with RULES2 2. Analysis of Comments on Recurring Disclosure Topics Informing Final Amendments The proposed amendments collectively were designed to provide 48 See Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts, Investment Company Act Release No. 33286 (Oct. 30, 2018) [83 FR 61730 (Nov. 30, 2018)] (‘‘VASP Proposing Release’’) at paragraphs accompanying nn.38–43. 49 See, e.g., Investor Experience RFC; see also Proposing Release at n.61 (discussing feedback in comments on the Investor Experience RFC, generally showing that retail investors prefer concise, layered disclosure and feel overwhelmed by the volume of information they currently receive, and reflecting a preference for shorter summary disclosures, with additional information available online or upon request). 50 See Proposing Release at n.62. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 investors with disclosures tailored to RILAs and to highlight key information about these complex products, building on the Commission’s layered disclosure framework for variable annuities. The proposed requirements were developed with consideration for clear, concise, and understandable disclosure about RILA features and risks. Certain commenters expressed concern, however, that the proposed disclosure requirements included ‘‘excessive repetition,’’ especially with respect to certain topics.51 Commenters stated that excessive repetition adds to the length of the prospectus without commensurate value to investors, obscures new information that investors should be focusing on, and is not consistent with plain English principles. In addition to general concerns about repetition in the proposed requirements, commenters expressed concerns about specific disclosure areas where they viewed the proposed requirements as resulting in particularly repetitive disclosure.52 We agree that no disclosure should be repeated simply for the sake of repetition, and we also agree that repetition in disclosure can have negative effects on investor understanding as commenters expressed. As discussed below, the final form amendments take commenters’ concerns into account. There are certain areas where the final amendments reduce the discussion of the same or similar topics in multiple locations, where this reduction could appropriately be made while continuing to promote the goal of highlighting key information about RILAs and enhancing understanding of RILA features and risks.53 The final amendments, like the proposal, continue to incorporate the principle of layered disclosure. Layered disclosure aims to provide investors with key information relating to an investment’s features, benefits, and risks in a concise and reader-friendly presentation, with more-detailed or technical information available to those investors who find the information valuable. The use of layered disclosure means that the disclosure requirements 51 See CAI Comment Letter; see also Comment Letter of Ova Datop (Oct. 25, 2023) (‘‘Datop Comment Letter’’). 52 See CAI Comment Letter (discussing proposed maximum potential loss disclosure requirements); Datop Comment Letter (discussing proposed risk warnings). 53 See, e.g., discussion below about changes from the proposal to remove some of the numeric examples illustrating maximum potential loss that, as proposed, would have appeared in multiple locations throughout the prospectus (at infra Sections II.C.2 and II.C.4). PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 we are adopting necessarily address particular topics in more than one location in the registration statement. Where this occurs, the disclosure requirements intentionally include summary disclosure in the first ‘‘layer,’’ and additional details building on the summary in the second ‘‘layer.’’ 54 This approach is designed to help investors with different informational needs access the information that will be most useful to them. Additionally, and as discussed in more detail below, there are certain disclosure requirements in Form N–4 as amended that address similar topics as other disclosure requirements, where investors could benefit from considering these topics in several different contexts. This also reflects that, except with respect to certain disclosure items that are designed to be read in tandem, RILA investors may not necessarily read a prospectus from cover to cover, but instead may choose to read sections of the prospectus about topics where they are seeking particular information.55 For instance, in addition to the numeric examples illustrating maximum potential loss, the final disclosure requirements include narrative discussion of a RILA’s maximum potential loss from poor index performance in several locations in the prospectus. This is intentional. RILAs are frequently marketed as a product that will protect against investment losses through loss-limiting features. Information about maximum potential loss is relevant in the contexts of the contract overview and KIT, as well as in considering principal risks and more indepth disclosure about the investment options a contract offers.56 Therefore, disclosure that is designed to enhance understanding of this aspect of a RILA contract, in varying contexts, will help investors make informed decisions that take into account this oftenmisunderstood aspect of investing in a RILA.57 54 For example, the KIT will put investors on notice of the existence and general impact of a contract adjustment, while other disclosure later in the prospectus discusses contract adjustments in detail, including a brief discussion in simple terms of the manner in which contract adjustments are determined. See Items 3 and 7(e) of final Form N– 4. If an investor wants more details about the specific formulas that are used to calculate contract adjustments, this information is available in the SAI. See Item 22(d) of final Form N–4. 55 As discussed below, we anticipate that investors will read the Overview and KIT sections of the prospectus together. See infra Sections II.C.2 and II.C.3. 56 See, e.g., infra Sections II.C.2, II.C.3, II.C.4, and II.C.5. 57 See, e.g., Proposing Release at Section I.C. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 E. Overview of the Final Amendments We are adopting rule and form amendments that modernize and enhance the registration, filing, and disclosure framework for RILAs by adapting the existing framework that is familiar to investors and issuers for variable annuity separate accounts to accommodate RILAs. The final amendments implement the RILA Act’s mandate. • Use of Form N–4 to Register RILA Offerings. As proposed, we are amending Form N–4 so that issuers seeking to register the offering of RILAs must use that form. To accommodate this, we are also adopting amendments to Form N–4 that specifically address the features and risks of RILAs, with certain modifications from the proposal in consideration of comments received. These modifications address, among other things, disclosure relating to the potential for investment loss from an investment in a RILA, current limits on index gains, and guaranteed limits on index losses or gains. Further, because the insurance company will register the offering of a RILA on Form N–4 under the final amendments, it will be subject to the requirements in the form related to financial statements. This includes, as proposed, the form instruction that currently permits variable annuity issuers to file insurance company SAP financial statements in certain circumstances. Generally as proposed, the final amendments require RILA issuers to tag certain information in Inline eXtensible Business Reporting Language (‘‘Inline XBRL’’) format. • Use of Form N–4 for Registered MVA Annuities. In a change from the proposal, the final amendments extend the registration, filing, and disclosure requirements we are adopting for RILA offerings to offerings of registered MVA annuities on Form N–4. • Form N–4 Amendments for Variable Annuity Offerings. We are adopting form amendments that are applicable to offerings of variable annuities. These amendments are informed by the staff’s historical experience in administering the form and respond to observations from investor testing relevant to variable annuity offerings.58 We are adopting these amendments generally as proposed, with some modifications in consideration of comments received. • Summary Prospectus. Consistent with the inclusion of RILAs on Form N– 4 and generally as proposed, we are adopting amendments that permit RILA issuers to make use of the summary 58 See id. at n.63 and accompanying paragraph. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 prospectus framework available to variable annuity registrants on Form N– 4. In a modification from the proposal, issuers of registered MVA annuities also will be able to use the summary prospectus framework, consistent with the inclusion of registered MVA annuities on Form N–4. • Updates to the Filing Rules. To accommodate RILA and registered MVA annuity offering registrations on Form N–4, we are adopting amendments that require issuers of these securities to pay fees in arrears on Form 24F–2, as well as amendments to address RILAs and registered MVA annuities in the rules that variable annuities use to file posteffective amendments and to update prospectuses. We are adopting these amendments as proposed with conforming amendments to address the inclusion of registered MVA annuities on Form N–4. • Communications Rules Applicable to Non-Variable Annuities. The final amendments, as proposed, require RILA issuers to comply with rule 156, which provides guidance as to when sales literature is materially misleading under the Federal securities laws. We are adopting conforming amendments to rule 156 to address the inclusion of registered MVA annuities on Form N–4. Additionally, in a change from the proposal, we are also making a technical amendment to rule 433 to allow those non-variable annuity issuers that can meet the rule’s conditions to continue to use a free writing prospectus without it needing to be preceded or accompanied by a prospectus that satisfies the requirements of section 10 of the Securities Act. II. Discussion A. Use of Form N–4 for RILAs Most variable annuity issuers register variable annuity offerings on Form N–4, which the Commission designed to provide investors with product-specific information about annuity contracts, and which utilizes the summary prospectus layered disclosure framework the Commission adopted in 2020 for variable contracts.59 As 59 Variable annuities register on Form N–3 if they are issued by separate accounts that are organized as management investment companies. However, most variable annuities are issued by separate accounts that are organized as unit investment trusts and therefore use Form N–4. See Proposing Release at n.20. The separate account established by the sponsoring insurance company is the legal entity that registers its securities. Separate accounts are typically registered as investment companies under the Investment Company Act. See section 2(a)(37) of the Investment Company Act. The Commission first adopted the registration form for variable annuities approximately 40 years ago. See Registration Forms for Insurance Company Separate PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 59985 proposed, we are requiring insurance companies to register RILA offerings on Form N–4, leveraging the form’s existing insurance-product specific disclosures and framework while incorporating revised disclosures informed by investor testing and staff experience to assist investors in making knowledgeable decisions about RILA offerings.60 Commenters broadly supported registering RILA offerings on Form N– 4.61 A number of commenters agreed that proposed Form N–4 would provide RILA investors with more meaningful and helpful disclosures as compared to the disclosures required on the registration forms currently used by RILAs that are not tailored to RILA features.62 Some commenters emphasized that the proposed disclosures about the contract and its features and the incorporation of Form N–4’s layered disclosure would be of particular benefit to investors.63 Additionally, one commenter suggested that requiring RILAs to register on forms that are not tailored for RILA offerings has impeded the ability of RILA investors to find and understand the information that is most relevant to their investment decisions, and has also slowed product development and impeded the entry of new issuers to the RILA marketplace.64 Commenters suggested that investors also would benefit from registering RILAs and variable annuity contracts on the same registration form because it would facilitate the ability of investors to Accounts that Offer Variable Annuity Contracts, Investment Company Act Release No. 14575 (June 14, 1985) [50 FR 26145 (June 25, 1985)] (‘‘Forms N– 3 and N–4 Adopting Release’’). 60 See the facing page of final Form N–4 (Form N–4 is ‘‘to be used by insurance companies to register the offerings of registered index-linked annuity contracts . . . under the Securities Act’’). Accordingly, following the compliance date for the final amendments, insurance companies will no longer be permitted to register RILA offerings on Forms S–1 or S–3, as they do today. 61 See Comment Letter of the American Council of Life Insurers (Nov. 28, 2023) (‘‘ACLI Comment Letter’’); Comment Letter of Better Markets, Inc. (Nov. 28, 2023) (‘‘Better Markets Comment Letter’’); CAI Comment Letter; Comment Letter of Gainbridge Life Insurance Company and Delaware Life Insurance Company (Nov. 28, 2023) (‘‘Gainbridge Comment Letter’’); Investor Advocate Comment Letter; Comment Letter of the Insured Retirement Institute (Nov. 28, 2023) (‘‘IRI Comment Letter’’). No commenters disagreed with the proposed use of Form N–4 to register RILA offerings. 62 See id. One of these commenters stated that it would object to the inclusion on Form N–4 of additional company-related disclosures applicable to registrations under Forms S–1 and S–3 because those disclosures are less relevant to RILA offerings. See CAI Comment Letter. 63 See Better Markets Comment Letter; CAI Comment Letter; Gainbridge Comment Letter; IRI Comment Letter; Investor Advocate Comment Letter. 64 See IRI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 59986 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 compare and contrast different RILA and variable annuity offerings.65 One of these commenters also stated that, by leveraging the experience of investors, registrants, and Commission staff with the existing Form N–4 framework, the proposal would help achieve greater regulatory uniformity, simplify the registration of RILA and variable annuity combination products, and reduce the burdens insurance companies face in preparing RILA registrations.66 After considering these comments, we are adopting a registration framework that requires the registration of RILA offerings on Form N–4 as proposed. Consistent with the views expressed by commenters, registering RILA offerings on final Form N–4 should benefit investors by requiring tailored disclosures relevant to RILA investors and facilitating the ability of investors to compare similar products. Registering RILA offerings on final Form N–4 also provides greater regulatory uniformity, reducing burdens for both RILA issuers in preparing RILA registration statements and Commission staff in reviewing them. Finally, one commenter requested the Commission provide guidance regarding the ability of certain RILA contracts currently registered on Form S–3 to rely on 17 CFR 240.12h–7 (‘‘rule 12h–7’’) following their transition to Form N– 4.67 Rule 12h–7 provides an exemption from Exchange Act reporting applicable to insurance companies with respect to certain securities, including RILAs, that are registered under the Securities Act and regulated under State law. In order to be eligible for this exemption, among other conditions, the issuer of the securities must take steps reasonably designed to ensure that a trading market for the securities does not develop, including requiring written notice to, and acceptance by, the issuer prior to any assignment or other transfer of the securities and reserving the right to refuse assignments or other transfers at any time on a non-discriminatory basis (‘‘anti-assignment clause’’).68 One commenter suggested that there are a number of RILA contracts that do not have an anti-assignment clause because the issuing insurance companies have 65 See CAI Comment Letter; Gainbridge Comment Letter. 66 See CAI Comment Letter. 67 See CAI Comment Letter. Under the final amendments, RILAs that have previously registered offerings of securities on Forms S–1 or S–3 prior to the Compliance Date will need to file a posteffective amendment to their registration statement pursuant to rule 485(a) by May 1, 2026 using Form N–4. See infra Section II.J. 68 See rule 12h–7(e). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 chosen to register the offerings on Form S–3 and therefore have not relied on rule 12h–7 because Form S–3 is only available to issuers subject to Exchange Act reporting requirements. This commenter suggested that unilaterally adding an anti-assignment clause now to already-issued contracts previously registered on Form S–3 would violate State law. Now that RILA offerings will be registered on Form N–4, this commenter suggested that issuers of these RILA contracts would like to rely on rule 12h–7. As the Commission explained in rule 12h–7’s adopting release, the anti-assignment clause requirement is an important condition of the exemption from Exchange Act reporting because it ensures that the issuer will take steps reasonably designed to preclude the development of a trading market in the contracts.69 Although all issuers relying on rule 12h–7 are required to take such reasonable steps, rule 12h–7 provides that an anti-assignment clause is not required where it is prohibited by State law.70 Under that rule, where an issuer of a RILA contract that is currently registered on Form S–3 is seeking now to rely on rule 12h–7, that issuer would not need to modify the contract to include an anti-assignment clause where including such a clause is prohibited by State law.71 Whether including an anti-assignment clause is prohibited under State law is based on the facts and circumstances and laws of each applicable State. B. Use of Form N–4 for Registered MVA Annuities We are adopting amendments to require the offerings of registered MVA annuities to be registered on Form N–4 and, as a result, extend the registration and disclosure requirements we are adopting for RILAs to registered MVA annuities. Similar to the amendments we are adopting for RILAs, these amendments will benefit investors by providing a tailored disclosure regime with clear, relevant, and layered disclosure. Further, by including registered MVA annuities on Form N–4 69 See Indexed Annuities and Certain Other Insurance Contracts, Exchange Act Release No. 34– 59221 (Jan. 8, 2009) [74 FR 3138 (Jan. 16, 2009)] (‘‘12h–7 Adopting Release’’) at Section III.B.2. 70 See rule 12h–7(e). Consistent with rule 12h– 7(e), by ‘‘State law’’ we mean the law of any State or action of the insurance commissioner, bank commissioner, or any agency or officer performing like functions of any State. 71 Of course, an issuer seeking to rely on rule 12h–7 would also need to comply with the rule’s other requirements, including that it takes steps reasonably designed to ensure that a trading market for the securities does not develop. See rule 12h– 7(e). PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 along with RILAs and variable annuities, investors should benefit from being able to compare and contrast different types of annuity contracts. Both issuers and investors will also benefit by leveraging their existing familiarity with the form. In the Proposing Release, we solicited comment on whether to require insurance companies to register the offerings of registered MVA annuities on Form N–4, and we detailed the various changes to disclosure that would be necessary to accommodate this change.72 Commenters that spoke to this issue supported registering offerings of registered MVA annuities on Form N– 4,73 suggesting that investors in registered MVA annuities would benefit from a comparable disclosure regime that provides clear, relevant, and layered disclosure.74 One of these commenters stated that registered MVA annuities are a significantly simpler product than RILAs and present a subset of identical risks to investors as RILAs.75 Commenters also stated that many of the disclosures that would be required for RILAs on Form N–4 would also be appropriate for registered MVA annuities, such as disclosures on the operation of contract adjustments and the risks associated with such contract adjustments.76 One commenter stated that only minor modifications to the disclosures for RILAs would be required to reflect that an investor’s return in a RILA is based on the performance of an index while the return of a registered MVA annuity is based on a stated rate of interest.77 Further, this commenter stated that registered MVA annuities 72 Proposing Release at Section II.H. commenters opposed using Form N–4 to register MVA annuity offerings, although one commenter urged that using Form N–4 should be optional in certain circumstances discussed below. See infra footnote 79. One commenter stated that contingent deferred annuities (‘‘CDAs’’) could be considered covered by the RILA Act and insurers should be permitted to use Form N–4 for these annuities under the provision in that Act allowing insurers to use Form N–4 for RILAs if the Commission does not provide a new registration form for RILAs by the statutory deadline. See VIP Working Group Comment Letter. We disagree. The RILA Act covers annuities that, among other things, have returns based on the performance of a benchmark index and may be subject to a market value adjustment if amounts are withdrawn before the end of the period during which that market value adjustment applies. CDA lifetime payment guarantees are not based on a benchmark or index and are not subject to such market value adjustments. Additionally, because CDAs are substantially different products than RILAs, significant modifications to Form N–4 would be required to accommodate offerings of CDAs. 74 See CAI Comment Letter; IRI Comment Letter; VIP Working Group Comment Letter. 75 CAI Comment Letter. 76 See IRI Comment Letter; CAI Comment Letter. 77 CAI Comment Letter. 73 No E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations may be offered in combination products with variable annuities and/or RILAs that will be registered on Form N–4. Given that such products will have one prospectus, this commenter stated that investors, issuers, and the Commission would benefit from such products registering on Form N–4, rather than registering on both Form N–4 (for the variable annuity or RILA component) and Form S–1 or Form S–3 (for the registered MVA annuity component). At the same time, some commenters generally stated that registered MVA annuities should be permitted, but not required, to register on Form N–4.78 Specifically, one commenter stated that, in particular, registration on Form N–4 should be optional for ‘‘closed blocks,’’ or registered MVA annuity offerings that no longer involve the issuance of new contracts.79 After considering comments, we have determined to require insurance companies to register offerings of registered MVA annuities on Form N–4 to provide investors with the tailored information necessary to make an investment decision, as discussed above.80 Further, given the parallels outlined above between RILAs and registered MVA annuities and the use of combination contracts that can offer RILAs, registered MVA annuities, and variable annuities, registering offerings of registered MVA annuities on Form N–4 will be efficient for investors, insurance companies, and the Commission. As a result, we are requiring, not just permitting, the use of Form N–4 for registered MVA annuities. Permitting insurance companies to register offerings of closed block registered MVA annuities on Forms S– 1 or S–3 would not provide these investor benefits or efficiencies. It also would hamper comparability if different registered MVA annuities provided materially different disclosure. However, the Commission administers the requirements for prospectuses included in registration statements on Form N–4 in a way that allows variances in disclosure or presentation—including now those relating to closed blocks of registered 59987 MVA annuities—if appropriate for the circumstances involved while remaining consistent with the objectives of the form.81 As a result of this change, registered MVA annuities must make the disclosures required in Form N–4 to the extent applicable. For example, they must meet the requirements of the front and back cover pages to the extent the disclosures apply to the offering of registered MVA annuities being registered.82 As outlined in the Proposing Release, we also are adopting a number of specific disclosure requirements for registered MVA annuities designed to accommodate their inclusion on the form and provide investors disclosures tailored to registered MVA annuity products and highlight key information about these products.83 Table 1 outlines the key amendments, including certain conforming amendments, we are adopting to Form N–4 to accommodate offerings of registered MVA annuities: TABLE 1—OVERVIEW OF FORM N–4 FOR REGISTERED MVA ANNUITIES Item Description Substantive changes from the current form Discussion Prospectus (Part A) N/A ................... N/A ................... 6 ....................... 7 ....................... 17 ..................... Facing Page and General Instructions. General Instructions ............... Description of the Insurance Company, Registered Separate Account, and Investment Options. Charges and Adjustments ...... Investment Options Available Under the Contract. Added registered MVA annuity contracts to list of permissible uses. Added definition of ‘‘Contract Adjustment’’ to account for MVA fixed account options. New contract adjustment disclosures for MVA fixed account options. Section II.C.8(a), Section II.C.8(b). Section II.C.8(b). New contract adjustment disclosures applicable to MVA fixed account options. New contract adjustment disclosures for MVA fixed account options. Section II.C.6(b). Section II.C.4(a). Section II.C.4(b). Statement of Additional Information (Part B) 26 ..................... Financial Statements .............. Providing that insurance companies can use the relevant instructions with regard to offerings of registered MVA annuities and adding requirements relating to changes in and disagreements with accountants for registered MVA annuities. Section II.E. Other Information (Part C) ddrumheller on DSK120RN23PROD with RULES2 31A ................... Information about contracts with Index-Linked Options and Fixed Options Subject to a Contract Adjustment. 78 CAI Comment Letter; IRI Comment Letter. Comment Letter. This commenter urged that if such closed blocks were required to register on Form N–4, the compliance period be extended from 12 months to 24 months to provide the necessary time to convert an additional class of contract to the new registration form. See infra 79 CAI VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 New disclosure of registered MVA annuity specific information. Section II.J. for a discussion of effective and compliance dates for all rules and forms associated with the final amendments. 80 See supra Sections I.B. and I.C. 81 See final Form N–4, General Instruction C.1.(d). This rulemaking does not affect the Commission PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 Section II.C.7. position on existing variable contracts whose issuers provide alternative disclosures to investors as stated in the VASP Adopting Release at Section II.E.3. 82 See, e.g., infra Section II.C.1. 83 See Proposing Release at Section II.H. E:\FR\FM\24JYR2.SGM 24JYR2 59988 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations In addition to these changes to Form N–4, we are providing to registered MVA annuities the same offering and filing framework we are extending to RILAs for the same reason as we are making these changes for RILAs as discussed in more detail below.84 This includes, for example, amendments permitting registered MVA annuities to use a summary prospectus, pay securities fees annually based on net sales, and use the same process to update their registration statements that will apply to RILAs. To implement the inclusion of registered MVA annuities in the amendments to the rules under the Securities Act, we also are adding a defined term ‘‘registered market value adjustment annuity’’ to rule 405 that is consistent with the amendments to Form N–4.85 We are also extending the same requirements as to the use of Inline XBRL to registered MVA annuities for the same reasons we are extending these requirements to RILAs.86 C. Contents of Form N–4 RILAs in final Form N–4. These existing items of current Form N–4 will also apply to registered MVA annuities. We are also adopting amendments to Form N–4 to require disclosures specific to RILAs as well as amendments that also will apply to offerings of variable annuities. Some of these disclosures will also apply to registered MVA annuities. Table 2 outlines the substantive amendments we are adopting to Form N–4.87 Consistent with the proposal, many items of current Form N–4 will apply to TABLE 2—OVERVIEW OF FORM N–4 Item Description Substantive changes from the current form Discussion Prospectus (Part A) 1 ....................... 2 ....................... Front and Back Cover Pages Overview of the Contract ....... 3 ....................... Key Information ...................... 4 ....................... 5 ....................... Fee Table ............................... Principal Risks of Investing in the Contract. Description of the Insurance Company, Registered Separate Account, and Investment Options. Charges and Adjustments ...... 6 ....................... 7 ....................... 8 ....................... 9 ....................... 10 ..................... 11 ..................... 12 13 14 15 16 17 ..................... ..................... ..................... ..................... ..................... ..................... General Description of Contracts. Annuity Period ........................ Benefits Available Under the Contract. Purchases and Contract Value. Surrenders and Withdrawals .. Loans ...................................... Taxes ...................................... Legal Proceedings .................. Financial Statements .............. Investment Options Available Under the Contract. Adding new legends and other standardized disclosures ...... New non-variable annuity-specific disclosures; moving order of appearance up. New non-variable annuity-specific disclosures; changing to a question-and-answer format; moving order of appearance down; change discussion of restrictions on optional benefits to cover all benefits. New contract adjustment disclosure ....................................... Providing more detailed disclosures applicable to all issuers Section II.C.1. Section II.C.2. Section II.C.3. Section II.C.6(a). Section II.C.5. New non-variable annuity-specific disclosures and one new item regarding variable options. Section II.C.4(a). New disclosures related to contract adjustments; renamed item. No substantive change ............................................................ Section II.C.6(b). No substantive change ............................................................ No substantive change ............................................................ Section II.C.9(b). Section II.C.9(b). No substantive change ............................................................ Section II.C.9(b). No substantive change ............................................................ No substantive change ............................................................ No substantive change ............................................................ No substantive change ............................................................ No substantive change (but see Item 26) ............................... New non-variable annuity-specific disclosures ....................... Section Section Section Section Section Section Section II.C.9(b). II.C.9(b). II.C.9(b). II.C.9(b). II.C.9(c). II.E. II.C.4(b). Statement of Additional Information (Part B) 18 ..................... 19 ..................... 20 ..................... ddrumheller on DSK120RN23PROD with RULES2 21 ..................... 22 ..................... Cover Page and Table of Contents. General Information and History. Non-Principal Risks of Investing in the Contract. Services .................................. Purchase of Securities Being Offered. 84 See infra Sections II.C, D, E, and F. market value adjustment annuity’’ is defined as an annuity or an option available under an annuity, that is not a registered indexlinked annuity, and (1) that is deemed a security; (2) that is offered or sold in a registered offering; (3) that is issued by an insurance company that is subject to the supervision of either the insurance commissioner or bank commissioner of any State or any agency or officer performing like functions as 85 ‘‘Registered VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 No substantive change ............................................................ Section II.C.9(b). No substantive change ............................................................ Section II.C.9(c). No substantive change ............................................................ Section II.C.9(b). No substantive change ............................................................ New disclosure of specific contract adjustment information ... Section II.C.9(b). Section II.C.6(c). such commissioner; (4) that is not issued by an investment company; and (5) whose contract value may reflect a positive or negative adjustment (based on calculations using a predetermined formula, a change in interest rates, or some other factor or benchmark) if amounts are withdrawn before the end of a specified period. This definition mirrors that of ‘‘registered index-linked annuity’’ we are adding to rule 405 for RILAs, other than the last PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 provision which is based on the definition of ‘‘contract adjustment’’ we are adding to Form N–4. 86 See infra Section II.C.10. 87 Some of the final amendments entail a nonsubstantive change such as a change to a defined term or specifying that the provision would continue to be applicable only to a registered separate account or variable option. These are not discussed in the following table but are instead discussed in Sections II.C.8 and II.C.9 infra. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 59989 TABLE 2—OVERVIEW OF FORM N–4—Continued Item Description Substantive changes from the current form 23 ..................... 24 ..................... Underwriters ........................... Calculation of Performance Data. Annuity Payments .................. Financial Statements .............. No substantive change ............................................................ Clarifying only applies to variable options .............................. Section II.C.8(c). Section II.C.8. No substantive change ............................................................ Providing that insurance companies can use the relevant instructions relating to financial statements and adding requirements relating to changes in and disagreements with accountants for non-variable annuities. Section II.C.9(b). Section II.E. 25 ..................... 26 ..................... Discussion Other Information (Part C) 27 ..................... Exhibits ................................... 28 ..................... Directors and Officers of the Insurance Company. Persons Controlled or Under Common Control with the Insurance Company or the Registrant. Indemnification ....................... Principal Underwriters ............ Information about contracts with Index-Linked Options and Fixed Options Subject to a Contract Adjustment. Location of Accounts and Records. Management Services ............ Fee Representation and Undertakings. 29 ..................... 30 ..................... 31 ..................... 31A ................... 32 ..................... 33 ..................... 34 ..................... 1. Front and Back Cover Pages (Item 1) Currently, issuers using Form N–4 are required to include on the front and back cover pages basic identifying information about the issuer and the contract, information on how to review the document (e.g., what the SAI is and where to find it), as well as certain Adding power of attorney for all issuers and accountant letters for non-variable annuity issuers as exhibits. No substantive change ............................................................ Section II.C.8(d). No substantive change ............................................................ Section II.C.9(c). No substantive change ............................................................ No substantive change ............................................................ New disclosure of non-variable annuity specific information .. Section II.C.9(c). Section II.C.9(c). Section II.C.7. No substantive change ............................................................ Section II.C.8. No substantive change ............................................................ Adding new non-variable annuity undertakings ...................... Section II.C.9(b). Section II.C.8(d). legends, for example, one relating to the ability for an investor to cancel the contract within 10 days.88 We are adopting amendments to require insurance companies registering offerings of non-variable annuities to include this general information on the front and back cover pages of the Section II.C.9(c). prospectus, as well as non-variable annuity—specific disclosures on the front cover page. We are adopting these amendments substantially as proposed, with modifications in response to comments. The following table summarizes the cover page requirements, as amended: TABLE 3—INFORMATION REQUIRED BY ITEM 1 OF FORM N–4 AS AMENDED Item No. Disclosure Cover Changed from proposal? Identifying Information Item Item Item Item Item 1(a)(1) 1(a)(2) 1(a)(3) 1(a)(4) 1(a)(5) ............ ............ ............ ............ ............ Item 1(a)(9) ............ Item 1(b)(4) ............ Registered separate account’s name .................................................. Insurance company’s name ................................................................. Types of contracts offered (e.g., group, individual, etc.) ..................... Name and class of contract ................................................................. List of types of investment options offered under the contract with cross references to the appendix with further information about those options. Date of prospectus ............................................................................... EDGAR identifier number .................................................................... Front Front Front Front Front .............. .............. .............. .............. .............. No. No. No. No. No. Front .............. Back ............... No. No. Front .............. Yes. Revised statements about potential for investment loss, manner in which the insurance company determines the maximum loss due to negative index performance, and minimum limits on index gains and losses. Legends ddrumheller on DSK120RN23PROD with RULES2 Item 1(a)(6) ............ 88 See Statement that the contract is a complex investment and involves risks, including potential loss of principal. For contracts that include an index-linked option: A prominent statement, as a percentage, of the maximum amount of loss that an investor could experience from negative index performance after taking into account the current limits on index loss, which may include a range of the maximum amount of loss if the contract offers different limits on index loss current Form N–4, Item 1. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 59990 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations TABLE 3—INFORMATION REQUIRED BY ITEM 1 OF FORM N–4 AS AMENDED—Continued Item No. Disclosure Item 1(a)(7) ............ Item 1(a)(8) ............ Item 1(a)(10) .......... Item 1(a)(11) .......... Item 1(a)(12) .......... Cover Prominent disclosure of any minimum limits on index losses that will always be available under the contract or, alternatively, a prominent statement that the insurance company does not guarantee that the contract will always offer index-linked options that limit index losses, which would mean risk of loss of the entire amount invested. A prominent statement that the insurance company limits the amount an investor can earn on an index-linked option. A prominent statement, for each type of limit offered (e.g., cap, participation rate, etc.), of the lowest limit on index gains that may be established under the contract. Statement that the contract is not a short-term investment and is not appropriate for an investor who needs ready access to cash. Statement that withdrawals could result in, among other things, surrender charges and negative contract adjustments, including a prominent disclosure stating, as a percentage, the maximum potential loss resulting from a negative contract adjustment, if applicable. Statement that the insurance company’s obligations under the contract are subject to its financial strength and claims-paying ability. Statement that the Commission has not approved or disapproved of the securities or passed upon the accuracy or adequacy of the disclosure in the prospectus and that any contrary representation is a criminal offense (as required in 17 CFR 230.481(b)(1)). Statement that additional information about the contract is available on Investor.gov. A legend that states that if you are a new investor, you may cancel your contract within 10 days of receiving it without paying fees or penalties with some details about the operation of this process including whether a contract adjustment will be applied to the returned amount. Changed from proposal? Front .............. No. Front .............. No. Front .............. No. Front .............. No. Front .............. No. Back ............... No. Back ............... No. Back ............... Yes. Applied this requirement to insurance companies in addition to separate accounts. Other Information Item 1(b)(1) ............ Item 1(b)(2) ............ ddrumheller on DSK120RN23PROD with RULES2 Item 1(b)(3) ............ Statement that the SAI contains additional information, that it is available to investors, and how investors may obtain the SAI or make inquiries about their contracts. Statement about whether and from where information is incorporated by reference. Statement that reports and other information about the registered separate accounts and, if applicable, the insurance company, are available on the Commission’s website and that copies of this information may be obtained. We proposed to make several changes to the front cover page, including four additional disclosures in Item 1(a).89 Certain proposed changes received no comments and we are adopting them as proposed: (1) Changes to Item 1(a)(1) to require disclosure of ‘‘the registered separate account’s name’’ whereas this item previously asked for ‘‘the registrant’s name.’’ (2) Changes to Item 1(a)(2) to require disclosure of ‘‘the insurance company’s name’’ instead of the current requirement for ‘‘the depositor’s name.’’ (3) Changes to Item 1(a)(3) to require disclosure of the types of contracts offered by the prospectus (e.g., group, individual, single premium immediate, flexible premium deferred), as opposed to the current form, which requires disclosure of the types of variable 89 See Proposing Release at Section II.B.1. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 annuity contracts offered by the prospectus. (4) New Item 1(a)(5), which requires disclosure of the types of investment options under the contract and a cross reference to the prospectus appendix providing additional information about each option. (5) We also are moving certain items to different locations on the front cover page without changing the content of the required disclosure.90 90 Specifically, on Form N–4, current Item 1(a)(5), which requires disclosure of the date of the prospectus, is moving to final Item 1(a)(9); current Item 1(a)(6), which requires a statement required by rule 481(b)(1) under the Securities Act, is moving to final Item 1(a)(10); current Item 1(a)(7), which requires a statement that additional information about certain investment products, including variable and non-variable annuities, has been prepared by Commission staff and is available at investor.gov, is moving to final Item 1(a)(11); and current Item 1(a)(8), which requires a legend stating that new investors to the contract may be able to PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 We are adding new Items 1(a)(6) and (7) to the front cover page of final Form N–4, which we are adopting with modifications from the proposal, as discussed below. The four items on the back cover page—Item 1(b)—are largely unchanged with the exception of extending the disclosure requirements (suggested by a commenter) of Item 1(b)(3) to include the insurance company, if applicable.91 In addition, and as proposed, the additional disclosures on the front cover page also will be required for cancel the contract within 10 days without paying fees or penalties, is moving to final Item 1(a)(12). 91 See CAI Comment Letter. The modification to Item 1(b)(3) is discussed in further detail below. Current Item 1(b)(3) indicates that reports and information about the registered separate account are available on the Commission’s website. That language has been retained in final Form N–4. The statement would address available reports about the insurance company only if applicable. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 registration statements relating to offerings of variable annuities filed on that form to the extent relevant.92 Specifically, these are disclosures relating to the complexity of the investment and potential loss of principal, that the contract is not a short-term investment and the appropriateness of that investment, and that an insurance company’s obligations under the contract are subject to its financial strength and claims paying abilities.93 While these disclosures are important for investors in non-variable annuities, they also are relevant in many cases to investors in variable annuities. The comments that we received on the proposed cover page requirements were mixed. One commenter generally supported these disclosures, stating that the proposal ensured that the most important disclosures about RILAs appear on the cover page.94 Another commenter suggested that, other than the disclosures related to maximum loss, the proposed cover page disclosures were, for the most part, designed to result in short, concise, and sensible cover page disclosures.95 Other commenters, however, raised concerns.96 First, some commenters raised concerns about the volume of disclosures proposed to be included on the cover pages, particularly those related to the maximum losses.97 One such commenter suggested that the inclusion of all of these disclosures could cut against the form’s layered disclosure approach.98 These cover page disclosures are generalized statements designed to put an investor on notice of key considerations to help an investor make informed decisions. In particular, they are designed to highlight the complexities and certain associated risks of non-variable annuities for investors, and including this key information on the cover page helps ensure that an investor has information about these key aspects of a nonvariable annuity at the outset. The number of specific features and risks 92 See Proposing Release at Section II.B.1. Commenters did not specifically address the inclusion of these disclosures for variable annuity offerings. 93 See final Form N–4, Item 1(a)(6), (7), and (8). 94 See Better Markets Comment Letter. 95 See CAI Comment Letter. 96 Commenters suggested that, should the Commission extend the use of Form N–4 to registered MVA annuities, their comments would also apply to disclosures related to those securities. See, e.g., CAI Comment Letter (supporting some aspects of the proposal but criticizing the maximum loss disclosure on the cover page); VIP Working Group Comment Letter. 97 See CAI Commenter Letter; VIP Working Group Comment Letter. 98 See CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 highlighted on the cover page is driven by the complex nature of the nonvariable annuity being registered. Further, because these points are generalized on the cover page but discussed in more detail later in the prospectus, they are consistent with the concept of layered disclosure. These disclosures also should help investors better understand the nature of the various investment options available under the contract. Second, commenters addressed certain specific items the Commission proposed to include on the front cover page. Commenters raised particular concerns with the proposed requirement to disclose as a percentage the maximum amount of loss from negative index performance that an investor could experience after taking into account the minimum guaranteed limit on index loss provided under the contract.99 Commenters objected to this disclosure because, in their view: (1) requiring RILA issuers to disclose this percentage was unnecessary because the chance of investors experiencing this maximum loss was extremely remote,100 (2) the cover page lacks appropriate context for this percentage and instead RILA issuers should include a narrative (not numeric) disclosure stating that an investor could lose a significant amount of money by investing in an indexlinked option,101 and (3) such maximum potential loss disclosure was unwarranted because other issuers of securities are not required to include this information on the cover pages of their prospectuses.102 Separately, some commenters similarly opposed the proposed requirement to disclose, as a percentage, the maximum potential loss resulting from a negative contract adjustment as such a maximum loss would also be unlikely.103 In response to comments opposing the proposed requirement to disclose as a percentage the maximum amount of loss Form N–4, Item 1(a)(6). Working Group Comment Letter (stating that the analysis done by OIAD in the OIAD Investor Testing Report suggested that losses on these products over the long term have historically been remote); Comment Letter of Benji Johnson (Oct. 31, 2023) (‘‘Johnson Comment Letter’’); CAI Comment Letter; Datop Comment Letter; see also ACLI Comment Letter. 101 CAI Comment Letter. 102 VIP Working Group Comment Letter; Johnson Comment Letter; Datop Comment Letter. 103 Proposed Form N–4, Item 1(a)(7). See CAI Comment Letter; VIP Working Group Comment Letter. Several commenters also suggested that these two maximum potential loss disclosures, one from index performance and the other from contract adjustments, could cause investors to mistakenly believe that such losses are likely. CAI Comment Letter; VIP Working Group Comment Letter; Johnson Comment Letter. PO 00000 99 Proposed 100 VIP Frm 00015 Fmt 4701 Sfmt 4700 59991 from negative index performance or from a contract adjustment that an investor could experience, the final disclosure requirements are designed to reflect that the risk that an investor could lose a substantial amount of money due to negative index performance is a key risk of a RILA.104 Similarly, loss related to negative contract adjustments is a key risk of all non-variable annuities. Providing the maximum possible loss in these circumstances on the front cover page will alert investors to these risks in concrete terms. Moreover, disclosure of a maximum ‘‘potential’’ loss is not intended to suggest the maximum loss is likely to occur. The form does not prevent the insurance company from providing additional appropriate context. Although issuers of other securities like mutual funds and ETFs do not disclose the maximum potential loss associated with those securities, such products also are not generally structured to provide loss protection. For RILAs, in contrast, loss protection is a central feature of the product and an emphasis in RILA marketing.105 Numeric disclosure of the potential maximum loss helps an investor understand the extent to which a given RILA provides loss protection in simple terms. This is particularly important because investor testing has shown that investors struggled with the mechanics of loss protection and the consequences of withdrawals.106 Placing this disclosure on the front cover page is designed to put investors on notice that those loss protections can, in the context of RILAs, have limitations and highlight, in the context of all nonvariable annuities, a potential consequence of withdrawals. A numeric example is well suited for the cover page because it communicates the extent of loss protection briefly and 104 VIP Working Group Comment Letter; Johnson Comment Letter; CAI Comment Letter; Datop Comment Letter; see also ACLI Commenter Letter. 105 One commenter raising concern with this disclosure’s placement in the cover page ‘‘acknowledge[d] that the risk of loss associated with RILAs is an important concept to convey [and that] [u]nlike most other investments, RILAs provide a level of downside protection, and an investor should therefore understand the limits of that protection.’’ CAI Comment Letter. 106 OIAD Investor Testing Report at Section 5, Qualitative Testing, Results from Round 1. See Proposing Release at n.75 and accompanying text (investor testing participants struggled to understand loss limiting features, such as buffers), and at n.33 and accompanying text (investor testing participants often did not understand that there are multiple aspects of a typical RILA contract that could negatively affect an investor’s contract value or the amount that the investor could withdraw from the contract (e.g., surrender charges, interim value adjustments, and tax penalties)). E:\FR\FM\24JYR2.SGM 24JYR2 59992 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations concretely, and additional context will be available elsewhere in the prospectus. Commenters also raised concerns with various proposed disclosure requirements’ reference to ‘‘minimum guaranteed’’ limits on index loss (or gain), including raising this concern with respect to the cover page.107 Another commenter sought clarification regarding whether a similar disclosure requirement referring to guaranteed minimums for the life of the contract was intended to require insurance companies to establish such minimums.108 We understand that not all RILAs provide minimum guaranteed limits on index loss for the life of the contract that could be used to calculate the proposed maximum possible loss due to negative index performance. After considering comments, we are modifying the language of this disclosure requirement to reflect this fact. Under the final amendments, the insurance company must prominently state as a percentage the maximum amount of loss from negative index performance that an investor could experience after taking into account the current limits on index loss provided by the index-linked options under the contract.109 The insurance company may provide a range of the maximum amount of loss if the contract offers different limits on index loss. Basing this disclosure on the contract’s actual current limits on index losses is designed to address commenters’ concerns about RILAs without guaranteed limits, and permitting the insurance company to provide a range of losses allows the insurance company to reflect the range of loss protection offered under the contract. We are modifying the proposed language of this disclosure requirement to specify that an insurance company that does not disclose a minimum limit on index loss that will always be available under the contract must prominently state that it does not guarantee that the contract will always offer index-linked options that limit index loss, which would mean risk of loss of the entire amount invested. We are requiring this disclosure because ddrumheller on DSK120RN23PROD with RULES2 107 See VIP Working Group Comment Letter (stating that contracts do not include a minimum guaranteed limit on losses); CAI Comment Letter. 108 CAI Comment Letter. See Proposing Release at Section II.B.1. for a discussion of the proposed disclosure requirement. 109 We understand that, unlike the current limits on index gain, current limits on index loss do not change often, if at all, during the life of the contract. See infra Sections II.C.2 and II.C.3.a (discussing concerns raised by commenters relating to the disclosure of current limits on index gain). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 RILAs are long-term investments, with an investor’s returns determined by the economic terms available both at the time of investment and during future crediting periods. The guaranteed minimum limits on index losses that always will be available—or the fact that the insurance company makes no guarantee at all—are key considerations for an investor considering a RILA that should be disclosed on the cover page. The final amendments’ approach therefore incorporates the proposed requirement to disclose on the front cover page the maximum loss from negative index performance taking into account guaranteed minimum limits on index losses but, in response to comments, provides information on any guaranteed minimum limits without assuming that each RILA offers them.110 One commenter stated that it found confusing the proposed requirement to state that the potential for investment loss could be significantly greater than the potential for investment gain.111 After considering comments we have determined not to require the proposed disclosure because an investor’s potential inability to recoup prior losses due to limits on gains is a nuanced concept that is challenging to articulate in concise cover page disclosure. We are instead requiring the insurance company to disclose information about the contract’s limits on participation in positive index performance, not only because these limits are central features of a RILA, but also because they can limit an investor’s ability to recoup losses (which the proposed disclosure item was designed to convey). We therefore are requiring the insurance company to prominently state, for each type of limit offered (e.g., cap, participation rate, etc.), the lowest limit on index gains that may be established under the contract.112 This information is particularly important for an investor considering a RILA because RILAs are long-term investments and the investor’s returns are driven not just by the economic terms available at the time of investment, but also in future crediting periods. In another change from the proposal, we are not adopting the proposed Item 1(a)(6) requirement to state that an investor could lose a significant amount of money if the index declines in value. We are doing so because the required disclosure in this item, and elsewhere on the form, of the 110 These changes, which are contained in Item 1(a)(6)(a), are mirrored in Instruction 3(a) to Item 3 and Item 5(a). See, e.g., infra at footnote 386. 111 See Johnson Comment Letter; see also proposed Form N–4, Item 1(a)(6). 112 See final Form N–4, Item 1(a)(6)(b). PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 maximum possible loss due to declines in index performance make clear that investors face the potential for losses in these circumstances.113 Finally, one commenter suggested that we amend a current back cover page disclosure requirement regarding the availability of additional information to apply to RILAs.114 This sub-item currently requires variable annuity prospectuses to state that reports and other information about a registered separate account may be found on the Commission’s website.115 The commenter suggested applying this requirement to insurance companies that issue RILAs to the extent that they provide reports and other information to the Commission through their regular reporting under the Exchange Act. We agree that some investors might find the information and reports about the insurance companies useful when making investment decisions and have adjusted this requirement in the final form accordingly.116 2. Overview of the Contract (Item 2) We are, largely as proposed, amending the requirements for the Overview of the Contract (‘‘Overview’’) to include RILAs generally, require disclosure about certain key elements of any index-linked option offered under the contract, and highlight any contract adjustments. Consistent with the inclusion of registered MVA annuities on Form N–4, the Overview also will discuss these annuities, as applicable. As discussed below, this section will precede the KIT.117 Under the final amendments, insurance companies that are registering non-variable annuities must provide the same Overview disclosures that are currently required for variable annuities, modified to include certain RILA-specific disclosures. All contracts registered on the form must provide an Overview with a concise description of the contract, including information about: (1) the contract’s purpose; (2) the phases of the contract, including a discussion of the available investment options; (3) the primary features of the contract; and (4) contract 113 See also, e.g., final Form N–4, Instruction 3(a) to Item 3. 114 CAI Comment Letter. 115 Current Form N–4, Item 1(b)(3). 116 See final Form N–4, Item 1(b)(3). Because registered MVA annuities are also issued by an insurance company, not a registered separate account, this change will also apply to registration statements relating to offerings of those securities. 117 Because we are requiring the Overview to appear before the KIT, current Item 3 (Overview of the Contract) will be renumbered as Item 2. See infra Section II.C.3. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations adjustments.118 We are adopting these amendments as proposed. Because offerings of registered MVA annuities will be registered on Form N–4, these requirements also will apply to offerings of registered MVA annuities, as applicable. No substantive changes from the proposed approach, however, were necessary to address registered MVA annuities. In addition to information about the purpose of the contract, under the final amendments, a prospectus that offers index-linked options must include in the Overview (as part of the discussion of the phases of the contract): (1) a statement that the insurance company will credit positive or negative interest at the end of a crediting period to amounts allocated to an index-linked option based, in part, on the performance of the index; (2) a statement that an investor could lose a significant amount of money if the index declines in value; (3) an explanation that the insurance company limits the negative or positive index returns used in calculating interest credited to an index-linked option at the end of its crediting period, accompanied by a brief description and an example of the manner in which such returns may be limited; and (4) disclosure of guaranteed minimum limits on index losses or gains.119 We are adopting the amendments described in (1)–(3) generally as proposed. We are adopting changes to the language of the proposed disclosure requirements addressing minimum limits on index losses and gains, which will be parallel to changes we are adopting to this language throughout Form N–4, as discussed in more detail below.120 Specifically, we are changing the language of the proposed disclosure requirement addressing minimum limits on index losses to specify that an insurer that does not offer a minimum guaranteed limit on index losses must disclose that fact. We are adopting changes to the proposed language of the requirement for disclosing minimum limits on index gains to specify that insurers must prominently state, for each type of limit offered (e.g., cap, participation rate, etc.), the lowest limit on index gains that may be established under the contract.121 As proposed, the Overview also will provide, if applicable, a discussion of contract adjustments that must include a statement that an investor could lose a significant amount of money due to 118 Final Form N–4, Item 2(a)–(d). 119 Final Form N–4, Items 2(b)(2)(i)–(iv). 120 Final Form N–4, Item 2(b)(2)(iii). 121 Final Form N–4, Items 2(b)(2)(iii) and (iv). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 the contract adjustment if amounts are removed from an investment option or from the contract prior to the end of a specified period, accompanied by a brief description of the transactions subject to a contract adjustment.122 In a change from the proposal, we are not adopting the proposed requirement to include in the Overview numeric risk of loss disclosures associated with negative index performance or contract adjustments, as discussed further below. As proposed, the Overview will precede the KIT. We are reordering these sections based on investor testing results indicating that investors reviewing sample KIT disclosure had difficulty understanding the basic features and concepts of RILA contracts, for example, ‘‘index,’’ ‘‘investment term,’’ ‘‘interim value adjustment,’’ and ‘‘buffer.’’ 123 The Overview provides general information about the contract and important context about the information summarized in the KIT. In particular, the Overview will, as discussed below, require descriptions and examples to help investors understand these RILA features, including contract adjustments, which we anticipate will provide a basis for better understanding the issues that the KIT disclosures address. Based on our observations of investor testing, investors may generally benefit from having more context in order to understand the KIT disclosures. Placing the Overview first may similarly provide context for the issues flagged in variable annuity KITs. We received one comment on this proposed reordering in Form N–4. The commenter stated that the repetition of certain information in both the Overview and the KIT undermines our rationale for proposing to reorder the two sections.124 We disagree that covering some of the same topics in the Overview and the KIT is inconsistent with changing the order of these disclosures. The KIT is designed to identify, in a consolidated location, key risks and features of the contract it 122 Final Form N–4, Item 2(d). Although one commenter suggested that we relocate the proposed disclosure item for contract adjustments under the sub-item for index-linked option disclosures, we are not making this change because contract adjustments are not specific to index-linked options; they apply to MVA annuity options as well. In a change from the proposal, we are replacing ‘‘index-linked option’’ with ‘‘investment option’’ to convey contract adjustments are associated with other types of investment options in addition to index-linked options. 123 See, e.g., OIAD Investor Testing Report at Section 5, Qualitative Testing, Results from Round 1, Summary of Qualitative Testing, Section 6, Quantitative Testing, Summary of Quantitative Testing. 124 See CAI Comment Letter. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 59993 describes.125 Certain of this information is also included in the high-level contract summary provided in the Overview. The disclosure is included in both locations to allow the reader to understand the contract at a high level (in the Overview of the Contract), as well as key features and risks of the annuity whose offering is being registered (in the KIT). Further, KIT requirements that address the same topic in different contexts may aid investor understanding of complex disclosure, and this approach is consistent with a layered disclosure approach. In terms of the proposed content requirements for the Overview section, one commenter generally supported the proposed amendments.126 This commenter not only stated that the proposed amendments to the Overview were generally appropriate (including requirements applicable to RILAs and variable annuities), but also that the proposed disclosure requirements regarding the index-linked options ‘‘cover most of the key aspects that investors should be aware of to understand the cyclical nature of the index-linked options,’’ and ‘‘strike the right balance by providing investors with the proper level of summary disclosure, with additional information appearing later in the prospectus.’’ While no commenter generally opposed our proposed changes, several requested modifications to some of the specific proposed disclosures. As discussed above, some commenters raised general concerns about disclosure that appears in both the Overview and the KIT and suggested that we reduce or eliminate perceived duplicative disclosure in those two sections to simplify and streamline the prospectus.127 Such comments largely concerned the proposed narrative and numeric risk of loss disclosures for index-linked options and contract adjustments. One commenter stated it did not oppose the inclusion of narrative and numeric risk of loss disclosure in the Overview for end-ofterm index declines and negative contract adjustments because ‘‘the generally free-writing nature of the Overview allows the registrant to provide appropriate context for the reader.’’ 128 Conversely, two commenters generally opposed the proposed risk of loss disclosures for negative index performance and 125 See VASP Adopting Release at paragraph following n.106. 126 CAI Comment Letter. 127 CAI Comment Letter; ACLI Comment Letter. 128 CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 59994 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 contract adjustments on the grounds that RILA issuers should not be required to make disclosures that are not required of variable annuities, and cited concerns that such disclosures incorrectly portray such products as high-risk investments.129 One of these commenters stated that the proposal to require RILA issuers to disclose that an investor could lose a ‘‘significant amount of money’’ is inconsistent with existing disclosure for variable annuity products, which requires a statement that ‘‘an investor can lose money by investing in the Contract.’’ 130 This commenter stated that a RILA investor is at no greater risk of losing a more substantial amount of money than a variable annuity investor, and that if all performance variables were equal, a RILA investor has reduced risk of loss compared to a variable annuity investor because RILAs have the added benefit of downside protection. This commenter also objected to the proposed requirement to disclose in the Overview that an investor could lose a ‘‘significant’’ amount of money due to an index decline or a contract adjustment, viewing that term as subjective. Another commenter asked that we modify the proposed narrative risk of loss disclosure for negative contract adjustments to state that losses could be significant under ‘‘extreme market conditions.’’ 131 This commenter also opposed requiring numeric risk of loss disclosure associated with a negative contract adjustment on the grounds that the narrative disclosure ‘‘is sufficient without including a numeric figure.’’ One commenter asked that we clarify that the proposed numeric risk of loss disclosure for contract adjustments could be modified to avoid any implication that the risk of loss is greater than 100%.132 We are adopting the Overview’s narrative risk of loss disclosures largely as proposed.133 These disclosures, each of which is a single sentence, are appropriate in light of the fact that RILAs, unlike variable annuities and other investment companies, are structured products that have unique features and risks despite contract similarities to variable annuities. Unlike 129 ACLI Comment Letter; Gainbridge Comment Letter. 130 ACLI Comment Letter. 131 VIP Working Group Comment Letter. 132 CAI Comment Letter. 133 Final Form N–4, Items 2(b)(2)(ii) and 2(d). The only change we are adopting to the narrative risk of loss disclosure requirements is a revision to Item 2(d), replacing ‘‘Index-Linked Option’’ with ‘‘Investment Option,’’ to clarify that contract adjustments may apply to options other than indexlinked options. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 variable annuities, index-linked options offer downside protection from market declines—and are marketed on that basis. The disclosures we are adopting will alert RILA investors that there are limits to those protections. Moreover, we are retaining the proposed requirement to state that an investor could lose money, with the ‘‘significant’’ descriptor designed to put investors on notice of losses they might not anticipate, given that investor testing revealed that investors tend to overestimate loss protection.134 Significant losses associated with indexlinked options may be infrequent, but they can and do happen, and investors should be aware of the possibility. We also are not modifying the proposed disclosure requirement to state that significant losses associated with contract adjustments may only occur under ‘‘extreme market conditions’’ because an investor who withdraws from a contract before the end of the crediting period may suffer significant losses relative to the value of the initial investment, regardless of market conditions. Nevertheless, the form does not prohibit an insurer from accompanying the required statement with contextual disclosure that explains when significant losses associated with contract adjustments might occur. While we are adopting the narrative risk of loss disclosures as proposed, in a change from the proposal and in response to comments raising concerns about duplicative disclosure, we are not adopting the proposed numeric risk of loss disclosures associated with index declines or contract adjustments in the Overview. This change recognizes that the proposed numeric disclosures appear on the cover page, as well as the KIT, and, as one commenter observed, the Overview and the KIT are designed to be read together.135 Requiring narrative-only risk of loss disclosure in the Overview is sufficient to flag this potential risk for investors because it will be immediately followed by the KIT, which will require the numeric risk of loss disclosure.136 Although one commenter suggested we require numeric disclosure in the Overview rather than the KIT, as discussed further 134 See OIAD Investor Testing Report at Section 5, Qualitative Testing (qualitative interviews suggested confusion with RILA terms and concepts relating to, for example, loss limiting features such as buffers). 135 CAI Comment Letter. 136 Final Form N–4, Instructions 2(a) and 3(a) to Item 3. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 below, the brevity of the numeric disclosure is well suited to the KIT.137 Some commenters sought clarification regarding whether our proposal to require insurers to disclose guaranteed minimum limits on index losses or gains effectively seeks to impose a substantive requirement for insurance companies to offer minimum limits.138 One commenter asked whether a prospectus for a contract that does not offer minimum limits may omit the proposed disclosure.139 The proposal— and the final amendments we are adopting—are designed to result in clear disclosure of minimum limits that are an inherent feature of the contract, not to dictate contract terms or prescribe specific minimum limits. For downside protection, we understand some RILA issuers may not offer index-linked options with minimum limits on index losses that will always be available under the contract. Because downside protection is one of the chief selling points for index-linked options, a particular RILA not offering minimums on index losses that will always be available under the contract is material information that must be prominently disclosed in the prospectus. Without downside protection, investors are at risk of losing their entire investment due to poor index performance. And without a minimum rate of downside protection that will always be available under the contract, an investor is considering making a long-term investment without certainty as to the amount of downside protection that will apply to future crediting periods. Likewise, without disclosing a minimum limit on index gains that will always be available under the contract, an investor would not know the extent to which investments in future index-linked options would result in credited interest when there is positive index return. To help ensure that investors have this information while also responding to comments requesting clarification, we are modifying the proposed requirement to disclose guaranteed minimums on index losses. Instead, the final amendments require the insurer to prominently disclose any minimum limits on index losses that will always be available under the contract, or, alternatively, prominently state that the insurer does not guarantee that the contract will always offer index-linked 137 CAI Comment Letter. See also infra footnote 174 and accompanying paragraph for related discussion. 138 CAI Comment Letter; VIP Working Group Comment Letter; Gainbridge Comment Letter. 139 VIP Working Group Comment Letter; Gainbridge Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations options that limit index losses.140 In addition, largely as proposed, we are adopting a requirement for insurers to disclose the minimum limits on index gains guaranteed for the life of the contract, with some changes to the proposed language to address commenters’ requests for clarification.141 These changes from the proposal are intended to clarify that this requirement is designed to seek disclosure on the minimum limit on index gains that will always be available under the contract for each type of limit offered. The final amendments also conform this disclosure requirement with our understanding of current practices and the nature of RILA investments—that is, while an insurance company may not offer loss protection, a RILA inherently involves some degree of participation in index gains. The insurance company therefore must disclose the minimum extent to which investors can participate in index gains under the contract. Specifically, the final rule will require the insurer to prominently state, for each type of upside limit being offered (e.g., cap, participation rate, etc.), the lowest limit on index gains that may be established under the contract.142 3. Key Information Table (Item 3) The KIT requirements in Form N–4 currently require a brief description of key facts about a variable annuity to appear in the prospectus, in a specific sequence and in a standardized presentation.143 The KIT functions as an integral part of the layered disclosure in Form N–4 by identifying key considerations upfront, with more detail to follow later in the prospectus. We are adopting the final amendments generally as proposed with modifications to address comments we received. As proposed, we are requiring that insurance companies provide a KIT in registration statements relating to RILA offerings, as is currently done with variable annuities, and in a modification from the proposal are extending this requirement to offerings of registered MVA annuities.144 We are adopting amendments to the current KIT requirements to highlight key features of non-variable annuities, with some modifications from the proposal in response to comments. These amendments are informed by investor testing and are designed to build on the existing KIT disclosure framework and highlight important considerations related to non-variable annuities, including certain aspects of RILAs that our investor testing observed are 59995 difficult for investors to understand and thus require clear disclosure in order to help investors make informed investment decisions.145 In addition, as proposed, we are adopting amendments to the KIT that will apply to both nonvariable and variable annuities that are designed to provide investors with a better understanding of these products. Commenters generally supported the proposed requirement that insurance companies provide a KIT in RILA registration statements.146 Comments on the proposed amendments affecting the KIT’s specific format and disclosure requirements, however, were mixed.147 One commenter supported the proposed amendments to the KIT.148 This commenter stated that the disclosure required to appear in the KIT provides investors with a complete picture of RILA risks in a prominent place. In contrast, other commenters supported a portion of the proposed amendments to the KIT but also opposed certain of the proposed amendments, as discussed further below.149 Commenters suggested that, should the Commission extend the use of Form N–4 to registered MVA annuities, their comments would also apply to disclosures related to those securities, to the extent applicable.150 The overall format of the final KIT is depicted below: TABLE 4—KEY INFORMATION TABLE AS ADOPTED Fees, Expenses, and Adjustments: Are There Charges or Adjustments for Early Withdrawals? Are There Transaction Charges? Are There Ongoing Fees and Expenses? Risks: Is There a Risk of Loss from Poor Performance? Is this a Short-Term Investment? What Are the Risks Associated with the Investment Options? What are the Risks Related to the Insurance Company? Restrictions: Are There Restrictions on the Investment Options? 140 Final Form N–4, Item 2(b)(2)(iii). Form N–4, Item 2(b)(2)(iv) would have required insurers to ‘‘[d]isclose the minimum limit on Index gains guaranteed for the life of the Contract for any Index-Linked Option,’’ whereas final Form N–4, Item 2(b)(2)(iv) will require insurers to ‘‘[p]rominently state, for each type of limit offered (e.g., cap, participation rate, etc.), the lowest limit on Index gains that may be established under the Contract.’’ 142 Final Form N–4, Item 2(B)(2)(iv). We are requiring parallel disclosure in other Items of final Form N–4 relating to disclosure of minimum limits on index losses and/or gains that will always be available under the contract. See also final Form N– 4, Item 1(a)(6); Item 5(a); Item 6(d)(2)(i)(B); and Item 17(b). ddrumheller on DSK120RN23PROD with RULES2 141 Proposed VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 143 For variable annuity issuers who rely on rule 498A to provide summary prospectuses to investors, the KIT currently appears as a disclosure item in the summary prospectus. 144 See final Form N–4, General Instruction B.1 and Instruction 1(a)–1(c) to Item 3. 145 See, e.g., OIAD Investor Testing Report at Section 5, Qualitative Testing (following two rounds of in-depth interviews to assess potential RILA KIT disclosure for areas of confusion or misunderstanding, qualitative interviews suggested confusion with RILA terms and concepts relating to, for example, contract adjustments such as interim value adjustments and loss limiting features such as buffers); OIAD Investor Testing Report at Section 6, Quantitative Testing, Results, Subgroup Analysis (noting 5.7 percentage point effect of the Q&A KIT structure on overall comprehension for ‘‘noninvestors’’ during quantitative testing). PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 146 See, e.g., Gainbridge Comment Letter (stating that the KIT requirement for RILA issuers will allow investors to readily compare RILAs to each other and to variable annuities); Better Markets Comment Letter (stating that a RILA-tailored KIT is key to helping investors understand the RILA-specific risks presented to them). 147 See, e.g., Better Markets Comment Letter; CAI Comment Letter. 148 See Better Markets Comment Letter. 149 See CAI Comment Letter (stating that the SEC has generally struck the correct balance in the KIT, with some exceptions); ACLI Comment Letter (stating that it supports CAI’s comments and opposing the KIT amendments requiring a Q&A format and repetition of Overview disclosure). 150 See, e.g., CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 59996 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations TABLE 4—KEY INFORMATION TABLE AS ADOPTED—Continued Are There any Restrictions on Contract Benefits? Taxes: What Are the Contract’s Tax Implications? Conflicts of Interest: ddrumheller on DSK120RN23PROD with RULES2 How Are Investment Professionals Compensated? Should I Exchange My Contract? a. Formatting of the KIT Form N–4 currently prescribes format requirements for the KIT to enhance the readability and comparability of the disclosure.151 As proposed, we are adopting amendments to Form N–4 to require these current format requirements to apply to all offerings registered on Form N–4, including nonvariable annuity offerings.152 Specifically, the final amendments will require insurance companies to disclose required KIT information in the tabular presentation reflected in the instructions, in the order specified, without any modification or substitution with alternate terminology of the title, headings, and sub-headings for the tabular presentation, unless the instructions otherwise provide. Insurance companies will be permitted to exclude any disclosures (other than the title, headings, and sub-headings for this tabular presentation) in the KIT that are not applicable or modify any of the statements required to be included, so long as the modified statement contains comparable information. Insurance companies also will be required to provide cross-references to the location in the statutory prospectus where the subject matter is described in greater detail, and in the case of electronic versions of the prospectus, to make those references accessible either by direct electronic link or through equivalent methods or technologies, as required for variable annuity KIT disclosure. Insurance companies will include these cross-references adjacent to the relevant disclosure, either within the table row, or presented in an additional table column. All disclosures in the KIT should be short and succinct, consistent with the limitations of a tabular presentation. Commenters generally supported the application of the current KIT format requirements to RILA offerings.153 In 151 See current Form N–4, Instruction 1 to Item 2. 152 See final Form N–4, Instruction 1(a)–(c) to Item 3. 153 See Better Markets Comment Letter (expressing that the proposed KIT requirements VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 response to one of the Proposing Release’s requests for comment, one commenter stated that the KIT should continue to permit insurance companies to cross-reference relevant sections of the prospectus either within the applicable row of the KIT or as an additional column rather than requiring issuers to add a new column in the KIT labeled ‘‘Location in the Prospectus.’’ 154 We agree and are maintaining the current requirements for cross-reference location because staff, investors, and RILA issuers are familiar with these requirements, and investor testing did not identify any concerns with this aspect of the KIT.155 We are adopting, as proposed, three amendments to the KIT formatting and presentation requirements in Form N–4 that will apply to registration statements both for non-variable and variable annuities. These changes are designed to provide investors with a better understanding of these products and are informed in part by the results of investor testing. First, we are adopting, generally as proposed, a requirement that issuers present information in the KIT in a question-and-answer (‘‘Q&A’’) format.156 As a result of this change, the various line items of the KIT will be rephrased as questions (e.g., ‘‘Are There Charges or Adjustments for Early Withdrawals?’’ instead of ‘‘Charges for Early Withdrawals or Adjustments’’). The instructions will further require that, unless the context otherwise requires, issuers must begin the response with a ‘‘Yes’’ or ‘‘No’’ in bold text when answering a question presented in a given row of the KIT. present RILA risks in a format that investors will easily understand); CAI Comment Letter (stating that the proposed KIT presentation is similar to the presentation currently used by insurance companies for combination RILA/variable annuity offerings and that this presentation will work equally well for combination and standalone RILAs registered on Form N–4). 154 See CAI Comment Letter. 155 See generally Proposing Release at Section 1.C. 156 See final Form N–4, Instruction 1(d) to Item 3. PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 Comments on the Q&A format were mixed.157 One commenter expressed that the Q&A format may be helpful and more accessible to some investors but may also result in a less concise and simple KIT.158 Another commenter opposed the Q&A format on the grounds that it would result in more narrative responses, which would make comparisons between products more difficult for investors.159 This commenter favored retaining the current wording. After considering comments received, we are adopting the Q&A format generally as proposed, except for the Charges or Adjustments for Early Withdrawals and the Risks Related to the Insurance Company line items, each of which we discuss in further detail below. Rephrasing the current line items in a Q&A format should more effectively convey the KIT information to investors and will therefore help non-variable and variable annuity investors make informed investment decisions. As stated in the Proposing Release, the Q&A format should improve investor comprehension of non-variable annuityspecific topics based on the results of our quantitative investor testing.160 Because our investor testing showed that the Q&A format impacted overall comprehension more for non-investors than independent investors, the Q&A format should particularly improve comprehension for less-experienced investors.161 Because the KIT disclosures as amended continue to be brief by their nature, we anticipate that any negative impact the Q&A format 157 See ACLI Comment Letter; CAI Comment Letter. 158 See CAI Comment Letter. 159 See ACLI Comment Letter. 160 See Proposing Release at Section II.B.2. 161 See Proposing Release at n.78 and accompanying text. For purposes of investor testing, participants were classified into three groups: those with no investments in stocks, bonds, mutual funds, or other securities (non-investors); those with investments exclusively in retirement savings accounts (retirement only); and those with investments outside of retirement accounts (independent investors). See OIAD Investor Testing Report at Section 6, Quantitative Testing, Subgroup Analysis, Investor Status. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 may have on comparability or conciseness will be justified by the benefit that investors will gain from understanding complex non-variable annuity-specific information. Second, we are adopting, as proposed, amendments changing the order in which the KIT (Item 2 of current Form N–4) appears relative to the Overview of the Contract (Item 3 of current Form N– 4), as discussed above.162 Third, as proposed, we are deleting Form N–4’s general instruction stating that where the discussion of information required by the Overview of the Contract or KIT also responds to the disclosure requirements in other items of the prospectus, registrants need not include additional disclosure in the prospectus that repeats the information disclosed in the Overview of the Contract or the KIT.163 Comments on the deletion were mixed.164 One commenter stated that there is value in ‘‘strategically locating certain disclosures in multiple places to help investors.’’ 165 Another commenter opposed this deletion because it would lead to certain information appearing more than once in the prospectus.166 In administering Form N–4, we have observed that this instruction has led to confusion on the part of registrants. Moreover, as discussed above, the layered disclosure framework requires certain disclosure topics to be discussed in multiple locations.167 This framework is designed to help ensure both that the KIT contains key disclosures and that the more-detailed sections to which investors are directed contain all of the key information about the given topic.168 This approach is 162 See supra Section II.C.2. The current instructions to Form N–4 require that, notwithstanding 17 CFR 230.421(a), the KIT, Overview of the Contract, and Fee Table must be disclosed in the numerical order in which they appear in Form N–4. The final form changes this instruction to reflect the change in order. See final Form N–4, General Instruction C.3(a). The change in order will also apply to summary prospectus disclosure location under the final amendments to rule 498A. 163 See final Form N–4, General Instruction C.3(a). 164 See ACLI Comment Letter; CAI Comment Letter. 165 See CAI Comment Letter. 166 See ACLI Comment Letter. 167 See supra Section I.D.2. 168 For example, while both the KIT and Item 5 require disclosures about principal risks, the KIT currently expressly contemplates that more detailed information will be repeated later in the prospectus, specifically requiring registrants to provide crossreferences to the more detailed prospectus discussion. See current Form N–4, Instruction 1(b) to Item 2. This instruction remains unchanged in the KIT of the final Form N–4. See final Form N– 4, Instruction 1(b) to Item 3. Item 5 requires registrants to summarize the principal risks of the contract in one place, and was not intended to permit an insurance company to omit principal VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 particularly important for RILAs in light of the challenges our investor testing showed investors have in understanding these products, in that investors will see key disclosures in one place—the KIT— regardless of whether they review targeted sections of the prospectus. b. Fees, Expenses, and Adjustments Non-variable annuities typically have implicit fees, expenses, charges, and adjustments for early or mid-term withdrawals that can be confusing or surprising to investors. This was observed in our investor testing regarding RILAs.169 We anticipate that investors will benefit from tailored disclosure about certain unique features of a non-variable annuity’s fee and expense structure as described below to help them make informed decisions. Early Withdrawal Charges and Adjustments. The first line item in the ‘‘Fees, Expenses, and Adjustments’’ section of the amended KIT, ‘‘Are There Charges or Adjustments for Early Withdrawals?,’’ addresses surrender charges and contract adjustments. Because non-variable annuities may have surrender charges, we are adopting, as proposed, a requirement that insurance companies provide the existing KIT surrender charge disclosure in this first line item so that investors understand how surrender charges are assessed (e.g., that if they make a withdrawal within a specified period after their last premium payment, they may pay a significant surrender charge that will reduce the value of their investment).170 This disclosure must include the maximum surrender charge, the maximum number of years that a surrender charge may be assessed, and an example of the maximum surrender charge an investor could pay in dollars based on a $100,000 investment. In a change to the current form requirements, we also are requiring, as proposed, that insurance companies disclose that this loss will be greater if there is a negative contract adjustment, taxes, or tax penalties, to make clear that an investor may lose more than just the surrender charge upon an early withdrawal. We also are requiring specific disclosure on contract adjustments, which can result in investor losses if the risks from that section if those risks were also disclosed in the KIT. See Proposing Release at n.86 and accompanying text (‘‘The principal risks section is designed to provide a consolidated presentation of principal risks which can be crossreferenced by registrants to reduce repetition that might otherwise occur if the same principal risks are repeated in different sections of the prospectus.’’). 169 See supra Section I.D.1. 170 Final Form N–4, Instruction 2(a) to Item 3. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 59997 investor withdraws money from an investment option, or withdraws money from the non-variable annuity entirely, before the end of a specified period.171 We are adopting these requirements as proposed except that they will apply to contract adjustments applicable to registered MVA annuities as well as RILAs. Specifically, if the contract includes contract adjustments, the insurance company will be required to include a statement that if all or a portion of contract value is removed from an investment option or from the contract before the expiration of a specified period, the insurance company will apply a contract adjustment, which may be negative. This statement will include the maximum potential loss (as a percentage of the investment) resulting from a negative adjustment. The insurance company also will be required to provide an example of the maximum negative adjustment that could be applied (in dollars) assuming a $100,000 investment. We are also adopting, as proposed, a requirement that the insurance company provide a brief narrative description of the contract transactions subject to a contract adjustment (e.g., withdrawals, surrender, annuitization, etc.) as part of the response to this item to make clear to investors the range of transactions that could result in a contract adjustment. Commenters generally opposed one or more of the amendments to the early withdrawal charges line. One commenter specifically opposed the inclusion in the KIT of numeric maximum potential loss disclosure (as a percentage of an investment) due to a negative contract adjustment on the grounds that the KIT’s design would not provide adequate context for the disclosure and could therefore lead investors to believe that such losses are likely, even when the risk of loss is remote.172 This commenter suggested instead that the KIT should contain only narrative statements regarding the risk of loss. The commenter also opposed the inclusion in the KIT of this numeric loss disclosure because it is included in other parts of the prospectus. While we 171 Contract adjustments include adjustments made when amounts are removed prematurely from an index-linked option, often referred to as interim value adjustments, as well as adjustments made when amounts are removed prematurely from the contract, often referred to as market value adjustments. Thus, a specified period would include index-linked option crediting periods (which again, are typically referred to by insurance companies as ‘‘investment terms’’ or ‘‘terms’’), as well as any specified period relating to a market value adjustment. 172 See CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 59998 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations are adopting changes to this proposed disclosure elsewhere in the prospectus, we are adopting amendments to this first line item of the KIT as proposed.173 While we appreciate that this disclosure appears elsewhere in the prospectus, including the numeric maximum potential loss disclosure in the KIT in particular is appropriate because the brevity of numeric disclosure and its effectiveness in communicating this key risk of loss is well suited for the KIT. In this regard, the KIT was designed to ‘‘provide a brief description of key facts’’ and be ‘‘easy to read and navigate.’’ 174 Further, additional context for the numeric disclosure will be provided by cross-references to other parts of the prospectus.175 As discussed above,176 the inclusion of numeric loss disclosure in both the KIT and elsewhere in the prospectus is consistent with a layered disclosure approach and is designed to help investors make more informed investment decisions. Also, as discussed above, the form does not prevent the insurance company from providing additional appropriate context.177 One commenter suggested that the example of the maximum negative adjustment that could be applied (in dollars) assuming a $100,000 investment should not be required if the maximum potential loss (as a percentage of an investment) due to a negative adjustment is retained.178 This commenter expressed that, where the percentage maximum potential loss is 100% under a RILA, a typical investor would understand the dollar amount associated with that loss and would not need the example. We are retaining this example because it illustrates how an investment can be impacted by a negative contract adjustment in dollar 173 See supra Section II.C.2. VASP Adopting Release at paragraph following n.106. 175 See final Form N–4, Instruction 1(b) to Item 3. 176 See supra Sections III.A.2, II.C.1, and II.C.2 (discussing numeric loss disclosure in the context of the prospectus’s layered disclosure approach, cover page, and Overview, respectively). 177 See supra Sections II.C.1, and II.C.2. 178 See CAI Comment Letter. The instructions to this line item provide an example of this disclosure that includes the statement that the loss ‘‘will be greater if you also have to pay a surrender charge, taxes, and penalties.’’ One commenter recommended that, if the Commission does require an example of maximum negative adjustments, the Commission should ensure that the form instructions do not require insurance companies to state or imply that the loss could be greater than 100% due to other factors, such as surrender charges. See CAI Comment Letter. The language in the form relating to greater losses due to these other factors is an example provided in a specific context, and insurance companies will not be required to make this disclosure where it is not correct. ddrumheller on DSK120RN23PROD with RULES2 174 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 figures, which may be more salient to some investors than a percentage. One commenter stated that requiring disclosure relating to interim value adjustments under the ‘‘Fees and Expenses’’ heading is inappropriate because interim value adjustments are not fees but are instead the approximate fair market value of the investments underpinning the RILA.179 We are retaining negative contract adjustment disclosure under the heading of the KIT that addresses fees and expenses. Interim value adjustments operate like an implicit fee in that they have a similar impact on an investor as an explicit fee or expense by decreasing the amount of an investor’s investment. Further, including information about interim value adjustments under this heading may aid investors’ understanding of their potential effects since investor testing showed that investors struggled to understand the concept of interim value adjustments in general.180 To address the commenter’s concern that the disclosure could imply that a contract adjustment is a conventional fee or expense, we have renamed this section of the KIT ‘‘Fees, Expenses, and Adjustments’’ and changed the question in the left-hand column of the early withdrawal charges and adjustments line item to read ‘‘Are There Charges or Adjustments for Early Withdrawals?’’ (italics indicating text in final Form N–4 that has been added to the proposed text).181 Transaction Charges. The second line item in the ‘‘Fees, Expenses, and Adjustments’’ section of the amended KIT, ‘‘Are There Transaction Charges?,’’ will require registrants to disclose that the investor may also be charged for other transactions in addition to surrender charges (and now contract adjustments), along with a brief narrative description of the types of such charges (e.g., front-end loads, charges for transferring cash value between investment options, etc.).182 This line item is designed to provide a simple narrative description to alert investors that surrender charges and contract adjustments are not the only charges they could pay when they engage in certain contract transactions. We did not receive comments on this line item, and we are adopting these requirements as proposed. Ongoing Fees and Expenses. The third line item in the ‘‘Fees, Expenses, and VIP Working Group Comment Letter. OIAD Investor Testing Report at Section 5, Qualitative Testing. 181 See also infra Section II.C.6.a (regarding similar changes relating to the transaction expense table). 182 Final Form N–4, Instruction 2(b) to Item 3. PO 00000 179 See 180 See Frm 00022 Fmt 4701 Sfmt 4700 Adjustments’’ section, ‘‘Are There Ongoing Fees and Expenses?,’’ is designed to alert investors that they will bear recurring fees on an annual basis. This item currently requires the insurance company to disclose (1) a minimum and maximum annual fee table and (2) a lowest and highest annual cost table, both along with applicable legends.183 We are adopting amendments requiring insurance companies to provide this disclosure with respect to RILAs, as proposed, and registered MVA annuities, in a change from the proposal.184 We also are adopting, largely as proposed, amendments requiring that, where a contract imposes limits on gains on the amount an investor can earn on an index-linked option, insurance companies must disclose that they impose these limits on gains and that they can act as an implicit ongoing fee.185 Specifically, insurance companies must disclose that: (1) there is an implicit ongoing fee on index-linked options to the extent that an investor’s participation in index gains is limited by the insurance company through the use of a cap, participation rate, or some other rate or measure; (2) this means that the investor’s returns may be lower than the index’s returns; (3) in return for accepting this limit on index gains, an investor will receive some protection from index losses; and (4) this implicit ongoing fee is not reflected in the tables below. In a change from the proposal, we are modifying the first statement to provide that there is an implicit ongoing fee on index-linked options to the extent that an investor’s participation in index gains is limited by the insurance company through the use of a cap, participation rate, or some other rate or measure.186 In another change from the proposal, insurance companies will be required to provide both a statement to the effect that this implicit fee means that the investor’s returns may be lower 183 See current Form N–4, Instruction 2(c) to Item 2. The minimum and maximum annual fee table requires a tabular description of the fees and expenses that an investor may pay each year, depending on the investment options chosen. This includes minimum and maximum percentages for: base contract fees; portfolio company fees and expenses; and optional benefits available for an additional charge. The lowest and highest annual cost table requires a tabular description of the lowest and highest cost an investor could pay each year, based on current charges and a set of standardized assumptions (e.g., $100,000 investment and 5% annual appreciation). 184 See final Form N–4, Instruction 2(c) to Item 3. 185 See final Form N–4, Instruction 2(c)(i)(G) to Item 3. 186 See final Form N–4, Instruction 2(c)(i)(G) to Item 3 (emphasis added); see proposed Form N–4, Instruction 2(c)(i)(G) to Item 3. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 than the index’s returns and also a statement that the implicit fee is not reflected in the fee and cost tables. This disclosure replaces the proposed statement that the limit on index gains helps the insurance company generate a profit on the index-linked option, as we discuss in more detail later in this section of the release. As proposed, the disclosure will be required to precede the minimum and maximum fee table if the contract offers index-linked options and imposes ongoing fees and expenses. Also as proposed, in the case of a contract that offers an index-linked option subject to limits on gains but does not impose any explicit ongoing fees or expenses under the contract, the insurance company will include the disclosure in lieu of such tables.187 That is, the disclosure will take the place of the fee and cost tables rather than precede them. Where there are no explicit ongoing fees, minimum and maximum annual fee and cost tables showing zero fees would tend to mislead investors because an indexlinked option imposing limits on gains has implicit fees inherent in limiting upside index participation. The substance of the required disclosure will be largely the same as the disclosure discussed above but will not include the statement that the ‘‘implicit ongoing fee is not reflected in the tables below’’ since no tables will follow this disclosure.188 Lastly in this line item, we are adopting, as proposed, amendments revising the last sentence in the required legend in the lowest and highest annual cost table to include the italicized language: ‘‘This estimate assumes that you do not take withdrawals from the Contract, which could add surrender charges and negative Contract Adjustments that substantially increase costs.’’ 189 This will further alert investors to the cost impact of a contract adjustment if they withdraw money early. Commenters generally opposed one or more of the amendments to the Ongoing Fees and Expenses line item. One commenter expressed concerns that excluding disclosures of any ongoing fees that may be implicit to index-linked options in the KIT, but requiring 187 See final Form N–4, Instruction 2(c)(iii) to Item 3; see proposed Form N–4, Instruction 2(c)(iii) to Item 3. 188 See final Form N–4, Instruction 2(c)(iii) to Item 3. The proposed disclosure in lieu of the tables was identical to the proposed disclosure preceding the tables. See proposed Form N–4, Instruction 2(c)(iii) to Item 3. 189 See final Form N–4, Instruction 2(c)(ii)(A) to Item 3. Currently, this legend only refers to surrender charges, not negative contract adjustments. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 variable options to disclose ongoing fees, could result in disparate treatment of these two types of annuities. Specifically, the commenter stated that this will produce unequal disclosure between the two products, which would not be appropriate in light of the similar profit margins to insurance companies generated by the fees.190 The commenter did not suggest a specific alternative approach to quantify and disclose these implicit costs. We requested comment on whether it would be appropriate to develop a standardized methodology or calculation for accurately determining these costs.191 Two commenters raised challenges with accurately determining these types of costs.192 After considering comments regarding the challenges, we are not requiring numeric disclosure of implicit ongoing index-linked fees, but continue to welcome feedback from market participants and others on the feasibility of establishing a standardized approach to disclose these implicit fees. One commenter assumed the Commission intended that the lowest and highest annual cost table would only be disclosed in registration statements relating to variable options because the table’s instructions reference ‘‘portfolio company fees and expenses,’’ which are relevant only to variable options.193 The commenter therefore suggested that we amend the instructions to clarify that the table should be omitted if a prospectus is not offering variable options, and suggested that we not include references to ‘‘negative Contract Adjustments’’ in the legend preceding the table because variable options are not subject to contract adjustments. This table is not intended to be limited to variable options but rather applies to all investment options where ongoing fees are charged. While non-variable options sometimes do not have explicit ongoing fees, where ongoing fees are charged in connection with a non-variable option, they must be disclosed in this table. In addition, if the contract does not have a contract adjustment, insurance companies should revise the legend accordingly. Similarly, insurance companies would not include references to portfolio company fees and expenses in the minimum and maximum annual fee table and the assumptions in the lowest and highest annual cost table if the contract does not offer variable options. VIP Working Group Comment Letter. e.g., Proposing Release at request for comment number 48. 192 See ACLI Comment Letter; CAI Comment Letter. 193 See CAI Comment Letter. PO 00000 190 See 191 See, Frm 00023 Fmt 4701 Sfmt 4700 59999 Some commenters opposed one or more of the required statements describing implicit fees.194 Some of these commenters believed describing insurance company limits on the amount an investor can earn in a RILA as an ‘‘implicit ongoing fee’’ is inaccurate.195 One commenter viewed such limits as factors that contribute to the pricing of RILA contracts.196 Other commenters stated that these limits may not be triggered to actually limit an investor’s credited interest.197 These commenters expressed that, for indexlinked options with caps, if index returns are positive and less than the cap, there is no limitation on an investor’s credited interest, and for index-linked options with participation rates, there is often no upper limit on the credited interest even though the investor may receive only a percentage of the index return as credited interest. We also received comments that characterizing limits on credited interest as fees could confuse investors about how RILAs operate because investors understand fees as money collected from them, but a limit on credited interest is not money collected from investors.198 One commenter stated that these limits are not like fees as they are not applied in all circumstances, such as when an index’s returns are below these limits, and thus act more like an opportunity cost rather than like a fee.199 While contractual limits placed on an investor’s gains, such as a cap rate or participation rate, are not fees or charges in a conventional sense, these limits can have the effect of reducing investment returns (e.g., where the index outperforms a cap or a participation rate is less than 100%).200 As a result, it is appropriate to characterize these contractual limits as ongoing implicit fees given they have the same impact on investors. We recognize, however, that these contractual limits may not act to reduce an investor’s credited interest in any given case. Accordingly, after considering comments, we are modifying the proposed statement that the imposition of limits on gains will act as an implicit ongoing fee. Instead, we 194 See ACLI Comment Letter; CAI Comment Letter; Gainbridge Comment Letter. 195 See ACLI Comment Letter; CAI Comment Letter. 196 See Gainbridge Comment Letter. 197 See ACLI Comment Letter; CAI Comment Letter. 198 See ACLI Comment Letter; Gainbridge Comment Letter. 199 See CAI Comment Letter. 200 Dodie C. Kent and Ronal Coenen, Jr., Variable Annuities and Other Insurance Investment Products (Third Edition), Registered Index-Linked Annuity Contracts (‘‘Kent and Coenen’’) at sec. 29:2.2. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60000 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations are requiring disclosure that there is an implicit ongoing fee on index-linked options to the extent that an investor’s participation in index gains is limited by the insurance company through the use of a cap, participation rate, or some other rate or measure. The addition of the qualifying language ‘‘to the extent’’ is designed to communicate to investors that a contractual limit acts as an implicit fee once it is triggered, but not before. After considering comments, we have determined that describing these limits as involving an implicit ‘‘fee’’ communicates the concept of reducing an investor’s credited interest more effectively than ‘‘potential opportunity cost,’’ as suggested by a commenter, which is a less concrete concept and therefore potentially more confusing for investors. Moreover, the modification discussed above regarding when these limits on gains will reduce an investor’s credited interest, together with the characterization of the effect of these limits on gains as acting as an ‘‘implicit’’ ongoing fee, also will make clear these limits can have an effect akin to that of a fee. Some commenters opposed requiring insurance companies to disclose that limiting the amount an investor can earn on an index-linked option helps the insurance company make a profit on the option.201 These commenters stated that they believe the statement is misleading because insurance companies generate profit in other ways (or in other ways in addition to the limits), including through the use of derivative instruments. One commenter indicated that, even though other registered securities products generate revenue, not every form requires information about how revenue and profit is generated.202 After further consideration, we are not adopting the profit statement because the two replacement statements discussed above in this section more clearly explain to investors how limits on index gains may decrease the amount earned on a contract. Specifically, the final disclosure alerts investors to opportunity costs associated with a contract by illustrating that limits can result in lower returns for investors as compared to the contract’s underlying index. Further, alerting investors that the implicit fee is not reflected in the cost and fee tables is designed to help investors understand that the explicit ongoing fees that are reflected in these tables do not fully capture the complete 201 See ACLI Comment Letter; CAI Comment Letter; Gainbridge Comment Letter. 202 See ACLI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 costs that investors may incur under the contract. One commenter opposed the amendments requiring insurance companies to disclose that in return for accepting a limit on index gains, an investor will receive some protection from index losses.203 This commenter expressed that limits on gains sometimes do not actually limit an investor’s credited interest, but an investor nevertheless receives protection from losses and, in such scenarios, characterizing the protection from index loss as received in exchange for accepting a limit on gains is inaccurate. We are including the ‘‘in return for’’ statement in the disclosure as proposed. An investor that accepts a limit on index gains in the form of a crediting rate (e.g., a cap) and also receives some downside protection from index losses (e.g., a buffer) is receiving the protection in exchange for accepting the limit, even if the limit is never triggered and therefore does not decrease the investor’s credited interest. RILA industry experts have made similar statements.204 c. Risks Risk of Loss. We are adopting amendments to the instructions to the line item entitled ‘‘Is There a Risk of Loss from Poor Performance?’’ with some modifications from the proposal. Form N–4 currently requires disclosure on risk of loss in connection with variable options, and we proposed to extend this risk of loss requirement to index-linked options. As proposed, insurance companies will be required to state, in the context of both index-linked or variable options, that an investor can lose money by investing in the contract. Index-linked options, like variable options, are subject to the risk of investment loss from poor performance.205 In a change from the proposal, we are adopting amendments to provide that, if an annuity contract offers an index-linked option, the insurance company must disclose, as a percentage, the maximum amount of loss an investor could experience from negative index performance after taking into account the current limits on index id. Dodie C. Kent and Ronald Coenen Jr., The Design and Regulatory Framework of Registered Index-Linked Annuities, ALI CLE Conference on Life Insurance Products 2022 (stating that the potential limit on upside performance is the tradeoff that investors make for potential downside protection). 205 MVA options, which provide a fixed rate of interest (subject to an MVA), are not subject to the risk of loss from poor performance, and therefore would not be required to provide this disclosure. PO 00000 203 See 204 See Frm 00024 Fmt 4701 Sfmt 4700 loss provided under the contract.206 The proposal required disclosure of maximum loss from negative index performance after taking into account the minimum guaranteed limit on index loss. In another change from the proposal, the instructions will specify that an insurance company may give a range of the maximum amount of loss if the contract offers different limits on index loss. Also in a change from the proposal, an insurance company will be required to either prominently disclose the minimum limit on index loss that will always be available under the contract or, alternatively, prominently state that the insurance company does not guarantee that the contract will always offer index-linked options that limit index loss, which would mean risk of loss of the entire amount invested. These amendments are designed to make clear to investors that they can still lose money even though indexlinked options typically include features designed to limit investment loss, and that the level of downside protections currently offered may change in the future. One commenter raised concerns about the inclusion of the numeric maximum amount of loss an investor could experience from negative index performance as part of this line item.207 Our views on the utility and efficacy of including numeric risk of loss disclosure in the prospectus generally are discussed above.208 We continue to believe that this disclosure is appropriate for the KIT and are specifically retaining the numeric maximum amount of loss an investor could experience from negative index performance under the Risks heading because the maximum loss that an investor may experience due to negative index performance is a key risk associated with index-linked options. Flagging this risk in the KIT under this heading is consistent with the KIT’s mandate to ‘‘provide a brief description of key facts’’ to investors in a way that is ‘‘easy to read and navigate.’’ 209 We are adopting amendments to the instruction to this line item to specify that an insurance company may provide a range of the maximum amount of loss.210 Permitting the insurance company to provide a range of losses allows the insurance company to reflect the range of loss protection offered 206 See final Form N–4, Instruction 3(a) to Item 3. CAI Comment Letter. 208 See supra footnotes 105–106 and accompanying paragraph. 209 See VASP Adopting Release at paragraph following n.106. 210 See final Form N–4, Instruction 3(a) to Item 3. 207 See E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations under the contract.211 We also are adopting amendments requiring that an insurance company either disclose the minimum limit on index loss that will always be available under the contract or state that the insurance company does not guarantee that the contract will always offer index-linked options that limit index loss. As discussed above, this disclosure is designed to inform investors as to how the downside protections that are currently offered may change in the future, including disclosure of any minimum guaranteed limits that will always be available under the contract. Permitting the insurance company to provide a range of losses allows the insurance company to reflect the range of loss protection offered under the contract, and basing the disclosure on current limits address commenter concerns that not all RILAs guarantee a particular level of downside protection that will always be available under the contract, as discussed above.212 Short-Term Investment. The second line item under the Risks heading, which under the final amendments to Form N–4 will be titled ‘‘Is this a ShortTerm Investment?,’’ currently requires a statement that the contract is not a short-term investment and is not appropriate for an investor who needs ready access to cash, along with a brief explanation. This statement and an accompanying brief explanation is equally applicable to non-variable annuities. We therefore are requiring insurance companies to provide this disclosure as proposed for RILAs and, in a change from the proposal, for registered MVA annuities.213 We also are amending this item, as proposed, to require insurance companies to state that (1) amounts withdrawn from the contract may result in surrender charges, taxes, and tax penalties; and (2) if applicable, that amounts removed from an investment option or the contract before a specified period may also result in a negative contract adjustment and loss of positive index performance.214 These disclosures are designed to make clear to investors some of the key reasons why these investments are not short-term investments. They are particularly 211 See supra Section II.C.1. supra Section II.C.1; see also CAI Comment Letter; VIP Comment Letter (discussing proposed minimum guaranteed rate disclosure in Items 6 and 1, respectively). 213 See final Form N–4, Instruction 3(b) to Item 3. 214 In a change from the proposal, we are replacing ‘‘index-linked option’’ with ‘‘investment option’’ to convey contract adjustments are associated with other types of investment options in addition to index-linked options. important for an investor considering an annuity in light of the potential negative consequences if the investor withdraws money early from a particular investment option or the contract. We are not limiting these disclosures to contracts with index-linked options, because these disclosures may be equally material for other investment options. We also are adopting, as proposed, new risk disclosure for investment options that mature at the end of a specific period that will require issuers offering such options to state that contract value will be reallocated at the end of the crediting period according to the investor’s instructions, and to disclose the default reallocation in the absence of such instructions.215 We received one comment on this portion of the proposal. The commenter opposed the amendments requiring issuers to state that the contract value will be reallocated at the end of the crediting period according to the investor’s instructions, and to disclose the default reallocation in the absence of such instructions.216 This commenter expressed that the required disclosure is not related to the risks of short-term investing. The commenter suggested that this disclosure be moved to the Overview of the Contract and that any restrictions on transfers not covered by the Overview of the Contract be moved to the KIT line item ‘‘Are There Restrictions on the Investment Options?’’. After considering comments on this amendment, we are adopting this amendment as proposed. This disclosure illustrates that even though investment options under the contract may mature at the expiration of a specified period, the annuity contract itself is not a short-term investment and amounts invested in such short-term options will be automatically reallocated to new investment options under the contract. The disclosure also illustrates liquidity risk by making the investor aware that the contract value in an index-linked option (or fixed investment option that matures at the expiration of a specified period) is not automatically disbursed to the investor or ‘‘liquid’’ at the end of a crediting period. This disclosure is particularly important in illustrating that RILAs are not short-term investments in light of ddrumheller on DSK120RN23PROD with RULES2 212 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 215 In a change from the proposal, the form now states that the risk disclosure is required for ‘‘investment options that mature at the end of a specified period. We proposed risk disclosure for ‘‘index-linked’’ options. We made this change to ensure that this requirement is applicable to MVA options in addition to index-linked options, in light of the addition of offerings of registered MVA annuities to the form. 216 See CAI Comment Letter. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 60001 the difficulty investors participating in investor testing had in understanding crediting periods.217 Risks Associated with Investment Options. The third line item under the Risk heading, ‘‘What are the Risks Associated with the Investment Options?’’, is intended to focus on the general risk of poor investment performance. Currently, the KIT requires the insurance company to state that: (1) an investment in the contract is subject to the risk of poor investment performance and can vary depending on the performance of the investment options available under the contract; (2) each investment option will have unique risks; and (3) the investor should review these investment options before making an investment decision. We are adopting, as proposed, conforming changes to the required statement to refer to index-linked options now that RILAs are included on Form N–4.218 Largely as proposed, but with some modifications in response to comments, we are adopting amendments requiring insurance companies to provide additional information about any indexlinked options offered under the contract to highlight how the insurance company limits the investor’s participation in gains and losses of the index.219 For the risk of limited upside, as proposed, the insurance company will be required to (1) state that the cap, participation rate, or some other rate or measure, as applicable, will limit positive index returns (e.g., limited upside), (2) provide an example for each type of limit imposed under the contract (e.g., ‘‘if the Index return is 12% and the cap rate is 4%, we will credit 4% in interest at the end of the Crediting Period’’), and (3) prominently state that this may result in the investor earning less than the index’s return. For the risk of limited protection in the case of market decline, largely as proposed, the insurance company will be required to: (1) state that the floor, buffer, or some other rate or measure, as applicable, will limit negative index returns (e.g., limited protection in the case of market decline); and (2) provide an example for each type of limit imposed under the contract (e.g., ‘‘if the Index return is ¥25% and the buffer rate is –10%, we will credit ¥15% (the amount that exceeds the buffer rate) at the end of the crediting period’’). In a change from the proposal, and in response to comments as discussed below, we are not requiring 217 See OIAD Investor Testing Report at Section 5, Qualitative Testing, Results from Round 1. 218 See proposed Form N–4, Instruction 3(c) to Item 3. 219 See generally final Form N–4, Instruction 3(c) to Item 3. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60002 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations the inclusion of a statement that, even after limiting a negative index return, investors could still lose up to XX% of their investment. However, in a change from the proposal and in response to comments as discussed below, we are adding a requirement that insurance companies disclose, if applicable, that an index is a ‘‘price index,’’ not a ‘‘total return index,’’ and therefore does not reflect dividends paid on the securities composing the index, or the index deducts fees and costs when calculating index performance, either of which will reduce the index return and will cause the index to underperform direct investment in the securities composing the index. Comments on the proposed amendments to this line item were mixed. One commenter opposed the requirement that insurance companies disclose examples of each type of limit imposed on an investor’s participation in gains and losses of the index.220 This commenter stated that this information unnecessarily repeated similar disclosure required in the Overview of the Contract. We are retaining these numeric examples because, regardless of this disclosure’s appearance elsewhere in the prospectus, the KIT is designed to flag key considerations for the investor in one location in a concise and succinct manner. In this regard, numeric disclosure is particularly effective at conveying risks in a concise and succinct manner and thus is particularly effective in the KIT. The numeric examples are designed to highlight that each index-linked option will have unique risks. The examples highlight one of the central economic tradeoffs of index-linked options: that an investor will sacrifice the potential for returns if the index goes up in exchange for some protection from loss if the index goes down. Illustrating economic consequences of limits in a numeric example is a concrete and thus effective way of communicating certain key considerations about index-linked options that investor testing specifically showed were difficult for investors to understand.221 However, in consideration of comments received, we are adopting a change from the proposal to reduce the discussion of the same or similar topics in multiple locations, where this reduction could be made appropriately while continuing to promote the goal of highlighting key information about RILAs and enhancing understanding of RILA features and 220 See CAI Comment Letter. had difficulty understanding buffers, among other things. See supra paragraph accompanying footnote 38. 221 Investors VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 risks. Specifically, we are not including the proposed requirement that a RILA issuer would have to prominently state that ‘‘even after limiting a negative index return, the investor could still lose up to XX% of their investment,’’ as this disclosure is already required under the Risks heading in the context of the ‘‘Is There a Risk of Loss from Poor Performance?’’ line item.222 We received comments suggesting that the difference between a ‘‘price return index’’ and a ‘‘total return index’’ is not currently adequately disclosed to RILA investors.223 The performance of a RILA is based on the performance of an index (such as the S&P 500) or another benchmark. The performance of a ‘‘price return index’’ is typically lower than that of a ‘‘total return’’ index because a price return index does not reflect dividends.224 Two commenters expressed that RILA investors may be misled by index-linked options that use a ‘‘price return index’’ instead of a ‘‘total return index.’’ Specifically, one commenter stated that the ‘‘biggest drag’’ on the performance of RILAs and all indexed annuities is the use of a price return index rather than a total return index and that current disclosures do not adequately explain the differences between the index types.225 This commenter expressed that disclosure explaining the differences between the two types of indexes is particularly important for index-linked options without upside or downside limits since investors may believe their upside potential is unlimited when, in fact, there is a limit in the form of a lower price return. The commenter also noted that with no apparent fees, indexlinked options may appear to be a better 222 See proposed Form N–4, Instruction 3(a) to Item 3 and final Form N–4, Instruction 3(c)(B) to Item 3. 223 See Comment Letter of Jason Lee (Oct. 30, 2023) (‘‘Lee Comment Letter’’); Johnson Comment Letter. 224 An index-linked option’s index is used to measure the amount the insurance company increases or decreases the value of the investment, but contract value allocated to an index-linked option is not invested directly in the index components. The indices associated with indexlinked options are often ‘‘price return’’ indices, and their performance is the difference in index value from the beginning of the term and the end of the term. For example, if the index had a price of $1,200 on the first day of the term and a price of $1,260 on the last day of the term, the price return would be 5% ((1,260–1,200)/1,200). Price return indices do not reflect dividends. This contrasts with an investor investing in an index through an index fund (or investing directly in the components of an index), where such an investment’s return would include dividends. Thus, the ‘‘price return’’ of an index is typically lower than the ‘‘total return’’ of an index and the performance of a ‘‘price return index’’ is typically lower than that of a ‘‘total return index.’’ 225 See Johnson Comment Letter. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 choice than an index fund, which has fees, without the investor understanding that an index fund will provide better upside potential in the form of a total return rather than a price return. Another commenter indicated that disclosure indicating that there are no ongoing fees associated with an indexlinked option that uses a price return index inaccurately suggests that the option is free except for surrender charges.226 After considering these comments, we agree that this disclosure is appropriate. Investors should be alerted to the fact that a price return index does not assume the reinvestment of dividends and thus will underperform a total return index and direct investment in securities underlying the index. Accordingly, in a change from the proposal, we are adding a requirement in the KIT that insurance companies disclose, if applicable, that an index is a ‘‘price return index,’’ not a ‘‘total return index,’’ and therefore does not reflect dividends paid on the securities composing the index, or the index deducts fees and costs when calculating index performance, either of which will reduce the index return and will cause the index to underperform direct investment in the securities composing the index.227 Insurance Company Risks. We are adopting the fourth line item under the Risk heading largely as proposed, with modifications to allow insurance companies to provide a narrative description of insurance-company related risks. Under the proposal, this line item would have been required to be preceded by the question, ‘‘Is There any Chance the Insurance Company Won’t Pay Amounts Due to Me Under the Contract?’’ The proposal would have required the insurance company to answer this question with a ‘‘yes’’ or ‘‘no’’ answer. As under current Form N– 4, the proposed disclosure also would have required a statement to the effect that any obligations, guarantees, or benefits under the contract that may be subject to the claims-paying ability of the insurance company will depend on the financial solvency of the insurance company. In a change from the proposal, we are modifying the line item to state ‘‘What Are the Risks Related to the Insurance Company?’’ so that insurance companies may provide a narrative description of insurancecompany related risks. As proposed, and under current Form N–4, insurance companies will be required to include a 226 See 227 See Lee Comment Letter. final Form N–4, Instruction 3(c)(C) to Item 3. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 statement to the effect that any obligations, guarantees, or benefits under the contract that may be subject to the claims-paying ability of the insurance company will depend on the financial solvency of the insurance company.228 Further, as proposed and under current Form N–4, the insurance company will also be required either to provide its financial strength ratings or state, if applicable, that they are available upon request, and indicate how such requests can be made. We received one comment on this portion of the proposal.229 The commenter opposed the wording, ‘‘Is There any Chance the Insurance Company Won’t Pay Amounts Due to Me Under the Contract?,’’ expressing concerns that it will inflate the risks related to insolvency when paired with the required bolded ‘‘yes’’ response as compared to the actual risk of insolvency. This commenter expressed that it is rare for an insurer to fail to fulfill its contractual guarantees due to financial insolvency. Instead, the commenter suggested that the row question be changed to ‘‘What are the Risks Related to the Insurance Company?’’ to avoid the implication of high credit or counterparty risk. After considering this comment, we are retitling this line item in the KIT as described above and permitting a narrative response. Specifically, insurance companies will be directed, consistent with the current form and the proposal,230 to state in response to this line item that an investment in the contract is subject to the risks related to the insurance company, including that any obligations (including under any fixed options and index-linked options), guarantees, or benefits are subject to the claims-paying ability of the insurance company and that more information about the insurance company, including if applicable its financial strength ratings, is available upon request with an indication of how such requests can be made.231 In a modification from the proposal, we are changing the title of this line item so that the disclosure is not required to begin with a ‘‘yes’’ or ‘‘no’’ to avoid investors misunderstanding the possibility that amounts due will not be paid to investors due to insurance company 228 This disclosure requirement included conforming changes to current Form N–4 to address RILAs. See Proposing Release at n.105 and accompanying text. 229 See CAI Comment Letter. 230 While the current form refers to depositor, the substance of the required disclosure is the same as what is being adopted. 231 See Final Form N–4, Instruction 3(d) to Item 3. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 insolvency. A narrative response that need not begin with a simple ‘‘yes’’ addresses the actual risk of insolvency of a given insurance company, while avoiding investors misunderstanding the likelihood of an insurer becoming insolvent. d. Restrictions Investments. We are adopting, substantially as proposed, amendments requiring insurance companies to include the disclosure required by the first line item under the heading ‘‘Restrictions,’’ ‘‘Are There Limits on the Investment Options?’’ We are modifying the current item to require the insurance company to state whether there are any restrictions that may limit the investment options that an investor may choose, as well as any limitations on the transfer of contract value among investment options.232 As these limitations can exist for non-variable annuities as well as variable annuities, we are adopting this requirement as proposed. The disclosure requirement, which addresses restrictions relating to investment options generally, will apply to variable annuities, RILAs and registered MVA annuities (each of which will provide disclosure relevant to applicable investment options). Currently, the form also generally requires the insurance company to state that it reserves the right to remove or substitute portfolio companies as investment options, if applicable. Insurance companies typically reserve the right to change the index-linked options that are available under a contract as well as key features of available index-linked options. To alert investors that the available index-linked options and key terms of those indexlinked options may change in the future, we are adopting, as proposed, amendments to require the insurance company to state any reservation of its rights under the contract, including, if applicable, the right to (1) add or remove index-linked options; (2) change the features of an index-linked option from one crediting period to the next, including the changes to the index and the current limits on gains and limits on index losses (subject to any contractual minimum guarantees); and (3) substitute the index of an index-linked option 232 See final Form N–4, Instruction 4(a) to Item 3. The current item requires the insurance company to state whether there are any restrictions that may limit the investments that an investor may choose, as well as any limitations on the transfer of contract value among portfolio companies. Consistent with the corresponding changes made to defined terms, we are also specifying that this item applies to any investment option, not just the portfolio companies available as investment options under a variable option. See infra Section II.B.8.b. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 60003 during its crediting period. We are also adopting, as proposed, amendments to require that insurance companies disclose any right to stop accepting additional purchase payments, which may be significant to investors given the impact this reservation can have on investors’ ability to accumulate contract value for retirement, grow the death benefit, and increase optional benefit values. We did not receive comments on any of these amendments. Contract Benefits. The second line item under ‘‘Restrictions,’’ ‘‘Are There any Restrictions on Contract Benefits?’’ requires a statement about whether there are any restrictions or limitations relating to benefits offered under the contract, and/or whether a benefit may be modified or terminated by the insurance company. It also requires a statement that withdrawals that exceed limits specified by the terms of a contract benefit may affect the availability of the benefit by reducing the benefit by an amount greater than the value withdrawn and/or could terminate the benefit. As proposed, we are broadening this item to include disclosure on restrictions or limitations relating to any benefit under the contract, not just optional benefits (as currently required). While a benefit under the contract might be characterized as standard (i.e., not ‘‘optional’’), it could have restrictions that should be disclosed in the KIT because of the benefit’s importance to the investor’s rights under the contract, such as a proportionate withdrawal calculation under a standard death benefit.233 We are requiring insurance companies to include this disclosure for RILAs, as proposed, and also registered MVA annuities in a modification from the proposal, because the disclosure is equally applicable to those annuities as it is to variable annuities. We did not receive comments on proposed amendments to this line item. e. Taxes We also are adopting, as proposed, amendments requiring insurance companies to include the line item under the heading ‘‘Taxes,’’ ‘‘What are the Contract’s Tax Implications?’’ 234 This line item is designed to alert investors to the tax implications of variable contracts and as amended, of non-variable annuities. This line item currently requires a statement that an 233 See final Form N–4, Instruction 4(b) to Item 3. Similarly, we are adopting, as proposed, a change to the discussion in the Overview about contract features that will broaden that discussion to cover both optional and standard contract benefits. See final Form N–4, Item 2(c). 234 See final Form N–4, Instruction 5 to Item 3. E:\FR\FM\24JYR2.SGM 24JYR2 60004 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 investor should consult with a tax professional to determine the tax implications of an investment in, and purchase payments received under, the contract. The insurance company must also state that there is no additional tax benefit to the investor if the contract is purchased through a tax-qualified plan or individual retirement account (‘‘IRA’’), and that withdrawals will be subject to ordinary income tax and may be subject to tax penalties. We are applying this requirement to nonvariable annuities because the same tax considerations apply. We did not receive comments on the proposed amendments to this line item. f. Conflicts of Interest Investment Professional Compensation. We are requiring, as proposed, insurance companies to include the first line item under the heading ‘‘Conflicts of Interest,’’ ‘‘How are Investment Professionals Compensated?’’ 235 This current line item for variable contracts is designed to alert investors to the existence of compensation arrangements for investment professionals and the potential conflicts of interest arising from these arrangements. It requires issuers to disclose that an investment professional may be paid for selling the contract to investors. An issuer must describe the basis upon which such compensation is typically paid (e.g., commissions, revenue sharing, compensation from affiliates and third parties). An issuer also must state that investment professionals may have a financial incentive to offer or recommend the contract over another investment. The same compensation arrangements and potential conflicts are relevant for non-variable annuities, and we therefore are requiring an insurance company registering a non-variable annuity to provide the same disclosure. We did not receive comments on these amendments. Exchanges. We are requiring, as proposed, insurance companies to include the second line item under the heading ‘‘Conflicts of Interest,’’ ‘‘Should I Exchange My Contract?’’ 236 This current line item for variable contracts is designed to alert investors to potential conflicts of interest that may arise from contract sales that stem from exchanges. It requires issuers to state that some investment professionals may have a financial incentive to offer a new contract in place of the one owned by the investor. An issuer must further 235 See 236 See final Form N–4, Instruction 6(a) to Item 3. final Form N–4, Instruction 6(b) to Item 3. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 state that investors should only exchange their contract if they determine, after comparing the features, fees, and risks of both contracts, that it is preferable to purchase the new contract rather than continue to own the existing contract. These same considerations apply to an investor considering an exchange involving a non-variable annuity. In a change that will apply to variable and non-variable annuities, and to put investors on notice that there may also be costs or charges associated with terminating an existing contract, we are also requiring, as proposed, that issuers disclose in this legend that investors should consider any fees or penalties to terminate the existing contract in considering whether to exchange a contract. We did not receive comments on these amendments. 4. Principal Disclosure Regarding IndexLinked Options and MVA Options (Items 6 and 17) We are adopting amendments to Form N–4 to provide investors with the principal disclosures regarding indexlinked options, largely as proposed, and MVA options, in a modification from the proposal, available under the contract, as required in two items of the form. First, investors will be provided with detailed information about the index-linked options and MVA options available under the contract in Item 6 (Description of the Insurance Company, Registered Separate Account, and Investment Options). In addition, investors will be provided with a summary information table, with legends highlighting risks, that outlines the available index-linked options and MVA options in Item 17 (Investment Options Available Under the Contract). These amendments build on the existing disclosure requirements in each form item to help ensure that investors have key information about the annuity contract and available investment options, regardless of whether the contract is a variable annuity, a RILA, a registered MVA annuity, or combination contract offering a variety of these options. a. Description of Insurance Company, Registered Separate Account, and Investment Options (Item 6) We are adopting amendments to Item 6 of Form N–4 that will, largely as proposed, modify certain existing disclosure requirements concerning the insurance company, registered separate account, and variable options, and expand the item to include new disclosures for any index-linked and fixed options offered under the contract. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 To address the inclusion of registered MVA annuities on Form N–4, we are adopting changes to the proposed requirements to address fixed options subject to a contract adjustment. Items 6(a)–(c) will continue to require a concise discussion about the insurance company, registered separate account, and variable options. The amendments in Item 6(d) will require new disclosures about key aspects of any index-linked option offered under the contract, while Item 6(e) will add disclosures for fixed options generally, including MVA options. Insurance Company, Registered Separate Account, and Variable Options We are adopting the amendments to Items 6(a)–(c) as proposed. As discussed in the Proposing Release, these provisions largely retain the current requirement to provide a concise discussion about the insurance company, registered separate account, and variable options, slightly modified to implement certain definitional changes and minor restructuring to accommodate the addition of RILAs to the form.237 One commenter addressed proposed Item 6(a), which would, if applicable, require a filer to indicate that the insurance company is relying on the exemption provided by rule 12h–7 under the Exchange Act.238 This commenter asked that these rule 12h–7 representation requirements be revised to make clear that they only apply to an insurance company registrant (not a separate account) and only to an insurance company as an issuer of a RILA (not an insurance company in its role as depositor of a registered separate account).239 The instruction to Item 6(a), however, serves as a reminder to registrants that rely on a rule 12h–7 exemption to include the prospectus disclosure that the rule requires.240 If a registrant is relying on rule 12h–7, it must provide the disclosure required by 237 See final Form N–4, Item 6(a)–(c). For example, because the insurance company is obligated to pay all amounts promised to investors under the contracts subject to its financial strength and claims-paying ability, disclosure about this topic must be framed in terms of the insurance company, not the registered separate account, as the requirement is currently worded. 238 CAI Comment Letter. 239 CAI Comment Letter. 240 See rule 12h–7(f) under the Exchange Act (requiring that the prospectus for the securities contain a statement indicating that the issuer is relying on the exemption provided by the rule). Pursuant to section 30(d) of the Investment Company Act, a separate account must comply with the Investment Company Act’s reporting requirements in lieu of the Exchange Act’s reporting requirements that apply to other kinds of issuers and therefore does not need to rely on rule 12h– 7. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations that rule—independent of any form requirement—and in providing the disclosure can provide the additional details the commenter identified in its comment letter. We therefore are not making the suggested change.241 This commenter similarly asked that we revise the proposed instruction to allow insurers to add clarifying disclosure that identifies generally the types of securities that support an insurer’s reliance on rule 12h–7 (for example, a general statement that the insurer relies on rule 12h–7 with respect to registered stand-alone RILA contracts, registered index-linked options, or other registered non-variable insurance contracts the insurer issues).242 The proposed instruction does not preclude a registrant from disclosing this information. We received no comments on the proposed amendments to Item 6(b) (Registered Separate Account) or 6(c) (Variable Options), and we are adopting those sub-items as proposed. ddrumheller on DSK120RN23PROD with RULES2 Index-Linked Options We are adopting amendments to Item 6(d) that will require an insurance company to disclose information about the key features of the index-linked options currently offered under the contract.243 These amendments are substantially as proposed, but with some modifications in response to comments. Under the final amendments, the prospectus must include a description of each indexlinked option currently offered under the contract, including information about: (1) limits on index losses; (2) limits on index gains; (3) crediting period; (4) crediting methodology and examples; (5) relevant indexes; (6) maturity; and (7) other material features of the index-linked option. As discussed in the Proposing Release, these disclosures are designed to complement more general disclosures about indexlinked options located elsewhere in the prospectus by providing investors specific information about each indexlinked option’s features and risks.244 In particular, the new disclosures are designed to address points that investor testing participants suggested might be confusing and/or for which they 241 In addition to requiring rule 12h–7 prospectus disclosure in Item 6, we are adding a related check box on the facing page. See infra Section II.C.8.a. 242 CAI Comment Letter. 243 Final Form N–4, Item 6(d). 244 In the context of variable annuities, this type of detail about variable options is not required by Item 6 because each portfolio company issues its own prospectus that contains more detailed information about the portfolio company. See current and final Form N–4, Item 6(c); see also infra footnote 245. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 indicated that they would prefer more information.245 One commenter expressly supported our proposal to require detailed disclosure about index-linked options in the prospectus, stating that ‘‘the disclosure items and instructions under proposed new Item 6(d) are helpful and appropriate,’’ and ‘‘would generally provide investors with the information they need to understand how the indexlinked options operate, while also providing enough flexibility in the instructions to describe RILAs in the market today and to allow for future innovation.’’ 246 No commenters opposed the proposed inclusion of disclosure about index-linked options in the prospectus as a general topic. Accordingly, we are requiring detailed disclosure about index-linked options in the prospectus, subject to modifications to certain of the proposed aspects of this disclosure, as discussed below. Description of the Index-Linked Options Currently Offered Under the final amendments, the prospectus must describe the indexlinked options currently offered under the contract. As proposed, the description must state that the insurance company will credit positive or negative interest at the end of a crediting period to amounts allocated to an index-linked option based, in part, on the performance of the index and— to dispel potential investor confusion relating to the reference to an index— that an investment in an index-linked option is not an investment in the index or in any index fund.247 We are adopting, as proposed, the requirement to state that an investor could lose a significant amount of money if the index declines in value.248 In a change from the proposal, we are not requiring the prospectus to state that the potential for investment loss could be significantly greater over time than the potential for investment gain.249 As discussed above, we are not adopting a parallel cover page disclosure because a separate requirement that addresses limits on index losses covers this risk in a more direct way than the proposed statements.250 We are not adopting this 245 Proposing Release at nn.125–126 and accompanying text. 246 CAI Comment Letter. 247 Final Form N–4, Item 6(d)(1)(i). 248 Final Form N–4, Item 6(d)(1)(ii). This disclosure mirrors a parallel requirement in Item 2(b)(2)(ii). See supra section II.C.2. 249 Proposed Form N–4, Item 6(d)(1)(ii). 250 Proposed Form N–4, Item 1(a)(6); see supra Section II.C.1. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 60005 aspect of the proposed Item 6 requirement for the same reasons. As proposed, to emphasize the risks associated with an early withdrawal from an index-linked option, the prospectus must state that an investor could lose a significant amount of money due to the contract adjustment if amounts are removed from an indexlinked option prior to the end of its crediting period.251 In a change from the proposal, and as discussed below, we are not adopting the proposed requirement to accompany either this risk of loss statement or the risk of loss statement regarding negative index performance with numeric disclosure of the maximum amount of loss an investor could experience from contract adjustments or negative index performance.252 Substantially as proposed, to inform investors of the possibility that their investment options could be unilaterally changed without action on their part, the insurance company will be required to state, if applicable, that it can add or remove index-linked options and change the features of an index-linked option from one crediting period to the next, including the index and current limits on gains and limits on index losses, subject to any contractual minimum guarantees.253 Lastly, similar to the current requirement for variable options, and substantially as proposed, a prospectus that offers index-linked options must state that certain information regarding the features of each currently offered index-linked option is available in an appendix to the prospectus, with a cross-reference to that appendix.254 One commenter addressed the proposed description of index-linked options currently offered under the contract with concerns regarding the narrative and numeric risk of loss disclosures.255 This commenter opposed including any disclosures addressing the maximum loss an investor could experience—narrative or numerical—in the description of index-linked options. This commenter asserted that disclosure on index-linked options in this section of the prospectus should focus on describing the mechanics of the indexlinked options and contract 251 Final Form N–4, Item 6(d)(1)(iii). proposed Form N–4, Instructions to Item 6(d)(1)(ii) and (iii); see also supra Section II.C.2. 253 Final Form N–4, Item 6(d)(1)(iv). 254 Final Form N–4, Item 6(d)(1)(v); see also final Form N–4, Item 17(b) (Appendix). In a change from the proposal, we are adding ‘‘current’’ before ‘‘limit on index loss’’ and removing ‘‘guaranteed’’ before ‘‘minimum limit on index gain’’ to conform to the revised headings in the Item 17(b) table for indexlinked options. See infra Section II.C.4.b. 255 CAI Comment Letter. 252 See E:\FR\FM\24JYR2.SGM 24JYR2 60006 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 adjustments, not investment risks, and suggested that investors likely will have already read the maximum risk of loss disclosures in earlier sections of the prospectus, so including similar disclosure along with descriptions of index-linked options would not be helpful. Including risk of loss statements along with descriptions of the index-linked options that are offered under the contract (in the location in the prospectus that requires the greatest amount of detail about index-linked options) will result in a more complete understanding of the options the contract offers. The potential risk of loss associated with an index option is a key piece of information for investors to consider alongside other index-optionspecific details disclosed in response to this item of Form N–4. Accordingly, the final amendments will require statements regarding the risk of loss associated with index declines, subject to conforming modifications as discussed above in the context of similar cover page disclosure. We are also adopting the requirement to include a statement about risk of loss associated with negative contract adjustments, as proposed, for the same reasons.256 In a change from the proposal, however, we are not adopting the proposed instructions that would have required numeric disclosure of the potential scope of loss due to negative index performance or a negative contract adjustment in Item 6. After considering comments, we agree that numeric examples are appropriately located in other parts of the prospectus, namely the KIT and the Item 5 principal risk disclosure (for the reasons discussed in the release sections describing those disclosures), and need not be repeated here.257 For this reason, we are adopting an approach that does not require numeric disclosure showing risk of loss in the discussion of indexlinked options, but that retains related narrative statements about risk of loss, to ensure that all material aspects of each index-linked option are disclosed in one place.258 Limits on Index Losses and Gains Description of limits on index losses and gains: Under the final amendments, the insurance company must describe the limits on index losses and gains for each index-linked option.259 In each case, and as applicable, the insurance 256 Final 257 See Form N–4, Item 6(d)(1)(ii). supra Section II.C.3 and infra Section II.C.5. 258 See proposed Form N–4, Instructions to Item 6(d)(1)(ii) and (iii). 259 Final Form N–4, Items 6(d)(2)(i) and (ii). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 company will be required to state that such limits apply and describe how index losses and gains would be limited (for example, through the use of a floor or buffer to limit losses, or a cap or participation rate to limit gains).260 We are also requiring the insurance company to provide examples to help investors understand how these limits work in practice. To illustrate the limits on index losses, the prospectus must include an example showing how the limit on index losses could operate to limit a negative return (e.g., if the index return is ¥25% and the buffer is ¥10%, the insurance company will credit ¥15% (the amount that exceeds the buffer) at the end of the term, meaning the investor’s contract value will decrease by 15%).261 The prospectus similarly must include an example of how the limit on gains could operate to limit a positive return (e.g., if the index return is 12% and the cap rate is 4%, the insurance company will credit 4% at the end of the term, meaning the investor’s contract value will increase by 4%).262 We received no comments on this aspect of the release, and are adopting as proposed. Current limits on index losses and gains: The final amendments to Item 6 also will require insurers to disclose, for each index-linked option, current limits on index losses and gains (along with a statement that the current limit will not change during an index-linked option’s crediting period).263 In a change from the proposal and in response to comments, insurers will be permitted to comply with the requirement to provide current limits on index gains by posting the information to a website that is publicly accessible, free of charge, and specifically incorporating this information by reference into the prospectus.264 An insurer relying on this incorporation by reference approach must: (1) state in the prospectus at the place where current upside rates would normally appear that the information about current limits on index gains is incorporated by reference; and (2) provide the website address where such rates can be found, with an active hyperlink to the website for 260 Final Form N–4, Items 6(d)(2)(i)(A) and 6(d)(2)(ii)(A). 261 Final Form N–4, Item 6(d)(2)(i)(A). 262 Final Form N–4, Item 6(d)(2)(ii)(A). 263 Final Form N–4, Items 6(d)(2)(i)(B) and 6(d)(2)(ii)(B). 264 Final Form N–4, Instruction 1 to Item 6(d)(2)(ii)(B); see also final Form N–4, General Instruction D and Item 17(b). The website address required by Item 6 is the same website that is required to be included in the Item 17(b) legend, and must conform to Item 17(b)’s website posting requirements. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 electronic versions of the prospectus.265 In addition, the website must: (1) be specific enough to lead investors directly to the current limits on index gains, rather than to the home page or other section of the website on which the limits are posted; (2) reflect current limits that are available for all contract investors, including variations in limits (e.g., due to distribution channel, State requirements, optional benefits, date of contract purchase, etc.); and (3) only include limits on index gains that are currently available for the index-linked options offered under the contract.266 These requirements are meant to provide the same information the investor would have received through the proposed approach where current upside rates would appear directly in the prospectus. We received mixed comments about the proposed requirement to disclose current limits on index gains (or ‘‘current [upside] rates’’) in the prospectus.267 One commenter supported disclosing current rates, observing that the current rate is one of the most important terms of the offering.268 Conversely, several commenters opposed our proposal to require current upside rates in the prospectus.269 These commenters asserted that because current upside rates for new crediting periods change so frequently—daily, or in most cases, weekly or monthly—a prospectus that includes these current rates would quickly become stale, necessitating frequent updates to the prospectus. One of the commenters stated that RILA issuers routinely change current upside rates for new crediting periods in response to market conditions to help them manage their risks and provide competitive upside exposure to investors on an ongoing basis.270 The other commenter observed that not only do current upside rates for RILAs change frequently, but rates can also differ depending on when the contract was purchased, the distribution channel 265 Final Form N–4, Instruction 1 to Item 6(d)(2)(ii)(B); Final Form N–4, General Instruction C.3.(i). 266 Final Form N–4, Instruction 2 to Item 6(d)(2)(ii)(B). 267 See, e.g., CAI Comment Letter; VIP Working Group Comment Letter. We did not receive comments opposing the proposed requirement to disclose current limits on index losses in the prospectus. We understand that current limits on index losses do not change as frequently as current limits on index gains. See infra footnote 754 and accompanying text. 268 Johnson Comment Letter. 269 CAI Comment Letter; VIP Working Group Comment Letter; Comment Letter of Ronald Coenen, Jr. (Apr. 5, 2024) (‘‘Coenen Comment Letter’’). 270 CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations through which the contract was sold, the contract class, and the optional benefits available.271 This commenter also raised questions regarding the timing of when current upside rates must be provided.272 The proposal was designed to address concerns about frequently changing upside rates by contemplating that insurance companies could update upside rate information using a prospectus supplement filed pursuant to rule 497 under the Securities Act, rather than being required to update the registration statement to reflect each change.273 The two commenters opposing the proposed requirement to disclose current upside rates in the prospectus raised concerns about this approach, however, stating that it would be a significant change to current practice, and would require RILA issuers to file rule 497 prospectus supplements frequently to update current rate information.274 They also stated that disclosing new rates by filing a rule 497 prospectus supplement frequently (e.g., every few days) would be confusing to investors. One of the commenters observed that insurance companies could change current rates less frequently to avoid the need for frequent prospectus supplements, but this would mean that to offset the risks associated with more constant rates, insurance companies would offer less favorable rates to investors.275 Commenters urged the Commission to permit insurance companies to follow their current practice of disclosing current upside rates on a dedicated web page on the insurer’s website.276 One of these commenters asserted that the current approach provides the investor with the same information in the same timeframe as the proposed rule 497 process ‘‘without any of the significant costs, human resource burdens, and investor confusion’’ that would arise 271 VIP Working Group Comment Letter. (asking how far in advance must the rates be filed, whether investors get the rates at the time the application is signed or the date the insurance company received the money or transfer request; also noting that today, some products do not disclose current rates in advance and instead use thresholds or bail-out features, and asking if this approach would no longer be permissible, and can existing products continue to operate with these features). 273 Proposing Release at nn.134. 274 CAI Comment Letter (stating that ‘‘one member estimated that if they change each upside rate at the start of each crediting period for each share class of each RILA contract they offer . . . it would need to file 432 supplements each year, covering 25,680 rates’’); VIP Working Group Comment Letter. 275 VIP Working Group Comment Letter. 276 CAI Comment Letter; VIP Working Group Comment Letter. ddrumheller on DSK120RN23PROD with RULES2 272 Id. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 from an ‘‘overwhelming’’ number of rule 497 filings.277 The commenter stated that RILAs have been offered for more than a decade absent the inclusion of current rates in the prospectus, and the RILA rate-setting and communication process is well-established and functions without any apparent investor confusion or complaint. This commenter also noted that we proposed to require a website address with current upside rates in the index-linked option appendix and asked that rather than having to file numerous rule 497 prospectus supplements and post those supplements online pursuant to rule 498A, RILA issuers be allowed to incorporate by reference the web page that would already include the same information.278 Commenters who suggested that current upside rates should be posted online instead of included directly in the prospectus recommended additional measures to effectuate the suggested approach. One commenter suggested that as a condition to allowing insurers to post current upside rates to the insurer’s website, we could impose a recordkeeping requirement and require the issuer to consent to subjecting the posted rate information to prospectus or registration statement liability.279 Another commenter similarly asked that we permit RILA issuers to include the current upside rates in the prospectus by expressly incorporating by reference into the prospectus the website page where current rates would be posted, asserting this would have the same legal significance as a rule 497 prospectus supplement with respect to disclosure liability.280 This commenter further stated that allowing information to be incorporated by reference into the prospectus would be consistent with the Commission’s prior approach to the treatment of websites that are identified or incorporated by reference into the registration statement.281 The commenter also suggested that if we were to adopt the website approach for posting current upside rates as an alternative to the rule 497 approach, it would be willing either to support a requirement to include historical upside rates as part of the website that is incorporated by reference into the prospectus, or to file an annual report Comment Letter. (citing to proposed Form N–4, Item 17(b)). 279 VIP Working Group Comment Letter. 280 CAI Comment Letter. 281 Id. (citing to proposed Form N–4, Item 17(b); also stating that by expressly incorporating by reference the web page with the current upside rates, the information on that web page would be legally part of the prospectus, and prospectus disclosure liability would attach). PO 00000 277 CAI 278 Id. Frm 00031 Fmt 4701 Sfmt 4700 60007 disclosing the upside rates offered during the previous one-year period.282 After considering comments, we have determined to permit insurance companies to disclose current upside rates in the prospectus either by disclosing the information directly in the prospectus, as proposed, or by including a website address where the current rates can be found and incorporating by reference the information on the website into the prospectus.283 Investors likely will find it more efficient to obtain current upside rates on the insurer’s website identified in the prospectus than to review a potentially high number of prospectus supplements. It also will be familiar to many investors because this is the approach that many RILA investors currently use to obtain information about current upside rates. Moreover, allowing insurance companies to disclose current upside rates on a website and to incorporate this information by reference into the prospectus also will retain prospectus and registration statement liability, and ready accessibility of information that is a core aspect of the RILA offering. It will also accommodate RILA issuers’ practice of changing current upside rates in response to market conditions. Because the approach we are adopting is consistent with current practice, we anticipate that the vast majority of RILA issuers will choose to use the website posting approach to disclose current upside rates instead of disclosing them directly in the prospectus. In addition, in response to comments and to provide a longer and lasting historical record of recent upside rate information, which investors may wish to consider, and which Commission staff, third-party market participants, and others could use to analyze RILA offerings individually and the RILA market as a whole, all upside rate information for the prior calendar year 282 Coenen Comment Letter. Form N–4, Instruction 1 to Item 6(d)(2)(ii)(B). With respect to the timing questions raised by one commenter, see supra footnote 272, we understand that it is common practice for insurance companies to disclose current rates in advance of the start of the crediting period of an index-linked option (with the specific timing for disclosing these current rates ahead of the start of the crediting period varying by product), although in limited historical cases insurance companies have not disclosed current rates in advance and instead used thresholds or bail-out features. The amended form requirements do not prescribe how far in advance of the start of the crediting period of an index-linked options current rates must be set. We understand that there are variations in practice within the industry on when rates are set before the start of the crediting period, based on market conditions and other factors, and our disclosure approach does not necessitate standardizing these practices. 283 Final E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60008 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations must be filed annually with the Commission in a structured data format in response to Item 31A of Form N–4, as described below in Section II.C.7.284 Including this information together with the other census-type information RILAs will be required to provide in response to Item 31A is preferable to the recordkeeping requirement one commenter suggested because it avoids the need for the Commission to access insurance company records in order to obtain the historical information while also relieving insurers of an additional recordkeeping obligation. Moreover, requiring an annual filing on EDGAR not only creates a historical record of the information, as would have been the case if insurers filed a rule 497 prospectus supplement to disclose each upside rate change, but also has the benefit of being a single filing, instead of the potentially overwhelming number of rule 497 filings to which commenters objected. This requirement also supports commenters’ recommendation to allow insurance companies to incorporate by reference current upside rates from a website because, absent some filing with the Commission, it would be difficult to determine what information had been incorporated. We are adopting the annual filing approach instead of the alternative approach of requiring historical rate information to be posted on insurers’ websites, as one commenter suggested, because a single annual filing (1) would create a permanent historical record of past rates, unlike website disclosure that is continually updated, and (2) would be more efficient for interested parties to review and analyze than continuallyupdated website information. Minimum limits on index losses and gains: In addition, insurers will have to include prominent statements regarding minimum limits on index losses and gains that will always be available under the contract, subject to certain modifications from the proposal.285 As discussed above, we have modified the wording of the requirement on minimum limits on losses to require an insurer to prominently disclose any minimum limits on index losses that will always be available under the contract, or alternatively, to prominently state that it does not guarantee that the contract will always offer index-linked options that limit index losses.286 Similarly, we have 284 Final Form N–4, Item 31A; see also Coenen Comment Letter. 285 Final Form N–4, Items 6(d)(2)(i)(B) and 6(d)(2)(ii)(B). 286 Final Form N–4, Item 6(d)(2)(i)(B); see supra Section II.C.1. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 modified the wording of the proposal, as discussed above, to require an insurer to prominently state, for each type of upside limit offered (e.g., cap, participation rate, etc.), the lowest limit on index gains that may be established under the contract.287 We are requiring similar disclosure on the cover page, in the Overview, and in the KIT, and we discuss the comments received concerning the proposed requirement to disclose information about guaranteed minimums, and our corresponding modifications, above.288 We are also retaining this disclosure requirement in Item 6, in the context of other disclosure regarding index-linked options, because it should be included in the section of the prospectus that provides the greatest amount of detail about such options. An investor reviewing the detailed disclosure about each index-linked option required by Item 6 will therefore have information about the key terms of each index-linked option and information about limits on gains and losses that may be available in future crediting periods. Factors considered in determining current limits on index losses and gains: Substantially as proposed, we are requiring the insurance company to describe the factors it considers in determining the current limits on losses and gains for an index-linked option and how that choice may impact other features of the option set by the insurance company, along with an explanation of the factors an investor should consider regarding limits on index losses or gains before selecting an index-linked option for investment.289 As discussed in the Proposing Release, we are requiring the insurance company to explain how it selects rates for limiting index losses and gains to help investors understand how the features of a particular index-linked option will impact that option’s risk/ return profile. Giving investors information about the factors the insurance company considers in determining current limits—which are key features of an index-linked option— may help manage their expectations Form N–4, Item 6(d)(2)(ii)(B). supra Sections II.C.1, 2, and 3. 289 Final Form N–4, Items 6(d)(2)(i)(C) and 6(d)(2)(ii)(C). Such factors could include, for example, long-term interest rates, market volatility, or the cost of option contracts supporting the indexlinked option guarantees. Similar disclosure is required in other contexts. See, e.g., final Form N– 4, Item 9(a) (requiring disclosure of material factors that determine the level of annuity benefits); see also Form N–6, Instruction 2 to Item 7(a) (requiring the identification of factors that determine the applicable cost of insurance rate). PO 00000 287 Final 288 See Frm 00032 Fmt 4701 Sfmt 4700 regarding how the product operates.290 The disclosure about how the current limits on index gains or losses may impact other aspects of the index-linked option is designed to explain the inverse relationship between various features of the index-linked option.291 The requirement to provide an explanation of the factors an investor should consider regarding limits on index losses or gains before selecting an indexlinked option is designed to assist an investor in choosing among the indexlinked options available under the contract, such as by explaining the difference between a floor and a buffer, or by highlighting index-linked options with features that assume more risk in return for higher potential return, or vice versa. We received no comments on this aspect of the proposal and are adopting as proposed. Crediting Period As proposed, we are requiring insurers to generally describe the crediting periods of the index-linked options available under the contract (e.g., 1, 3, and 6 years), along with the factors an investor should consider regarding different crediting period lengths before selecting an index-linked option.292 The final amendments, substantially as proposed, will require the insurance company to prominently state that amounts must remain in an index-linked option until the end of its crediting period to be credited with all 290 For example, an insurer might disclose that caps and participation rates may vary depending on factors such as market volatility, hedging strategies and investment performance, the investor’s index effective date, or interest rates, among others. If an insurer discloses that it takes various specified factors into consideration, but ultimately sets rates at its own discretion, the investor should know that as well. 291 For example, the insurance company could include an explanation regarding how the limit on index losses for an index-linked option could impact the current limit on index gains. This could help an investor understand, for example, that if the insurance company determines to increase the extent to which the index-linked option will protect against loss, the insurance company may then reduce the amount of upside index participation the investor could receive. 292 See final Form N–4, Item 6(d)(2)(iii)(A). An example of one such factor could be that crediting periods introduce timing risk that forces investors to take losses at the end of a crediting period, and shorter crediting periods might increase this risk. See OIAD Investor Testing Report at Section 2, RILAs: Structure of Contracts and Investment Options, Investment Terms (‘‘The role of [crediting periods] also creates a situation that may be unique for RILA purchasers relative to other investments they hold. In particular, RILA investors periodically realize gains or losses at the end of each [crediting period]. In contrast, a mutual fund investor (for example) could wait to sell the fund during down markets, avoiding realizing those losses. Thus, the [crediting period] feature adds a ‘timing risk’ for RILA investors relative to certain other investments.’’). E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations or partial interest, as applicable, and to avoid a possible contract adjustment in addition to potential surrender charges and tax consequences.293 This discussion must also include a description of the transactions subject to a contract adjustment (e.g., partial withdrawals), with appropriate crossreferences to related disclosures in the prospectus.294 These disclosures collectively are designed to help an investor make an informed investment decision when selecting an index-linked option, taking into account that withdrawing money before the end of the applicable crediting period can have adverse consequences. We received no comments on this aspect of the proposal and are adopting it as proposed. Methodology and Examples Each index-linked option has an ‘‘index crediting methodology’’ that explains how interest is calculated and credited to the contract. The final amendments will, as proposed, require insurance companies to explain the index crediting methodologies used for index-linked options and provide numeric examples reflecting how these methodologies work.295 The final amendments also will require insurance companies to provide a bar chart that illustrates the annual return of each index along with hypothetical examples of index return after applying standardized limitations on index gains and losses, subject to minor modifications from the proposal, discussed below.296 Specifically, we are requiring insurance companies to describe, for each index crediting methodology, how interest is calculated and credited at the end of a crediting period based on the interest crediting formula or performance measure (e.g., point-topoint, step-up calculations, and enhanced performance).297 We received 293 Final Form N–4, Item 6(d)(2)(iii)(B). Form N–4, Item 6(d)(2)(iii)(B). 295 Final Form N–4, Item 6(d)(2)(iv)(A) and (C). 296 Final Form N–4, Item 6(d)(2)(iv)(B). 297 Final Form N–4, Item 6(d)(2)(iv)(A). We understand that many index-linked options use the same crediting methodology. If all index-linked options offered by a RILA contract use the same crediting methodology, the prospectus will only include one example of that crediting methodology. If, however, the index-linked options in a RILA contract offer more than one crediting method, or if different index-linked options in a RILA contract offer different crediting methods, this would affect the number of examples to be provided. The number of examples to be provided depends on the number of crediting methodologies, not the number of index-linked options. A point-to-point crediting methodology compares the index’s performance at two points in time (such as at the beginning and end of the crediting period). Step-up calculations guarantee a given rate if the index’s returns are positive, regardless of the index’s actual ddrumheller on DSK120RN23PROD with RULES2 294 Final VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 no comments on this aspect of the proposal and are adopting it as proposed. We are also requiring, as proposed, the prospectus for contracts that offer index-linked options to include a bar chart for each index showing the index’s annual return for each of the last 10 calendar years (or for the life of the index, if less than 10 years), with the corresponding numeric performance adjacent to each bar.298 Specifically, insurance companies must provide a hypothetical example alongside each index return that reflects the return after applying a 5% cap and a ¥10% buffer. If there are no caps or buffers offered under the contract (if, for example, the contract includes a floor rather than a buffer), insurance companies may reflect a rate or measure used to limit index gains or losses under the contract that is comparable.299 Insurance companies will not be permitted to include additional index performance presentations, or historical index performance that precedes the inception of the index.300 Further, similar to the proposal but with modifications to address comments as discussed below, insurance companies will be required to provide two footnotes to this table, if applicable, that disclose (1) that the index is a price return index, not a total return index, and therefore does not reflect dividends paid on the assets in the index, which will reduce the index return and cause the index to underperform a direct investment in the securities composing the index, and (2) that the index provider deducts fees and costs when calculating index return, which will reduce the index return and will cause the index to underperform a direct investment in the securities composing the index.301 As proposed, these bar charts must also be accompanied by the following legend in the format specified in the form: The bar chart shown below provides the Index’s annual returns for the last 10 calendar years (or for the life of the Index if less than 10 years), as well as the Index returns after applying a hypothetical 5% cap and a hypothetical ¥10% buffer. The chart illustrates the variability of the returns from year to year and shows how hypothetical performance, subject to certain conditions. ‘‘Enhanced performance’’ increases a positive index return, such as by offering a participation rate of more than 100%. 298 Final Form N–4, Item 6(d)(2)(iv)(B). 299 Final Form N–4, Instruction 3 to Item 6(d)(2)(iv)(B). 300 Final Form N–4, Instruction 6 to Item 6(d)(2)(iv)(B). 301 Final Form N–4, Instructions 4–5 to Item 6(d)(2)(iv)(B). We are making conforming changes in final Form N–4, Instruction 1(d) to Item 17(b). PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 60009 limits on Index gains and losses may affect these returns. Past performance is not necessarily an indication of future performance. The performance below is NOT the performance of any Index-Linked Option. Your performance under the Contract will differ, perhaps significantly. The performance below may reflect a different return calculation, time period, and limit on Index gains and losses than the IndexLinked Options, and does not reflect Contract fees and charges, including surrender charges and the Contract Adjustment, which reduce performance. This requirement is designed to provide context for the index-linked options that the RILA contract offers to help inform an investor deciding whether to invest in a RILA.302 As discussed in the Proposing Release, presenting historical index information alone, without the addition of hypothetical caps and buffers, could mislead investors into thinking that these historical rates of index performance are what they would have received under the contract had they invested in a particular index-linked option.303 Providing historical index information with an overlay of hypothetical caps and buffers will help investors understand better how those limits can cause RILA performance to differ from that of the index, while the legends will put investors on notice that the presented performance is not the RILA’s performance. Commenters generally supported, or did not oppose, the proposed inclusion of bar charts showing annual index returns. One commenter stated that the proposed bar chart ‘‘is a helpful disclosure that will provide information about historical index performance, while also providing another tool to help investors understand bounded return structures.’’ 304 Several other commenters, though not opposed to the inclusion of a bar chart showing index returns, objected to the proposed 5% cap rate on the grounds that ‘‘caps have never been that low,’’ with one commenter suggesting that using these 302 For example, if an index-linked option provides that the investor will experience at least 5% of the upside performance of an index, investors may view the tradeoffs of this investment differently if the index historically has returned, for example, 10% per year (thus capping gains at 5% during those past periods) or 1% per year. Similarly, if an index-linked option offers a ¥10% buffer, the investor could compare that against the index performance in the bar chart and assess the extent to which the buffer would have provided downside protection against market losses in negative return years. 303 See Proposing Release at n.144 and accompanying paragraph. 304 CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60010 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations rates would be ‘‘misleading.’’ 305 One of these commenters suggested that instead of using the proposed standardized cap and buffer rates, we should require bar charts with an overlay of actual rates.306 Another commenter suggested that Commission staff be authorized to consider requests on a case-by-case basis to use a different overlay than would be generally prescribed, offering as an example a case where an insurance company only offers ¥20% buffers and suggesting the company should be permitted to use a ¥20% buffer overlay.307 We are not modifying the standardized rates as commenters suggest. As discussed in the Proposing Release, we proposed the hypothetical 5% cap rate and ¥10% buffer rate, which are higher than typical minimum levels of caps and floors that will always be available under a contract, but lower than typical currently-offered levels, to help investors understand how caps and buffers affect the index return. The bar chart with the overlay of standardized rates is merely an example designed to convey to investors that by selecting a product with caps and buffers, their returns will differ from that of the index. As emphasized in the accompanying legend, the performance reflected in the bar chart is not the performance of any index-linked option, and an investor’s returns will differ from that of the index, perhaps significantly. Its purpose is to help investors understand how the product’s limit features operate; it is not designed to convey an index-linked option’s actual returns. In addition, while a standardized 5% cap may be lower than many current caps, on balance it is better to select a standardized cap that is too low than too high, as an illustration with a standardized cap that is higher than the cap that the index-linked option actually offers (or may offer in the future) could suggest that the indexlinked option may credit more interest than the option actually does. Based on staff experience, the standardized 5% cap also is higher than most guaranteed minimum caps insurance companies currently disclosed in RILA prospectuses. Moreover, using current upside rates, which change frequently, or considering requests on a case-bycase basis to use a different overlay, 305 VIP Working Group Comment Letter (suggesting that, based upon OIAD’s analysis in the OIAD Investor Testing Report, an 18% cap rate with a one-year crediting period and 10% buffer was more common); Datop Comment Letter; Johnson Comment Letter. 306 VIP Working Group Comment Letter. 307 CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 would undermine comparability across products and require insurers to frequently update the prospectus. The same concerns about frequent updates to the registration statements that commenters identified in connection with the proposal to include current upside rates in the prospectus also would apply to the bar chart presentation if it were based on current upside rates. Accordingly, we are adopting, as proposed, the hypothetical 5% cap rate and ¥10% buffer rate to provide for a consistent presentation across products designed to help investors understand a RILA’s bounded return structure.308 For the same reason, the amendments we are adopting do not permit the inclusion of additional bar charts in addition to the required examples, as one commenter suggested. Two commenters suggested that the proposed bar chart disclosures should more clearly convey to investors that a RILA tracks a price return index and not a total return index, and the resulting effects on performance.309 We agree, for the reasons described in conjunction with a parallel disclosure requirement in the KIT, that disclosure should alert investors to the fact that a price return index does not assume the reinvestment of dividends and thus will underperform a total return index and direct investment in securities underlying the index.310 Accordingly, and in a conforming change, we are modifying the footnotes to provide, if applicable, that the index in the bar chart is a ‘‘price return index,’’ not a ‘‘total return index’’ and therefore does not reflect the dividends paid on the assets composing the index, which will reduce the index return and cause the index to underperform a direct investment in the securities composing the index.311 To help investors understand how these crediting methods work, we are also requiring, as proposed, an 308 In contrast to the bar chart, which requires fixed hypothetical cap and buffer rates, the index methodology examples required by Item 6(d)(2)(iv)(C) allow insurers to use rates that are based on current and anticipated market conditions. See infra footnote 315 and accompanying text. 309 Johnson Comment Letter; Lee Comment Letter; see supra discussion at Section II.C.5.(b) (stating that the performance of a RILA is based on the performance of an index (such as the S&P 500) or another benchmark, in contrast to the performance of a ‘‘price return index,’’ which is typically lower than that of a ‘‘total return’’ index because a price return index does not reflect dividends). 310 See supra footnote 227 and accompanying paragraph; see final Form N–4, Instruction 3(c)(C) to Item 3. 311 Final Form N–4, Instruction 4 to Item 6(d)(2)(iv)(B). For consistency, we are making a similar change in final Form N–4, Instruction 5 to Item 6(d)(2)(iv)(B) and Instruction 1(d) to Item 17(b). PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 insurance company to include a numeric example to illustrate the mechanics of each index crediting methodology.312 The examples will be required to show, in a clear, concise, and understandable manner, how each crediting method functions when the index has positive as well as negative returns. Specifically, we will require for each index methodology numeric examples that reflect a positive return above the limit on index gains, and a negative return below the limit on index losses.313 The examples also will be required to assume hypothetical returns and limits that are reasonable based on current and anticipated market conditions and sales of the contract, and to reflect any charges subtracted from interest credited to or deducted from contract value in the index-linked option to allow investors to understand the impact of these charges on their return.314 Additional examples, charts, graphs, or other presentations will be permitted if they are clear, concise, and understandable.315 We are also requiring insurance companies to include a legend stating that: (1) these examples illustrate how the insurance company calculates and credits interest under each index crediting methodology assuming hypothetical index returns and hypothetical limits on index gains and losses; and (2) the examples assume no withdrawals. We received one comment on this aspect of the proposal that sought clarification regarding what assumptions, such as fees, product features elected, the age of the contract, and/or interim value adjustments should be made when calculating the examples.316 The instructions state that any charges that are subtracted from interest credited or that are deducted from contract value in an index option should be reflected in the example.317 Because the legend states that the example assumes no withdrawals, insurers need not take into account the age of the contract, surrender charges, or any interim value adjustments. The instructions provide flexibility in terms of other assumptions that form the basis 312 Final Form N–4, Item 6(d)(2)(iv)(C). Form N–4, Instruction 2 to Item 6(d)(2)(iv)(C). 314 Final Form N–4, Instructions 1 and 3 to Item 6(d)(2)(iv)(C). 315 Final Form N–4, Instruction 4 to Item 6(d)(2)(iv)(C). As with the required numeric examples, any additional presentations that assume hypothetical returns and limits also should assume hypothetical returns and limits that are reasonable based on current and anticipated market conditions and sales of the contract. 316 VIP Working Group Comment Letter. 317 Final Form N–4, Instruction 3 to Item 6(d)(2)(iv)(C). 313 Final E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 of the examples. Like all other registration statement disclosure, the examples may not be inaccurate or misleading, and we anticipate that insurers offering index-linked options (and that also offer variable options) will draw on prior experience developing performance examples for variable options in developing appropriate examples for index-linked options. We received no comments on our proposal to require a numeric example for each index crediting methodology and are adopting it as proposed. Indexes The index underlying an index-linked option is a central feature of the investment, as the investor’s return will be based on the index’s performance, subject to applicable limits on gains and losses. We therefore are requiring the insurance company to provide for each index a brief description of the types of investments that compose the index and where the investor can find additional information about the index.318 We received no comments on these aspects of the proposal and are adopting them as proposed, subject to a conforming change to one of the proposed instructions related to differences between a price return index and a total return index.319 The form includes three instructions to this general requirement under the final amendments.320 First, where there is more than one version of an index (for example a total return version and a price return version), the disclosure must clearly state which version of the index relates to the index-linked option. Second, if the index is an exchangetraded fund (‘‘ETF’’), the disclosure must clarify whether the index’s performance (for purposes of determining the amounts credited in the index-linked option) is based on the ETF’s net asset value or closing value. If the performance is based on the ETF’s share price, the disclosure must clarify the impact of using the share price as opposed to total return. Third, the disclosure must also state, if applicable, that the index is a price return index, not a total return index, and therefore does not reflect dividends paid on the index’s underlying securities. The disclosure also must state, if applicable, that the index Form N–4, Item 6(d)(2)(v)(A). Form N–4, Instruction 3 to Item 6(d)(2)(v)(A) (modified to clarify differences between a price return index and a total return index, similar to clarifying changes to Instruction 5 to Item 6(d)(2)(iv)(B), discussed above). 320 Final Form N–4, Instructions 1–3 to Item 6(d)(v)(A). deducts fees and costs when calculating index performance. In these cases, the disclosure must explain that this will reduce index return and cause the index to underperform a direct investment in the securities composing the index. This is important disclosure because an index that does not reflect dividends paid on underlying securities, or that deducts fees and costs, will have a lower return, all else equal, than an index that includes dividends and does not deduct fees and costs. The insurance company also must state that it reserves the right to substitute an index prior to the end of the crediting period.321 This will put investors on notice that the index associated with a particular indexlinked option—which is a key driver of the investor’s return—could change in the middle of a crediting period. In addition, the insurance company will be required to disclose: all circumstances that could necessitate a substitution; how the insurance company would choose a replacement index; when and how investors would be notified of any such change; how index return will be calculated at the end of the crediting period; and what would happen if a suitable replacement index were not found, including whether the indexlinked option will be discontinued prior to the end of the crediting period. This information will allow an investor to better understand the likelihood of the insurance company making a substitution and its potential effects. Maturity and Other Material Features To help investors anticipate what may happen at the end of an index-linked option’s crediting period, the final amendments will require the insurance company to state whether an investor will receive advanced notice of a maturing index-linked option, how an investor may provide instructions on reallocating contract value at the end of the crediting period, and any automatic default allocation in the absence of such instructions.322 In describing these matters, the prospectus must also explain how investors will be informed of the index-linked option available for allocation at the end of a crediting period, including any changes to the currently-offered index-linked options and the discontinuance or addition of 318 Final 319 Final VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 321 Final Form N–4, Item 6(d)(2)(v)(B). Insurers generally reserve the right to change the index in the middle of the crediting period if the index is discontinued or there is a substantial change in the calculation of the index. Based on staff experience, such changes are exceedingly rare. 322 Final Form N–4, Item 6(d)(2)(vi). PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 60011 index-linked options.323 We received no comments on this aspect of the proposal and are adopting it as proposed. Finally, we are requiring the insurance company to describe any other material aspects of the indexlinked option to ensure that any other item not discussed above that could inform an investment decision is disclosed.324 This will include disclosure related to limitations on transfers to or from index-linked options, rate holds, ‘‘bail-out’’ provisions, start dates, and holding accounts.325 We are also requiring a brief description of how charges may impact the index-linked option’s value, if applicable, as part of this discussion. We received no comments regarding the proposed disclosures regarding other material features and are adopting it as proposed. Fixed Options, Including MVA Options In addition to variable options and index-linked options, annuity contracts commonly include fixed investment options, such as traditional, unregistered fixed options, unregistered index options, and MVA options.326 In the variable annuity context, a fixed option provides an alternative for investors who wish to avoid the market risk of investing in a variable option. A fixed option can also serve as the holding account for amounts that are pending allocation to a particular investment option. In addition, a fixed option may be the default allocation vehicle at the end of an index-linked option’s crediting period. As discussed above, annuity contracts also may offer fixed options standing alone (without also including variable options or index323 Final Form N–4, Instruction 3 to Item 6(d)(2)(vi). 324 Final Form N–4, Item 6(d)(2)(vii). 325 A ‘‘rate hold’’ locks in interest at the current cap (or other rate limiting index gains) for the period between which the insurance company receives the investor’s annuity application and the time the investor’s premium payment is allocated to the index-linked option. A bail-out provision is a contract provision that provides if a current cap (or other rate limiting index gains) is set below a specified value, the investor may withdraw value from that index-linked option or RILA without a contract adjustment (and in some cases without a surrender charge) during a specified period after the start of the crediting period. See additional discussion of bail-out provisions at supra footnote 283. A holding account is typically a conservative investment option (typically a money market fund or a fixed option) where amounts allocated to the index-linked option are held until the next indexlinked option start date. This is used for indexlinked options that start on a particular day each month (e.g., the 15th of the month). 326 See Final Form N–4, Item 6(e). Interests in fixed account options that are not subject to a contract adjustment are generally exempt securities under section 3(a)(8) of the Securities Act and rule 151 under the Securities Act. E:\FR\FM\24JYR2.SGM 24JYR2 60012 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 linked options), including MVA options. Form N–4 generally requires registrants to describe the fundamental features and risks of an annuity contract, including those, like fixed options, that are distinct from the variable options offered through the registered separate account.327 The current form also requires specific disclosure about fixed options in the KIT and the Overview.328 Because we are requiring insurers to include disclosures relating to index-linked options in Item 6, we are also, as proposed, requiring disclosures about fixed options so annuity contract investors have a complete understanding of all the investment options in which they may invest through that contract, either actively, or by default. This approach is designed to increase investor comprehension by ensuring that substantive information about all available investment options is presented in the same location in the prospectus and reflects the inclusion of registered MVA annuities on Form N–4. The final amendments will, with modifications from the proposal, require insurance companies to disclose basic information about fixed options, generally covering the same areas as for index-linked options but tailored for the specifics of a fixed option. Specifically, as proposed, registrants will be required to describe the fixed options currently offered under the contract and state that information regarding the features of each currently-offered fixed option, including its name, term, and minimum guaranteed interest rate is available in an appendix with cross-references.329 Further, as proposed, registrants will be required to describe how interest is calculated and when it is credited for each fixed option as well as the length of the term and minimum guaranteed interest rate (stated as a numeric rate, rather than referring to any minimums permitted under State law). In a change from the proposal and to address the inclusion of registered MVA annuities on Form N–4, under the final amendments the prospectus must state, if applicable, that an investor could lose a significant amount of money due to a contract adjustment if amounts are removed from a fixed option prior to the 327 Current Form N–4, General Instruction C.1.(a) (stating that ‘‘[a] Registrant’s prospectus should clearly disclose the fundamental features and risks of the [Contracts], using concise, straightforward, and easy to understand language.’’). 328 Current Form N–4, Items 2 and 3. 329 As discussed below, we are also requiring disclosure relating to any fixed options currently offered under the contract in the Item 17 (Appendix). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 end of its term, describe the transactions subject to a contract adjustment, and provide cross references to related disclosure in the prospectus.330 The investment risk created by an MVA is a material consideration for an investor considering a registered MVA annuity. As with index-linked options and as proposed, the registrant also will be required to state whether an investor will receive advance notice of a maturing fixed option, including what steps an investor may take to provide instructions regarding the reallocation of contract value at the end of the term, and any automatic default allocation in the absence of such instructions. In describing these matters, as proposed, the registrant must also explain how investors will be informed of the fixed options available for allocation at the end of a term, including any changes to the currently-offered fixed options and the discontinuance or addition of fixed options.331 In a modification from the proposal, this disclosure must also include an explanation of how current fixed rates may be obtained. This could include, for example, a phone number, website address, and/or instruction to contact the investor’s financial professional to obtain current fixed rates. This aspect of the required explanation represents an addition to the proposed requirements to explain how investors will be informed of available fixed options and disclose changes to currently offered fixed options to provide additional context so that investors can better understand those disclosures.332 Also as with indexlinked options, we are requiring disclosure of any other material aspect of the fixed options, including limitations on transfers to or from the fixed options, rate holds, start dates and holding accounts. One commenter opposed requiring insurers to provide specific disclosures about fixed options in the prospectus on the grounds that the Commission lacks the authority pursuant to section 10(a) of the Securities Act to prescribe the specific content, format, and location of any prospectus disclosures about unregistered fixed options.333 Although the commenter acknowledged that most issuers choose to provide information about fixed options in the prospectus— and that any statements made in a prospectus about unregistered fixed options are subject to the Securities Act’s provisions concerning liability for the accuracy and completeness of statements made in a prospectus—it asserted that such disclosures should not be required by the Commission. Instead, the commenter stated that a variable annuity or RILA issuer should be able to choose whether to provide information about fixed options in the prospectus or instead in a separate document used with the prospectus and/or in marketing material or on its website. The commenter also stated that, to the extent it does include such information in the prospectus, the issuer should have the flexibility to determine the location, format, and specific content of any fixed option disclosures in the prospectus, so long as the disclosures are accurate in all material respects and do not obscure or impede the disclosures about the security being registered. Accordingly, the commenter recommended that the Commission make optional the proposed disclosures about fixed options and clarify that issuers can instead make disclosures about unregistered fixed options or accounts in any location and manner that does not obscure the disclosures about the registered options. No other commenter addressed the proposed disclosures for fixed options. All material aspects of the contract should be described in the prospectus, and a fixed option is a material aspect of a RILA or variable contract. Therefore including this information in a registration statement for the offering of these contract securities is necessary and appropriate in the public interest or for the protection of investors.334 Consistent with this view, Form N–4 currently requires insurance companies to disclose certain basic information about fixed options when they are investment options in a variable contract.335 We are therefore adopting the disclosure requirements for fixed options, to be provided in the broader context of detailed disclosure regarding the investment options available under the contract, largely as proposed with modifications to reflect the inclusion of registered MVA annuities on Form N– 4.336 The required disclosure about fixed options includes substantively the same information that insurers currently disclose about other investment options, such as variable annuities, and encompasses core information about fixed options. This basic information 330 Final Form N–4, Item 6(e)(2)(i); see also Proposing Release at Section II.H (discussing changes to Form N–4 that would be necessary to accommodate MVAs). 331 Final Form N–4, Instruction to Item 6(e)(2)(ii). 332 Id. 333 CAI Comment Letter. 334 See, e.g., Investment Company Act section 8; Securities Act section 10(c). 335 See current Form N–4, Item 3(b)(1) and Instruction 3(c)–(d) to Item 2. 336 We are likewise requiring fixed option disclosures in the appendix. See infra footnote 374 and accompanying text. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 about fixed options available under a RILA or variable annuity is necessary to provide investors material information about the securities offering registered on Form N–4. We therefore do not agree, as a commenter suggests, that the provision of such information should be voluntary. This approach would deprive investors of material information regarding an investment decision in an annuity contract. In addition, requiring this basic information about fixed options will provide increased efficiencies now that we also are requiring registered MVA annuities to register on Form N–4 (since this information is a necessary component of registered MVA annuity disclosure).337 Under Form N–4 as amended, an insurance company will provide the same information about all fixed options in this part of the prospectus, with additional disclosure about contract adjustments in connection with registered MVA annuities. We received one comment regarding the proposed instruction that would require insurers to disclose the minimum guaranteed interest rate as a numeric rate, rather than referring to any minimums permitted under State law.338 This commenter objected, stating that minimum rates for contracts are determined by the standard nonforfeiture laws of each State in which the contract is offered, which are not uniform across all jurisdictions, and can change, sometimes frequently, due to changes in prevailing interest rates. This commenter suggested that instead of requiring insurers to provide numeric rates, they should be allowed to state, if applicable, that the minimum guaranteed rate is a rate required to comply with standard nonforfeiture law in the State in which the contract is issued, with a reference in the prospectus directing investors to the policy form, website, or other material where the specific minimum guaranteed rate applicable at the time the contract is issued may be found. After considering this comment, we are adopting the proposed approach— requiring disclosure of the minimum guaranteed interest rate as a numeric rate—in the final amendments.339 We are not departing from the proposed approach given that the standard 337 The commenter that opposed requiring insurers to provide specific disclosures about fixed options in the prospectus supported the inclusion of registered MVA annuities on Form N–4. See CAI Comment Letter. 338 CAI Comment Letter; see also proposed Form N–4, Instruction to Item 6(e)(2). 339 Final Form N–4, Instruction to Item 6(e)(2); Instruction 3 to Item 17(c). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 nonforfeiture laws of most states follow the National Association of Insurance (‘‘NAIC’’)’s model Nonforfeiture Law for Individual Deferred Annuities, which specifies the range of numeric minimum interest rates from which insurers may choose for inclusion in the contract.340 As a result, insurers have the flexibility to select a numeric minimum interest rate that will comply with minimum requirements in most states. Further, it is our understanding that while current interest rates may frequently change, that is not the case with minimum interest rates, which must be within NAIC’s specified range of numeric interest rates. Accordingly, including the guaranteed minimum interest rate in the prospectus should not necessitate frequent updates to the prospectus. In addition, based on staff experience, we understand that some insurers already disclose the minimum guaranteed interest rate as a numeric rate in their prospectuses. Because providing such information in the prospectus is consistent with industry practice (at least for some insurers) and avoids the need for the investor to refer to another source for information about a material term of the offering, we are requiring minimum guaranteed interest rates to be stated as numeric rates, as proposed. b. Appendix: Investment Options Available Under the Contract (Item 17) We are amending the requirements for the required appendix of investment options available under the contract, largely as proposed, to include a discussion of the index-linked options and fixed options available under the contract. This item currently requires a variable annuity issuer to include in an appendix to the prospectus a table that consolidates certain summary information about each portfolio company offered under the contract. The current appendix is designed to provide investors with an overview of variable options available under the contract in a uniform, tabular presentation that promotes comparison, because the investment experience of an investor in a variable annuity will largely depend on the underlying investments available under the contract.341 Similarly, we anticipate that an overview of available index-linked options, as well as available fixed options, will help investors in all 340 See NAIC Standard Nonforfeiture Law for Individual Deferred Annuities (Model 805–4) at Sec. 4.B (describing requirement to disclose minimum rate under nonforfeiture law), available at https://content.naic.org/sites/default/files/modellaw-805.pdf. 341 VASP Adopting Release at n.267 and accompanying text. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 60013 annuities whose offerings will be registered on Form N–4 to understand and compare the various investment options offered under the contract. Consolidating this summary information about the contract’s investment options—equivalent to what is currently provided for variable options—into a concise, easy to read tabular presentation will enhance the ability of investors to understand, evaluate, and compare all the investment options available under the contract. To reflect the expanded scope of the appendix, and as proposed, we are amending the current heading to ‘‘Investment Options Available Under the Contract.’’ 342 We are adopting a new instruction that explains that issuers may modify this new heading as appropriate under the contract. For example, if there are only variable options offered under the contract, an issuer could change the heading to ‘‘Portfolio Companies Available Under the Contract,’’ consistent with the current requirements of the form. The current appendix requires a separate table indicating what portfolio companies are available or restricted under the benefits offered under a variable contract. Because fixed options and index-linked options—like variable options—can vary by benefit offered under the contract, we are adopting amendments, as proposed, that would require this table for all investment options (not only variable options), with no other changes.343 We received no comments regarding these aspects of the proposal and are adopting as proposed. We received one comment regarding the disclosures for variable options in the required appendix.344 This commenter stated that the instructions to the table for variable options should permit variable annuity issuers to include additional rows that visually separate and group underlying funds belonging to the same fund complex, provided that the presentation does not obscure or impede understanding of the information that is required to be included, or substantially otherwise alter the required format of the table. The commenter asserted this approach would improve the organization and readability of the appendix, while also maintaining standardization and comparability. We agree. In a change from the proposal, we are therefore adding a new instruction that will provide flexibility to permit the 342 ‘‘Investment options’’ are defined as any variable option, index-linked option, or fixed option available under the contract. See infra Section II.C.8.b. 343 Final Form N–4, Item 17(d). 344 CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 60014 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations presentation of information the commenter suggested, subject to existing requirements (by virtue of the table template in the form) to provide a standardized tabular presentation.345 The current tabular presentation was designed to promote ease of comparison between products, and we do not anticipate that the new instruction we are adopting will detract from this goal.346 ddrumheller on DSK120RN23PROD with RULES2 Index-Linked Options To accommodate the inclusion of index-linked options in the appendix, we are adding a new table titled ‘‘IndexLinked Options,’’ as proposed.347 As part of our layered disclosure approach, the information to be supplied in the table for index-linked options will summarize certain prospectus disclosures required elsewhere in the prospectus.348 The one commenter to address this aspect of the proposal broadly supported the proposed expansion of the required appendix to include a table for index-linked options, as well as the table’s general design, stating that the proposed Index-Linked Options Table ‘‘will aggregate all indexlinked options currently available under the contract in one location to facilitate investor understanding and comparison of investment options and contracts.’’ 349 We are adopting the table for index-linked options largely as proposed, with certain additions and modifications as discussed below. Legends Similar to the requirements for variable annuities, the table for indexlinked options will be prefaced with a legend, largely as proposed. Specifically, the legend will state that the table lists index-linked options currently available under the contract. Further, because insurance companies typically change the index-linked options available over time, the legend will specify that the insurance company may change the features of the indexlinked options listed in the table, offer new index-linked options, or terminate existing index-linked options, and that the insurance company will provide the investor with written notice before making any changes, other than changes to current limits on index gains.350 We received no comments on the legend, and are adopting it largely as proposed, with conforming changes corresponding 345 Final Form N–4, Instruction 1(f) to Item 17(a). Proposing Release at n.156 and accompanying text. 347 Final Form N–4, Item 17(b). 348 See, e.g., final Form N–4, Item 6(d). 349 CAI Comment Letter. 350 Final Form N–4, Item 17(b)(1). 346 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 to other changes we are adopting to the index-linked options table and other modifications designed to clarify the legend language.351 In addition, to help ensure that investors have convenient access to current upside rates, the legend will require insurance companies to state that information about current limits on index gains are available at a specified website address, if such information is incorporated by reference into the prospectus from a website, as described above.352 We are adopting this requirement substantially as proposed, with a change to the related instructions to specify that the website address must be provided only if the current upside rates do not appear directly in the prospectus.353 This is a conforming change to address the final amendments’ permissible incorporation by reference of current rates on index gains into the prospectus, under Item 6 of final Form N–4.354 We are also adopting, in a modification from the proposal, instructions to specify that the website included in the legend must be the same website that includes information about current rates on index gains that an insurance company may choose to incorporate by reference into the prospectus under Item 6.355 This ensures that where an insurance company provides this information via a website, investors receive the same information and in the same format, whether they are directed to a website in disclosure required by Item 6 or this legend. As proposed, this website address must be specific enough to lead investors directly to current upside rates, rather than to the home page or other section of the website on which such rates are posted.356 Requiring RILA 351 In a change from the proposal, we are revising the legend to clarify that written notice will not be provided before changes to current limits on index gains. 352 See final Form N–4, Item 17(b)(1), and final Form N–4, Instruction 1(e) to Item 17(b). Consistent with the current instructions to the form, any website address, including this one, that is included in an electronic version of the statutory prospectus will be required to include an active hyperlink or other means of facilitating access that leads directly to the relevant website address. However, this requirement will not apply to an electronic summary prospectus that is filed on EDGAR. See final Form N–4, General Instruction C.3.i. 353 Final Form N–4, Instruction 1(e) to Item 17(b). 354 See supra Section II.C.4.a. 355 See final Form N–4, Instruction 1(e) to Item 17(b). 356 Final Form N–4, Instruction 2 to Item 6(d)(2)(ii)(B). We originally proposed this requirement as proposed Form N–4, Instruction 1(e) to Item 17(b), but in final Form N–4 this requirement will be included with the other requirements for current rates that are incorporated by reference from a website, collectively set forth in Item 6. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 issuers to include information about current limits on index gains on their websites will benefit investors by making this information easier to find and understand. Furthermore, because websites may be updated quickly, website disclosure will be efficient for compiling index-linked options’ current limits on gains, given our understanding that current upside rates can change often and that insurance companies currently disclose this information on their websites. We anticipate that insurance companies generally will rely on the incorporation by reference approach because insurers generally disclose current limits on index gains on their websites today and based on commenter feedback about the challenges in providing this information directly in the prospectus. We therefore assume that all insurance companies will include a website address with current limits on index gains in this legend. However, to accommodate the possibility that an insurance company may not choose to incorporate by reference current upside rate information from a website, we are, in a change from the proposal, adding an instruction directing such an insurer to provide in (in lieu of the website address) a cross-reference to the current limits on index gains disclosed elsewhere in the prospectus.357 Lastly, set off from the rest of the legend and with emphasis, we are, largely as proposed, adopting the requirement to include a statement that if amounts are removed from an indexlinked option before the end of its crediting period, the insurance company may apply a contract adjustment (or will apply a contract adjustment, as appropriate).358 The required legend also includes a statement that this may result in a significant reduction in the investor’s contract value that could exceed any protection from the index’s loss that would be in place if an investor held the option until the end of the term. This statement is designed to highlight the potential impact on an investor’s returns if amounts are removed prior to the end of a crediting period. The one comment we received concerning the proposed statement addressed the use of the term 357 Final Form N–4, Instruction 1(f) to Item 17(b). proposed legend required a statement that included the phrase ‘‘we may apply a Contract Adjustment.’’ The final amendments instead include the phrase ‘‘we [may/will] apply a Contract Adjustment’’ in the legend. This provides flexibility to make a definitive statement to the extent that removing amounts from the index-linked option before the end of the crediting period will always result in the application of a contract adjustment. 358 The E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ‘‘withdrawn’’ and suggested adding the phrase ‘‘or deducted’’ to reflect that deductions other than withdrawals may result in a contract adjustment.359 We agree that referring solely to amounts being ‘‘withdrawn’’ from an indexlinked option may not be understood to cover all of the circumstances in which a contract adjustment may apply. Accordingly, and consistent with wording used elsewhere in the form, we are modifying the first sentence of the required statement to state that ‘‘if amounts are removed from an IndexLinked Option before the end of its Crediting Period, we [may/will] apply a Contract Adjustment.’’ 360 As proposed, we are also requiring the statement to include appropriate cross-references to the section(s) of the prospectus that describe the features of the index-linked options as well as contract adjustments.361 This approach is designed to help investors that are interested in more detail about key aspects of the index-linked options to locate that information quickly. Table ddrumheller on DSK120RN23PROD with RULES2 As proposed, the legend will be followed by a table that lists and highlights key elements of each indexlinked option available under the contract. Specifically, the table will, largely as proposed, require, in sequential columns, the identification of (1) each index by name; (2) type of index; (3) crediting period, indicating the duration of the index-linked option in years; (4) index crediting methodology; (5) current limits on index loss if held to the end of the crediting period; and (6) minimum limit on index gain for each index-linked option.362 In a change from the proposal, we are modifying the last two column headings in the table to more clearly specify the information required. Specifically, we are adding to the fifth column heading the word ‘‘Current’’ so it now reads ‘‘Current Limits on Index Loss (if held until end of Crediting Period),’’ and removing from the sixth column heading the word ‘‘Guaranteed’’ and adding the parenthetical ‘‘(for the life of the Index-Linked Option)’’ to clarify that the minimum limits to be disclosed are for the life of the index option (not for the life of the contract).363 These 359 CAI Comment Letter (discussing the proposed statement ‘‘If amounts are withdrawn from an Index-Linked Option before the end of its Crediting Period, we may apply a Contract Adjustment.’’). 360 Final Form N–4, Item 17(b)(1). 361 Final Form N–4, Instruction 1(a) to Item 17(b). 362 Final Form N–4, Item 17(b)(1). 363 See also infra footnote 372 and accompanying text (discussing separate disclosure describing VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 column heading changes are not intended to change the substance of the information that will be provided under each of these headings. As proposed, the description of the type of index will be a brief statement of the type of index (e.g., market index, exchange-traded fund, etc.), or a brief statement describing the assets that the index seeks to track (e.g., U.S. large-cap equities).364 The column indicating the type of index crediting methodology used for each index-linked option will only be required if the RILA utilizes multiple index crediting methodologies under the contract (e.g., point-to-point, step-up, enhanced upside, etc.), as proposed.365 The disclosures regarding current limits on index loss will require an issuer to: (1) state the current percentage used in the insurance company’s interest crediting methodology to limit the amount of negative index return credited to the index-linked option; and (2) identify in the table whether this limit is a buffer, floor, or some other rate or measure.366 In the last column, issuers will be required to state the minimum percentage that may be used to limit the amount of positive index return credited to an index-linked option (for the life of the index-linked option) and to identify in the table whether this limit is a cap, participation rate, or some other rate or measure.367 The additional parenthetical is designed to distinguish the disclosure that will be provided in this column (minimum limits guaranteed for the life of the indexlinked option) from the new disclosure item that we are adding in a change from the proposal discussed in more detail below, providing information about guaranteed minimum limits that will always be available under the contract.368 We understand that it is common for a RILA to offer guaranteed minimums on index gains associated with specific index-linked options, as well as guaranteed minimums for the life of the contract. The proposed guaranteed minimum limits for the life of the contract). 364 Final Form N–4, Instruction 3 to Item 17(b)(1). 365 Final Form N–4, Instruction 5 to Item 17(b)(1). If all index-linked options offered by a RILA contract use the same crediting methodology, the table will not include the column. See, e.g., supra footnote 297. 366 Final Form N–4, Instruction 6 to Item 17(b)(1). In contrast to current limits on index gain, we understand that the current limits on index loss typically do not change frequently. In a change from the proposal, we added ‘‘Current’’ to the column heading ‘‘Current Limits on Index Loss (if held until end of Crediting Period)’’ to clarify the limits to be disclosed in that column. 367 Final Form N–4, Instruction 7 to Item 17(b)(1). 368 See infra paragraph accompanying footnotes 372–373. PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 60015 approach, which only included a column heading for ‘‘guaranteed minimum limit on index gain,’’ therefore could be confusing, and the final amendments’ approach will specify separate disclosure for each type of guaranteed minimum limit. As proposed, to ensure investors only receive disclosure relevant to them, RILAs will only be permitted to include in the table those index-linked options that are available under the contract, and must indicate if any of the options are restricted (e.g., because of a ‘‘hard’’ or ‘‘soft’’ close), consistent with the current disclosure requirements for variable options.369 Further, to promote disclosure in a consistent format to facilitate comparisons, issuers will be allowed to add, modify, or exclude table headings only as necessary to describe the material features of an index-linked option.370 We are also adopting instructions, largely as proposed, stating that if the index’s return does not reflect the full investment performance of the assets tracked by the index, the table must include a footnote that states the index is a price return index, not a total return index, and does not reflect dividends paid on the securities composing the index, and/or that the index deducts fees and costs when calculating index performance, as applicable. In these cases, the footnote must state that this will reduce the index’s return and cause the index to underperform a direct investment in the securities composing the index.371 Investors evaluating indexlinked options may be more familiar with a version of a given index that reflects the full performance of the index constituents, and this disclosure will alert investors that the index associated with a particular indexlinked option will have relatively lower returns. In a change from the proposal, we are requiring a new disclosure item immediately below the index-linked options table to provide investors information about minimum limits on index losses and gains that will always be available under the contract.372 Although we did not propose to require this disclosure in the appendix, this requirement reflects the approach taken elsewhere in Form N–4, where information about current rates for 369 Final Form N–4, Instruction 1(b) to Item 17(b)(1). 370 Final Form N–4, Instruction 1(c) to Item 17(b)(1). 371 Final Form N–4, Instruction 1(d) to Item 17(b). We are making conforming changes to the proposed instruction to mirror parallel instructions in other sections of Form N–4. See, e.g., supra footnote 311. 372 Final Form N–4, Item 17(b)(2). E:\FR\FM\24JYR2.SGM 24JYR2 60016 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations index-linked options is accompanied by information about minimum guaranteed limits on downside protection and current upside rates, so an investor evaluating information about the terms of an index-linked option can consider both the terms currently being offered as well as information about terms that may be available in future crediting periods.373 ddrumheller on DSK120RN23PROD with RULES2 Fixed Options Consistent with the approach we are adopting with respect to the Item 6 disclosure requirements (Description of the Insurance Company, Registered Separate Account, and Investment Options), we are requiring in the appendix summary information about fixed options currently available under the contract.374 These disclosure requirements are similar to the legend and table we are adopting for indexlinked options, adjusted to reflect fixed option details. Under the final amendments, the fixed option legend, in addition to identifying that what follows is a list of fixed options currently available under the contract, will indicate that the insurance company (1) may change the features of the fixed options identified, offer new ones, and terminate existing ones; and (2) will provide the investor written notice before doing so. In a change from the proposal to accommodate the inclusion of registered MVA annuities on Form N–4, we are requiring a legend stating that if amounts are withdrawn from a fixed option before the end of its term, the insurer may (or, as appropriate, will) apply a contract adjustment, which may result in a significant reduction in contract value.375 The other requirements for the fixed option table, which will apply to registered MVA annuities as applicable without the need for any further changes, are being adopted as proposed. As proposed, the fixed option table will include columns identifying (1) the name of the fixed option, (2) the term, and (3) the minimum guaranteed interest rate.376 Insurance companies will be instructed to include appropriate cross-references in the legend to the sections of the prospectus that describe the features of fixed options as well as the contract 373 See, e.g., final Form N–4, Item 6(d)(2)(i)(B) and (ii)(B). 374 Final Form N–4, Item 17(c). 375 Final Form N–4, Item 17(c); see also, e.g., Proposing Release at n.362 (describing potential changes to the appendix to accommodate registered MVA annuities). 376 Consistent with the approach in Item 6, the minimum guaranteed interest rate will be required to be stated as a numeric rate rather than referring to any minimums permitted under State law. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 adjustment.377 As with index-linked options, insurance companies may add, modify, or exclude table headings only as necessary to describe material features of a fixed option. One commenter opposed our proposal to include specific information about fixed options in the appendix altogether, consistent with its objections regarding our proposal to include fixed option disclosures in Item 6, and instead suggested that any disclosure regarding fixed options be voluntary and not subject to a specified disclosure format.378 For the reasons discussed above in connection with fixed option disclosure requirements in Item 6, we are requiring insurers to provide summary information about fixed options in the appendix, as proposed and with conforming modifications to reflect the inclusion of registered MVA annuities. 5. Principal Risks of Investing in the Contract (Item 5) An investment in a contract offering index-linked options exposes investors to unique risks that may be different from those that are common to other investment products, including contracts that solely offer variable options. We are amending Item 5 to address certain principal risks that are particularly relevant to investors in RILAs. We are adopting these requirements largely as proposed, with conforming changes to ensure consistency with other prospectus disclosure requirements as discussed below. It is not necessary to include any changes from the proposal to address the inclusion of registered MVA annuities on Form N–4, because the proposed risk disclosure requirements addressed risks associated with negative contract adjustments. In addition to restructuring the current item to incorporate the proposed risk disclosure requirements addressing index-linked options, we are adopting certain structural changes that are designed to clarify existing requirements but are not anticipated to result in substantively different disclosure requirements for contracts offering variable options. These changes also will consolidate certain risk disclosures insurance companies currently provide for variable annuities in other sections of the prospectus. We are requiring these risk disclosures in a single location to communicate risks 377 The requirement to cross-reference the sections of the prospectus that describe the contract adjustment is a conforming change to the proposed requirements to reflect the inclusion of registered MVA annuities on Form N–4. 378 CAI Comment Letter. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 more consistently and effectively to investors. As the Commission has previously explained, the requirements for principal risk disclosure in the prospectus are designed to provide a consolidated presentation of principal risks.379 One commenter addressed the proposed amendments to Item 5. This commenter stated that it did not oppose our proposal to require registrants to provide index-linked option risk of loss disclosures in Item 5, stating that this section of the prospectus is intended for readers who want more detailed information about risks, and the Item 5 disclosure requirements provide registrants with the ability to give appropriate context that an investor may need to better understand those risks.380 No commenter specifically addressed risk disclosure for registered MVA annuities, although as discussed above commenters generally supported registering offerings of registered MVA annuities on Form N–4 and did not distinguish whether these offerings should be subject to different risk disclosure requirements than those that were proposed.381 We received no other comments on this aspect of the proposal. As proposed, the principal risk disclosure item of Form N–4 will be restructured into separate sub-items while also making certain changes from the current version designed to clarify existing disclosure obligations.382 The new sub-items are designed to be nonexclusive examples of the principal risks of investing in the contract being registered. In addition to existing disclosure requirements, these subitems will also include new risk disclosures specific to index-linked options, as applicable. We are adopting parallel changes to the risk disclosures most applicable to variable annuities to avoid any implication that risk disclosure addressing variable annuities should be provided at a different level of detail than the disclosures for RILAs. The approach we are adopting will retain the current requirement for registrants to explain the principal risks of purchasing a contract but will also require, largely as proposed, an explanation of the principal risks associated with market risk, including the risks of negative investment performance.383 Additionally, for index379 See VASP Adopting Release at n.690 and accompanying text. 380 CAI Comment Letter. 381 See supra Section II.B. 382 Final Form N–4, Item 5(a)–(b), (d)–(f). 383 Final Form N–4, Item 5(a). In a change from the proposal, the heading for this disclosure item in final Form N–4 is ‘‘Market Risk’’ (instead of E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 linked options, we are requiring prominent disclosure of the maximum amount of loss an investor could experience from negative index performance, as a percentage, after taking into account the current limits on index loss provided under the contract.384 We are adopting this requirement largely as proposed, with conforming changes to reflect parallel disclosure we are requiring in other locations in the form.385 Moreover, in a change from the proposal, the insurer may provide a range of the maximum amount of loss if the contract offers different limits on index loss. In addition, in a change from the proposal, an insurer must prominently disclose any minimum limits on index losses that will always be available under the contract, or, alternatively prominently state that it does not guarantee that the contract will always offer index-linked options that limit index loss (which would mean risk of loss of the entire amount invested). These changes from the proposal mirror parallel disclosure requirements for index-linked options that we are adopting in other parts of the form.386 Although disclosures that address certain risks of index-linked options will be required in other locations in the prospectus, we are requiring that RILA issuers include certain risk factors, such as disclosures related to maximum potential loss from index performance, in the consolidated summary of principal risks associated with the contract. Including this statement and others in Item 5 will help investors assess the particular risks associated with RILAs in the context of the other required principal risk disclosures, a premise to which a commenter agreed.387 This approach also will help ensure that an investor who reviews principal risk disclosure will be able to review all principal risks in one place in the prospectus, as the Commission ‘‘Investment Option Risk,’’ as proposed) to clarify the focus of this disclosure item and distinguish it from Item 5(c), which specifically addresses IndexLinked Option Risk. 384 Id. 385 See, e.g., final Form N–4, Item 1(a)(6) (for example, in the first sentence of Item 5(a), we are replacing ‘‘poor’’ investment performance, as proposed, with ‘‘negative’’ investment performance to conform with similar cover page disclosure requirements). 386 The changes to Item 5(a) parallel changes to risk disclosures in final Form N–4, Item 1(a)(6) and Instruction 3(a) to Item 3. See supra discussion at Section II.C.3 and II.C.4.(b). 387 See supra footnote 380 and accompanying text. As discussed above, we are changing our calculation method for maximum risk of loss from index performance throughout the form to account for changes being adopted to minimum contract guarantees. See supra Section II.C.1. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 stated as a goal when redesigning Form N–4 in connection with updating disclosure for variable contracts and implementing a summary prospectus framework.388 Under the final amendments, the next sub-item, which concerns the risks of early withdrawal, will require the prospectus to disclose that contracts are unsuitable as short-term savings vehicles and explain the limitations on access to cash value through withdrawals, including surrender charges, negative contract adjustments, and loss of interest.389 The disclosure must also explain the possibility of adverse tax consequences. We are adopting this sub-item as proposed. These are features of annuity contracts that implicate why they are not shortterm saving vehicles. In addition, insurance companies that offer contracts with contract adjustments will be required to state the maximum potential loss resulting from a negative contract adjustment, as a percentage. Although this last statement will be required to be provided in other locations in the prospectus, we are including this risk disclosure in the consolidated summary of principal risks because contract adjustments can significantly affect contract value. The next sub-item, which concerns the principal risks associated with index-linked options, will, substantially as proposed, include new risk disclosure requirements tailored to address unique risks associated with these investment options.390 Under these requirements, a registrant will (in addition to the risks of potential loss from negative index performance, as discussed above) describe the principal risks of investing in any index-linked options offered under the contract. The sub-item will, as proposed, require the prospectus to include a statement that an investor in an index-linked options is not invested in the index or in the securities tracked by the index. This reflects our concern, based on the results of qualitative investor interviews, that investors may be confused about whether an investment in an index-linked option is a direct investment in the index. 388 VASP Adopting Release at text following n.689 (‘‘The principal risks section is designed to provide a consolidated presentation of principal risks which can be cross-referenced by registrants to reduce repetition that might otherwise occur if the same principal risks are repeated in different sections of the prospectus.’’). 389 Final Form N–4, Item 5(b). 390 Final Form N–4, Item 5(c). In a change from the proposal, we are relocating ‘‘as applicable’’ from the text of Instructions 1 and 2 to Item 5(c) to the Instruction preamble to streamline. PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 60017 To help ensure that RILA prospectuses address certain key risks, the instructions to this disclosure requirement will, as proposed, specify that discussion of the principal risks related to index-linked options must include the principal risks relating to: (1) limiting positive index returns; (2) the possibility of losses despite limits on negative index returns; (3) interest crediting methodologies; (4) the impact of contract fees on the amount of interest credited; and (5) the reallocation of contract value at the end of an index-linked option’s crediting period.391 We are also adopting, as proposed, instructions specifying that this discussion will be required to include principal index risks relating to: (1) the type of index (e.g., market risk, small-cap risk, foreign securities risk, emerging market risk, etc.); (2) the exclusion of dividends from index return; and (3) market volatility.392 These instructions require RILA issuers to specify which risks relate to each index offered under the contract, and to describe the principal risks related to the possible substitution of the index before the end of an index-linked option’s crediting period. An additional new sub-item will require, as proposed, a description of the principal risks associated with any contract benefits (e.g., death benefits, living benefits), including the impact of excess withdrawals, if applicable.393 These risks include, for example, investment restrictions associated with a living benefit, which may limit investment performance. Because these risks could impact the expected performance of the annuity, or in some cases could even terminate the annuity, we are requiring issuers to disclose them in the prospectus. These risks could be applicable to variable annuities, RILAs, or registered MVA annuities. Another new sub-item will require, as proposed, an explanation of the principal risks associated with the insurance company’s ability to meet its guarantees under the contract, including risks relating to its financial strength and claims-paying ability, which as described below may be of particular concern for investors who allocate contract value to index-linked options.394 We are requiring this disclosure to be included in the consolidated principal risks section of the prospectus for completeness, and to help ensure that a prospectus discloses 391 Final Form N–4, Instruction 1 to Item 5(c). Form N–4, Instruction 2 to Item 5(c). 393 Final Form N–4, Item 5(d). 394 Final Form N–4, Item 5(e). 392 Final E:\FR\FM\24JYR2.SGM 24JYR2 60018 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations the insurance company’s claims-paying ability with regard to its contractual guarantees. Lastly, we are adopting as proposed a final new sub-item, which will require a description of the principal risks relating to any material reservation of rights under the contract, including if applicable the right to: (1) remove or substitute portfolio companies; (2) add or remove index-linked options and change the features of an index-linked option from one crediting period to the next; (3) stop accepting additional purchase payments; and (4) impose investment restrictions or limitations on transfers.395 We are requiring this disclosure because the ability to discontinue contract features, alter an investor’s ability to participate in an index’s upside performance, and otherwise change features is important information for investors when making an investment decision. 6. Addition of Contract Adjustments and Other Amendments to Fee and Expense Disclosures (Items 4, 7, and 22) We are adopting amendments to Form N–4, largely as proposed, to require specific disclosures regarding contract adjustments and other implicit RILAspecific costs that can result in a significant erosion of investment principal. The required disclosures, set forth in Items 4, 7, and 22(d) of Form N–4, are designed to provide investors with a better understanding of the mechanics of these costs and the associated potential for loss. We are also adopting revisions to the existing provisions of these items, applicable to all issuers registering offerings on Form N–4, to clarify certain terminology. ddrumheller on DSK120RN23PROD with RULES2 a. Amendments to Fee Table Disclosure Requirements (Item 4) The fee table of Form N–4 provides detailed information on the fees and expenses investors will pay when buying, owning, and surrendering or making withdrawals from the contract, as well as those paid each year during the time the investor owns the contract. We are amending the fee table to require specific disclosures regarding contract adjustments and other costs to investors specific to RILAs, including a detailed description of contract adjustments in the prospectus that will be proximate and similar to other disclosures regarding fees and expenses. We are adopting amendments to the fee table largely as proposed, with certain 395 Final Form N–4, Item 5(f). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 modifications after considering comments discussed below.396 Transaction Expenses and Adjustments Tables Insurance companies currently must include a transaction expenses table in their prospectuses, describing fees and expenses investors must pay when buying, owning, and surrendering or making withdrawals in connection with a contract. To provide proximate and similar disclosure for non-variable annuity-specific costs, we are adopting, with some changes to the proposal, a requirement that insurance companies additionally include the maximum negative contract adjustment that may be imposed, to be expressed as a percentage of contract value at the start of the crediting period or the amount withdrawn, as applicable. The proposal would have required this disclosure to appear in the transaction expenses table that Form N–4 issuers currently include in their prospectuses. In response to comments questioning the disclosure of contract adjustments in the transaction expenses table, and in a change from the proposal, we are adding a separate adjustments table, which will follow the transaction expenses table. Finally, to provide investors notice of the circumstances where they might be subject to this cost, we are also adopting, as proposed, a requirement that insurance companies include a footnote describing all transactions potentially subject to a contract adjustment.397 The commenters who addressed the proposed amendments to the transaction expenses table opposed including the maximum negative contract adjustment, asserting that contract adjustments are a product feature based on market risk rather than a type of fee or expense.398 One commenter further stated that characterizing contract adjustments as fees penalizes insurance companies for allowing investors to make early 396 In order to eliminate unnecessary information in the prospectus, we are amending instruction 1 to Item 4 to specify that registrants may omit a narrative explanation that is not applicable under the contract. See final Form N–4, Instruction 1 to Item 4. We are also amending instruction 5 to Item 4 regarding the preparation of the transaction expenses and adjustments and annual contract expenses tables, specifying that the instruction to disclose the maximum guaranteed charge as a single number where a fee is calculated based on a benchmark does not apply to a contract adjustment. See final Form N–4, Instruction 5 to Item 4. We received no comments on these changes and are adopting them as proposed. 397 See final Form N–4, Instruction 12 to Item 4. 398 VIP Working Group Comment Letter; CAI Comment Letter. PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 withdrawals.399 Another commenter opposed disclosing the maximum negative contract adjustment here because, although contract adjustments may result in losses to investors, the commenter believed this maximum potential loss disclosure ultimately is risk disclosure, and not an explicit fee or charge, and because contract adjustments can result in a gain as well as a loss.400 The commenter also asserted that it grossly mischaracterizes the risk of loss because the risk of suffering such a maximum loss is remote. The transaction expenses table discloses all transaction expenses paid directly by the investor, such as sales loads or surrender charges, including when those transaction expenses are fees or expenses paid due to an investor withdrawal.401 A negative contract adjustment, although not an explicit fee or expense, could have a similar impact on an investor as an explicit fee or expense because a negative contract adjustment can reduce an investor’s investment just like a surrender charge, for example, and has the potential to reduce it significantly. By disclosing the maximum negative contract adjustment, in addition to any transaction expenses, investors are alerted to the potential costs they will bear when amounts are withdrawn prematurely. These costs could result in the loss of a significant amount of money. This is true even if, in the context of a RILA, the index has experienced a positive gain at the time of withdrawal or the RILA includes a loss protection feature. For these reasons, the maximum negative contract adjustment should be disclosed proximate to the transaction expenses currently disclosed in the transaction expenses table, including sales loads imposed on purchases, deferred sales loads, surrender charges, and transfer fees. Including the maximum negative contract adjustment disclosure proximate to the transaction expense disclosure helps ensure that investors have access, in one place, to full disclosure regarding the economic consequences of withdrawing money from an index option or the contract. Nonetheless, we appreciate that maximum negative contract adjustments may not be as clearly identified by investors as transaction ‘‘expenses’’ per se as other items in this table. To address this concern, we have added a separate adjustments table, which will follow the transaction expenses table. The table will be preceded by an 399 VIP Working Group Comment Letter. Comment Letter. 401 See current and final Form N–4, Item 4. 400 CAI E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ‘‘Adjustments’’ heading and describe the adjustments, in addition to any transaction expenses, that apply if all or a portion of the contract value is removed from an investment option or from the contract before the expiration of a specified period. This new table is designed to highlight the effect of contract adjustments for investors, consistent with the proposal, while conveying that the contract adjustment is not itself an explicit fee. The transaction expenses table also currently requires registrants to describe the maximum exchange fee that investors could incur for any exchange or transfer of contract value from the registrant to another investment company, or between sub-accounts or to the insurance company’s general account. In a change relevant to all Form N–4 issuers, we are adopting, as proposed, a terminology change, replacing the term ‘‘exchange fee’’ with ‘‘transfer fee,’’ as this term better reflects that, in the staff’s experience, the vast majority of such fees are imposed on transfers of contract value among investment options under the contract.402 We received no comments on this aspect of the proposal. Annual Contract Expenses Form N–4 issuers currently must include an annual contract expenses table in their prospectuses, detailing the fees and expenses that investors pay each year in administrative expenses, base contract expenses, and optional benefit expenses. Currently, base contract expenses must be expressed as a percentage of average account value. In a change relevant to all Form N–4 issuers, we are adopting, as proposed, an amendment that will also allow base contract expenses to be expressed as a percentage of average account value or contract value. Index-linked and fixed MVA options do not generally use the concept of average account values (as variable annuities do), but they do have a concept of contract value. Making this change will therefore facilitate including those investment options on the form as it allows them to accurately express base contract expenses. We do not anticipate that this change will substantively affect variable annuities’ ddrumheller on DSK120RN23PROD with RULES2 402 See final Form N–4, Instruction 10 to Item 4. As defined, ‘‘transfer fee’’ will encompass both the maximum fee charged for any exchange or transfer of contract value between investment options as well as the maximum fee charged for any exchange or transfer of contract value from the registered separate account to another investment company or from the registered separate account to the insurance company’s general account. Thus, the amended definition and terminology regarding transfer fees will not result in any substantive change for existing Form N–4 issuers. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 existing disclosure and we received no comments on this aspect of the proposal.403 Additionally, to place investors on notice of the unique and ongoing tradeoff costs associated with RILAs that may not be captured by this table, we are requiring, in part as proposed, insurance companies to include the following statement in the table with respect to index-linked options: In addition to the fees described above, we limit the amount you can earn on [certain of] the Index-Linked Options. This means your returns may be lower than the Index’s returns. In return for accepting this limit on Index gains, you will receive some protection from Index losses. As proposed, the disclosure included a sentence stating that ‘‘Imposing this limit helps us make a profit on the Index-Linked Option.’’ Some commenters were opposed to including the statement that an insurance company limits gains on an indexlinked option in order to help the insurer make a profit.404 These commenters stated that the disclosure is an oversimplification of an insurance company’s business model and that it would provide investors with a false understanding about RILA profitability for the issuers. In particular, commenters stated that the disclosure suggested that an insurance company applies cap rates and participation rates as a means of capturing for itself any increases in index value above the cap rate.405 Some commenters explained that cap rates and participation rates are among the investment parameters that a RILA issuer can use to design index linked options and that the effectiveness of the options in hedging the performance of the reference index is only one of the factors that determines 403 We are adopting, as proposed, two related, non-substantive amendments to the instructions relating to annual contract expenses relevant to all issuers. These changes will broaden terminology given the expanded scope of securities offerings registered on Form N–4 as amended. Currently, the instruction for describing administrative expenses references ‘‘any Contract, account, or similar fee on all Investor Accounts;’’ however, as noted below, we are removing the term ‘‘Investor Account,’’ and amending this instruction to conform to that change. See final Form N–4, Instruction 13 to Item 4. Relatedly, we are amending the instruction regarding base contract expenses to remove a reference to fees and expenses deducted ‘‘from separate account assets or charged to all Investor Accounts,’’ and replacing it with an instruction to consider fees and expenses ‘‘charged to any Investment Option.’’ See final Form N–4, Instruction 14 to Item 4. We received no comments on this aspect of the proposal. 404 See ACLI Comment Letter; Gainbridge Comment Letter; CAI Comment Letter. 405 Gainbridge Comment Letter; CAI Comment Letter. PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 60019 the profitability for a RILA issuer.406 One commenter stated that an explanation of an insurance company’s business model or the profitability of issuing RILAs would not be helpful to investors.407 In a change from the proposal, after considering the comments discussed above, insurance companies will not be required to state that limits on index earnings help insurance companies make a profit on index-linked options. Instead, insurance companies will be required to include a sentence stating that ‘‘This means your returns may be lower than the Index’s returns.’’ 408 The purpose of this disclosure is to put investors on notice that although there are typically not explicit fees charged for these products, and in exchange for that lack of a fee, investors generally will accept some limit on their ability to participate in index gains. This disclosure is appropriate to address the results of our investor testing, which demonstrated that participants may not understand that limits on index earnings reduce an investor’s potential gains from the market.409 This disclosure is also necessary to alert investors to the implicit fees inherent in limiting upside index participation. Without the disclosure, which will follow the other expenses relevant to investors, including administrative expenses, base contract expenses, and optional benefit expenses in the annual contract expenses table, an annual contract expenses table showing no explicit ongoing fees could itself mislead investors. In another change from the proposal, the disclosure referring to limits on ‘‘an Index-Linked Option’’ was revised to ‘‘[certain of] the Index-Linked Options.’’ Because the disclosure related to the entire contract whose offering is being registered, this phrasing did not account for variances between index-linked options offered in that contract where, for example, some index-linked options have limits on upside participation but others do not. One commenter stated that cap rates and participation rates do not limit the amount an investor can earn in all scenarios, such as when an issuer does not impose a limit on an 406 ACLI Comment Letter; Gainbridge Comment Letter. 407 ACLI Comment Letter. 408 Final Form N–4, Item 4. Specifically, this disclosure at proposal read: ‘‘In addition to the fees described above, we limit the amount you can earn on an Index-Linked Option. Imposing this limit helps us make a profit on the Index-Linked Option. In return for accepting this limit on Index gains, you will receive some protection from Index losses.’’ See Proposing Release at Section II.B.5.a). 409 See OIAD Investor Testing Report at 39 and 59. E:\FR\FM\24JYR2.SGM 24JYR2 60020 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations index-linked option or an investor earns the full index performance because the actual index gain is less than the index limit.410 We appreciate that a RILA may offer both index-linked options with and without limits on the amounts investors can earn.411 To account for this, we have changed the language of the final disclosure to refer to ‘‘[certain of]’’ the index-linked options in these limited circumstances. We are not amending the form to address cases where there are limits but the actual index performance is below those limits because that cannot be known at the time of the disclosure. ddrumheller on DSK120RN23PROD with RULES2 Annual Portfolio Company Expenses Form N–4 currently requires issuers to include in the prospectus an annual portfolio company expenses table, disclosing the minimum and maximum total operating expenses charged by the portfolio companies offered by variable annuity contracts that may be periodically charged to investors during the time they own the contract. This includes costs incurred by portfolio companies directly and, if the portfolio company invests in other mutual funds, the fees and expenses the portfolio company indirectly incurs from these investments. In a change that will apply to variable annuity prospectuses, we are adopting, as proposed, a requirement that registrants disclose that expenses shown in this table may change over time and may be higher or lower in the future. This modification will help to ensure that investors understand that these charges may increase over time, notwithstanding that these charges are described as maximum expenses. Additionally, this disclosure is similar to disclosures we are requiring of nonvariable annuities that are also subject to change, specifically disclosures related to changing upside and downside limits.412 We received no comments on this aspect of the proposal. Example Form N–4 issuers currently must provide an example in their prospectuses that is designed to allow variable annuity investors to compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. We are amending, as proposed, the example requirements to clarify, in relation to variable annuities 410 See ACLI Comment Letter. insurance company would not include this disclosure if none of the index-linked options offered in the prospectus limit the amount of an investor’s gains. See, e.g., final Form N–4, General Instruction C.1(d). 412 See, e.g., final Form N–4, Item 17(b)(1). 411 An VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 and combination contracts that have variable options, that the example is designed to permit investors to compare costs of investing solely in variable options under the contract with costs associated with variable options offered under other annuity contracts. The example will be preceded with a legend specifically stating that: the example assumes that all contract value is allocated to variable options, the example does not reflect contract adjustments, and costs would likely differ if an investor selects index-linked options or fixed options. The one commenter that spoke to this aspect of the proposal supported it and agreed that it served the intended purpose.413 b. Charges and Adjustments (Item 7) Item 7 currently requires registrants to provide a brief description in their prospectuses of all current charges deducted from purchase payments, investor accounts, assets of the registrant, or any other source.414 For the reasons described above and given the potentially significant economic consequences contract adjustments can have on investors in non-variable annuities, we are also adopting additional specific requirements to incorporate contract adjustments into the prospectus’s disclosure of charges, which will consist of a description in simple terms of any contract adjustments under the contract. These disclosures are designed to be comparable and proximate to existing disclosures about contract charges applicable to variable annuities.415 Comment Letter. addition to the changes discussed below, we are adopting as proposed a few clarifying changes to Item 7. Specifically, consistent with the adopted changes to the fee table, we are adopting proposed changes in terminology that will affect all Form N–4 issuers, replacing references in Item 7 to ‘‘investor accounts’’ and the assets of ‘‘registrants’’ with the terms ‘‘contract value’’ and ‘‘investment option’’ assets, respectively. Therefore, in responding to Item 7, issuers will describe charges deducted from purchase payments, contract value, investment option assets, or any other source. Additionally, we are adopting as proposed two nonsubstantive terminology changes in Instruction 3 to Item 7(a) regarding how registrants must describe the sources that will be used to cover shortfalls where proceeds from sales loads will not cover expected costs. First, we are replacing the term ‘‘depositor’’ with the term ‘‘insurance company.’’ Second, where shortfalls are to be made from an insurance company’s general account, this instruction currently requires a disclosure that amounts paid by the insurance company may consist of proceeds derived from base contract expenses deducted from the registered separate account. We are striking the italicized language referring to assets of the registered separate account because it is superfluous given the definition of ‘‘base contract expenses’’ in amended Instruction 14 to Item 4, discussed above. We received no comments on these aspects of the proposal. 415 See final Form N–4, Item 7(a)–(d). PO 00000 413 CAI 414 In Frm 00044 Fmt 4701 Sfmt 4700 These disclosures are adopted as proposed, except that we are changing the title of Item 7 from ‘‘Charges’’ to ‘‘Charges and Adjustments’’ in response to comments, as discussed in more detail below.416 Specifically, we are adopting a requirement that insurance companies must: (1) disclose (as a percentage) the maximum potential loss that could result from a negative contract adjustment; (2) define the period during which any contract adjustment would apply; and (3) describe all transactions subject to a contract adjustment.417 Insurance companies will also be required to include a description of how the contract adjustment will affect the contract value, surrender value, death benefit, and any living benefits, and disclose that a negative adjustment could reduce the values under the contract in an amount greater than the value withdrawn.418 They will also need to describe, in simple terms, how the contract adjustment is determined under the contract, and the relationship between the contract adjustment and any other charges, fees, or adjustments applied under the contract, including, for example, the sequence in which charges, fees, and adjustments are applied.419 The required disclosure will 416 We proposed to amend Instruction 6 to Item 7 to require a description of the relationship between the contract adjustment and any other charges or fees applied under the contract, including, for example, the sequences in which charges and adjustments are applied. In a modification from the proposal, we are amending Instruction 6 to Item 7 to require a description of the relationship between the contract adjustment and any other charges, fees, or adjustments applied under the contract, including, for example, the sequences in which charges, fees, and adjustments are applied. Fees and adjustments were added in respective places in the instruction for clarity and completeness compared to the proposal. See final Form N–4, Instruction 6 to Item 7. These disclosures apply to both RILAs and registered MVA annuities. 417 See final Form N–4, Instructions 1 through 3 to Item 7(e). In describing the transactions subject to a contract adjustment, the insurance company will need to describe, for example, whether adjustments apply if amounts are transferred or withdrawn from an index-linked or MVA option, or from the contract, due to a partial withdrawal, surrender, election of an annuity option, or payment of death benefit proceeds, or where a particular optional benefit (e.g., a withdrawal under a guaranteed living benefit) is utilized, and to describe any circumstances under which the adjustment will be waived. 418 See final Form N–4, Instruction 5 to Item 7(e). If applicable, the insurance company will also be required to state the impact of the contract adjustment on interest to be credited to an indexlinked option at the end of its crediting period. 419 See final Form N–4, Instructions 4 and 6 to Item 7(e). The description of how the contract adjustment is determined will have to provide a meaningful explanation of all the material features of the contract adjustment’s application, including: (1) information about any formula applied (e.g., a change in value of hypothetical derivative E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 also require the issuer to briefly describe the purpose of the contract adjustment, including, for example, that the contract adjustment transfers risk from the insurance company to the investor to protect the insurance company from losses on its own investments supporting contract guarantees if amounts are withdrawn prematurely.420 Finally, issuers will be required to disclose how an investor can obtain information about the current value of the contract adjustment, while stating that this value can fluctuate daily, and that the quoted value may differ from the actual value at the time of adjustment.421 The detailed disclosure on the method of calculating the contract adjustment will, as proposed, appear in the SAI, as opposed to the prospectus.422 Item 7(e) will include a cross-reference to Item 22(d) of Form N– 4, which will require more detailed disclosure on the contract adjustment’s calculation (including illustrative examples as to adjustment’s operation) to appear in the SAI. The more detailed SAI discussion will not be, however, a substitute for the Item 7 requirements. Thus, for example, an insurance company will not be permitted to include the formula underlying the contract adjustment calculation in the SAI in lieu of the required discussion of the contract adjustment in the prospectus. Rather, in addition to stating the formula in the SAI, the insurance company will need to include in the prospectus a brief description, in simple terms, of how the contract adjustment is determined. Some commenters stated that the proposal generally mischaracterizes contract adjustments as charges.423 One of these commenters stated that, as a result, Item 7 should not include any contract adjustment disclosures.424 The other of these commenters instead recommended that Item 7 be renamed from ‘‘Charges’’ to ‘‘Charges and Adjustments.’’ 425 This commenter stated that ‘‘Charges and Adjustments’’ would more accurately describe the disclosures in amended Item 7, which would include disclosures related to instruments); (2) the factors that may cause a positive or negative adjustment (e.g., timing of withdrawal, index volatility, increase in external interest rates); (3) a description of any proportionate withdrawal calculations; and (4) how adjustments are applied (e.g., allocated among the investment options, applied to a withdrawal amount). 420 See final Form N–4, Instruction 7 to Item 7(e). 421 See final Form N–4, Instruction 8 to Item 7(e). 422 See final Form N–4, Instruction 4 to Item 7(e). 423 VIP Working Group Comment Letter; CAI Comment Letter. 424 VIP Working Group Comment Letter. 425 CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 contract adjustments.426 This commenter also stated that this disclosure should focus on describing the mechanics of contract adjustments and exclude any maximum potential loss disclosures, which are already included elsewhere in the prospectus. Given that Item 7, as amended, includes significant disclosure related to contract adjustments, we agree, as one commenter recommended, that changing Item 7 from ‘‘Charges’’ to ‘‘Charges and Adjustments’’ is appropriate and provides a clear and accurate description of the specific disclosure that investors will find in disclosure provided in response to Item 7. However, similar to the inclusion of limits on upside gains as a ‘‘fee’’ or ‘‘expense,’’ as discussed above,427 a contract adjustment could potentially affect an investor the same way as other charges currently disclosed in Item 7, such as sales loads, administrative and transaction charges, risk charges, contract loan charges, and optional benefit charges. By including contract adjustment disclosure in the disclosure required by Item 7, including the maximum potential loss that could result from a negative contract adjustment, investors are provided with the necessary scope and level of detail about contract adjustments, together with information about charges that may apply upon a withdrawal, that could negatively affect an investor’s contract value or the amounts an investor could withdraw from the contract. These disclosures specifically address areas of confusion identified by investor testing, which showed that participants were confused about contract adjustments, their purpose, the situations in which they could arise, their potential magnitude, and their relationship to other fees and charges (e.g., surrender fees).428 c. Purchase of Securities Being Offered (Item 22) We are adopting, as proposed, amendments to Item 22, which addresses the purchase of securities being offered, to require specific, 426 The commenter also suggested that we delete the word ‘‘other’’ from the following proposed instruction: ‘‘Describe the relationship between the Contract Adjustment and any other charges or fees applied under the Contract . . .’’ because it suggests that contract adjustments are charges or fees. See Proposed Form N–4, Instruction 6 to Item 7(e). We decline to make this change for the reasons stated in the next paragraph. 427 See supra Section II.C.6.a (discussing a similar change made to the proposed transaction expenses table). 428 See, e.g., OIAD Investor Testing Report at Section 5, Qualitative Testing, Results From Round 2 and Section 7, Conclusions. PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 60021 detailed contract adjustment disclosures to appear in insurance companies’ SAIs. As discussed above, insurance companies will be required to provide in simple terms an explanation of the manner in which contract adjustments are determined in their prospectuses, while noting that further detail is available in the SAI and providing a cross reference to that information. To complement the discussion required in the prospectus by Item 7, Item 22(d) will require issuers to explain fully the operation of any contract adjustment that can be applied under the contract. This more detailed explanation will not take the place of the prospectus discussion, but will describe the technical, detailed aspects of the operation of the adjustment, including any formulas and an explanation of such formulas used to calculate the adjustment, and at least one numeric example to illustrate the application of the contract adjustment. This numeric example will be required to include a negative adjustment, reflect surrender charges (if applicable), and disclose the percentage change in contract value as a result of the adjustment. The one commenter who addressed these amendments supported them as an effective use of layered disclosure.429 Specifically, the commenter stated that the detailed disclosure on the method of calculating the contract adjustment, including examples, should be included in the SAI and a cross-reference to the detailed disclosure should be included in Item 7(e). The mechanics of contract adjustments under a non-variable annuity are typically complex, and often involve factors or formulas that can be difficult for many investors to understand.430 Because the application of a negative contract adjustment can substantially affect an investor’s contract value, it is important that information on negative contract adjustments is available in the SAI for investors who want to learn more about the calculation. In addition to promoting transparency generally, the required disclosure will also ensure that liability attaches under section 11 of the Securities Act for any material misrepresentations regarding the application of a contract adjustment.431 429 CAI Comment Letter. Release at Section II.B.5.c. 431 See also VASP Adopting Release at n.700 (stating that summary prospectus disclosure requirements are designed to substantively track parallel disclosure requirements in the statutory prospectuses to ensure that the summary prospectus disclosures are subject to liability under Section 11 of the Securities Act). 430 Proposing E:\FR\FM\24JYR2.SGM 24JYR2 60022 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 We are also, as proposed, applying certain existing SAI disclosure requirements to insurance companies about the purchase of non-variable annuity securities being offered. Specifically, we are requiring insurance companies to describe the manner in which the securities are offered to the public by addressing any exchange privileges between investment options not described in the prospectus.432 Additionally, we are requiring RILA and registered MVA annuity issuers to describe the method used to determine the sales load.433 We are not applying the existing disclosure requirement dealing with frequent transfer arrangements to non-variable annuity issuers, as its provisions are relevant only to variable options.434 We received no comments on this aspect of the proposal. 7. Information About Contracts With Index-Linked and/or MVA Options (Item 31A) We are adopting new Item 31A to Form N–4 to require census-type information regarding non-variable annuities offered in connection with the registration statement. Item 31A will require an insurance company to provide the following information regarding any non-variable annuity offered through the registration statement, as of the most recent calendar year-end in a tabular format: (1) the name of each contract; (2) the number of contracts outstanding; (3) the total value of investor allocations attributable to index-linked and/or MVA options; (4) the number of contracts sold during the prior calendar year; (5) the gross premiums received during the prior calendar year; (6) the amount of contract value redeemed during the prior calendar year; and (7) whether the contract is a ‘‘combination contract,’’ that is, a contract that offers variable options in addition to index-linked or MVA options.435 We are adopting Item 31A largely are as proposed, with certain changes designed to include registered MVA annuities in this item.436 In a change from the proposal, we also are requiring insurance companies that incorporate current limits on index gains into the prospectus by reference to a website to provide in response to Item 31A all of the then-current limits on index gains that were in effect during the twelve months ending on December 31 of the 432 See final Form N–4, Item 22(a). final Form N–4, Item 22(b). 434 See final Form N–4, Item 22(c). 435 See final Form N–4, Item 31A. 436 See supra Section II.B. 433 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 prior year for each index-linked option. One commenter supported a similar approach.437 Because this information will be required as of the most recent calendar year-end, insurance companies generally will need to update this information through a post-effective amendment to a registration statement on Form N–4.438 Accordingly, under the final amendments, insurance companies will file with the Commission information on current upside rates either via prospectus supplements (if the insurance company discloses these rates directly in the prospectus) or annually in response to Item 31A (if the insurance company incorporates current upside rates into the prospectus by reference to a website). We anticipate most insurance companies will incorporate this information by reference to a website and therefore file it in response to Item 31A.439 One commenter opposed the proposed census-type disclosures in Item 31A, asserting that they would require insurance companies to publicly reveal private and confidential information that could be used by competitors and that would not be useful to investors in making investment decisions.440 The commenter stated that the Commission could obtain the census-type information from insurance companies individually, if needed, upon request. We are adopting the proposed requirements for census-type information to provide improved transparency to investors and others by supplementing the information available in the marketplace for the nonvariable annuity contracts registered on Form N–4. The information will help us carry out regulatory responsibilities, including monitoring risk and trends, formulating policy and guidance, and reviewing registration statements. Moreover, third parties, including data aggregators, academics, and the press, as well as financial professionals who recommend or provide advice on nonvariable annuities, are also likely users 437 Coenen Comment Letter (supporting an approach in which insurance companies would file annual reports disclosing the upside rates offered during the previous one-year period or a range of such rates). 438 See final Form N–4, Item 31A(a). The information required for Item 31A will need to be updated as part of an issuer’s annual update to its registration statement for such contracts. See 15 U.S.C. 77j(a)(3). An issuer transitioning from an existing registration statement on Form S–1 or S– 3 to Form N–4 through a post-effective amendment will be required to report this information as of the most recently completed calendar year in its first post-effective amendment transitioning onto final Form N–4. 439 See supra paragraph accompanying footnote 284. 440 See CAI Comment Letter. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 of this data which may ultimately help inform investor decisions. Requiring this high-level reporting will permit the Commission to identify trends occurring in this market segment over time and assist with allocating the Commission’s resources in administering Form N–4. Also, because providing this information on Form N–4 will result in having information provided to the Commission as of a uniform date for all offerings of non-variable annuities registered on this form, regardless of the date the annual amendment is filed, this information will provide for increased comparability across issuers and contracts and give data points over time with which to compare.441 We disagree with the comment suggesting that requiring this information to be disclosed will result in private and confidential information being disclosed that will aid competitors. The information that will be reported will complement the parallel census-type information that is currently required to be reported annually on Form N–CEN by registered unit investment trusts offering variable annuities.442 Moreover, information that insurance companies will report in response to Item 31A will be aggregated at the contract level, which reduces the possibility that any confidential or private information would be disclosed. Requiring individual insurance companies to produce the census-type information to the Commission upon request, as suggested by the commenter who opposed the proposed approach, would not facilitate the ability of the Commission and staff to observe and study relevant trends in the market for these products in the same manner as an annual filing requirement for all insurance companies. The information also would not be available to investors or analysts and others who analyze data for the benefit of investors. In addition to the information discussed above, and in a change from the proposal, Item 31A of final Form N– 4 also requires that insurance companies provide, for any contract with index-linked options offered through the registration statement, the current limits on index gains in effect for each index-linked option during the 441 We understand that insurance companies offering RILAs have a December 31 fiscal year end which, in practice, means a distinction between calendar year and fiscal year will result in limited effect on the reporting. 442 Issuers registering combination contracts on Form N–4 will be required to exclude amounts allocated to a variable option when providing information in response to Item 31A as these allocations will be separately reported by registered separate accounts on Form N–CEN. See final Form N–4, Instruction 2 to Item 31A(a). E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations twelve months ending on December 31 of the prior year as provided on a website in accordance with the requirements of Item 6. As discussed above, we proposed to require that the current limits on index gains be provided in the statutory prospectus, but after considering comments, are permitting insurance companies to disclose these current upside rates by posting them to a website and incorporating this website disclosure by reference into the prospectus.443 Requiring insurance companies to disclose the current limits on index gains that were in effect over the course of the prior year preserves one of the benefits of the proposal, which would have ensured that all rates used over time remained available on EDGAR, while addressing concerns insurance companies raised by otherwise allowing them to supply the information on a website. This historical record will allow investors and analysts and others analyzing the data on investors’ behalf to consider the frequency and magnitude of changes in upside rates. This is an important consideration because RILAs are long-term investments, and an investor’s ultimate returns therefore depend on future upside rates set by the insurance company and not just the current rates at the time of investment. Two commenters recognized the value in maintaining historical rates used by an insurance company in suggesting that the Commission permit insurance companies to disclose the rates on a website, subject to a recordkeeping requirement.444 Given the potentially large volume of this information, insurance companies will be permitted to file this information as an exhibit to, rather than directly in, the registration statement itself.445 As with the other information required by this item, insurance companies must structure this information regardless of whether it is filed as an exhibit to, or provided directly in, the registration statement. We are adopting a disclosure requirement, rather than a recordkeeping requirement as one commenter suggested, because disclosing this information in the registration statement will integrate this information more seamlessly into the existing methods of data collection required by the form. Furthermore, 443 See supra Section II.C.4.a. VIP Working Group Comment Letter; Coenen Comment Letter. 445 In a modification from the proposal, we have added this exhibit to the exhibit list in Item 27 of the final form. This will standardize the location of this exhibit and make it easier to find in EDGAR. 444 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 requiring filers to submit this information on EDGAR also will make it more accessible to the Commission and the public than a recordkeeping requirement. Under the final rule, historical current rate information filed on EDGAR will also be structured, consistent with the requirement to tag current rate information disclosed directly in the prospectus.446 As discussed in more detail below, there is value in having this information available in a structured data format.447 8. Other Amendments and Provisions We are adopting, largely as proposed, amendments to include certain other modifications to Form N–4 and related rules designed to accommodate the inclusion of offerings of non-variable annuities on the form. These include amendments to Form N–4’s facing sheet, definitions, exhibit list, and required representations, as well as amendments to certain Securities Act rules that help to implement the registration of nonvariable annuities on Form N–4. These amendments are discussed below. a. Facing Sheet We are adopting, largely as proposed, amendments to include a new check box section on the facing sheet. Specifically, an issuer will be required to identify in this new section: (1) if it is a new registrant, defined, as applicable, as a registered separate account or insurance company that has not filed a Securities Act registration statement or amendment thereto within 3 years preceding this filing; 448 (2) if it is an emerging growth company (‘‘EGC’’), as defined by Rule 12b–2 under the Exchange Act; 449 (3) if it is an EGC, whether it has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act; (4) if it is an insurance final Form N–4, Instruction C.3(h)(i). infra Section II.C.10. As discussed below, the final amendments incorporate structured data requirements for certain of the disclosures that insurance companies will include in their Form N– 4 registration statements. 448 For example, a variable annuity separate account that has not previously filed a Securities Act registration statement will identify itself as a new registrant, regardless of whether the sponsoring insurance company filed a recent Securities Act registration statement or amendment thereto as the amended requirements request information on the registrant. In the same manner, an insurance company filing on Form N–4 will determine whether it is a new registrant solely with respect to its own Securities Act registration statement filings. 449 The term ‘‘EGC’’ is defined as an issuer that had total annual gross revenues of less than $1,235,000,000 during its most recently completed fiscal year. 17 CFR 240.12b–2. PO 00000 446 See 447 See Frm 00047 Fmt 4701 Sfmt 4700 60023 company relying on an exemption from Exchange Act reporting requirements in reliance on rule 12h–7 (‘‘12h–7 check box’’); and (5) if it is a smaller reporting company as defined by rule 12b–2 under the Exchange Act.450 These check boxes will help the Commission better understand the types of registration statements being filed on Form N–4 and, in the case of the EGC information, mirror similar facing sheet requirements found in Form S–1. In addition, we are amending the descriptions of the types of entities that use Form N–4 to include insurance companies that offer indexlinked or MVA options, either as standalone or combination products.451 One commenter provided several specific suggestions on the proposed amendments to the facing sheet.452 The commenter stated that the rule 12h–7 check box could create confusion without clarification because that check box is directed towards the status of the registrant. In the case of variable options, there are two ‘‘registrants,’’ the registered separate account and the insurance company, and it was unclear which entity the check box was intended to apply. The rule 12h–7 check box was intended to refer to an insurance company’s reliance on that rule because registered separate accounts satisfy their Exchange Act reporting requirements with the filing of Form N–CEN and therefore do not rely on rule 12h–7.453 Thus, in a change from the proposal, the final form has been updated accordingly to specify that the box should be checked if the insurance company is relying on rule 12h–7.454 The commenter also suggested that the new check-the-box section include a box for smaller reporting companies, as is the case with Form S–1 and Form S– 450 These five check boxes will be new to final Form N–4 as they are not on the current form. 451 See supra Sections II.A and II.B. The final form updates the language on the facing sheet that explains what Form N–4 is to be used for by, among other things, adding references to RILAs and registered MVA annuities. 452 CAI Comment Letter. 453 See, e.g., 12h–7 Adopting Release at n.146. 454 The commenter further stated their view that the registration of variable contracts without registered non-variable options generally has not triggered a requirement to file Exchange Act reports for either the registered separate account or the depositor, and thus neither entity needs to rely on rule 12h–7. CAI Comment Letter. As a result, this commenter suggested that the check box be clarified to not be applicable to those entities. The overall application of rule 12h–7 is beyond the scope of this rulemaking. However, this requirement mirrors a similar disclosure requirement in Item 6(a) where, as noted above, insurance companies can add additional details as to which securities they are relying upon rule 12h–7 for if they so choose in response to that item. See supra footnotes 238–242 and accompanying text; see also final Form N–4, Item 6(a). E:\FR\FM\24JYR2.SGM 24JYR2 60024 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 3. The commenter stated that a box for smaller reporting companies would be helpful because there could be RILA registrants that are smaller reporting companies that qualify for scaled financial statement requirements under Article 8 of Regulation S–X.455 Insurance companies offering nonvariable annuities could, where applicable, qualify for smaller reporting company status, and we agree that a check box would help provide specificity to insurance companies while assisting Commission staff in tracking the extent to which insurance companies offering non-variable annuities are smaller reporting companies. Therefore, in a change from the proposal, we are adding a check box on the facing sheet for smaller reporting company status. ddrumheller on DSK120RN23PROD with RULES2 b. Definitions (General Instruction A) We are adopting, largely as proposed, amendments to General Instruction A to update the existing definitions in Form N–4 and to add new definitions to accommodate the inclusion of nonvariable annuities on Form N–4. We are implementing these proposed definitions throughout the form. However, unless otherwise stated, the proposed amendments to the definitions in General Instruction A do not alter the existing obligations under Form N–4 for offerings of variable annuities. These changes provide a standard set of definitions to convey form provisions in a consistent and efficient manner without the need for lengthy descriptions in each instance and clarify which form provisions apply to which categories of issuers and investment products.456 For a number of these definitions, we did not receive any comments and are adopting them as proposed. These are the definitions of the terms contract, crediting period, index, insurance company, investment option, portfolio company, registrant, and registered separate account.457 These definitions are designed to help refine which provisions of the form apply to the different types of annuities. We also proposed to eliminate the previously defined term ‘‘investor account’’ from General Instruction A and to make related amendments throughout Form 455 Regardless of whether an issuer’s financial statements are prepared in accordance with GAAP or SAP, the number of periods shown in the financial statements must follow the requirements of Regulation S–X. See Articles 3 and 8 of Regulation S–X, 17 CFR part 210. 456 We also are amending Form N–4 throughout to use the gender-neutral reference of ‘‘investor’’ where appropriate. See, e.g., final Form N–4, Instruction 6 to Item 2. 457 Proposing Release at Section II.B.7.b. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 N–4 to help implement the proposed new definitions.458 We did not receive comments on these points either and are adopting them as proposed.459 We retained the definition of ‘‘fixed option,’’ but, in a change from the proposal to accommodate the requirement that registered MVA annuities also use Form N–4, added a sentence explaining that the term includes fixed options that are subject to contract adjustments. We did, however, receive comments on other definitions. Specifically, we proposed a new definition for ‘‘indexlinked option’’ to General Instruction A. The definition was proposed to cover RILAs and index-linked options offered in combination contracts, as an investment option offered under any contract, pursuant to which the value of the contract, either during an accumulation period or after annuitization, or both, will earn positive or negative interest based, in part, on the performance of a specified index.460 This is a functional definition focused on the key features of a RILA and covers RILAs as defined in the RILA Act. Some commenters asked that we clarify that the definition of ‘‘index-linked option’’ is only intended to address RILAs or otherwise clarify that RILA disclosures are not required in connection with unregistered indexed options.461 The definition is limited to RILAs as it expressly refers to the potential to earn negative interest which is limited to RILAs. The definition for index-linked option would not include MVA or unregistered indexed options, which, because they earn interest at a rate specified by the insurance company, fall under the definition of ‘‘fixed option’’ under the form. We proposed definitions of ‘‘contract adjustment’’ and ‘‘crediting period’’ to refer to these non-variable annuitycentric concepts in the form and to help clarify when the relevant disclosures would be required.462 One commenter stated that our proposed definition of ‘‘contract adjustment’’ is ambiguous and could be construed as covering types of id. e.g., final Form N–4, Items 3, 7, 8, 11, 24, 32, and 34(a); see also definitions for ‘‘class’’ (clarifying applies to all contracts) and ‘‘platform charge’’ (clarifying only applies if there is a variable option). For example, on the latter point, we refined the applicability of certain variable annuity or Investment Company Act-specific disclosure to limit those requirements to ‘‘registered separate accounts’’ or ‘‘variable options’’ when appropriate. 460 Because RILA returns may not be one for one with the index, we indicate that positive or negative interest is only based ‘‘in part’’ on the index’s performance. 461 CAI Comment Letter; Comment Letter of Holly J. (Nov. 22, 2023) (‘‘Holly J. Comment Letter’’). 462 Proposing Release at Section II.B.7. PO 00000 458 See 459 See, Frm 00048 Fmt 4701 Sfmt 4700 transactions that we do not intend, such as a change in investment base for an index-linked option that occurs upon withdrawal, surrender charges deducted from remaining contract value, or reset features under guaranteed living benefits. This commenter suggested that we specify that the term only refers to (1) interim value adjustments applied when withdrawals and other deductions are made from an index-linked option before the end of a crediting period; (2) market value adjustments applied to amounts withdrawn or otherwise deducted from a contract; and (3) similar adjustments that may be imposed under a contract.463 We are adopting these definitions, including that of the term ‘‘contract adjustment,’’ as proposed. The definition is sufficiently specific to adjustments ‘‘to the value of the Contract’’ that are ‘‘positive or negative’’ and applied to withdrawals ‘‘before the end of a specified period,’’ which would not cover the examples that concerned the commenter. For example, while the investment base for an index-linked option reflects a positive or negative contract adjustment resulting from that option’s daily interim valuation, any change in the investment base as a result of a withdrawal is a reduction in the investment base, not an adjustment, and would be described separately from, although perhaps in conjunction with, the contract adjustment. Moreover, we do not anticipate there would be any misunderstanding by insurance companies preparing the disclosure that a surrender charge or a living benefit reset feature is a contract adjustment under the form. Although a surrender charge, like a contract adjustment, is imposed if a withdrawal is taken before the end of a specified period, a surrender charge always results in a decrease rather than a positive or negative adjustment. More importantly, Form N–4 as amended is clear throughout in distinguishing between surrender charges and contract adjustments. For example, the fee table provides for disclosure of deferred sales loads separate from disclosure of the maximum potential loss from a contract adjustment.464 Indeed, many of the form items and instructions that require disclosure of contract adjustments separately require disclosure of surrender charges. Lastly, while a contract adjustment is a positive or negative adjustment to the contract’s 463 CAI Comment Letter. e.g., final Form N–4, Item 1(a)(7), Instructions 2(a), 2(b), 2(c)(ii)(A), 3(b) to Item 3, Item 4, Item 5(b), Item 6(d)(2)(ii)(B), Item 6(d)(2)(iii)(B), Items 7(a) and (e), and Instruction to Item 22(d). 464 See, E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations value if amounts are withdrawn before the end of a specified period, a reset feature under a guaranteed living benefit rider results in an increase in the rider’s benefit base on a recurring basis, such as on each contract anniversary, and without regard to whether a withdrawal is occurring. One commenter suggested the Commission provide guidance that registrants would generally not be required to use the defined terms in the form so long as the terminology used by the insurance company clearly conveys the meaning of, or provides comparable information to, the terminology included in the form.465 Both currently and as amended, Form N–4 permits the use of alternative terminology so long as that alternative conveys the same meaning of, or provides comparable information as, the terminology called for in the form.466 Given the results of investor testing, which found that investors were confused by some of the terminology used in RILAs, we encourage insurance companies to consider if their prospectuses are using terminology that investors will be able to understand.467 c. Rules 405, 480, 481, 483, and 484 We are amending, as proposed, rule 405 under the Securities Act to add the new defined terms ‘‘form available solely to investment companies registered under the Investment Company Act of 1940’’ and ‘‘registered index-linked annuity’’ for purposes of Securities Act rules. We did not receive any comments on this part of our proposal. We are also, as discussed above, adding a defined term ‘‘registered market value adjustment annuity’’ to rule 405 in order to apply the appropriate Securities Act rules to registered MVA annuities.468 Finally, because the final amendments extend the Form N–4 offering framework to both RILAs and registered MVA annuities, we are adopting the new 465 CAI Comment Letter. final Form N–4, General Instruction C.3.(d)(ii); see also final Form N–4, General Instruction C.1(d) (stating that the requirements for prospectuses filed on Form N–4 will be administered by the Commission in a way that will allow variances in disclosure or presentation if appropriate for the circumstances involved while remaining consistent with the objectives of the form). 467 See OIAD Investor Testing Report at Section 5, Qualitative Testing, Results from Round 2. For example, investor testing suggested that the use of the phrase ‘‘term’’ in conjunction with the concept of crediting periods could cause some confusion to the extent it is not clear from the disclosure that ‘‘term’’ refers to the length of the index-linked option rather than to the length of the contract. 468 See supra footnote 85 and accompanying text; see also Proposing Release at Section II.H. (discussing a similar change). ddrumheller on DSK120RN23PROD with RULES2 466 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 defined term in rule 405 ‘‘registered non-variable annuity,’’ which means a ‘‘registered index-linked annuity’’ or ‘‘registered market value adjustment annuity.’’ The amendments to rule 405 are designed to apply specific Securities Act rules to insurance companies issuing non-variable annuities to ensure consistency across Form N–4 filers. Certain Securities Act rules apply only to registration statements that are prepared on a form available solely to a registered investment company or a business development company. These rules are 17 CFR 230.480 (‘‘rule 480’’), 17 CFR 230.481 (‘‘rule 481’’), 17 CFR 230.483 (‘‘rule 483’’), and 17 CFR 230.484 (‘‘rule 484’’) under the Securities Act, and include forms such as Forms N–1A, N–2, N–3, N–4, N–5, and N–6. These rules prescribe requirements relating to: information given with the title of securities; information contained in registration statements; exhibits filed as part of the registration statement; and undertakings required with respect to requests for acceleration. By virtue of moving non-variable annuities, which are not issued by a registered investment company, onto Form N–4, Form N–4 would be outside the scope of this description absent these amendments that we are adopting. As such, the new defined term ‘‘form available solely to investment companies registered under the Investment Company Act of 1940’’ specifies that these rules apply to registration statements filed on Form N– 4. Specifically, we are amending rule 405 to state that ‘‘a form available solely to investment companies registered under the Investment Company Act of 1940’’ includes the form used to register the offering of securities of a registered non-variable annuity for purposes of the Securities Act of 1933. By operation of this amendment, registration statements relating to the offering of non-variable annuities on Form N–4 are subject to rules 480, 481, 483, and 484.469 We also are adding a definition of ‘‘registered index-linked annuity’’ to rule 405, which provides consistent 469 These rules apply to registration statements on Form N–4. Rule 480 prescribes requirements relating to information given with the title of securities. Rule 481 prescribes certain information to be required in the registration statement (e.g., certain legends to appear on the front and back cover pages of prospectuses). Rule 483 prescribes certain requirements relating to exhibits filed as part of the registration statement. Rule 484 prescribes certain required undertakings with respect to requests for acceleration under 17 CFR 230.461 when certain arrangements exist with respect to indemnification of specified persons against liability under the Securities Act. PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 60025 definitions for select terms used throughout the Securities Act rules, to simplify references to RILAs in the proposed Securities Act rule amendments.470 Specifically, as proposed, we are defining ‘‘registered index-linked annuity’’ as an annuity or an option available under an annuity (1) that is deemed a security; (2) that is offered or sold in a registered offering; (3) that is issued by an insurance company that is the subject to the supervision of either the insurance commissioner or bank commissioner of any state or any agency or officer performing like functions as such commissioner; (4) that is not issued by an investment company; and (5) whose contract value, either during the accumulation period or after annuitization or both, will earn positive or negative interest based, in part, on the performance of any index, rate, or benchmark. As discussed in the Proposing Release, this definition is designed to cover all of the offerings addressed by the RILA Act.471 d. Exhibits and Undertakings (Items 27 and 34) As discussed in the Proposing Release,472 the exhibits required in a registration statement differ between filers using Forms S–1 or S–3 on one hand and Form N–4 on the other. As a function of moving non-variable annuities onto Form N–4, we are requiring insurance companies to continue filing various exhibits as part of registration statements relating to offerings of non-variable annuities.473 These requirements are similar to those to which currently apply to insurance companies offering non-variable annuities on Forms S–1 and S–3. We are also standardizing the location in Form N–4 of exhibits containing any power of attorney included pursuant to rule 483(b) to assist the public in comparing these exhibits.474 Further, in addition to the requirements of rule 484, we are amending Form N–4 to include certain 470 See also supra footnote 85 and accompanying text (discussing other changes to rule 405 to accommodate the addition of offerings of registered MVA annuities to the form). 471 Proposing Release at Section II.B.7.c. 472 See Proposing Release at Section II.B.7. 473 See final Form N–4, Item 27 (adding sub-items (p) Power of Attorney and (q) Letter Regarding Change in Certifying Accountant); see also Form S– 1, Item 16; Form S–3, Item 16; Regulation S–K, Item 601. 474 Non-variable annuity registration statements on Forms S–1 and S–3 similarly include a power of attorney, when applicable, to be filed as part of the registration statement. See 17 CFR 229.601(b)(24); see also infra Section II.E (discussing the addition of a new exhibit relating to changes in accountants). E:\FR\FM\24JYR2.SGM 24JYR2 60026 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 undertakings that were required of insurance companies as part of their non-variable annuity Form S–1 and S– 3 registration statements.475 Specifically, we proposed to require insurance companies to furnish, in connection with offerings of RILAs, undertakings (1) to file, during any period in which offers or sales are being made, through a post-effective amendment to their registration statement, any prospectus required by section 10(a)(3) of the Securities Act and (2) that, for the purposes of determining liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. These undertakings are the same as two undertakings insurance companies are required to provide in registration statements when they register offerings of non-variable annuities on Forms S–1 or S–3,476 and mirror the effect of similar provisions of section 24(e) of the Investment Company Act, which applies to amendments to Form N–4 registration statements by registered separate accounts.477 We did not receive any comments on the proposed amendments 475 See final Form N–4, Item 34. The disclosure currently required in Item 34, the fee representation mandated of registered separate accounts under the Investment Company Act, will be retained as paragraph (a) of this item, limited in application to variable options, and the new undertakings added as new paragraph (b) and limited to index-linked options and/or MVA options. See also 15 U.S.C. 80a–26(f)(2)(A). We have renamed this item ‘‘Fee Representation and Undertakings.’’ 476 See rule 415(a)(3) and 17 CFR 229.512(a). Under the final amendments, non-variable annuities are exempt from the conditions of rule 415, including furnishing the required undertakings pursuant to Item 512(a) of Regulation S–K. See infra footnote 625. For example, non-variable annuity registration statements no longer need to include a statement that the issuer undertakes to file a posteffective amendment to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. This requirement is not necessary for non-variable annuity registration statements on Form N–4 in light of the other amendments we are making to the prospectus and registration statement filing process for non-variable annuities. See infra Section II.F.2. (discussing amendments to rules 485 and 497 under the Securities Act). 477 See Section 24(e) of the Investment Company Act [15 U.S.C. 80a–24(e)]. Section 24(e) generally requires a registered separate account to amend its registration statement annually to update its prospectus for the purposes of section 10(a)(3). Section 24(e) also provides that, for the purposes of liability under Securities Act, the effective date of the latest amendment is deemed to be the effective date of the registration statement with respect to securities sold after the effectiveness of amendment. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 and are adopting them as proposed, except that we also are extending them to MVA annuities and including in the exhibit list any exhibit that contains the information called for in Item 31A(b) as discussed above.478 9. Remaining Form N–4 Items We are adopting amendments, largely as proposed, to make the remaining requirements and disclosure items on the existing Form N–4 applicable to non-variable annuities without substantive changes to the current requirements and disclosure items.479 These are: (1) general instructions to the final form including both organizational requirements along with substantive requirements for the preparation of the registration statement; (2) information about the annuity contract and how it operates; and (3) items that provide basic information about the insurance company or the securities offering itself, consistent with some of the disclosures provided currently in Forms S–1 or S– 3. a. General Instructions Largely as proposed, non-variable annuity offerings registered on Form N– 4 will need to comply with the general instructions of that form. These general instructions are structured to include four parts: (A) Definitions; (B) Filing and Use of Form; (C) Preparation of the Registration Statement; and (D) Incorporation by Reference.480 As discussed in more detail in the Proposing Release, these instructions relate to the use of plain English; organization of the registration statement; information not otherwise required; terminology; offering multiple contracts in a prospectus and including multiple prospectuses in a registration statement; timing; websites included in electronic versions of the prospectus; and incorporation by reference (e.g., addressing when information may be incorporated by reference into the prospectus).481 supra footnote 445. noted above, some of these items have been amended to account for changes in defined terms and to use gender-neutral terminology. See supra Section II.C.8.b. Also as discussed above, in a modification from the proposal these items extend to registered MVA annuities, as applicable. 480 See supra Section II.C.8.b (discussing amendments to the definitions used in the form). 481 See Proposing Release at Section II.B.2.b. We are also, as proposed, correcting a typographical error in General Instruction B.2(b) regarding items that can be omitted for registration statements or amendments filed only under the Investment Company Act. Currently, the instructions state that issuers can omit from Part C Items 26(c), (k), (l), and (m), but those items do not exist in the form and Item 26 (Financial Statements) is in the SAI, not Part C. This will now refer to Item 27 (Exhibits), PO 00000 478 See 479 As Frm 00050 Fmt 4701 Sfmt 4700 Collectively, the general instructions, as they existed prior to the amendments to Form N–4, are designed to require clear disclosure to investors about the variable annuity contracts currently registered on the form and to make clear how issuers must prepare and file their registration statements. Requiring insurance companies to prepare registration statements relating to the offering of non-variable annuities in accordance with these instructions will likewise facilitate the provision of clear disclosure to investors and provide clear direction to these issuers on how to prepare and file their registration statements. Further, applying these requirements to non-variable annuities will help ensure the comparability of different annuity offerings, for example, by ensuring that the filings are held to the same plain English, multiple contract disclosure, timing, website, and incorporation by reference standards. We received one comment on the proposed general instructions.482 The commenter requested clarification regarding the ability of insurance companies to file required financial statements using the N–VPFS EDGAR submission type for incorporation by reference into the SAI.483 This commenter stated that this or a similar EDGAR submission type would streamline preparing and filing registration statements on Form N–4 and would be consistent with the manner in which registered separate accounts are permitted to incorporate financial statements of the insurance company and the separate account into the SAI for variable annuity contracts and variable life insurance policies. All Form N–4 filers currently can use N– VPFS instead of refiling their financial statements in every registration statement and many active variable contracts use N–VPFS for their financial statements.484 For example, if a separate account funds 20 variable contracts with 20 Securities Act registration statements, instead of filing the identical information 20 times, the separate account can file it just once. Based on staff experience, we understand that doing so may reduce the costs of auditor consents as well because the auditor can focus its review which does exist, and is in Part C. We received no comments on this aspect of the proposal. 482 See CAI Comment Letter. 483 See VASP Adopting Release at n.954 and accompanying text (discussing the submission via EDGAR of financial statements with respect to certain variable annuities). 484 See Chapter 3 (Index to Forms) of the EDGAR Filer Manual, Volume II: ‘‘EDGAR Filing,’’ (March 2024), available at https://www.sec.gov/files/edgar/ filermanual/efmvol2.pdf. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations on the one N–VPFS instead of the 20 registration statements. Similarly, the availability of N–VPFS may facilitate the registration of RILAs and registered MVA annuities. We confirm that insurance companies can use N–VPFS for all offerings registered on Form N– 4, including with respect to nonvariable annuities on Form N–4, as amended. However, the insurance company should file its own N–VPFS and not reference the N–VPFS of a separate account, which might also include lengthy and irrelevant separate account financials.485 b. Contract Disclosures The table below summarizes disclosures in the existing Form N–4 about the annuity contract, how it operates, and how it is serviced by the insurance company. We are amending Form N–4 to apply these requirements to the registration statements of offerings of non-variable annuities with a minor change to the existing form— insurance companies will be required to 60027 indicate in Item 12 whether charges or contract adjustments will apply in the event of a contract surrender or withdrawal.486 Currently, Item 12 refers only to charges. We received no comments on this part of the proposal and are adopting these changes largely as proposed. Because offerings of registered MVA annuities will be registered on Form N–4, as amended, these amendments also apply to disclosure regarding registered MVA annuities, as applicable, in a modification from the proposal. TABLE 5—CONTRACT DISCLOSURES Item Description Prospectus (Part A) General Description of the Contracts (Item 8) ... Annuity Period (Item 9) ....................................... Benefits Available Under the Contract (Item 10) Purchases and Contract Value (Item 11) ........... Surrenders and Withdrawals (Item 12) .............. Loans (Item 13) .................................................. Taxes (Item 14) .................................................. A general description of the contract, including disclosure of the parties’ material rights under the contract; relevant contract provisions and limitations; contract obligations funded by the insurance company’s general account; class of purchasers, and material changes that can be made to the contract by the insurance company. A brief description of the annuity options available, including a discussion of material factors that determine the benefits; annuity commencement date; frequency and duration of annuity payments, and the effect of these on the level of payment; the effect of assumed investment return; any minimum amount necessary for an annuity option and the consequences of an insufficient amount; rights to change annuity options; and, if applicable, a disclosure that the investor will be unable to withdraw any contract value amounts after the annuity commencement date. A tabular summary overview of the benefits available under the contract (e.g., standard or optional death benefits, standard or optional living benefits, etc.), briefly discussing, among other things: whether the benefit is optional; current and maximum fees associated with the benefit; how the benefit amount is calculated; and any associated restrictions or limitations. A brief description of the procedures for purchasing a contract, including concise explanations of minimum initial and subsequent purchase payment required, when these payments are credited, and how they are allocated to investment options. Issuers should also identify each principal underwriter (other than the insurance company) of the contracts and other information about that underwriter such as any affiliations. A brief description of how surrenders and withdrawals can be made from a contract, including limits on the ability to surrender, how proceeds are calculated, and when surrenders and withdrawals are payable. Issuers must also describe potential effect of surrenders and withdrawals, including how they could affect a contract’s value or benefits, and whether any charges will apply.1 Issuers should also describe any involuntary redemption provisions and any revocation rights, disclosing the calculation methodology and any associated limitations to investment options. A brief description of the loan provisions of the contract, including, for example, loan availability and related restrictions, interest mechanics, the effect of a loan on the contract’s value and death benefit, other effects that a loan could have on a contract; and loan procedures. A description of the material tax consequences to the investor and beneficiary of buying, holding, exchanging, or exercising rights under the contract. The description should include a discussion of the taxation of annuity payments, death benefit proceeds, periodic and nonperiodic withdrawals, loans, and any other distribution that may be received under the contact, as well as the tax benefits accorded the contract and other material tax consequences. Issuers must identify the types of qualified plans for which the contracts are intended to be used and describe any effect of taxation on the determination of contract values. Statement of Additional Information (Part B) ddrumheller on DSK120RN23PROD with RULES2 Cover Page and Table of Contents (Item 18) .... Non-principal Risks of Investing in the Contract (Item 20). 485 Conversely, a separate account can reference the insurance company’s financial statements in the insurance company’s N–VPFS because the VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 A statement of the name of the insurance company, the contract, and related class or classes. This item also requires a table of contents, a statement that the SAI is not a prospectus, information about how to obtain the prospectus, and a discussion of information the SAI incorporates by reference. A summary of the non-principal risks of purchasing a contract to the extent not disclosed in the prospectus. insurance company’s N–VPFS would not contain information that is irrelevant to the separate account. PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 486 See E:\FR\FM\24JYR2.SGM final Form N–4, Item 12(c). 24JYR2 60028 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations TABLE 5—CONTRACT DISCLOSURES—Continued Item Description Services (Item 21) .............................................. Information on certain services provided to the registrant in connection with the contract. If not disclosed elsewhere, this requires a summary of the substantive provisions of certain significant administrative or management-related service contracts. The registrant must also provide the name and address of its independent public accountant. Where affiliates of the insurance company act as agents for the registrant in connection with the contract, issuers are required to provide specific information about the services performed and remuneration paid for the services. Issuers must also disclose if the insurance company is the principal underwriter of the contract. A description of the method for determining the amount of annuity payments if not described in the prospectus and how any change in the amount of a payment after the first payment is determined. Annuity Payments (Item 25) ............................... Other Information (Part C) Management Services (Item 33) ........................ A summary of the substantive provisions of any management-related service contract not discussed in Parts A or B, including the parties to the contract, and the total paid and by whom for the registrant’s last three year fiscal years. Note to Table 5 1 In addition to charges, the final amendments will require issuers to describe any contract adjustments that will apply. These requirements apply to existing Form N–4 issuers because these disclosures provide investors in these products with a concise presentation of material information about the annuity contract they would be purchasing, as well as other information that provides necessary context about the contracts such as management service disclosures.487 We are applying these requirements to non-variable annuities because this information is equally fundamental to the ability of investors to make informed investment decisions about non-variable annuities. For example, existing Form N–4 issuers are required to summarize standard and optional benefits available to the investor under the contract because these benefits are primary features of variable contracts and are also often key differentiators between competing products.488 Insurance companies also offer these benefits in connection with non-variable annuities. c. Issuer and Offering Disclosures In addition to disclosures about the contract, we are adopting amendments to Form N–4 that will require that insurance companies make certain disclosures relating to the issuer and offering consistent with the form’s current requirements. The table below summarizes these items, omitting items in Form N–4 that, by their terms, will not apply to non-variable annuities. We received no comments on these proposed amendments and are adopting them as proposed. However, in a modification from the proposal, because offerings of registered MVA annuities will be registered on Form N–4, as amended, these amendments also apply to disclosure regarding registered MVA annuities, as applicable. TABLE 6—ISSUER AND OFFERING DISCLOSURES Item Similar Form S–1 disclosure Description Prospectus (Part A) Legal Proceedings (Item 15) ........... A description of material pending legal proceedings to which the registered separate account, the principal underwriter, or the insurance company is a party, including similar information regarding any proceedings instituted or known to be contemplated by a governmental authority. Item 11(c) (legal proceedings). Statement of Additional Information (Part B) General Information and History (Item 19). ddrumheller on DSK120RN23PROD with RULES2 Underwriters (Item 23) .................... 487 See Basic information regarding the background and organization of the insurance company, including the jurisdiction in which it is organized and a short description of its business. Identification of the principal underwriters (other than the insurance company), and for affiliated underwriters, a description of the nature of the affiliation. For each principal underwriter distributing the registrants’ contracts, the insurance company must provide information about the offering and related commissions. If the registrant made payments to an underwriter of or dealer in the contracts during its last fiscal year over a threshold amount, the registrant must disclose certain information about those payments. Forms N–3 and N–4 Adopting Release. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Item 11(a) (description of business). Item 8 (plan of distribution). 488 See VASP Adopting Release at n.26 and accompanying text. PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60029 TABLE 6—ISSUER AND OFFERING DISCLOSURES—Continued Item Similar Form S–1 disclosure Description Other Information (Part C) Directors and Officers of the Insurance Company (Item 28). Persons Controlled by or Under Common Control with the Insurance Company or the Registrant (Item 29). Indemnification (Item 30) ................ Principal Underwriters (Item 31) ..... A statement of the name, principal business address, position, and office held for each director or officer of the insurance company. Disclosure of persons directly or indirectly controlled by or under common control with the registrant or the insurance company. Item 11(k) (directors and executive officers). Item 11(k) (directors and executive officers). Information about the general effect of relevant indemnification agreements, arrangements, or statutory provisions through which underwriters or affiliates are insured or indemnified against any liability incurred in their official capacity. A statement of investment companies, other than any registered separate account related to the filing, for which each principal underwriter is also acting as a principal underwriter. More detailed information about principal underwriters identified in Item 23, such as recent information about commissions and other compensation received from the registrant by each principal underwriter. Item 14 (indemnification of directors and officers). Information about the issuer and the offering process are relevant when purchasing an annuity contract, including in the context of a nonvariable annuity.489 These items, which largely correspond to items currently required to be disclosed by insurance companies on Forms S–1 and S–3 when registering the offering of non-variable annuities as detailed in the table above, provide the appropriate amount of information about the issuing insurance company and the offering of securities in a way tailored to annuity contract investors. For example, because an investor’s rights under non-variable annuities are dependent on the insurance company’s claim-paying ability, purchasers of those securities also share an interest in disclosures of material pending legal proceedings involving the insurance company or related parties. On the other hand, where Form S–1 disclosures have less relevance to non-variable annuities, we have not included those disclosures in the final Form N–4. ddrumheller on DSK120RN23PROD with RULES2 10. Inline XBRL Under the final amendments, Form N–4 filers will be required to tag in Inline XBRL certain specified disclosures.490 Specifically, these issuers will be required to tag selected information in Inline XBRL in accordance with Rule 405 of Regulation S–T and the EDGAR Filer Manual.491 489 See Forms N–3 and N–4 Adopting Release. final Form N–4, Items 2(b)(2), 2(d), 3, 4, 5, 6(a) (instruction), 6(d), 6(e), 7(e), 10, 17, 26(c) and 31A. 491 We are amending General Instruction C.3(h) of Form N–4 and making conforming changes to rule 405(b) of Regulation S–T to implement the nonvariable annuity specific disclosure tagging requirements. Pursuant to rule 301 of Regulation S– 490 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Certain of the final amendments’ new structured data requirements will apply, as proposed, to issuers of non-variable annuities that register on Form N–4. Specifically, these include, as applicable, requirements to tag specified portions of the overview and the more in-depth descriptions of index-linked options and contract adjustments that issuers include in their prospectuses, the disclosure of census-type information regarding contracts with index-linked options and MVA options, and information disclosed about changes in and disagreements with accountants.492 Certain of the final amendments’ new tagging requirements will apply to all Form N–4 filers as applicable. All Form N–4 filers must tag the descriptions of fixed options available under the contract, including any fixed options subject to contract adjustments.493 All Form N–4 filers also must tag the new disclosures indicating that the insurance company is relying on the exemption provided by rule 12h–7.494 This approach is generally as proposed, with conforming changes to reflect the T, the EDGAR Filer Manual is incorporated by reference into the Commission’s rules. In conjunction with the EDGAR Filer Manual, Regulation S–T governs the electronic submission of documents filed with the Commission. Rule 405 of Regulation S–T specifically governs the scope and manner of disclosure tagging requirements for operating companies and investment companies, including the requirement in rule 405(a)(3) to use Inline XBRL as the specific structured data language to use for tagging the disclosures. 492 See final Form N–4, General Instruction C.3(h); see also final Form N–4, Items 2(b)(2), 2(d), 6(d), 7(e), 26(c), and 31A. 493 See final Form N–4, General Instruction C.3(h); see also final Form N–4, Item 6(e). 494 See final Form N–4, General Instruction C.3(h); see also final Form N–4, Instruction to Item 6(a). PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 Item 8 (plan of distribution). registration of the offerings of registered MVA annuities on Form N–4. In response to comments, we are not adopting the proposed requirement to structure the statement regarding the risk of loss of the entire amount invested associated with an investment in a variable option, as discussed below.495 Comments regarding our proposal to require RILA registration statements to be tagged using Inline XBRL were mixed. One commenter supported extending Inline XBRL requirements to RILAs, suggesting that all investors would benefit from tagging as it would facilitate access to data about RILAs through a structured, machine-readable format.496 Two commenters supported tagging some but not all of the proposed new disclosures, suggesting that only disclosures that would aid the investor in comparing products should be tagged.497 One commenter suggested that XBRL has little value as it relates to investment companies and insurance products.498 No commenter specifically addressed the tagging of registered MVA annuity specific disclosures, although as discussed above, commenters generally supported registering offerings of registered MVA annuities on Form N–4 495 See infra footnotes 506–508 and accompanying text. 496 Comment Letter of XBRL US (Nov. 28, 2023) (‘‘XBRL US Comment Letter’’). 497 See XBRL US Comment Letter (suggesting that disclosures that are boilerplate in nature not be tagged as they would not help an investor differentiate between products); see also CAI Comment Letter (generally not objecting to extending Inline XBRL requirements to RILAs, but suggesting a new disclosure regarding the risks of investing in variable options not be tagged as the disclosure would call for generally standardized statements applicable to all variable annuities). 498 Johnson Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 60030 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 and did not distinguish whether these annuities should be subject to different tagging requirements than RILAs and variable annuities.499 After considering these comments, we are adopting these requirements largely as proposed, with certain conforming and other changes described below. As a result, non-variable annuity issuers must tag those prospectus disclosures that Form N–4 currently requires to be tagged in Inline XBRL.500 These include the following disclosure items: the Key Information Table, Fee Table, Principal Risks of Investing in the Contract, Benefits Available Under the Contract, and Investment Options Available Under the Contract in the statutory prospectus. In addition to these existing items, we are requiring Inline XBRL tagging of selected new, non-variable annuity-specific disclosures to benefit investors, other market participants, and the Commission by making the disclosures more readily available and easily accessible for aggregation, comparison, filtering, and other analysis.501 We chose these items to be structured—including those that issuers of variable annuities will newly have to structure—because they are well-suited to being tagged in a structured format and are of significant utility for investors and other data users that seek structured data to analyze and compare contracts. For example, this tagging enables automated extraction and analysis of descriptions of index-linked options available under a contract, information regarding the features of each currently offered index-linked option, and information regarding contract adjustments. This allows investors and other market participants more efficiently to perform large-scale analysis and comparison across nonvariable annuities (including the indexlinked options that different RILAs offer) and time periods. Similarly, the requirement to tag information about fixed options, including fixed options subject to contract adjustments, permits the same type of analysis with respect to these investment options offered under RILA and variable contracts, as well as with respect to registered MVA annuities. This analysis could include comparing fixed options across contracts, as well as index-linked 499 See supra Section II.B. final Form N–4, General Instruction C.3(h), and Items 3, 4, 5, 10, and 17; see also final rule 405(b)(2)(iii) of Regulation S–T. 501 See infra footnotes 511–512. These primarily include the new disclosure items that are specific to non-variable annuities, as opposed to extant Form N–4 disclosure items to which we are adopting incremental amendments to address nonvariable annuities along with variable annuities. 500 See VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 options, variable options, and fixed options offered under the same contract. Census-type information about variable annuity contracts, which parallels the SAI disclosure we are adopting to require for contracts with index-linked options and/or MVA options, is currently reported in structured data format.502 Requiring census-type information about contracts with index-linked options and/or MVA options to be tagged in Inline XBRL will help the Commission and staff identify trends in insurance companies’ offerings of the contracts, similar to the tools the Commission and staff currently have to identify trends in the offering of variable annuity contracts. An Inline XBRL tagging requirement will also provide other benefits, such as the ability to more easily analyze disclosures about annuity contracts with index-linked options and/or MVA options, and automatically compare these disclosures against prior periods. The benefits of structured data as a general matter are supported by empirical data of public usage of similar structured data.503 In addition, Inline XBRL tagging requirements within the context of public operating company financial statement disclosures have been observed to improve investor understanding of the disclosed information.504 Inline XBRL tagging requirements for Form N–4 non-variable annuity disclosures could similarly provide investors with increased understanding or insight into key features of contracts with index-linked options and/or MVA options. This could provide value to investors by, for example, facilitating the ease with which investors could compare contract features of different products, and thereby helping investors to determine which non-variable annuities may be appropriate for their particular investment goals.505 In a change from the proposal and in response to comments, the Inline XBRL 502 See supra Section II.C.7; see also Form N– CEN, Item F.14. 503 There is some empirical evidence of public usage of this data. See Semi-Annual Report to Congress Regarding Public and Internal Use of Machine-Readable Data for Corporate Disclosures, U.S. Securities and Exchange Commission (Dec. 2023), at n.63, available at https://www.sec.gov/ files/fdta-report-12-2023.pdf (providing that, for example, the Commission’s quarterly XBRL datasets for mutual fund summary prospectus risk/return summaries garnered over 13,000 page views from September 2022 to September 2023, according to a Google Analytics query of the Commission’s XBRL dataset web page). 504 Proposing Release at n.452 and accompanying paragraph. 505 See infra Section IV.C.1.b. (discussing how improved investor understanding of non-variable annuity disclosures could benefit Form N–4 filers directly or indirectly). PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 requirements we are adopting will not require insurance companies to tag the new statement regarding the risk of loss of the entire amount invested associated with an investment in a variable option.506 Even a commenter that supported the proposed structuring requirements generally suggested that the Commission not require tagging of ‘‘boilerplate’’ disclosures and disclosures that would be the same across entities.507 Another commenter suggested that this disclosure item in particular would not differ substantively on a contract-by-contract basis and therefore should not be structured.508 In response to those comments, the Commission reviewed each of the proposed new disclosure items to be tagged and determined that only one of those proposed new disclosure items— the new statement regarding the risk of loss of the entire amount invested associated with an investment in a variable option—generally would not differ substantively on a contract-by contract basis. We are not requiring structuring for this disclosure item. As proposed, the new Inline XBRL tagging requirements will only apply to contracts being sold to new investors. The result of this approach is that prospectus disclosure for contracts that are no longer being sold to new investors do not need to be tagged, as this disclosure has less utility for current investors and other market participants. This is consistent with the existing approach for Form N–4 issuers.509 Commenters supported this aspect of the proposal.510 We are requiring non-variable annuity issuers to submit Interactive Data Files as follows, consistent with the approach for issuers of variable annuities registered on Form N–4: • For most post-effective amendments, Interactive Data Files must be filed either concurrently with the filing, or in a subsequent amendment that is filed on or before the date that the post-effective amendment that contains the related information becomes effective; 511 • For initial registration statements (and post-effective amendments other than as described in the bullet 506 See final Form N–4, Item 6(c)(1). XBRL US Comment Letter. 508 See CAI Comment Letter; see also IRI Comment Letter (expressing agreement with and supporting the CAI Comment Letter). 509 See VASP Adopting Release at paragraph accompanying n.904. 510 See CAI Comment Letter; XBRL US Comment Letter. 511 See final Form N–4, General Instruction C.3(h)(i)(B). This instruction relates to post-effective amendments filed pursuant to paragraph (b)(1)(i), (ii), (v), (vi), or (vii) of rule 485. 507 See E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations immediately above), Interactive Data Files must be filed in a subsequent amendment on or before the date the registration statement or post-effective amendment that contains the related information becomes effective; 512 and • For any form of prospectus filed pursuant to rule 497(c) or (e), Interactive Data Files must be submitted concurrently with the filing.513 This approach facilitates the timely availability of important information in a structured format for investors, investment professionals, and other data users yielding substantial benefits. For data aggregators responding to investor demand for the data, the availability of the required disclosures in the Inline XBRL format concurrent with filing or before the date of effectiveness allows them to quickly process and share the data and related analysis with investors. Like other issuers, non-variable annuity issuers could request temporary and continuing hardship exemptions for the inability to timely file electronically the Interactive Data File.514 D. Option To Use a Summary Prospectus ddrumheller on DSK120RN23PROD with RULES2 We are adopting, largely as proposed, amendments to rule 498A to permit RILA issuers, as well as issuers of ‘‘combination contracts’’ offering a combination of index-linked options and variable options, to use a summary prospectus to satisfy their statutory prospectus delivery obligations.515 In a modification from the proposal, we also are adopting amendments to rule 498A to permit issuers of registered MVA annuities or ‘‘combination contracts’’ offering MVA options with variable options and/or index-linked options to use summary prospectuses under the amendments to rule 498A.516 As a 512 See final Form N–4, General Instruction C.3(h)(i)(A). This instruction relates to initial registration statements and post-effective amendments other than those filed pursuant to paragraph (b)(1)(i), (ii), (v), (vi), or (vii) of rule 485. 513 See final Form N–4, General Instruction C.3(h)(ii). 514 See rule 201 Regulation S–T (temporary hardship exemption) and rule 202 of Regulation S– T (continuing hardship exemption). 515 Section 5(b)(2) of the Securities Act makes it unlawful to carry or cause to be carried a security for purposes of sale or for delivery after sale ‘‘unless accompanied or preceded’’ by a prospectus that meets the requirements of section 10(a) of the Act. See section 10(a) of the Securities Act (generally requiring a prospectus relating to a security to contain the information contained in the registration statement). For purposes of this Release, a prospectus meeting the requirements of a section 10(a) prospectus is referred to as a ‘‘statutory prospectus.’’ For purposes of this section, we refer to RILA contracts and combination contracts together as ‘‘RILA contracts.’’ 516 See Proposing Release at section II.H (discussing registered MVA annuities and VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 result, all annuities both variable annuities and non-variable annuities— registered on Form N–4 are permitted to use summary prospectuses under the final amendments. Likewise, all investors in those annuities may benefit from the layered disclosure approach offered by a summary prospectus: an approach, in the context of financial products other than non-variable annuities that investors have generally indicated that they prefer.517 Rule 498A uses a layered disclosure approach designed to provide investors directly with key information relating to the contract’s terms, benefits, and risks in a concise and reader-friendly presentation, with more detailed information available elsewhere. Investors will continue to have access to the statutory prospectus of non-variable annuities and other information about these non-variable annuities online, with paper or electronic copies of this information upon request.518 This approach provides parity between nonvariable annuity issuers and issuers of variable annuities registered on Form N–4, which are permitted to use summary prospectuses to satisfy their prospectus delivery obligations, and builds on the Commission’s decades of experience with layered disclosure and rules permitting the use of summary prospectuses.519 The approach also requesting comment on whether to require insurance companies to register offerings of registered MVA annuities on Form N–4; and—to the extent registered MVA annuities were required to register on Form N–4—the Commission’s anticipation that it would extend the same functional changes that it was proposing for RILAs to registered MVA annuities, including the ability to use a summary prospectus). 517 See Investor Advocate Comment Letter. 518 To further effectuate the changes we are adopting, we are excluding non-variable annuity offerings from the provisions of rule 172, which provides that a final prospectus will be deemed to precede or accompany a security for sale for purposes of Securities Act section 5(b)(2) as long as the final prospectus meeting the requirements of Securities Act section 10(a) is filed or the issuer will make a good faith and reasonable effort to file it with the Commission as part of the registration statement within the required rule 424 prospectus filing timeframe. Consistent with registered investment companies and business development companies, non-variable offerings are subject to a separate framework governing communications with investors. See infra Section II.G; see also Securities Offering Reform for Closed-End Investment Companies, Investment Company Act Release No. 33836 (Apr. 8, 2020) [85 FR 33290 (June 1, 2020)] (‘‘Closed-End Fund Offering Reform Adopting Release’’) at Section VI.B.1.b. 519 See VASP Adopting Release at n.21 and accompanying text; see also Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4545 (Jan. 26, 2009)] (‘‘2009 Summary Prospectus Adopting Release’’); Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 60031 recognizes investors’ expressed preferences for concise and engaging disclosure of key information. Accordingly, the approach is consistent with the RILA Act’s mandate of designing disclosure requirements with the goal of ensuring that key information is conveyed in terms that a purchaser is able to understand. We anticipate that the summary prospectus framework will improve investor understanding of non-variable annuities, as the Commission similarly expressed when it adopted the summary prospectus rule for variable contracts.520 Commenters that spoke to this issue largely supported the extension of rule 498A to RILAs as proposed, stating that a summary prospectus framework for RILAs would be as successful for those products as it has been for variable insurance products and that investors and registrants alike would benefit from the rule’s layered disclosure framework that would align RILAs with the treatment of variable annuities.521 Other commenters addressed the inclusion of minimum guaranteed rates in the summary prospectus, and this topic is discussed in detail above.522 No commenter specifically addressed the use of summary prospectuses for registered MVA annuity registration statements, although as discussed above, commenters generally supported including offerings of registered MVA annuities on Form N–4 and did not address whether these offerings should be subject to different summary prospectus requirements than RILAs and variable annuities.523 Except as discussed below, no commenters discussed the contents of summary prospectuses in a manner that was distinct from their discussion of the Form N–4 content requirements generally, which are discussed above. Investment Company Advertisements, Investment Company Act Release No. 34731 (Oct. 26, 2022) [87 FR 72758 (Nov. 25, 2022)] (‘‘Tailored Shareholder Reports Adopting Release’’) (adopting rules incorporating a layered disclosure approach to open-end funds’ annual and semi-annual reports to shareholders). 520 See VASP Adopting Release at n.21 and accompanying text. 521 See, e.g., CAI Comment Letter; Investor Advocate Comment Letter (stating that in the context of other financial products, investors have generally indicated that they prefer this type of layered disclosure approach); IRI Comment Letter. One commenter questioned whether there is a need to continue to have a statement of additional information section outside of the statutory prospectus. See Johnson Comment Letter. Wholesale changes to the arrangement of registration statements that would be necessary to accommodate this suggestion are outside the scope of this rulemaking. 522 See Johnson Comment Letter; Datop Comment Letter; see supra Sections II.C.1 and II.C.2. 523 See supra Section II.B. E:\FR\FM\24JYR2.SGM 24JYR2 60032 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Further, when discussing the proposed amendments to rule 498A, commenters generally did not differentiate between initial and updating summary prospectuses. ddrumheller on DSK120RN23PROD with RULES2 1. Overview—Use of Summary Prospectus for Non-Variable Annuities The amendments to rule 498A broaden the scope of the rule to address non-variable annuities.524 Under the final amendments, the rule’s conditions for non-variable annuities relying on the rule to satisfy prospectus delivery obligations mirror the conditions applicable to variable contracts.525 These conditions include the requirements to send or give a summary prospectus to an investor no later than the time of the ‘‘carrying or delivery’’ of the contract security, as well as: (1) requirements for the contents that must be included in a summary prospectus, (2) limitations on binding a summary prospectus with other materials, and (3) requirements that the summary prospectus, statutory prospectus, and contract statement of additional information must be publicly accessible, free of charge, and on a website in the manner that the rule specifies. As with variable contracts, final rule 498A involves the use of two distinct types of summary prospectuses for nonvariable annuity contracts. An ‘‘initial 524 To facilitate this change, and to make the terminology used in rule 498A more consistent with certain terms used in the final amendments to Form N–4, we are also adopting amendments to the rule’s definitions. Specifically, we are (1) amending the definitions to ‘‘Class,’’ ‘‘Contract,’’ Investment Option,’’ ‘‘Registrant,’’ ‘‘Variable Annuity Contract,’’ and ‘‘Variable Life Insurance Contract’’ to address non-variable annuities, and/or to make changes to these definitions that correspond with amendments to certain definitions in Form N–4 (either definitions of these same terms in Form N– 4, or definitions of other terms in Form N–4 that will otherwise affect the way these terms are defined in rule 498A); (2) adding definitions for ‘‘Contract Adjustment,’’ ‘‘Fixed Option,’’ ‘‘IndexLinked Option,’’ ‘‘Insurance Company,’’ ‘‘Registered Market Value Adjustment Annuity Contract,’’ ‘‘Registered Separate Account,’’ ‘‘RILA Contract,’’ and ‘‘Variable Option’’ consistent with their counterparts in the Form N–4 amendments; and (3) deleting the definition of ‘‘Depositor.’’ These changes are necessary to implement the provisions of the rule that will be applicable to non-variable annuities and combination contracts. 525 See final rule 498A(f). Rule 498A also provides that a communication relating to an offering registered on Form N–4 that a person sends or gives after the effective date of the registration statement (other than a prospectus that Section 10 of the Securities Act permits or requires) will not be deemed a prospectus under section 2(a)(10) of the Securities Act, under certain conditions. Final rule 498A extends this provision to non-variable annuities. See final rule 498A(g). Under the final amendments, the rule 498A provision addressing information that may be incorporated by reference into a summary prospectus also applies the same to non-variable annuities as it does to other contracts currently within the scope of the rule. See final rule 498A(d). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 summary prospectus,’’ covering contracts offered to new investors, includes certain key information about the contract’s most salient features, benefits, and risks, presented in plain English in a standardized order. The rule amendments also require ‘‘updating summary prospectuses’’ to be provided to existing investors in non-variable annuity contracts as a condition to relying on the rule. The updating summary prospectus includes a brief description of certain changes to the contract that occurred during the previous year, as well as a subset of the information required to appear in the initial summary prospectus. Certain key information about the investment options that the contract offers (including as applicable index-linked options and fixed options) must be provided in both the initial summary prospectus and updating summary prospectus.526 As under rule 498A for variable contracts, the use of summary prospectuses for non-variable annuity contracts is voluntary. This is appropriate to provide non-variable annuity issuers with sufficient time to transition to a summary prospectus regime, as well as to recognize that there could be different relative benefits of using a summary prospectus for certain non-variable annuity issuers and investors in these contracts.527 Similar considerations informed the Commission’s decision to adopt a voluntary summary prospectus regime for variable contracts.528 526 This approach is consistent with the approach for information about variable options in variable contracts’ summary prospectuses, in which certain key information about the portfolio companies offered as variable options appears in both the initial summary prospectus and updating summary prospectus. See final rule 498A(b)(5)(ix); final rule 498A(c)(6)(iv). 527 The Commission similarly discussed the relative benefits to variable contract issuers of using a summary prospectus, based on the types of products that these issuers offer and the length of their current prospectuses, as well as the benefit of more concise disclosure to investors, in adopting rule 498A. See, e.g., VASP Adopting Release at Section IV.E.1 (discussion in the Economic Analysis section of the release, addressing the Commission’s consideration of mandating summary prospectuses for variable contracts). 528 See VASP Adopting Release at discussion accompanying nn.41–45; see also infra Section IV.C.1.c (discussing that different issuers and investors could expect to benefit differently from this optional prospectus delivery regime, although we expect a majority of non-variable annuity issuers to choose to use summary prospectuses and that therefore the majority of non-variable annuity investors will have the option to use both summary prospectuses and statutory prospectuses in their decision-making, in whatever proportion investors think is best for their preferences). PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 2. Initial Summary Prospectus As with an initial summary prospectus for a variable annuity, an initial summary prospectus for a nonvariable annuity contract must only describe a single contract that the insurance company currently offers for sale.529 An initial summary prospectus may describe more than one class of a currently offered contract.530 Aggregating disclosures for multiple contracts can hinder investors from distinguishing between contract features and options that apply to them and those that do not. As a result, an initial summary prospectus limited to a single contract currently offered for sale is designed to simplify and consolidate lengthy and complex disclosures. The content and ordering of items are designed to highlight aspects of a nonvariable annuity that may not be emphasized in marketing materials and other disclosures. Like other summary prospectuses that rule 498A for variable contracts addresses, we are adopting as proposed a standardized presentation for nonvariable annuity initial summary prospectuses to require certain disclosure items that would be most relevant to investors to appear at the beginning of the initial summary prospectus, followed by supplemental information.531 The required presentation also could facilitate comparisons of different non-variable annuities, as well as comparisons between non-variable annuities and variable annuities. An initial summary prospectus must contain the information required by the rule, and only that information, in the order specified by the rule.532 The information is required to appear in the same order, and under relevant corresponding headings, as the rule specifies. The chart in Table 7 below outlines the information that must appear in an initial summary prospectus for a nonvariable annuity contract. These are the same content requirements for an initial summary prospectus for a variable contract, with the exception of the ordering of the Overview of the Contract and KIT disclosures. We are adopting these content requirements as proposed. The Commission has historically viewed these items as providing annuity 529 See final rule 498A(b)(1). definition of the term ‘‘class’’ in the final amendments is the same as the definition in the current rule (that is, as a class of a contract that varies principally with respect to distributionrelated fees and expenses). Final rule 498A(a). 531 See VASP Adopting Release at paragraph accompanying nn.58–59. 532 Final rule 498A(b)(5). 530 The E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations investors with key information relating to a contract’s terms, benefits, and risks in a concise and reader-friendly presentation, and highlighting aspects of the contract that may not be emphasized in marketing materials and other disclosures.533 This rationale is equally true in the context of non-variable annuity disclosure. Further, as discussed above, the Overview of the Contract disclosures (previously Item 3 of Form N–4, but now re-numbered as Item 2) must precede the KIT (previously Item 2 of Form N–4, but now re-numbered as Item 3), due to the context that the Overview 60033 section provides and based upon our experience with the form and taking into account the results of investor testing.534 This change is reflected in final rule 498A. Otherwise, the same order of disclosures under final rule 498A is provided as under the current rule. TABLE 7—OUTLINE OF THE INITIAL SUMMARY PROSPECTUS Relevant paragraph in amendments to rule 498A Item of Form N–4 (as amended) Applicable to nonvariable annuities? Rule 498A(b)(2)(i) through (iv) ... ........................ ✓ ............................... ✓ Rule 498A(b)(2)(v) through (vi) .. Rule 498A(b)(3)(ii) ..................... ........................ ........................ ✓ ............................... ✓ ............................... ✓ ✓ Rule 498A(b)(4) ......................... ........................ ✓ ............................... ✓ Rule 498A(b)(5)(ii) ..................... 2 ✓ ............................... (each paragraph of Item 2, as applicable). Important Information You Should Consider About the [Contract]. Rule 498A(b)(5)(i) ...................... 3 Benefits Available Under the [Contract] Buying the [Contract] ............................. Making Withdrawals: Accessing the Money in Your [Contract]. Additional Information About Fees ........ Appendix: [Investment Options/Portfolio Companies] Available Under the Contract. Rule 498A(b)(5)(iv) .................... Rule 498A(b)(5)(v) ..................... Rule 498A(b)(5)(vii) .................... 10(a) 11(a) 12(a) ✓ ............................... (with instructions appliable to nonvariable annuities). ✓ ............................... ✓ ............................... ✓ ............................... ✓ (each paragraph of Item 2 except (b)(2) and (d), which are generally only applicable to non-variable annuity contracts). ✓ (with instructions appliable to variable annuities). ✓ ✓ ✓ Rule 498A(b)(5)(viii) ................... Rule 498A(b)(5)(ix) .................... 4 17 ✓ ............................... ✓ ............................... (Items 17(b), 17(c), and 17(d), as applicable). ✓ ✓ (Items 17(a), 17(c), and 17(d), as applicable). Heading in initial summary prospectus Cover Page: Identifying Information (front cover page) 1. Legends (front cover page) 2 ................. EDGAR Contract Identifier (back cover page). Table of Contents (optional) .................. Content: Overview of the [Contract] ..................... Applicable to variable annuities registered on Form N–4? ddrumheller on DSK120RN23PROD with RULES2 Notes 1 The beginning or front cover page of a non-variable annuity contract’s initial summary prospectus, like the initial summary prospectus of a variable annuity registered on Form N–4, must include the following information: (1) the insurance company’s name; (2) the name of the contract, and the class or classes if any, to which the initial summary prospectus relates; (3) a statement identifying the document as a ‘‘Summary Prospectus for New Investors’’; and (4) the approximate date of the first use of the initial summary prospectus. 2 The required legends are the same for non-variable annuities and for variable annuities registered on Form N–4. These legends address the purpose of the summary prospectus, the availability of the statutory prospectus and other information, information regarding the permitted cancellation period for the contract, and a statement that additional information about certain investment products, including the type of contract has been prepared by Commission staff and is available at investor.gov. They also include, for RILAs and combination contracts that offer indexlinked options along with other investment options, a legend that the Commission has not approved or disapproved of the securities being registered. The initial summary prospectuses for non-variable annuities as well as for variable annuities also must include additional statements that we require on the cover page of the prospectus for all Form N–4 issuers. See supra Section II.C.10; see also Item 1(a)(6) through (8) of final Form N–4. We also have updated the legends in the summary prospectus to reflect the final text of these items, including a statement that while an investor can cancel the contract within 10 days, contract adjustments may be applied. A non-variable annuity initial summary prospectus is permitted to include a table of contents. A table of contents must show the page number of the various sections or subdivisions of the summary prospectus, and immediately follow the cover page in any initial summary prospectus delivered electronically. The topics of the contents included in an initial summary prospectus—as well as the required headings under which these contents must appear—are the same for a non-variable annuity summary prospectus as they are for a summary prospectus of a variable annuity registered on Form N–4.535 Nevertheless, certain of these required 533 See VASP Adopting Release at nn.47–48 and accompanying text. To the extent that these content requirements are unchanged from the content requirements for variable annuity summary prospectuses, our rationale for these requirements has not changed from the rationale that is discussed throughout the sections of the VASP Adopting Release that address each of the content items discussed in Table 7 below. See VASP Adopting Release at Section II.A.1.c. Further, we provide our reasoning as to why these particular disclosures are important to investors in the non-variable annuity context as a general matter in Section II.C supra. 534 See supra Sections II.C.2 and II.C.3. Prior to the final amendments, rule 498A required issuers to place ‘‘Important Information You Should Consider About the [Contract]’’ disclosures before ‘‘Overview of the [Contract] disclosures.’’ 535 Final rule 498A(b)(5). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60034 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations contents vary in substance to reflect the unique aspects of non-variable annuities as compared to variable annuities. These are indicated in Table 7 above and include: • Disclosure provided under the heading ‘‘Overview of the Contract’’ (Item 2 of Form N–4), where disclosure for RILA contracts must include specific information about index-linked options currently offered under the contract, and disclosure for RILAs and registered MVA annuities must include information about interim value adjustments or market value adjustments that could affect an investor’s contract value; • Disclosure provided under the heading ‘‘Important Information You Should Consider About the Contract’’ (Item 3 of Form N–4), where the instructions vary for non-variable annuities as opposed to variable annuities; • Disclosure provided under the heading ‘‘Additional Information About Fees’’ (Item 4 of Form N–4), where the instructions vary for non-variable annuities as opposed to variable annuities; and • Disclosure under the heading ‘‘Appendix: Investment Options Available Under the Contract’’ (Item 17 of Form N–4), where RILA contract disclosure includes a different summary table for index-linked options offered under the contract than the summary table of variable options offered under a variable annuity. In addition, the disclosure includes a summary table for fixed options offered under the contract (which could be applicable for RILAs, registered MVA annuities, or variable annuities, depending on the investment options the contract offers). Each of these disclosure items, which also appears in a non-variable annuity statutory prospectus, is discussed in more detail in Section II.C. above. One commenter suggested that because a RILA has the term ‘‘registered’’ in its name, the Commission should require the cover pages of both an initial summary prospectus and an updating summary prospectus to include the legend that is required to be on the cover pages of registration statements—namely, that the Commission has not approved or disapproved of the securities or passed upon adequacy of the disclosure of in the prospectus.536 After considering the commenter’s suggestion, the Commission has determined to amend rule 498A to require the legend required by rule 481 under the Securities Act on the cover 536 See VIP Working Group Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 pages of initial and updating summary prospectuses for RILAs or combination contracts that offer index-linked options along with other investment options. Many RILAs whose offerings are registered with the Commission use the term ‘‘registered’’ in their names and, accordingly, clarification about the term ‘‘registered’’ is important to the extent that this term may cause confusion. The legend required by rule 481 on RILAs’ and combination contracts’ summary prospectus cover pages is anticipated to communicate important information to an investor about what ‘‘registered’’ means in this context. Further, the legend required by rule 481 will alert investors about the limits of the Commission’s registration process. We do not anticipate that the disclosure required by the legend would be so lengthy as to dissuade an investor from reviewing the summary prospectus. We recognize that previously the Commission determined not to require the legend required by rule 481 under the Securities Act on initial and updating summary prospectus cover pages for variable annuities and mutual funds.537 Those investment products, however, do not typically include the term ‘‘registered’’ in their names.538 3. Updating Summary Prospectus As proposed and as under current rule 498A for variable contracts, insurance companies under final rule 498A will not send an updated initial summary prospectus to investors each year. Instead, insurance companies will send an updating summary prospectus, which will provide a brief description of certain changes with respect to the contract that occurred within the prior year.539 This will allow investors to focus their attention on new or updated information relating to the contract. Additionally, the updating summary prospectus, as proposed and as required by final rule 498A, includes certain of the items required in the initial summary prospectus that are most likely to entail contract changes and where any such contract changes are most likely to be important to investors 537 See VASP Adopting Release at paragraph accompanying n.100; see also rule 498 under the Securities Act. 538 Similarly, we are not including registered MVA annuities in this instruction because they also typically do not include the term ‘‘registered’’ in their name. 539 A non-variable annuity issuer, like a variable annuity issuer, can only use an updating summary prospectus if it uses an initial summary prospectus for each currently offered contract described under the contract statutory prospectus to which the updating summary prospectus relates. Final rule 498A(c)(1). See also VASP Adopting Release at n.209 and accompanying text. PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 because they affect how investors evaluate non-variable annuity contracts and are relevant to investors when considering additional investment decisions or otherwise monitoring their contracts. This is consistent with the Commission’s approach for variable annuity updating summary prospectuses.540 All comments received about the proposed amendments to rule 498A, including updating summary prospectuses, are discussed above.541 Because the Commission designed the initial summary prospectus for someone making an initial investment decision, existing non-variable annuity investors will benefit more from receiving a shorter-form document including a brief summary of the changes to the contract, than from receiving the initial summary prospectus year after year.542 This approach also takes into account the cost to maintain and update separate initial summary prospectuses for currently offered contracts and those no longer offered. Unlike an initial summary prospectus, which only can describe a single contract that the insurance company currently offers for sale, an updating summary prospectus for a non-variable annuity may describe one or more contracts covered in the statutory prospectus to which the updating summary prospectus relates, as proposed and as under current rule 498A for variable contracts.543 Similar to the initial summary prospectus, an updating summary prospectus may also describe more than one class of a contract. 540 See VASP Adopting Release at Section II.A.2.a. As discussed above, the policy rationale for the content of a non-variable annuity updating summary prospectus and the location of that required content is the same rationale that the Commission articulated in adopting rule 498A for a variable annuity updating summary prospectus. To the extent that these content requirements are unchanged from the content requirements for variable annuity summary prospectuses, our rationale for these requirements has not changed from the rationale that is discussed throughout the sections of the VASP Adopting Release that address each of the content items discussed in Table 8 below. See VASP Adopting Release at Section II.A.2.c. Further, we provide our reasoning as to why these particular disclosures are important to investors in the non-variable annuity context as a general matter in Section II.C. supra. 541 See supra sections II.D.1. and 2. One commenter, as discussed above, specifically addressed an updating summary prospectus. That commenter suggested that the Commission include an additional legend on the cover pages of initial and updating summary prospectuses. See VIP Working Group Comment Letter. 542 The Commission discussed this rationale when it initially adopted rule 498A. See VASP Adopting Release at Section II.A.2.a. 543 Final rule 498A(c)(2); see also VASP Adopting Release at nn.342–343 and accompanying paragraph. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Updating summary prospectuses for non-variable annuities, like initial summary prospectuses, must include specific disclosure items appearing in a prescribed order, under relevant corresponding headings.544 An updating summary prospectus for a non-variable annuity must contain the information required by the rule, and only that information, in the order specified by the rule. We are adopting these content requirements generally as proposed.545 60035 The chart in Table 8 below outlines the information that is required to appear in an updating summary prospectus for a non-variable annuity. TABLE 8—OUTLINE OF THE UPDATING SUMMARY PROSPECTUS Heading in updating summary prospectus Cover Page: Identifying Information (front cover page) 1. Legends (front cover page) 2 ................. EDGAR Contract Identifier (back cover page). Table of Contents (optional) 3 ................ Content: Updated Information About Your Contract. Important Information You Should Consider About the [Contract]. Appendix: [Investment Options/Portfolio Companies] Available Under the Contract. Applicable to variable annuities registered on Form N–4? Relevant paragraph in amendments to rule 498A Item of final Form N–4 Applicable to nonvariable annuities? Rule 498A(c)(3)(i) through (iv) ... ........................ ✓ ............................... ✓ Rule 498A(c)(3)(v) through (vi) .. Rule 498A(c)(4) .......................... ........................ ........................ ✓ ............................... ✓ ............................... ✓ ✓ Rule 498A(c)(5) .......................... ........................ ✓ ............................... ✓ Rule 498A(c)(6)(i) through (ii) .... ........................ ✓ ............................... ✓ Rule 498A(c)(6)(iii) ..................... 3 Rule 498A(c)(6)(iv) ..................... 17 ✓ ............................... (with instructions appliable to nonvariable annuities). ✓ ............................... (Items 17(b), 17(c), and 17(d), as applicable). ✓ (with instructions appliable to variable annuities ) ✓ (Items 17(a), 17(c), and 17(d), as applicable) ddrumheller on DSK120RN23PROD with RULES2 Notes 1 The beginning or front cover page of a non-variable annuity’s updating summary prospectus, like the updating summary prospectus of a variable annuity registered on Form N–4, must include the following information: (1) the insurance company’s name; (2) the name of the contract(s), and the class or classes if any, to which the updating summary prospectus relates; (3) a statement identifying the document as an ‘‘Updating Summary Prospectus’’; and (4) the approximate date of the first use of the updating summary prospectus. 2 The required legends are the same for non-variable annuities and for variable annuities registered on Form N–4. These legends address the purpose of the summary prospectus, the availability of the statutory prospectus and other information, and a statement that additional information about certain products, including the type of contract, has been prepared by the SEC staff and is available at investor.gov. They also include, for RILAs and combination contracts that offer index-linked options along with other investment options, a legend that the Commission has not approved or disapproved of the securities being registered. Updating summary prospectus cover pages also must include additional statements that are required on the cover page of the prospectus for all Form N–4 issuers. See supra Section II.C.10; see also final Form N–4, Item 1(a)(6) through (8). 3 The requirements for this optional table of contents are the same for an updating summary prospectus as for an initial summary prospectus. See final rule 498A(b)(4); final rule 498A(c)(5). The updating summary prospectus for a non-variable annuity must include a concise description of certain changes to the contract made after the date of the most recent updating summary prospectus or statutory prospectus that was sent or given to investors. These changes appear under the heading ‘‘Updated Information About Your Contract,’’ with a required legend following the heading.546 The changes that the rule requires a non-variable annuity issuer to describe include those that relate to: (1) the availability of investment options under the contract; (2) the overview of the contract; (3) the KIT; (4) certain information about fees; (5) benefits available under the contract; 544 Final rule 498A(c)(6). a change from the proposal, the cover page of an updating summary prospectus for a RILA or combination contract that offers index-linked options along with other investment options must contain the legend required by rule 481 under the Securities Act. See supra paragraph accompanying footnote 537. 545 In VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 (6) purchases and contract value; and (7) surrenders and withdrawals. The updating summary prospectus also could include a concise description of any other changes that the non-variable annuity issuer wishes to disclose, provided they occurred within the same time period as the other changes the rule requires the issuer to describe. In providing a concise description of a contract-related change in the updating summary prospectus, non-variable annuity issuers must provide enough detail to allow investors to understand the change and how it will affect them.547 The topics for which a change necessitates a description in the updating summary prospectus, as proposed, are the same for non-variable annuities as for variable annuities registered on Form N–4. We do not anticipate that disclosures addressing these topics in a contract statutory prospectus will change frequently, and thus providing investors with a notice and a brief description of any changes that do occur may be more informative than repeating all the disclosures each year.548 Despite the infrequency of changes, investors should be notified of any changes to these items given their importance to the investor’s experience of investing in a non-variable annuity contract.549 546 The legend is the same for non-variable annuities and variable annuities: ‘‘The information in this Updating Summary Prospectus is a summary of certain [Contract] features that have changed since the Updating Summary Prospectus dated [date]. This may not reflect all of the changes that have occurred since you entered into your [Contract].’’ Final rule 498A(c)(6)(i)(A). 547 Final rule 498A(c)(6)(i)(B); see also VASP Adopting Release at paragraph accompanying n.374. 548 See VASP Adopting Release at paragraph following n.372. 549 See id. at paragraph accompanying nn.365– 369. PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 60036 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 Substantially as proposed, we are amending rule 498A to specify that, in the context of a RILA contract updating summary prospectus, the change of availability of investment options includes a change to any of the features of the index-linked options disclosed in the table that Item 17(b)(1) of Form N– 4 requires (that is, the features that are disclosed in the table in the appendix of investment options that will appear in a RILA contract summary prospectus).550 Similarly, in a change from the proposal, we are adopting a conforming change to rule 498A to specify that, for a contract that offers fixed options, the change of availability of investment options includes a change to any of the features of the fixed options disclosed in the table that Item 17(c) of Form N–4 requires.551 When the Commission adopted rule 498A, it stated that a change that has affected availability of portfolio companies (or investment options) includes changes in the portfolio companies (or investment options) offered under the contract or available in connection with any optional benefit.552 In the context of index-linked options, any change to the features of the index-linked options that the required table will describe—that is, the index, type of index, crediting period, index crediting methodology, and/or current limit on index loss—as well as the inclusion or exclusion of index options will meaningfully change the investor’s experience of investing in a RILA contract. Similarly, in the context of fixed options, any change to the features of the fixed options that the required table will describe—that is, the term and the minimum guaranteed interest rate—will meaningfully change the investor’s experience of investing in an annuity contract offering fixed options. For these reasons, under the final amendments a change to any of these features represents a change in the availability of the investment options that the contract offers. The topics of the additional contents included in an updating summary prospectus—as well as the required headings under which these contents must appear—are, as proposed, the same for non-variable annuities and for variable annuities registered on Form 550 As the Item 17(b) table does not include current limits on index gains, changes in current limits on index gains are not changes in the features of index-linked options that would require discussion in the updating summary prospectus. 551 Final rule 498A(c)(6)(i). The amendments reflect a conforming change from the proposal to address the inclusion of registered MVA annuities on Form N–4. 552 VASP Adopting Release at n.361. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 N–4.553 Certain of these required contents, however, as proposed vary in substance to reflect the unique aspects of non-variable annuities as compared to variable annuities. These are indicated in Table 8 above and include: • Disclosure provided under the heading ‘‘Important Information You Should Consider About the Contract’’ (Item 3 of Form N–4), where instructions to the required table are specific to non-variable annuities as opposed to variable annuities; and • Disclosure under the heading ‘‘Appendix: Investment Options Available Under the Contract’’ (Item 17 of Form N–4), where RILA contract disclosure will include a different summary table for index-linked options offered under the contract than the summary table of variable options offered under a variable annuity. In addition, the disclosure includes a summary table for fixed options offered under the contract (which could be applicable for RILAs, registered MVA annuities, or variable annuities, depending on the investment options the contract offers). 4. Online Accessibility of Contract Statutory Prospectus and Certain Other Documents Relating to the Contract Investors who receive a non-variable annuity initial or updating summary prospectus will have access to more detailed information about the nonvariable annuity, either by reviewing the information online, or by requesting the information to be sent in paper or electronically. In this respect, the final amendments include the same requirements for non-variable annuities as for variable contracts. These requirements further the layered disclosure framework that rule 498A creates for variable contracts and will, under the final amendments, similarly create for non-variable annuities. Those insurance companies that issue nonvariable annuities, to the extent that they also issue variable annuity contracts that use summary prospectuses under rule 498A, therefore, should be generally familiar with the practice of making this information available online and be able to integrate it with existing processes for variable annuities. Similar to what the Commission expressed in the context of variable annuity summary prospectuses, permitting non-variable annuity investors to access the contract statutory prospectus in several ways (online and by physical or electronic delivery) maximizes the accessibility and usability of this information for all PO 00000 553 Final rule 498A(c)(6). Frm 00060 Fmt 4701 Sfmt 4700 investors, including investors who continue to prefer to access information through paper resources.554 As discussed above, commenters stated that investors and registrants will benefit from rule 498A’s layered disclosure framework, with access to more detailed information available online and electronically or in paper format on request.555 No other commenters specifically addressed online accessibility to the statutory prospectus and certain other documents relating to the contract. Under the final amendments and as proposed, an insurance company relying on rule 498A to satisfy prospectus delivery obligations with respect to non-variable annuities (like a variable annuity issuer relying on this rule before the final amendments), must make the contract’s current initial summary prospectus, updating summary prospectus, statutory prospectus, and SAI (together, the ‘‘required online contract documents’’) available online.556 These required online contract documents are required to be publicly accessible, free of charge, at the website address that the cover page of the summary prospectus specifies, on or before the time that the person relying on the rule provides the summary prospectus to investors.557 The website address on which the required online contract documents appear must be specific enough to lead investors directly to the documents, although the website could be a central site with prominent links to each document.558 The required online contract documents must be presented 554 See VASP Adopting Release at n.417 and accompanying text; see also Office of Investor Education and Advocacy of the U.S. Securities and Exchange Commission, Study Regarding Financial Literacy Among Investors (Aug. 2012) at iv, xix, available at https://www.sec.gov/news/studies/ 2012/917-financial-literacy-study-part1.pdf. These requirements are unchanged from the requirements for variable annuity summary prospectuses, and our rationale for these requirements has not changed from the Commission’s rationale that is discussed throughout the sections of the VASP Adopting Release that discuss online accessibility requirements. See VASP Adopting Release at Sections II.A.5 and II.A.6. 555 See supra footnote 521 and accompanying text. 556 For requirements relating to the required online contract documents, see generally final rule 498A(h). 557 A current version of each of the required online contract documents must remain available for at least 90 days following either: (1) the time of the ‘‘carrying or delivery’’ of the contract security if a person is relying on the rule to satisfy its section 5(b)(2) prospectus delivery obligations; or (2) if a person is relying on the rule to send communications that will not be deemed to be prospectuses, the time that the person sends or gives the communication to investors. Final rule 498A(h)(1). 558 Final rule 498A(b)(2)(v)(B). E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations in a manner that is human-readable and capable of being printed on paper in human-readable format, and persons accessing the documents must be able to permanently retain electronic versions of the documents. The final amendments require linking within the electronic versions of the contract statutory prospectus and SAI that are available online, and also for linking between electronic versions of contract summary and statutory prospectuses that are available online. As proposed, both initial summary prospectuses and updating summary prospectuses for non-variable annuities, like variable annuity summary prospectuses, must define any ‘‘special terms’’ elected by the registrant, using any presentation that clearly conveys their meaning to investors.559 In nonvariable annuity summary prospectuses that are available online, the final amendments (like the current rule) as proposed require that investors be able either to view the definition of each special term upon command, or to move directly back and forth between each special term and the corresponding entry in any glossary or list of definitions the summary prospectus includes. Satisfying each of these requirements regarding online accessibility of contract statutory prospectuses and certain other documents relating to the contract is, as proposed, a condition for an insurance company to rely on rule 498A to satisfy prospectus delivery obligations with respect to non-variable annuities.560 Failure to comply with any of these conditions could result in a violation of section 5(b)(2) unless the contract statutory prospectus is delivered by means other than reliance on the rule. We recognize, however, that there may be times when, due to events beyond a person’s control, the person may temporarily not be in compliance with the rule’s conditions regarding the availability of the required online contract documents. The final amendments, like rule 498A before the amendments that we are adopting and as proposed, include a safe harbor provision addressing temporary noncompliance.561 559 Final rule 498A(e). rule 498A(f)(4); final rule 498A(g)(4). 561 Final rule 498A(h)(4). This provides that the conditions regarding the availability of the required online contract documents will be deemed to be met, even if the required online contract documents are temporarily unavailable, provided that the person has reasonable procedures in place to ensure that those materials are available in the required manner. A person relying on the rule to satisfy prospectus delivery obligations is required to take prompt action to ensure that those materials become available in the manner required as soon as ddrumheller on DSK120RN23PROD with RULES2 560 Final VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 5. Other Requirements for Summary Prospectus and Other Contract Documents Like current rule 498A, final rule 498A as proposed includes additional requirements for non-variable annuity summary prospectuses.562 These include: • Certain requirements regarding the delivery of paper or electronic copies of the required online contract documents upon request; • The requirement that a contract summary prospectus must be given greater prominence than any materials that accompany the contract summary prospectus; • Requirements that: (1) the required online documents be presented in a format that is convenient for reading and printing, and (2) a person be able to retain electronic versions of these documents in a format that is convenient for reading and printing; and • The requirement for any website address that is included in an electronic version of the summary prospectus to be an active hyperlink. Failure to comply with these additional requirements will not, however, negate a person’s ability to rely on the rule to satisfy prospectus delivery obligations.563 No commenters specifically addressed these additional requirements. E. Accounting (Items 16 and 26) We are adopting, as proposed, amendments to permit RILA issuers to provide financial statements on Form N–4 in the same way that insurance companies currently provide financial statements on Form N–4. We are also extending these amendments to registered MVA annuities. As a result, the financial statements filed in connection with a registration statement that relates to the offering of either of these securities may be prepared in accordance with SAP to the same extent as currently permitted for insurance companies’ financial statements filed on that form. As discussed in the Proposing Release, Instruction 1 to Item 26(b) of Form N–4 currently permits insurance companies that are the depositors of variable annuity separate accounts to prepare their financial statements for use in a registration statement filed on Form N–4 in accordance with SAP if the practicable following the earlier of the time when the person knows, or reasonably should have known, that the documents were not available in the manner required. 562 For these additional requirements, see generally final rule 498A(i). 563 Final rule 498A(i)(5). PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 60037 depositor would not have to prepare its financial statements in accordance with GAAP except for use in that registration statement or other registration statements filed on Forms N–3, N–4, or N–6 (the forms used to register insurance products that are issued by investment companies).564 The instruction further states that the depositor insurance company’s financial statements must be prepared in accordance with GAAP if it prepares financial information in accordance with GAAP for use by its parent (as defined in Regulation S–X) in any report under sections 13(a) and 15(d) of the Exchange Act or any registration statement filed under the Securities Act.565 In interpreting this instruction, the Commission has stated that SAP financial statements could be used under the insurance product forms, in limited circumstances, when: (1) GAAP financial statements are not prepared for either the depositor or its parent; or (2) the depositor’s parent prepares GAAP financial statements, but the depositor’s accounts are immaterial to its parent’s consolidated financial statements and, therefore, neither partial GAAP financial statements nor a GAAP reporting package is prepared by the depositor.566 Commenters supported permitting RILA issuers to provide financial statements on Form N–4 in the same way that insurance companies offering variable annuities currently provide financial statements on Form N–4.567 Commenters stated that requiring GAAP financial statements in cases where the insurance company is not otherwise 564 See Proposing Release at Section II.D. Similar to insurance products currently filing registration statements on these forms, insurance companies registering offerings of non-variable annuities will also be required, if all of the required financial statements of the insurance company are not in the prospectus, to state in the prospectus, under a separate caption, where the financial statements may be found and to briefly explain how investors may obtain any financial statements not in the SAI. See current and final Form N–4, Item 16. 565 Similar instructions are contained in the other forms used to register insurance products issued by investment companies. See Form N–3, Instruction 1 to Item 31(b), and Form N–6, Instruction 1 to Item 28(b). 566 See Registration Form for Insurance Company Separate Accounts Registered as Unit Investment Trusts that Offer Variable Life Insurance Policies, Investment Company Act Release No. 23066 (Mar. 13, 1998) [63 FR 13988 (Mar. 23, 1998)] (discussing the same instruction in Form N–6). 567 CAI Comment Letter; IRI Comment Letter; VIP Working Group Comment Letter, Gainbridge Comment Letter; Johnson Comment Letter; Meeting of American Council of Life Insurers, Committee of Annuity Issuers, and Insured Retirement Institute with SEC Staff Regarding SAP Financial Statements (Sep. 29, 2023) (‘‘Presentation from Insurance Product Trade Groups on SAP Financial Statements’’). E:\FR\FM\24JYR2.SGM 24JYR2 60038 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations required to prepare financial statements in accordance with GAAP would result in significant costs and administrative burdens.568 Some commenters further stated that permitting the use of SAP financial statements would reduce the burdens on many insurance companies offering or seeking to offer RILAs, which would lead to an increased selection of competitive products available to investors.569 Some commenters also suggested that SAP financial statements, which focus on an issuer’s ability to meet its obligations under its insurance contracts, provide sufficient material information that is relevant and meaningful for investors evaluating RILAs.570 Moreover, some commenters suggested that permitting the use of SAP financial statements would benefit investors by promoting comparability between insurance companies, allowing contract holders to compare issuers and their solvency.571 Commenters also supported extending this treatment to registered MVA annuities for the same reasons.572 One commenter suggested that we eliminate or more clearly explain the instruction to Form N–4 that says that an insurance company cannot use SAP financial statements if it prepares GAAP financial statements for a corporate parent that is a GAAP filer.573 This commenter questioned the basis for the instruction because insurance companies that have publicly-traded parent companies have been provided exemptions from the requirement to provide GAAP financial statements in connection with the registration of certain annuities based on the authority provided in 17 CFR 210.3–13 (‘‘3–13 Exemptions’’).574 We are retaining this instruction without modification. GAAP ddrumheller on DSK120RN23PROD with RULES2 568 CAI Comment Letter; IRI Comment Letter; Presentation from Insurance Product Trade Groups on SAP Financial Statements. 569 CAI Comment Letter; Gainbridge Comment Letter; IRI Comment Letter; Presentation from Insurance Product Trade Groups on SAP Financial Statements. 570 CAI Comment Letter; IRI Comment Letter; Presentation from Insurance Product Trade Groups on SAP Financial Statements. 571 CAI Comment Letter; Presentation from Insurance Product Trade Groups on SAP Financial Statements. 572 See, e.g., CAI Comment Letter (stating that ‘‘we completely support extending Form N–4 [to facilitate registering offerings of registered MVA annuities on the form]’’ and that ‘‘[o]ur comments here relating to financial statements apply equally to MVA contracts’’). 573 VIP Working Group Comment Letter. 574 Rule 3–13 provides, in part, that the ‘‘Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of one or more of the financial statements herein required or the filing in substitution therefor of appropriate statements of comparable character.’’ VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 financial statements provide the most useful information for all users of financial statements,575 and requiring filers to provide GAAP financial statements promotes uniformity and consistency in financial reporting.576 Accordingly, the Commission generally requires that all financial statements be presented on a GAAP basis and has permitted the use of SAP financial statements only in limited circumstances. In the examples cited by the commenter, 3–13 Exemptions from the requirement to provide GAAP financial statements were provided to insurance companies consistent with the instructions regarding financial statements on Forms N–3, N–4, and N– 6.577 Under the final amendments, an insurance company registering a RILA or registered MVA annuity offering on Form N–4 will not need a 3–13 Exemption in order to provide SAP financial statements provided the insurance company satisfies the requirements of the instruction in Form N–4.578 Amendments permitting insurance companies registering offerings of RILAs and registered MVA annuities to rely on Instruction 1 to Item 26 to provide SAP financial statements to the same extent as they do when registering offerings of variable annuities on Form N–4 alleviate the cost burdens that would be imposed by requiring GAAP financial statements in cases where the insurance company is not otherwise required to prepare financial statements in accordance with GAAP and provide for the consistent treatment of financial statements for all insurance companies that meet the circumstances permitted by Form N–4.579 Additionally, permitting RILA and registered MVA annuity issuers to provide SAP financial statements to the same extent as variable annuity issuers registering offerings on Form N–4 is consistent with maintaining investor protection. At the same time, SAP financial statements, which focus on an issuer’s ability to meet its obligations under its insurance contracts, as regulated by State law, provide material information for investors evaluating RILAs and registered MVA annuities. Requiring insurance companies to register offerings of non-variable annuities on Form N–4 will also provide those companies greater flexibility to update their registration statements without the need to update certain financial statements. Under section 10(a)(3) of the Securities Act, insurance companies currently are generally required to file a post-effective amendment annually to update their audited fiscal year-end financial statements as they relate to offerings of non-variable annuities.580 In addition, Regulation S–X currently requires Form S–1 filers to include unaudited interim financial statements in any new registration statement or post-effective amendment that goes effective later than 134 days after the end of the insurer’s fiscal year.581 However, Form N–4 filers are not subject to this requirement.582 Moreover, after the end of an insurer’s fiscal year, insurance companies are currently required to include year-end audited financial statements in any new registration statement or post-effective amendment relating to non-variable annuities filed 45 days after the fiscal year-end.583 However, Form N–4 filers 575 See generally Commission Statement of Policy Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter, Investment Company Act Release No. 26028 (Apr. 23, 2003) [68 FR 23333 (May 1, 2003)]. 576 See VASP Adopting Release at text following n.813. 577 See Form N–3, Instruction 1 to Item 31(b); current Form N–4, Instruction 1 to Item 26(b); and Form N–6, Instruction 1 to Item 28(b). 578 See final Form N–4, Instruction 1 to Item 26(b). 579 These amendments are consistent with the Commission’s current approach to non-variable annuities registered on Form S–1. Because Forms S–1 and S–3 do not include an instruction similar to Form N–4, Instruction 1 of Item 26(b), nonvariable annuities currently registered on these forms are required to provide their financial statements in accordance with GAAP. However, the Commission, acting through authority delegated to the staff, has permitted insurance companies registering on Form S–1 to include SAP financial statements in non-variable annuity registration statements in the limited circumstances permitted by Form N–4. See, e.g., Letter from Jenson Wayne, Chief Accountant, Division of Investment Management, to Stephen E. Roth, Eversheds Sutherland (US) LLP, regarding Fidelity & Guaranty Life Insurance Company and Fidelity & Guaranty Life Insurance Company of New York (Mar. 17, 2023), available at https://www.sec.gov/files/ fidelity-guaranty-031723.pdf. The Commission has stated that this approach appropriately recognizes the cost burdens that would be imposed if the Commission were to require GAAP financial statements in cases where the depositor is not otherwise required to prepare financial information in accordance with GAAP. See Registration Form for Insurance Company Separate Accounts Registered as Unit Investment Trusts That Offer Variable Life Insurance Policies, Investment Company Act Release No. 25522 (Apr. 12, 2002) [67 FR 19848 (Apr. 23, 2002)]; see also VASP Adopting Release at n.813 and accompanying text. 580 See Proposing Release at Section II.D. 581 17 CFR 210.3–12(a). Insurance companies that rely on rule 12h–7 are not required to provide periodic Exchange Act reports, including quarterly reports that include interim financial statements. Therefore, they must prepare interim financial statements for Securities Act registration statements, like Form S–1 and Form S–3, even though they do not prepare interim financial statements for other purposes. 582 See final Form N–4, Instruction 3 to Item 26(b). 583 See 17 CFR 210.3–01(c). PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 instead have a 90-day grace period.584 Consequently, under the final amendments, insurance companies will be able to file and amend their nonvariable annuity registration statements during certain times of year without the need to update their financial statements.585 The final amendments, similar to permitting insurance companies to rely on Instruction 1 to Item 26 for non-variable annuities, as discussed above, provide for the consistent treatment of financial statements for all insurance companies registering offerings on Form N–4 that meet the circumstances permitted by Form N–4. The commenter that addressed this aspect of the proposal suggested that relief from these requirements to prepare interim financial statements on a quarterly basis is appropriate because investors in nonvariable annuities, like investors in variable annuities, are less interested in the insurance company’s operating results from period to period.586 We are also adopting, as proposed, a requirement for RILA issuers to provide 584 Consistent with the proposal, insurance companies filing on Form N–4 will have a 90-day grace period to file audited financial statements after fiscal year-end. See final Form N–4, Instruction 3 to Item 26(b). One commenter suggested amending Form N–4 to provide separate accounts filing on the form the same 90-day grace period provided to insurance companies filing on the form. See VIP Working Group Comment Letter. In a change from the proposal, Item 26(a) has been amended to provide separate accounts a 90-day grace period for financial statements similar to the 90-day grace period provided to insurance companies for similar reasons. The exceptions to rule 3–12 of Regulation S–X contained in instruction 5 to Item 26(a) do not apply if the financial statements of the registered separate account have never been included in an effective registration statement for annuity contracts or life insurance contracts under the Securities Act. See final Form N–4, Instruction 5 to Item 26(a). The exceptions to rule 3–12 of Regulation S–X contained in instruction 3(a) to Item 26(b) have been modified from the proposal so that the exceptions do not apply if the financial statements of the insurance company have never been included in an effective registration statement for annuity contracts or life insurance contracts under the Securities Act. See final Form N–4, Instruction 3 to Item 26(b). As proposed, the exceptions would not have applied if the financial statements of the insurance company had never been included in an effective registration statement for annuity contract or variable life insurance contracts. 585 A further consequence of the changes will be that insurance companies will generally be making available their non-variable annuity-related financial statements to investors on an annual basis, consistent with the timing of financial statements for variable annuities. Currently, insurance companies relying upon rule 12h–7 provide their non-variable annuity-related financials annually, whereas insurance companies not relying on that rule provide financial statements quarterly. Insurance companies not relying on rule 12h–7 will file financial statements more frequently than annually if there are any post-effective amendments to the registration statement that require updated financial statements. See Form 10–Q. 586 CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 information relating to changes in and disagreements with accountants on accounting and financial disclosure as detailed in 17 CFR 229.304 (‘‘Item 304 of Regulation S–K’’) in the SAI. We are also extending this requirement to registered MVA annuity issuers. Additionally, non-variable annuities will be required to provide as an exhibit any letter from the insurance company’s former independent accountant regarding its concurrence or disagreement with the statements made by the insurance company in the registration statement concerning the resignation or dismissal as the insurance company’s principal accountant. Prior to these amendments, non-variable annuities provided these items on Forms S–1, 8–K, and 10–K, as applicable. These items are designed to address the practice of ‘‘opinion shopping’’ for an auditor willing to support a proposed accounting treatment designed to help a company achieve its reporting objectives even though that treatment might frustrate reliable reporting.587 The commenter that addressed this issue stated that it did not oppose this requirement as it applied to RILA issuers only and agreed with the placement of the disclosures modeled on Item 304 of Regulation S– K in the SAI.588 Some insurance companies issue index-linked life insurance products that have a similar payment structure to RILAs, resulting in similar regulatory treatment as RILAs currently. Some commenters stated that these life insurance policies should be permitted to register on Form N–6,589 which, among other things, would allow insurance companies registering those policies to provide SAP financial statements in the same way that other insurance companies are currently permitted to on Form N–6.590 The Commission did not propose to amend Form N–6 to permit insurance companies to register offerings of indexlinked life insurance on the form, and 587 See Disclosure Amendments to Regulation S– K, Form 8–K and Schedule 14A Regarding Changes in Accountants and Potential Opinion Shopping Situations, Investment Company Act Release No. 16358 (Apr. 12, 1988) [53 FR 12924 (Apr. 20, 1988)] (‘‘Disclosure Amendments to Regulation S–K, Form 8–K and Schedule 14A’’); see also Form S–1, Item 11(i). 588 See CAI Comment Letter. As registered MVA annuities similarly provide this disclosure currently and it will also be in the SAI, we are applying this requirement to registered MVA annuities for the same reason we are applying it to RILAs. 589 Similar to Form N–4 and variable annuities, Form N–6 is used to register offerings of variable life insurance policies. 590 See, e.g., CAI Comment Letter; ACLI Comment Letter; IRI Comment Letter. PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 60039 any such amendments are beyond the scope of this rulemaking. F. Filing and Prospectus Delivery Rules 1. Fee Payment Method and Amendments to Form 24F–2 We are adopting, largely as proposed, amendments to require insurance companies to pay securities registration fees relating to RILA offerings using the same method used for variable annuities.591 In a modification from the proposal, we are also adopting this framework for registered MVA annuities. Under the final amendments, issuers registering the offerings of nonvariable annuities on final Form N–4 will be deemed to be registering an indeterminate amount of securities upon effectiveness of the registration statement.592 These issuers will be required to pay registration fees annually based on their net sales of these securities, no later than 90 days after the issuer’s fiscal year ends, on Form 24F–2, the form that is used by registered separate accounts to pay securities registration fees relating to variable annuities.593 We are further 591 To accommodate the changes, EDGAR will be modified to require insurance companies registering non-variable annuities to use a different CIK than that used for their other offerings. One CIK will be utilized to register the offerings of non-variable annuities on Form N–4 and pay registration fees for securities relating to non-variable annuity offerings on Form 24F–2. The other CIK will be utilized to register the insurance company’s other offerings of securities as they do currently. As a result, insurance companies will need to utilize separate CIKs for their non-variable annuity-related filings. If the issuer only offers non-variable annuities, the issuer will only use one CIK. Further, we are amending rule 313 of Regulation S–T to permit filings relating to non-variable annuities offerings to have both an investment company type and contract identifier to facilitate insurance companies filing these forms and for ease in identification of particular contracts. 592 The rule amendments apply the same registration fee payment approach to non-variable annuities that is provided by rule 24f–2 to other Form N–4 issuers. See final rules 456(e) (providing that where the registration statement relates to an offering of non-variable annuities, insurance companies will be deemed to have registered an indeterminate amount of securities for purposes of sections 5 and 6(a) of the Securities Act upon the effective date of its registration statement); and 457(u) (providing for insurance companies to pay registration fees for offerings of non-variable annuity securities on the same annual net basis as other Form N–4 issuers); see also final Form 24F– 2. See 15 U.S.C. 78d(e) and 77z–3. We believe that these actions are necessary and appropriate in the public interest and consistent with the protection of investors. 593 As a general matter, the final amendments provide the same process for registering an indeterminate amount of securities relating to nonvariable annuity offerings as is currently provided for exchange-traded vehicle securities under rule 456(d) (which, in turn, mirrors the process for current Form N–4 issuers to register securities) except that: (1) this process will be mandatory for E:\FR\FM\24JYR2.SGM Continued 24JYR2 60040 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 specifying the calculation method for paying securities registration fees for non-variable annuity offerings, consistent with the fee calculation methodology that applies to variable annuities.594 We also are amending, as proposed, Form 24F–2 to specify when issuers can take credits for non-variable annuity redemptions that pre-date their use of that form and when expiring annuity contracts are rolled over into a new crediting period, as well as other non-substantive and conforming amendments.595 Commenters were supportive of our proposal to allow RILA issuers to pay fees in arrears on Form 24F–2, though they did have comments on specific elements of this part of the proposal as discussed below.596 Commenters also supported extending this treatment to registered MVA annuities, subject to those comments.597 Without the adoption of these final amendments, insurance companies, like most issuers, would need to register a specific amount of securities when registering non-variable annuities. Indeed, until now, issuers of nonvariable annuities were required to pay a registration fee for such securities to the Commission at the time of filing a registration statement on Form S–1 or S–3.598 As a result, under Forms S–1 insurance companies that register non-variable annuities on Form N–4; and (2) such insurance companies will pay fees on Form 24F–2 instead of filing a prospectus supplement in accordance with rule 424. See also Closed-End Fund Offering Reform Adopting Release. For example, the final amendments will provide the same mechanics as other Form 24F–2 issuers when addressing interest calculations for late payments. 594 All payments of filing fees for non-variable annuities registration statements will continue to be made by wire transfer, debit card, or credit card or via an ACH and there will be no refunds. See 17 CFR 230.111; Final Form 24F–2, Instruction A.5. 595 In addition to conforming changes in final Form 24F–2 to effectuate the changes discussed below, to improve the form we are: (1) removing reporting relating to shares paid for prior to Oct. 11, 1997; (2) removing the statement in current Instruction A.3 to consult the EDGAR Filer Manual because the instructions referenced in Instruction A.3 are intended to be removed from the EDGAR Filer Manual; (3) removing current Instruction C.4, which includes EDGAR header tags for Item 5 of the form, as this information is no longer sufficient for filing purposes and current technical specifications are provided through the technical specifications page on the Commission’s web page; (4) revising current Instruction C.9 for Item 5(vii) to correspond to the current instructions for fee filing rates on the Commission’s website; (5) correcting the website linked in current Instruction D.1; and (6) removing the estimated Paperwork Reduction Act burden cited in current Instruction F as extraneous in light of the OMB approval box that contains information on this topic. 596 See CAI Comment Letter; IRI Comment Letter; Gainbridge Comment Letter. 597 See, e.g., CAI Comment Letter. 598 In general, issuers today—including insurance companies issuing non-variable annuities—are VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 and S–3, insurance companies had to ensure that they did not inadvertently sell more non-variable annuities than were registered, even though this was not (and is not) a concern in relation to variable annuities. Further, insurance companies were required to pay fees at effectiveness on Forms S–1 or S–3 for the non-variable annuities being registered, in contrast with registered separate accounts, which do not have to pay a fee at effectiveness on Form N–4 but rather pay fees annually on Form 24F–2 on the net sales of securities that year. Now, under the final amendments, insurance companies will be required to pay fees under the framework outlined by the Investment Company Act, which provides that certain registered investment companies, including the variable annuity separate accounts that file on Form N–4, are deemed to have registered an indefinite amount of securities upon the effective date of their registration statement.599 Instead of having to pay registration fees at the time of filing a registration statement, the final amendments will require insurance companies to pay registration fees in arrears based on their net issuance of non-variable annuities, no later than 90 days after the issuer’s fiscal year end, on Form 24F–2.600 The final amendments are designed to require insurance companies to use the same framework to pay securities registration fees for non-variable annuities that they do for variable annuities. Insurance companies offer non-variable annuities in a manner substantially similar to variable annuities and similarly will benefit from paying registration fees on an annual net basis and from registering offerings of an indeterminate number of securities. The final amendments provide registration fee payment parity for an insurance company that may offer one or more related insurance products, including index-linked options offered as part of required under the Securities Act to pay a registration fee to the Commission at the time of filing a registration statement. See sections 6(b)(1) (requiring applicants to pay a fee to the Commission at the time of filing a registration statement) and (c) (providing that a registration statement shall not be deemed to have taken place without payment of a registration fee) of the Securities Act [15 U.S.C. 77f(b)(1) and (c)]. This means they pay registration fees at the time they register the offering of securities, regardless of when (or if) they sell them. In addition, although well-known seasoned issuers (‘‘WKSIs’’) have additional flexibility in paying filing fees, none of the insurance companies that issue non-variable annuities currently claim status as a WKSI. See Proposing Release at n.21 and accompanying text (citing, inter alia, section 6(b)(1) of the Securities Act [15 U.S.C. 77f(b)(1)]). 599 See 15 U.S.C. 80a–24(f). 600 See id.; final Form 24F–2. PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 combination annuity contracts.601 The final amendments’ requirement that insurance companies pay registration fees for non-variable annuities on Form 24F–2 therefore should be efficient for insurance companies. This approach eliminates the risk that an insurance company will inadvertently oversell non-variable annuities with respect to a registration statement on Form N–4, and the payment of fees on an annual net basis furthermore should lead to a reduction in overall filing fees relating to these securities.602 Further, by requiring insurance companies to use the same form and payment method under the final amendments for both variable and non-variable annuities, this process also will be efficient for the Commission. The fee calculation method is consistent with the continuous offering of non-variable annuities to investors. These investors may make additional allocations or other investment decisions over time with respect to an investment in non-variable annuities. One effect of this was that, prior to these rule amendments, insurance companies, unlike other Form S–1 or S–3 issuers, could have increased difficulty in using the filing fees associated with unsold non-variable annuities of a particular offering to offset the filing fees due for a subsequent registration statement. This was because many insurance companies could not easily terminate an offering of non-variable annuities, a necessary step to recoup fees paid on unsold securities for use in a separate offering.603 We also are amending Form 24F–2 to indicate when insurance companies can take credits for redemptions of nonvariable annuity securities not claimed 601 For combination products, each issuer of securities under the product (e.g., the separate account for the variable option and the insurance company for the index-linked or MVA option) will file a separate Form 24F–2 relating to the payment of registration fees for its respective securities offered under the product. 602 As part of the amendments to Form 24F–2, insurance companies will be required to include the value of any expiring non-variable annuities contract or index-linked or MVA option that is rolled over into a new crediting period in its calculation of the aggregate sale price of securities sold during the fiscal year. Insurance companies further will be required to report such contracts or options as redemptions. This will result in zero net sales being reported in this situation. See final Form 24F–2, Instruction C.4. 603 See 17 CFR 230.457(p). To facilitate the transition to calculating fees on an annual net basis and filing Form 24F–2, a filer will reduce the number reported in Item 5(i) in connection with non-variable annuities by any excess securities that were registered under its last registration statement that remain unsold prior to the effectiveness of the final rule. See final Form 24F–2, Instruction C.5. This will be so that a filing fee is not charged twice for the same securities being registered. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 during a prior fiscal year (‘‘non-claimed prior redemptions’’). Typically, issuers that file Form 24F–2 are eligible for a credit for fees paid on prior redemptions, which may be used to offset registration fees due for securities sold during the current fiscal year. This credit will only be available for nonclaimed prior redemptions that occurred during any prior fiscal year that ended no earlier than the date the issuer became eligible to use Form 24F–2.604 The current form, however, includes a legacy instruction that permits a credit for any non-claimed redemptions in a prior fiscal year that ends no earlier than October 11, 1995. This specific date is related to the timing of open-end funds’ and unit investment trusts’ transition to Form 24F–2.605 With the addition of non-variable annuities to this form, we are removing the reference to October 11, 1995 in Item 5(iii) of Form 24F–2 and amending the related instructions so that Form 24F–2 is clear that issuers only will be able to take credit for non-claimed prior redemptions for a fiscal year prior to the date the issuer became eligible to use the form, which for insurance companies issuing non-variable annuities would be the date on which we adopt these amendments.606 While generally supportive of the proposal, commenters had some specific recommendations on how we could modify Form 24F–2. One commenter recommended that a separate line item be added to Form 24F–2 for unsold interests that were registered using Forms S–1 and S–3 registration statements.607 This commenter suggested that, to provide greater transparency in the calculation of registration fees and to ensure RILA issuers receive credit for the amount of registration fees previously paid for unsold securities registered on the Forms S–1 and S–3 registrations statements, we provide a separate line item (e.g., a ‘‘redemption credit line’’) on Form 24F–2 to explicitly treat such unsold securities as redemption credits. We have not added such a line item to Form 24F–2 because final Form 24F–2 will allow insurance companies to 604 See Form 24F–2, Item 5(iii); see also generally Closed-End Fund Offering Reform Adopting Release at n.348. 605 See Registration Under the Securities Act of 1933 of Certain Investment Company Securities, Investment Company Act Release No. 22815 (Sep. 10, 1997) [62 FR 47934 (Sep. 12, 1997)] at n.9. 606 In addition to insurance companies, interval funds have been able to use Form 24F–2 since Aug. 1, 2021 (the effective date of rule 24f–2 as applied to interval funds), so these funds likewise would only be able to take credit for non-claimed prior redemptions since that date. 607 CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 exclude non-variable annuities previously registered on Forms S–1 or S–3 from the registration fee payment calculation in the first Form 24F–2 filed following the conversion to Form N–4. Specifically, the form, both as proposed and as adopted, instructs filers to reduce the calculation of the amount of securities sold (and, thus, for which registration fees are to be paid) by the amount of securities registered under the Securities Act for which the issuer paid registration fees on a form other than Form 24F–2.608 Thus, because those securities identified by the commenter were not registered pursuant to the final amendments (or section 24(f) of the Investment Company Act), insurance companies will be able to deduct those securities from the calculation without the need for a specific line item in that calculation that eventually would become obsolete. If additional clarity is desired, insurance companies may optionally use the explanatory notes section of the form to provide it. Proposed Instruction C.4 to Form 24F–2 provided a special rule for RILAs that clarified that the value of any expiring annuity contract or investment option that is rolled over into a new crediting period should be reported both as securities sold and as securities redeemed, resulting in a net-zero calculation to the extent that these amounts are the same. One commenter stated, in discussing this proposed approach, that transfers from indexlinked options to options (and variable options to index-linked options) should be viewed as substantially similar to rollovers of crediting periods from a registration fee payment perspective. The commenter stated that, in both cases, simultaneous purchases and redemptions of equal amounts occur, and thus both should be afforded comparable treatment in the context of registration fee payment.609 This commenter therefore recommended that, with respect to combination contracts, we provide expanded guidance in Instruction C.4 in Form 24F–2 regarding net zero fee transactions to include (1) transfers from index-linked options to variable separate account subaccounts; and (2) transfers from variable separate account subaccounts to index-linked options. We are not adopting this recommendation because in a combination contract, the separate account and insurance company each file their own separate Form 24F–2. 608 See Final Form 24F–2, Item 5(i) and Instruction C.5; see also supra footnote 603. 609 CAI Comment Letter. PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 60041 Expanding net zero fee transactions to include transfers from index-linked or MVA options to variable separate account subaccounts and vice versa would expand the ability of a registrant to determine net sales, and thus potentially reduce registration fees, to a greater extent than other registrants using Form 24F–2. This is because the form does not currently permit two or more legal entities to net purchases and redemptions and we do not believe netting across legal entities is appropriate. Therefore, we are not adding transfers from index-linked or MVA options to variable separate account subaccounts (and vice versa) to final Instruction C.2. One commenter asked us to confirm that RILA issuers could file a single Form 24F–2 annually to pay registration fees for all ongoing RILA offerings and pay registration fees on a net basis across all such offerings rather than having to make multiple Form 24F–2 filings and pay registration fees on a RILA offering-by-offering basis as with variable product separate account registration fee payments because paying registration fees in the aggregate across all RILA offerings would allow companies to more effectively use their unsold interests registered on Forms S– 1 or S–3.610 Another commenter suggested that we permit RILA issuers to use a single Form 24F–2 on the grounds that requiring multiple nearly identical filings has little value to investors, leads to additional complexity for both the staff and insurance companies, makes tagged data less useful (as a single product will have multiple identical tags under different registrants and IDs), and provides no upside.611 Consistent with the treatment for variable annuity and variable life insurance offerings, we agree that issuers should be permitted to pay registration fees for multiple offerings of non-variable annuities with different Securities Act numbers—provided that those Securities Act numbers are under the same Central Index Key (CIK) number—on a single Form 24F–2 and have added an instruction to that effect.612 2. Post-Effective Amendments and Prospectus Supplements The final amendments, which we are adopting as proposed, will require RILA issuers to use the same framework for filing post-effective amendments to the registration statement that other issuers on Form N–4 use. We are also adopting 610 CAI Comment Letter. Working Group Comment Letter. 612 See final Form 24F–2, Instruction A.6. 611 VIP E:\FR\FM\24JYR2.SGM 24JYR2 60042 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations this requirement in connection with offerings of registered MVA annuities. Specifically, we are amending rule 485 to require insurance companies to use that rule when amending non-variable annuity registration statements on Form N–4. This change will permit insurance companies to file post-effective amendments relating to non-variable annuity registration statements that become automatically effective under rule 485(a) after a specified period of time after the filing or, in certain enumerated circumstances, immediately effective under rule 485(b).613 In addition, we also are requiring insurance companies to apply rule 497 under the Securities Act when appropriate to file non-variable annuity prospectuses and prospectus supplements with the Commission.614 These amendments will facilitate a uniform post-effective amendment and prospectus filing framework for issuers on Form N–4 and will provide increased efficiencies for insurance companies and Commission staff by applying consistent procedures for all security offerings registered on Form N–4. The one commenter who addressed this aspect of the proposal supported the proposed amendments and supported their application to registered MVA annuities.615 Prior to the adoption of these final amendments, our rules provided different processes for insurance companies when registering offerings of non-variable annuities on Forms S–1 and S–3, as compared to those of variable annuities on Form N–4, to update and keep current a registration statement or prospectus. Form N–4 was used by separate accounts that are unit investment trusts that offer variable contracts to register their securities under the Investment Company Act and to register an indefinite amount of 613 See rule 485(b). with this change, we are making corresponding changes to (1) rule 424(f) to specify that insurance companies must use rule 497 rather than rule 424 when filing non-variable annuity prospectuses and prospectus supplements, and (2) rule 415(b) to exempt offerings of non-variable annuities from the requirements of paragraph (a) of that rule consistent with the treatment of variable annuity separate accounts. 615 CAI Comment Letter. This and one other commenter did raise questions on the effective dates of the amendments to rules 485 and 497 which we address below. See CAI Comment Letter; VIP Working Group Comment Letter; see also infra Section II.J. Additionally, while not specific to this requirement, one commenter suggested that we amend 17 CFR 240.10b–10(b)(1) to permit RILA issuers to use quarterly statements rather than the immediate confirmations usually required, consistent with the treatment of variable annuities under that rule. See CAI Comment Letter. We are not adopting this change at this time because it is beyond the scope of this rulemaking. ddrumheller on DSK120RN23PROD with RULES2 614 Consistent VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 continuously-sold securities under the Securities Act. As such, these issuers had a system of updating their disclosures that facilitates that structure. Issuers on Form N–4 typically update their registration statements annually through a post-effective amendment filed in accordance with rule 485 to, among other things, comply with Securities Act requirements.616 Rule 485(b) provides for the immediate effectiveness of many of the routine updates that issuers on Form N–4 may make over the course of a continuous, long-term offering, such as those amendments filed for no purpose other than to bring the financial statements up to date under section 10(a)(3) of the Securities Act.617 These issuers also file forms of prospectuses used in their offerings through rule 497 and can supplement their prospectuses, also known as ‘‘stickering,’’ to reflect certain changes to the information disclosed by making a filing with the Commission in accordance with rule 497. Prior to the final amendments that we are adopting today, insurance companies had to follow the processes operating companies use, when these insurance companies were updating non-variable annuity registration statements. Operating companies that are engaged in a continuous offering of securities, like these issuers, are similarly required to update their registration statement each year and may update their registration statement for changes other than to bring the financial statements up to date.618 For non-variable annuities whose offerings were registered on Form S–1, these updates typically occurred through a post-effective amendment.619 Rule 462 provided insurance companies with a limited set of circumstances, none of which are specific or generally relevant to offerings of non-variable annuities, in which a post-effective amendment to a registration statement is effective upon filing.620 Rather, when an insurance 616 See, e.g., section 10(a)(3) of the Securities Act [15 U.S.C. 77j(a)(3)]. 617 See rule 485(b)(1)(i). Material post-effective amendments, however, are not immediately effective. See rule 485(a). 618 See, e.g., section 10(a)(3) of the Securities Act; rule 415(a); Item 512 of Regulation S–K. 619 Under Form S–3, the section 10(a)(3) update need not be made through a post-effective amendment. Rather, under this form, the section 10(a)(3) update generally occurs when the issuer files its annual report on Form 10–K containing the issuer’s audited financial statements for its most recently completed fiscal year. 620 See rule 462(d) and (e). For example, this rule provides that a post-effective amendment that seeks only to add exhibits to a registration statement would be effective upon filing. In addition, although a well-known seasoned issuer is permitted to file a post-effective amendment to an automatic PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 company sought to update a nonvariable annuity registration statement on Form S–1, the issuer had to file a post-effective amendment that was typically declared effective by Commission staff acting pursuant to delegated authority.621 In addition to differences in the posteffective amendment process, insurance companies also followed, prior to the adoption of the final amendments, different processes to file non-variable annuity prospectuses than current Form N–4 filers, relying on rule 424 rather than rule 497. Although these rules provide for similar processes, certain differences affected these insurance companies. For example, rule 424 requires an issuer to file a prospectus only if the issuer makes substantive changes or additions to a previouslyfiled prospectus, whereas rule 497 requires funds to file every prospectus that varies from any previously-filed prospectus.622 Accordingly, under the final amendments, an insurance company will need to file every prospectus relating to a non-variable annuity offering that varies in form from a previously filed prospectus before the modified prospectus is first used.623 This approach will provide a publicly accessible, usable database of current non-variable annuity prospectuses which also will assist the Commission in conducting its regulatory functions. In addition, rule 424 includes provisions related to continuous or delayed securities offering under rule 415.624 However, in light of the amendments we are making to the nonvariable annuity registration framework with this rulemaking, these provisions will no longer be applicable to nonvariable annuities.625 Consistent with the other elements of this proposal, the final amendments are designed to provide parity between nonvariable annuities and variable annuities that are currently registered on Form N–4. Non-variable annuities, like variable annuities, are longer-term investment products that are continuously offered and must maintain a current registration statement and upto-date prospectus for new investors as well as for existing investors that may be able to make additional contributions shelf registration statement with immediate effectiveness, none of the insurance companies currently offering non-variable annuities currently claims status as a well-known seasoned issuer. 621 See 15 U.S.C. 77h; 17 CFR 229.501(a); 17 CFR 230.473. See also supra footnote 619 (describing the Form S–3 post-effective amendment process). 622 See rule 424(a); rule 497. 623 See rule 497(e). 624 See rule 424(b). 625 See rule 415(b). E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations or reallocate assets. Accordingly, applying rule 485’s simplified posteffective amendment process is a more appropriate framework for non-variable annuity registration statements given their similarity to variable annuities. Non-variable annuity registration statements are routinely updated over the course of an offering and may be subject to material and non-material amendments over the long-term nature of the investment product. As such, the final amendments address the posteffective amendment process for nonvariable annuity registration statements and thereby provide benefits to insurance companies currently using Form S–1 in relation to non-variable annuity offerings by reducing administrative complexity when updating financial statements included in a registration statement or when making other changes to a registration statement through rule 485’s provisions for automatic and immediate effectiveness.626 Requiring insurance companies to rely on the simplified post-effective amendment process will enable these issuers to update their disclosures in a manner that complements and facilitates the offering structure of non-variable annuities and will provide efficiency in the context of combination contracts.627 Requiring insurance companies to rely on rules 485 and 497 in connection with non-variable annuities also will provide a uniform post-effective amendment and prospectus filing framework for all issuers using Form N– 4 and provide insurance companies that may offer one or more related insurance products, including index-linked or MVA options offered as part of combination annuity contracts, consistent filing requirements across related products. This also should result in enhanced efficiencies as these issuers would no longer be required to manage distinct filing processes for related products. In addition, employing the framework provided by rules 485 and 497 will provide Commission staff with an increased degree of administrative efficiency by facilitating the review of amendments containing material changes to non-variable annuity registration statements while permitting ddrumheller on DSK120RN23PROD with RULES2 626 See rule 485. commenters asked if RILA issuers would be permitted to use the ‘‘rate sheet’’ process outlined in ADI 2018–05 for the disclosure of certain rate changes. See CAI Comment Letter. The application of that staff statement beyond variable contracts is beyond the scope of this rulemaking. Insurance companies are encouraged to engage with Commission staff on this ADI and whether modifications to address RILAs would be appropriate. 627 Some VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 amendments with non-material changes to become effective immediately. 3. Prospectus Delivery As proposed, we are prohibiting the use of rule 172 in connection with RILA offerings. We are also prohibiting its use in connection with registered MVA annuity offerings. Under rule 172, a final prospectus is deemed to precede or accompany a security for sale for purposes of Securities Act section 5(b)(2) as long as the final prospectus meeting the requirements of Securities Act section 10(a) is filed or the issuer will make a good faith and reasonable effort to file the final prospectus with the Commission as part of the registration statement within the required rule 424 prospectus filing timeline.628 We received no comments on this aspect of the proposal. Registered investment companies, including variable annuity separate accounts, are excluded from rule 172 and therefore must deliver a prospectus to investors.629 Therefore, we are excluding offerings of non-variable annuities from rule 172 to ensure that investors receive a prospectus about these complex investments and because we are treating these offerings like offerings of variable annuities in other respects. Moreover, we understand that, as a practical matter, insurance companies typically do not rely on rule 172 in connection with non-variable annuities because they usually deliver prospectuses to accompany or precede other communications, such as annuity applications, to avoid those communications being offers that otherwise would be non-conforming prospectuses that violate section 5 of the Securities Act.630 G. Communication Rules Applicable to Non-Variable Annuities As proposed, we are amending rule 156 to make its provisions applicable to RILA sales literature, and, in a change from the proposal, we are also applying these changes to registered MVA 628 See rule 172(b) and (c); see also Closed-End Fund Offering Reform Adopting Release at n.561 and accompanying text. 629 Id. at Section VI.B.1.a. 630 See section 2(a)(10) of the Securities Act (providing, in part, that a communication sent or given after the effective date of the registration statement shall not be deemed a prospectus if it is proved that prior to or at the same time with such communication a written prospectus meeting the requirements of section 10(a) was sent or given to the person to whom the communication was made). See also Closed-End Fund Offering Reform Adopting Release at n.561 (stating that a final prospectus only filed as provided in rule 172 will not be considered to be sent or given prior to or with a written offer within the meaning of this clause of section 2(a)(10)). PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 60043 annuities in light of the similarities in the products.631 Additionally, in a change from the proposal, we are also making a technical amendment to rule 433 to allow certain RILA issuers that can meet the rule’s conditions to continue to use a free writing prospectus without it needing to be preceded or accompanied by a prospectus that satisfies the requirements of section 10 of the Securities Act. 1. Sales Literature (Rule 156) Under the Federal securities laws applicable to all securities (including non-variable annuity offerings), it is unlawful for any person to use materially misleading communications in connection with the offer or sale of any security.632 Rule 156 does not prohibit or permit any particular representations or presentation, rather it is an interpretive rule that provides factors to be weighed in considering whether, in the specific context of investment company sales literature, a statement involving a material fact is or might be misleading for purposes of the Federal securities laws.633 Amending rule 156’s provisions to include nonvariable annuity sales literature will provide guidance to insurance companies on ways to avoid presenting investors with materially misleading advertisements, which, consistent with the RILA Act, should help ensure that investors receive the information necessary to make informed decisions about these products. Rule 156 provides guidance on whether a statement involving a material fact is misleading in sales literature, depending on an evaluation of the context in which it is made, with the rule providing four non-exhaustive factors to guide in this determination.634 Like investment company sales literature generally (and variable annuity marketing materials particularly), RILA advertisements discuss complex investment features that could benefit from rule 156’s contextual analysis in considering whether a particular representation is materially misleading. Moreover, Commission staff reviewed RILA advertisements to better understand how insurance companies market these products to investors. As part of this review, and based upon prior 631 See final rule 156. 15 U.S.C. 77q(a); 15 U.S.C. 78j(b); 17 CFR 240.10b–5. 633 See Mutual Fund Sales Literature Interpretive Rule, Investment Company Act Release No. 10915 (Oct. 26, 1979); [44 FR 64070 (Nov. 6, 1979)] (‘‘Rule 156 Release’’). 634 See current rule 156(b). 632 See E:\FR\FM\24JYR2.SGM 24JYR2 60044 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 experience reviewing RILA registration statements, the staff identified RILA marketing approaches that could benefit from rule 156’s guidance about advertising statements that could be misleading under the Federal securities laws without appropriate context. Thus, by extending this guidance to RILAs, the final amendments to rule 156 focus attention to specific areas of RILA sales literature that we have identified as being particularly susceptible to misleading statements.635 These considerations are equally applicable to registered MVA annuities given the similarities in the products. Several commenters expressed support for the proposed amendments to rule 156 and no commenters opposed them.636 Commenters stressed the benefits to investors of applying rule 156 to RILA advertising. One commenter stated that the application of rule 156 to RILA sales literature is a ‘‘natural fit’’ given the applicability of its guidance to RILAs, noting that the proposed amendments would protect investors by, among other things, requiring insurance companies to consider the potentially misleading nature of statements about past performance in their sales literature.637 Because the features of a RILA investment, such as limits on gains, change frequently, this commenter observed that past performance is often irrelevant to current RILA investors who are not able to utilize those past rates in current market conditions. Referring to news reports expressing concerns about sales techniques used to sell annuities generally, this commenter suggested that these concerns further emphasize the need for marketing rule protections in the context of RILA sales literature.638 635 See Rule 156 Release (Rule 156 is ‘‘intended to highlight general areas which, based on the Commission’s regulatory experience with investment company sales literature, had proven to be particularly susceptible to misleading statements’’). 636 See, e.g., Better Markets Comment Letter; Johnson Comment Letter. One commenter stated concern that the Proposing Release implied that misleading marketing practices are common in RILA advertising. See CAI Comment Letter. We did not intend to express, and are not expressing, a view about the prevalence of misleading marketing practices in RILA advertising. This commenter also suggested that it is noteworthy that most RILA advertisements are submitted for review to the Financial Industry Regulatory Authority even though there is currently no legal requirement to do so. We discuss this in more detail below. See infra Section II.G.2. 637 See Better Markets Comment Letter. 638 See id. (citing 2023 N.Y. Times article discussing the fact that investors often face aggressive sales pitches on annuities with opaque terms and hefty commissions that give brokers incentives to sell annuities that pay them the most). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Some commenters also expressed concerns about the potential for confusion about other RILA features.639 One of these commenters stated that RILAs are inherently misleading products and urged the Commission to do more to protect investors with regard to certain confusing RILA features.640 For example, some commenters stated that claims that RILAs have no ongoing fees are misleading because investors will sometimes incur fees even if they hold the investment past the surrender charge period.641 These commenters urged that we require disclosure of such fees and charges even if they are hard to quantify. These commenters also stated that there was the potential for investor confusion because RILA returns are based on a price return index instead of a total return index, suggesting that insurance companies need to explain the difference and specify which return is applicable to the RILA so that investors can understand the difference between investing in an index fund (which might be subject to explicit ongoing fees, but in which investors receive a total return, including dividends) and a RILA based on a price return index (whose return would be less than that of an index fund that includes a total return). One commenter also expressed concerns about representations concerning tax deferral and death benefits in RILA advertisements.642 For example, this commenter suggested that the term ‘‘death benefit’’ is misleading because these features are just a return on an investment (like that provided by mutual funds, stocks, and bonds), and further, unlike other comparable investments, death benefits are fully taxed at ordinary income rates. Similarly, this commenter expressed a concern that annuity advertisements frequently exaggerate the benefits of tax deferral by providing charts and examples that rely on unreasonable assumptions (such as comparing the taxdeferred value of an annuity to the value of a taxable account without reflecting an investor’s inability to access her investment from a tax-deferred account without paying taxes). Finally, this commenter also expressed concern regarding the discretion of an insurance company to change key terms, such as minimum rates. This commenter suggested that this discretion was particularly concerning because, unlike 639 See Johnson Comment Letter; Lee Comment Letter. 640 See Lee Comment Letter. 641 See Johnson Comment Letter; Lee Comment Letter. 642 See Johnson Comment Letter. PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 most other investments where the issuer is a fiduciary (such as funds or equity investments), RILA issuers have no duty to act in the investor’s interest when acting unilaterally to alter the product by setting or changing rates. This same commenter stated that focusing on RILA marketing practices is important because investors may not read an entire prospectus and thus may rely on marketing materials for information about a RILA’s complex features. This commenter, however, suggested that RILA issuers should be permitted (or even required) to produce fair presentations of performance, which the commenter believed would allow investors to see how RILAs operate under real market conditions. This commenter agreed that providing fair representations of RILA performance is difficult because the rates offered by insurance companies are constantly changing but suggested that RILA performance presentations could be required to use average cap rates over a calendar year, while prohibiting those presentations from using back-tested index performance or performance of the RILA prior to the product’s launch. As described above, rule 156 is an interpretive rule that provides factors to weigh in considering whether, in the specific context of sales literature, a statement involving a material fact is or might be misleading for purposes of the Federal securities laws. Because rule 156 does not prohibit or permit any particular representations or presentation, we disagree with the commenter’s suggestion that we impose a requirement under rule 156 regarding the use of cap rates in providing representations as to historical RILA performance. After considering these comments, we are adopting the amendments to rule 156 as proposed, with the added application to registered MVA annuities. As discussed below, these amendments address commenter concerns about potentially misleading statements in RILA sales literature by providing insurance companies with guidance about the contextual analysis to use in determining whether a particular representation in non-variable annuity advertising could be materially misleading. For example, as stated above, commenters expressed concern about the potential for investors to be misled in connection with representations in RILA marketing materials about a lack of ongoing fees. Final rule 156(b)(4) provides that representations about fees or expenses associated with an investment in a non-variable annuity could be misleading ‘‘because of E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 statements or omissions made involving a material fact, including situations where portrayals of the fees and expenses associated with an investment in the fund or registered non-variable annuity omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading.’’ While non-variable annuity investors are not typically charged direct ongoing fees or expenses, RILAs do typically limit an investor’s ability to participate in upside performance, and nonvariable annuities with contract adjustments (including registered MVA annuities) can impose implicit costs upon highlighted features such as guaranteed benefits.643 Thus, in the context of non-variable annuity sales literature, under this provision of rule 156, consideration should be given about whether representations or portrayals either of a non-variable annuity’s costs or charges (e.g., advertising implying that a RILA has low costs or no ongoing charges), or optional benefits that are subject to a contract adjustment, would necessitate qualifying statements or explanations regarding the costs or tradeoffs to the investor to receive an advertised benefit or those generally associated with the non-variable annuity. Similarly, final rule 156(b)(1)(ii)’s extension to non-variable annuity sales literature also addresses some of the commenter concerns we received regarding RILA features that, when described in marketing materials, may require additional context to ensure they are not misleading. Final rule 156(b)(1)(ii) provides that a statement in non-variable annuity sales literature could be misleading because of ‘‘[t]he absence of explanations, qualifications, limitations or other statements necessary or appropriate to make such statement not misleading.’’ Whether a given explanation, qualification, or limitation is necessary or appropriate to make statements in sales literature not misleading will depend on the facts and 643 Insurance companies may apply a contract adjustment to an investor’s account when an investor annuitizes or takes advantage of benefits like ‘‘free withdrawal’’ provisions (that typically permit investors to withdraw up to 10% of the contract value each year without paying a surrender charge), death benefits, systemic withdrawals, and guaranteed benefits. See, e.g., Dodie Kent and Ronald Coenen, Jr., The Design and Regulatory Framework of Registered Index-Linked Annuities, ALI CLE Conference on Life Insurance Products 2023 (‘‘It is important to note that interim value adjustments may apply to surrenders and all types of ‘withdrawals,’ such as free look payments; annuitization; death benefit payments; deductions for third party advisory fees; systemic withdrawals; and even income payments under guaranteed benefit riders.’’). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 circumstances in each case. The examples that follow are areas where an insurance company should consider the need for further explanation, qualifications, or limitations, but are not intended to suggest that that further explanation, qualifications, or limitations are necessary in each case in order to make the examples not misleading. For example, where a RILA advertisement includes statements regarding index returns, under this provision, consideration should be given as to whether the insurance company needs to explain the difference between a price return index and a total return index, including how that difference can affect an investor’s returns, or if an advertisement describes a RILA as a growth product, whether qualification of the statement is necessary in light of relevant RILA features, such as the existence and extent of any limitations on upside index performance. If RILA sales literature discuss these aspects of the contract without adequately explaining these limitations or the insurer’s discretion to alter key features, that omission could make the advertisement misleading. For instance, if sales literature advertises a particular feature of a RILA’s bounded return structure (including, e.g., a specified index; an upside feature such as a particular ‘‘cap rate’’ or ‘‘participation rate’’; or a downside feature such as a ‘‘floor’’ or ‘‘buffer’’) that is not available for the life of the product, under the rule consideration should be given regarding whether the statement could be misleading without providing additional context as to the insurer’s discretion. Additionally, under these provisions of final rule 156, insurance companies should also consider whether representations that highlight downside protections of a RILA (e.g., describing the RILA as a loss avoidance vehicle) could also be misleading without qualifying explanations or statements, including the context of the cost or limitation of those protections (e.g., upside limitations). Insurance companies should further consider whether the same analysis would apply to representations that accentuate the benefits of customization without discussing the trade-offs associated with that customization (e.g., long lock-up periods to get the best rates or having to experience a contract adjustment when making a change) or do not explain that the insurance company has reserved the right to change or remove key features of the contract. PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 60045 Lastly, final rule 156(b)(2)(i) states that ‘‘[r]epresentations about past or future investment performance could be misleading because of statements or omissions made involving a material fact, including situations where: [p]ortrayals of past income, gain, or growth of assets convey an impression of the net investment results achieved by an actual or hypothetical investment which would not be justified under the circumstances, including portrayals that omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading.’’ In the context of non-variable annuity advertising, under this provision, consideration should be given to whether illustrations about the operation of a non-variable annuity or its features could be misleading. This could be the case in a RILA advertisement because, for example, it uses assumptions (such as limits on gains or index performance that includes dividends, whereas the RILA’s index does not include dividends) that are not currently offered or exceed what could be reasonably anticipated, or use ‘‘cherry picked’’ data. Similarly in the case of RILA and registered MVA annuity advertising, with regard to the commenter concern regarding the potential for statements that exaggerate the benefits of tax deferral, under final rule 156(b)(2)(i) consideration should be given to whether portrayals of the tax-deferred value of the annuity, especially where this value is compared to the value of a taxable account, should reflect the advantages of taxable accounts (e.g., discussing, if applicable, whether a taxable account would be taxed at lower capital gains rates).644 Likewise, given the frequency with which RILA terms can change and the sensitivity of a RILA’s returns to the particularized choices made by individual investors,645 including the historical performance of a RILA or any particular index-linked option itself in an advertisement may be inconsistent with amended rule 156’s guidance.646 644 See Johnson Comment Letter. MVA annuity advertisements do not raise the same concerns, as investor returns in a registered MVA are not subject to the same range of particularized investor choices, but are instead based on a particular fixed rate that is periodically reset by the insurance company. 646 Because the terms of a RILA investment, such as limits on gains, change frequently, past performance is often irrelevant to current investors who are not able to utilize those past rates in current market conditions. In addition, to the extent that a RILA is using a point-to-point crediting method, that RILA’s return to an investor would be 645 Registered E:\FR\FM\24JYR2.SGM Continued 24JYR2 60046 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Further, including historical index performance in an advertisement also would be misleading if, for example, it suggested that the performance shown is predictive of future performance of the index or a RILA. On the other hand, using the index’s historical performance solely to illustrate how a RILA works, and in a fair and balanced way (e.g., by showing index performance relative to representative limits on gains and losses, as some RILA advertisements currently do) would be consistent with final rule 156, assuming those advertisements otherwise include appropriate caveats to ensure that the illustrations are not misleading and do not suggest that the illustrations show the performance of the RILA or a particular index-linked option. ddrumheller on DSK120RN23PROD with RULES2 2. Free Writing Prospectuses and Advertisements (Rules 433 and 482) In addition to the prohibition against using materially misleading communications in connection with the offer or sale of any security, Congress has imposed advertising restrictions to the extent that certain advertisements are considered prospectuses under the Securities Act.647 The Commission has stated that Congress imposed these restrictions so that investors base their investment decisions on the full disclosures contained in the statutory prospectus, which is intended to be the primary selling document.648 However, these advertising restrictions require special considerations for many investment companies. Specifically, investment companies are uniquely situated in that the only ‘‘product’’ of the typical investment company is its shares, and ‘‘because it is in continuous registration, any advertisement for such particularly sensitive to the specific date the investor purchased the RILA and when the crediting period ends for the index-linked option chosen by the investor. See Proposing Release at n.352. This further increases the likelihood of a current investor’s investment experience deviating from the historical performance of a given RILA, even when that RILA had similar terms to those currently offered. 647 See, e.g., section 2(a)(10) of the Securities Act (defining prospectus): section 5(b)(1) of the Securities Act (prohibiting the use of any means or instruments of transportation to carry or transmit any prospectus relating to any security with respect to which a registration statement under the Securities Act has been filed unless such prospectus meets the requirements of section 10 of the Securities Act); section 10 of the Securities Act (stating information required in prospectus). 648 See, e.g., Advertising by Investment Companies, Investment Company Act Release No. 9811 (June 8, 1977) [42 FR30378 (June 14, 1977)] (‘‘Investment Company Advertising Rules Proposing Release’’); Amendments to Investment Company Advertising Rules, Investment Company Act Release No. 26195 (Sept. 29, 2003) [68 FR 57760 (Oct. 6, 2003)] (‘‘482 Amendment Adopting Release’’). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 a company is a prospectus that is illegal unless it complies with statutory requirements.’’ 649 Because of these restrictions, investors were unable to learn about the investment company itself, as they would about other companies, ‘‘from advertisements of its products or policies or from widely disseminated annual reports to shareholders or similar publications.’’ 650 In recognition of these problems, the Commission adopted specialized advertising rules for registered investment companies and business development companies (collectively ‘‘funds’’), including rule 482, which permits funds to provide advertisements and sales literature to investors without being accompanied or preceded by a statutory prospectus (‘‘prospectus delivery requirements’’) by treating such advertisements as prospectuses under section 10(b) of the Securities Act.651 Accordingly, a rule 482 advertisement is a prospectus for purposes of potential civil liability under section 12(a)(2) of the Securities Act.652 Currently, rule 482 is only available to funds, which are substantively regulated under the Investment Company Act. These substantive regulations provide a range of direct and indirect investor protections by, for example, regulating fund structure, holdings and operations, and reducing fund complexity and helping ensure that fund fees are reasonable in relation to services rendered.653 Insurance companies offering non-variable annuities, like other non-fund issuers, are not subject to these requirements under the Investment Company Act. Rule 482 also requires enhanced disclosures in fund advertisements designed to convey balanced information to prospective investors, including standardized methodologies that certain funds must use if they wish to include performance data in their advertisements.654 These advertisements also generally are filed with the Financial Industry Regulatory Authority (‘‘FINRA’’), which has adopted rules providing standards for the fund advertising practices of its members and established and implemented procedures to review that advertising.655 FINRA does not currently have rules that expressly require similar standards for nonvariable annuities. As they are offered by registered investment companies, variable annuity advertisements are currently subject to rule 482, including the requirement to provide standardized performance information to the extent that they are providing performance data in their advertisements.656 Further, Congress expressly directed the Commission to adopt rules that permit registered investment companies to use prospectuses that include information the substance of which is not included in the statutory prospectus, and that are deemed to be 649 See Investment Company Advertising Rules Proposing Release. 650 Id. (stating that these concerns put investment companies on a different footing than insurance companies, ‘‘since institutions such as . . . insurance companies which compete with investment companies for investor interest are not subject to the same limitations on their advertising as are investment companies,’’ such that, absent rule 482’s provisions, those limitations could restrict the availability to investors of information about all relevant investment possibilities). 651 Business development companies are a category of closed-end investment companies that are not required to register under the Investment Company Act. See section 2(a)(48) of the Investment Company Act [15 U.S.C. 80a–2(a)(48)]. When the investment company advertising rule was first adopted, it applied to advertisements of any registered investment company (including closedend funds) so long as the investment company was engaged in a continuous offering, i.e., ‘‘is selling or proposing to sell its securities pursuant to a registration statement which has been filed under the Act.’’ See Advertising by Investment Companies, Investment Company Act Release No. 10852 (Aug. 31, 1979) [44 FR 52816 (Sep. 10, 1979)] (‘‘1979 Adopting Release’’). The rule was subsequently revised to include business development companies and omit the requirement that the investment company be engaged in a continuous offering. See Adoption of Integrated Disclosure System, Investment Company Act Release No. 12264 (Mar. 3, 1982) [47 FR 11380 (March 16, 1982)]. 652 See Investment Company Advertising Rules Proposing Release (citing 15 U.S.C. 771(2)). 653 See, e.g., section 12(d) of the Investment Company Act (restricting the ability of registered investment companies to invest in the securities of other investment companies); section 15(c) of the Investment Company Act (requiring directors to request and evaluate information reasonably necessary to evaluate the terms of advisory contracts); and section 26(f) of the Investment Company Act (imposing reasonability requirements regarding the fees and charges that may be imposed in connection with variable annuity separate accounts). 654 In addition to standardized performance requirements, rule 482 also mandates certain disclosures and generally prohibits rule 482 advertisements from being accompanied by an application for investment in the investment company. See, e.g., rule 482(b) and (c). 655 Section 24(b) of the Investment Company Act [15 U.S.C. 80a–24(b)] requires the filing with the Commission of ‘‘any advertisement, pamphlet, circular, form letter, or other sales literature’’ for any registered investment company other than a closed-end fund. 17 CFR 270.24b–3 (‘‘rule 24b–3’’) relieves such funds of the obligation under the Investment Company Act to file advertisements and other sales materials with the Commission if those materials are filed with a national securities association (such as FINRA) registered under section 15A of the Securities Exchange Act of 1934 [15 U.S.C. 78o] that has adopted rules providing standards for the investment company advertising practices of its members and has established and implemented procedures to review that advertising; see also FINRA Rule 2210. 656 Rule 482(d). PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 permitted by section 10(b) of the Securities Act.657 Thus, rule 482 was amended in 2003 to permit investment company sales literature that includes information not included in the statutory prospectus.658 Congress has not provided a similar direction for issuers other than registered investment companies. However, the Commission has used its exemptive authority to permit the use of prospectuses that include information the substance of which is not included in the statutory prospectus for issuers that are not investment companies if the free writing prospectus meets the requirements of rules 433 and 17 CFR 230.164 (‘‘rule 164’’).659 In addition to permitting free writing prospectuses that include information the substance of which is not in the statutory prospectus, rule 433 also permits seasoned issuers, that is, issuers of offerings registered on Form S–3, and other select issuers to use a free writing prospectus that is not subject to the prospectus delivery requirements, much like rule 482 permits for fund sales literature.660 We stated in the Proposing Release that, under the proposal, the ability of RILA sales literature to be treated as ‘‘free writing prospectuses’’ would continue to be subject to rule 433 and rule 164, as well as any other applicable rule that permits a communication notwithstanding the ‘‘gun jumping’’ provisions of the Securities Act.661 As explained in the Proposing Release, we determined extending rule 482 to RILA issuers was not warranted currently. This conclusion largely followed from our understanding that the rule’s emphasis on providing standardized performance data requirements would be conceptually difficult to apply to RILAs and inconsistent with current RILA advertising practices.662 However, we 657 15 U.S.C. 80a–24(g); see also National Securities Markets Improvement Act of 1996, Public Law 104–290, Section 204. 658 See 482 Amendment Adopting Release at Section II.A. 659 See Securities Offering Reform, Securities Act Release No. 8591 (Jul. 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (‘‘Securities Offering Reform’’) at Section III.D.3.b.iii(C)(2)(a). Rule 164 generally permits the use of a free writing prospectus where an eligible user has filed a registration statement, the other requirements of rule 164 are met, and the conditions of rule 433 are satisfied. See id. at n.212 and accompanying text. 660 RILAs registered on Form S–1 are subject to prospectus delivery requirements when using free writing prospectuses pursuant to current rule 433. 661 See Proposing Release at n.356. 662 See Proposing Release n.356 and accompanying text (noting that while variable annuity marketing materials frequently utilize standardized performance returns, this is not the case with RILA advertisements, which typically market RILAs on other bases that are less amenable VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 60047 sought comment on these questions and acknowledged that circumstances might change in the future. Several commenters suggested that we amend rule 482 to extend its provisions to RILAs despite the concerns discussed in the Proposing Release.663 Some of these commenters suggested that an extension of rule 482 to RILAs would remedy what they view as an improper dichotomy under the current rule 433 framework that impedes the ability of some insurance companies to engage in broad-based advertising for RILA offerings.664 Specifically, these commenters stated that this framework often makes it practically impossible to do broad-based advertising (such as television commercials) for RILA offerings registered on Form S–1 due to the application of the prospectus delivery requirements to those advertisements.665 Conversely, nonvariable annuity offerings registered on Form S–3, or variable annuity options that can use rule 482, can be broadly advertised in print and on television because they are not subject to the prospectus delivery requirements. These commenters expressed the view that the purposes underlying this different treatment under rule 433 of seasoned issuers and well-known seasoned issuers (who can file on Form S–3) as compared to the treatment of nonreporting and unseasoned issuers (who must file on Form S–1) are not relevant to RILA offerings or the ability of a RILA investor to contextualize RILA advertisements.666 Thus, according to these commenters, amending rule 482 to include RILAs would bring regulatory uniformity both between RILAs whose offerings have, until this rulemaking, been registered on different forms (i.e., Forms S–1 and S– 3), and between RILAs and variable annuity options, and therefore reduce the burdens and risks that insurance companies face in applying the different advertising frameworks to their insurance offerings.667 Some commenters suggested that not extending rule 482 to include RILAs would essentially result in a regulatory preference for variable annuity contracts over RILAs by perpetuating prospectus delivery requirements for some RILA issuers that do not apply to registered variable annuity contracts by virtue of their ability to rely on rule 482.668 Additionally, one commenter suggested that, in addition to being consistent with the Commission’s approach to revising Form N–4, expanding rule 482 to include RILAs would be consistent with congressional intent and that investors would benefit from standardizing the regulation of advertising and sales literature across RILA and variable annuity products.669 While some commenters acknowledged our concerns about the inapplicability of rule 482’s standardized performance provisions to RILAs, they suggested that these concerns could be addressed either by excluding RILAs from those provisions, or subjecting the ability of RILA advertisements to use rule 482 to a condition that they not contain historical performance data for the RILA or any particular index-linked option.670 Commenters stated that the mere absence of standard performance rules for RILAs should not be a bar to amending rule 482, with one commenter observing that closed-end funds may advertise using rule 482 even though standard performance rules do not exist for those investments.671 Commenters also suggested that the Commission could exercise regulatory oversight of RILA advertisements by conditioning their ability to use rule 482 on review by FINRA or, in the alternative, review by the Commission.672 One commenter suggested that, in addition to such regulatory review, the ability of RILA advertisements to use rule 482 could be conditioned upon other criteria, such as performance principles that ensure that performance presentations are not misleading, or requiring that RILAs to standardized performance metrics, for example, highlighting that these are flexible products whose features can be customized to fit a particular investor’s needs). 663 See CAI Comment Letter; ACLI Comment Letter; IRI Comment Letter; Gainbridge Comment Letter; VIP Working Group Comment Letter. 664 See CAI Comment Letter; Gainbridge Comment Letter; ACLI Comment Letter. 665 These considerations also apply to communications regarding registered MVA annuities. 666 One of these commenters suggested that offerings of other registered annuity and life insurance products, including registered MVA annuities, may be similarly situated to RILAs. See CAI Comment Letter. 667 See CAI Comment Letter; Gainbridge Comment Letter; VIP Working Group Comment Letter; IRI Comment Letter. 668 See ACLI Comment Letter; Gainbridge Comment Letter. 669 See Gainbridge Comment Letter. 670 See CAI Comment Letter (stating that the Proposing Release correctly noted that RILA issuers do not utilize such performance metrics in RILA advertisements, so this condition would not be a substantive departure from existing practice); IRI Comment Letter; Gainbridge Comment Letter. 671 See CAI Comment Letter; ACLI Comment Letter; VIP Working Group Comment Letter. 672 See CAI Comment Letter; Gainbridge Comment Letter; VIP Working Group Comment Letter. PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 60048 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 meet certain standards applicable to variable annuity products, such as a requirement that rates and fees be reasonable in relationship to the services rendered and risks assumed under the contract.673 A number of these commenters suggested that if the Commission were unwilling to amend rule 482 to include RILA sales literature, in the alternative, we should amend rule 433 to allow all RILAs to use free writing prospectuses without meeting the prospectus delivery requirements in order to make such requirements consistent for all RILA issuers without regard to their seasoned status.674 One commenter stated that, at a minimum, the Commission would need to amend rule 433 in order to maintain the status quo by explicitly exempting RILA offerings that are registered on Form N–4 by issuers who file reports pursuant to section 15(d) of the Exchange Act from the prospectus delivery requirements.675 Absent such an amendment, the rulemaking would have the effect of imposing new, universal prospectus delivery requirements in connection with RILA marketing materials, even for RILA issuers that would otherwise be eligible to rely on rule 433 by virtue of registering on Form S–3. This commenter suggested that changing the status quo in this way would be unduly restrictive and inconsistent with our approach to other securities offerings. Consistent with the proposal, we have determined not to extend rule 482 to RILA issuers at this time. As discussed, commenters raised broader concerns about the impact of the prospectus delivery requirements in rule 433 and how they may operate to impede the ability of some insurance companies to engage in broad-based advertising for RILA offerings. Commenter suggestions that we amend rule 482 to include RILA advertising (so that all insurance companies would be permitted the ability to provide RILA sales literature to investors without being accompanied or preceded by a summary or statutory prospectus), subject to certain conditions, would benefit from further consideration, and the Commission 673 See VIP Working Group Comment Letter. Congress has expressly prohibited the sale of any variable annuity contract unless the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. Congress further requires that insurance companies represent this in a variable annuity contract’s registration statement. 15 U.S.C. 80a-26(f)(2)(A). These provisions do not apply to RILAs. 674 See CAI Comment Letter; ACLI Comment Letter; Gainbridge Comment Letter. 675 See CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 invites further engagement on these issues.676 Factors to consider in any future proposal regarding amendments to rule 482 would include the nature and scope of any applicable conditions, the benefits of any such potential conditional expansion of rule 482, and the potential risk of misleading investors. In response to commenters, however, we are, in a modification from the proposal, making a technical amendment to rule 433 in order to maintain the status quo for insurance companies that can meet that rule’s conditions to use a free writing prospectus in connection with the offering of non-variable annuities without meeting the prospectus delivery requirements, notwithstanding their use of Form N–4 going forward.677 It would not be appropriate to subject nonvariable annuity offerings to a categorically different regulatory treatment than offerings of other seasoned issuers or to deprive those insurance companies that are considered seasoned issuers of the ability to rely on the provisions of rule 433 to use a free writing prospectus without complying with the prospectus delivery requirements.678 It is therefore necessary and appropriate in the public interest and for the protection of investors to amend rule 433 to provide that an insurance company may use a free writing prospectus without needing to meet the prospectus delivery requirements with respect to those nonvariable annuity offerings registered on Form N–4 where the issuer would otherwise be eligible to use Form S–3 pursuant to that form’s General Instructions I.B.1, I.B.2, I.C, or I.D.679 Consistent with the current requirements applicable to these nonvariable annuity offerings, these free writing prospectuses can be used after a registration statement has been filed and may also include information the 676 See supra footnotes 670–673 and accompanying text. 677 Additionally, to the extent an insurance company otherwise meets the requirements of a well-known seasoned issuer under rule 405, that issuer would be able to rely on rule 422(b)(1)(iii) in connection with an offering of non-variable annuities, notwithstanding its registration of the offering on Form N–4. 678 While commenters only specifically raised this issue with respect to RILAs, by moving registered MVA annuities to Form N–4 as well, applying this change to registered MVA annuity offerings is necessary to preserve their ability to communicate under rule 433 for the same reason the change is necessary for RILA communications. 679 See section 10(b) of the Securities Act and final rule 433(b)(1)(v). We also are amending paragraphs (b)(1)(i) and (ii) of the rule to correct citations to Form S–3 and Form F–3. PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 substance of which is not included in the registration statement.680 H. Existing Commission Letters Certain Commission letters, or portions thereof, providing 3–13 Exemptions in connection with the registration of an offering of RILAs and registered MVA annuities on Form S–1 will be withdrawn or rescinded in light of the change to permit RILAs and registered MVA annuities to provide SAP financial statements on final Form N–4 in the same way that other insurance companies offering variable annuities are permitted on current Form N–4. On the compliance date of the final amendments, some letters, or portions thereof, will be moot, superseded, or otherwise inconsistent with the final amendments and, therefore, will be withdrawn or rescinded. Commenters generally supported or stated that they did not oppose withdrawing or rescinding these 3–13 Exemptions.681 Some commenters agreed that the 3–13 Exemptions extended to RILAs would no longer be needed in light of the change to permit RILAs to register on Form N–4 and provide SAP financial statements in the same way that Form N–4 currently permits other insurance companies registering variable annuities to provide financial statements.682 One of these commenters agreed with a statement in the Proposing Release that the 3–13 Exemptions previously granted to registered MVA annuities would be withdrawn or rescinded to the extent that offerings of those securities are permitted to be registered on Form N– 4.683 Another commenter stated that these 3–13 Exemptions should not be withdrawn or rescinded until after the final compliance date.684 As proposed, the exemptions provided in the letters outlined below will not be rescinded or withdrawn until the compliance date. We are not withdrawing or rescinding 3–13 Exemptions, or portions thereof, providing exemptions from the GAAP financial statement requirements with respect to annuity products other than RILAs and registered MVA annuities. With respect to RILAs, this is consistent 680 See final rule 433(a) and (b). CAI Comment Letter; IRI Comment Letter; VIP Working Group Comment Letter. 682 CAI Comment Letter; IRI Comment Letter. 683 CAI Comment Letter. See also Proposing Release at Section II.G and n.363 (stating that ‘‘if [insurance companies were required to use Form N–4 for registered MVAs], 3–13 Exemptions provided in connection with registered MVAs would be withdrawn or rescinded for the reasons discussed in’’ Section II.G of the Proposing Release). 684 VIP Working Group Comment Letter. 681 See E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations On the compliance date of the final amendments, 3–13 Exemptions that will be withdrawn or rescinded include all with the proposal.685 Commenters agreed with this approach.686 60049 of the 3–13 Exemptions listed below to the extent they relate to RILAs and registered MVA annuities. TABLE 9—EXISTING COMMISSION LETTERS Name Date Great-West Life & Annuity Insurance Company and Great-West Life & Annuity Insurance Company of New York .................. Athene Annuity and Life Company ................................................................................................................................................ Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York ...................................... MONY Life Insurance Company of America ................................................................................................................................. Lincoln Benefit Life Company ........................................................................................................................................................ Symetra Life Insurance Company and First Symetra National Life Insurance Company of New York ....................................... Forethought Life Insurance Company ........................................................................................................................................... Nationwide Life Insurance Company ............................................................................................................................................. Minnesota Life Insurance Co ......................................................................................................................................................... MEMBERS Life Insurance Co ....................................................................................................................................................... Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company .................................................. Midland National Life Insurance Company ................................................................................................................................... Wilton Reassurance Life Company of New York .......................................................................................................................... Union Security Insurance Company .............................................................................................................................................. Protective Life Insurance Company and Protective Life and Annuity Insurance Company ......................................................... Everlake Life Insurance Company ................................................................................................................................................ Fidelity & Guaranty Life Insurance Company and Fidelity & Guaranty Life Insurance Company of New York .......................... Delaware Life Insurance Company and Gainbridge Life Insurance Company ............................................................................. Brighthouse Life Insurance Company of New York ...................................................................................................................... Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York ................................. Eagle Life Insurance Company ..................................................................................................................................................... Pacific Life Insurance Company and Pacific Life & Annuity Company ........................................................................................ American General Life Insurance Company, The Variable Annuity Life Insurance Company, and The United States Life Insurance Company in the City of New York ............................................................................................................................... ddrumheller on DSK120RN23PROD with RULES2 I. Technical Amendments to Forms N– 3 and N–6 The Commission is adopting as proposed a technical amendment to Form N–6 to reflect the correct placement of an amendment to this form that the Commission adopted in 2020 in the release titled ‘‘Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets’’ (herein referred to as the ‘‘Exempt Offering Framework Adopting Release’’).687 In that release, the Commission adopted, among other amendments, amendments to certain instructions associated with the Exhibits items of Form N–4 and Form N–6. The amendatory instructions in the Exempt Offering Framework Adopting Release erroneously referred to outdated Exhibits items of these forms. That is, the amendatory instructions referred to Items 24 and 26 respectively, instead of Items 27 and 30 respectively (as adopted by the Commission in earlier amendments to Forms N–4 and N–6 in the VASP Adopting Release).688 The Commission received no comments on the proposed 685 See Proposing Release at n.357. Comment Letter; IRI Comment Letter. 687 Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Investment Company Act Release No. 34082 (Nov. 2, 2020) [86 FR 3496 (Jan. 14, 2021)]. 686 CAI VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 technical amendments. The final amendments to Form N–4 correctly reflect the placement of the amendment that the Commission adopted in the Exempt Offering Framework Adopting Release in Item 27 of the form instead of in Item 24. We are also adopting a technical amendment to Item 30 of Form N–6 to correctly reflect the placement of the amendment that the Commission adopted in the Exempt Offering Framework Adopting Release in this item instead of in Item 26. In addition, we are adopting technical amendments to the definition of ‘‘Summary Prospectus’’ in Forms N–3 and N–6 to reflect the lack of subparagraphs in rule 498A(a). When these definitions were originally adopted, they inadvertently referred to subparagraphs that did not appear in rule 498A(a).689 J. Effective and Compliance Dates The effective date for all rules and forms associated with the final amendments is September 23, 2024, which is 60 days from the date of publication of the final amendments in the Federal Register. As discussed in 688 See Exempt Offering Framework Adopting Release at amendatory instructions 50 and 51; see also VASP Adopting Release at Section II.C.4 (Table 6). 689 See final rule 498A(a); see also VASP Adopting Release in the Text of Rule and Form Amendments. These amendments are ministerial, PO 00000 Frm 00073 Fmt 4701 Sfmt 4700 9/28/2018 9/28/2018 9/28/2018 3/7/2019 3/15/2019 8/8/2019 10/17/2019 10/17/2019 6/11/2020 11/6/2020 2/11/2021 8/12/2021 9/30/2021 1/11/2022 10/14/2022 10/21/2022 3/17/2023 4/28/2023 9/21/2023 9/26/2023 9/29/2023 3/1/2024 5/28/2024 more detail below, the compliance date for the final amendments will be May 1, 2026, except with respect to rule 156 and the technical amendments to Forms N–3 and N–6. We are not providing a compliance period for rule 156 and the technical amendments to Forms N–3 and N–6 and compliance will therefore be required on the effective date. We proposed a six-month delayed effective date for all amendments except for the final Form N–4, amended rule 498A, and technical amendments to Form N–6 which we did not propose to delay. Commenters generally supported or did not oppose the proposed effective date for final Form N–4, final rule 498A, or the technical amendment to Form N– 6 and agreed that this approach was consistent with the RILA Act.690 However, comments on the proposed 6month delayed effective date for the remaining amendments were mixed. One commenter opposed delaying the effectiveness of the rule 485 amendments for six months.691 This commenter stated that the rule 485 amendments should be effective before the calendar year-end of 2024 so that insurance companies could file under do not make any substantive modifications, and do not impose any new substantive recordkeeping or information collection requirements. 690 See, e.g., CAI Comment Letter; IRI Comment Letter. 691 See VIP Working Group Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 60050 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 rule 485(a) ahead of their May 1, 2025 annual update. We also received a number of comments requesting that we clarify the practical effect of having two effective dates.692 For example, one commenter asked whether final rules implementing the final Form N–4 framework and subject to the six-month delayed effective date (e.g., final rules 415, 485, 497) would nevertheless apply on the effective date to RILAs registered on Form N–4.693 Specifically, this commenter asked whether, as of the effective date, RILAs registered on the final Form N–4 would be required to pay registration fees in arrears consistent with final rule 456 and final Form 24F–2, file post-effective amendments and supplements consistent with final rules 485 and 497; and be exempt from three-year refreshes consistent with final rule 415. We reasoned in the proposing release that the six-month delayed effective date for certain amendments would provide the Commission with the necessary time to prepare the EDGAR system to accommodate transitioning RILA offerings onto the proposed framework. After further consideration and preparation, we have determined that the EDGAR system will be ready to accommodate the transition as of the effective date and an additional 6-month delayed effective date for certain amendments will be unnecessary. A single effective date for all of the amendments adopted in this release will provide filers with a simpler timeline that reduces confusion about the logistics of filing. We proposed a compliance date of one year after publication of the final amendments in the Federal Register.694 All initial registration statements and post-effective amendments that were annual updates to effective registration statements on Form N–4 and filed after the proposed compliance date under the proposal would have been required to comply with the amendments. We also proposed that RILAs that had previously registered offerings of securities on Form S–1 or Form S–3 would file a post-effective amendment to their registration statement pursuant to rule 485(a) at the time of their next annual update following the compliance date, using final Form N–4.695 692 See CAI Comment Letter; VIP Working Group Comment Letter. 693 See CAI Comment Letter. 694 This compliance period would have applied for all of the amendments in the Proposing Release other than the technical amendment to Form N–6 discussed in Section II.I. 695 See Proposing Release at n.372 and accompanying text. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Commenters generally supported the proposed timeline or supported the proposed timeline except as applied to certain amendments. In particular, one commenter stated that the compliance date would allow sufficient time for all insurers to prepare for compliance with the final amendments, but urged the Commission to modify the approach to better accommodate insurance companies currently registering RILA offerings on Form S–3.696 The Commission proposed that compliance would be required in the first annual update after the compliance date but, because an annual report on Form 10– K operates as an annual update to a registration statement filed on Form S– 3 and must be filed before an annual update to a registration statement on Form S–1, the commenter asserted that this approach would unfairly result in a shorter compliance period than that of a Form S–1 registrant (on or before December 31, 2025 and May 1, 2026, respectively). The commenter suggested that we should not consider these Form 10-Ks annual updates for purposes of complying with the final amendments. We agree that RILA filers should not have different compliance periods based on whether they currently file on Form S–1 or S–3 and did not intend to provide different compliance periods based on the Securities Act form an insurance company is currently using. We therefore are providing a compliance date of May 1, 2026 rather than an approach based on the timing of an insurance company’s annual update. Accordingly, all issuers of non-variable annuities that have previously registered offerings of securities on Forms S–1 or Form S–3 will be required to file a post-effective amendment to their registration statement pursuant to final rule 485(a) that will be effective on or before May 1, 2026, using final Form N–4.697 Similarly, all initial registration CAI Comment Letter. 697 A post-effective amendment filed under rule 485(a) [17 CFR 230.485(a)] generally becomes effective either 60 days or 75 days after filing, unless the effective date is accelerated by the Commission. Insurance companies registering offerings of non-variable annuities generally should be able to rely on template filing relief, in which case they will not need to file a rule 485(a) filing for each non-variable annuity. See 485(b)(1)(vii). Insurance companies with currently-registered nonvariable annuities that only issue non-variable annuities and will be using the same CIK will be permitted to transition by filing a 485APOS or 485BPOS in EDGAR. Both of these submission types allow the entity to keep its current Securities Act file number, and both allow the filer to obtain new contract IDs and the needed Form N–4 investment company type designation in EDGAR. Insurance companies that will be acquiring new CIKs for their non-variable annuity offerings will need to transition by filing an administrative Form N–4 submission (which is only used for EDGAR PO 00000 696 See Frm 00074 Fmt 4701 Sfmt 4700 statements and post-effective amendments filed on Form N–4 and effective on or after May 1, 2026 will be required to comply with the final amendments. This compliance period is designed to give all insurance companies sufficient time to comply with the proposed changes, including to update their registration statements; to prepare to use final rules 485 and 497 to update their registration statements and file prospectuses with the Commission; and to begin paying securities registration fees on final Form 24F–2. Nonetheless, issuers of nonvariable annuities may choose to file on Form N–4 as early as the effective date (and will thereafter be required to comply with the final amendments). The Proposing Release stated that, in appropriate circumstances, we would consider requests by registrants with respect to existing variable annuity contracts to file post-effective amendments pursuant to rule 485(b)(1)(vii) when these post-effective amendments make conforming changes to comply with the proposed amendments to Form N–4.698 One commenter requested that we allow certain insurance companies, on a caseby-case basis, to forgo filing a rule 485(a) post-effective amendment entirely for insurance companies’ standalone variable annuities on the grounds that the changes necessary to comply with the proposal may not be substantive.699 After consideration of the final amendments to Form N–4, we have concluded it would be appropriate for registrants of existing variable annuity contracts that are not combination contracts that offer indexlinked options or MVA options to file post-effective amendments pursuant to rule 485(b) to make conforming changes purposes and is not an official filing) under a newly-issued CIK to obtain a new Securities Act file number, new contract IDs, and the Form N–4 investment company type (which is used for EDGAR purposes only) followed by a 485APOS or 485BPOS in EDGAR. 698 Proposing Release at text accompanying n.373. A post-effective amendment filed under rule 485(b) may become effective immediately upon filing. A post-effective amendment may be filed under rule 485(b) if it is filed for one or more specified purposes, including to make nonmaterial changes to the registration statement. A post-effective amendment filed for any purpose not specified in rule 485(b) generally must be filed pursuant to rule 485(a). Under rule 485(b)(1)(vii), the Commission may approve the filing of a post-effective amendment to a registration statement under rule 485(b) for a purpose other than those specifically enumerated in the rule. The Commission’s staff has been delegated the authority to approve registrants’ requests under rule 485(b)(1)(vii). 17 CFR 200.30– 5(b–3)(1). 699 See CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations to comply with the amendments to Form N–4. Commenters were mixed regarding our proposed approach of not having a separate Inline XBRL compliance period. One commenter supported the proposed approach, stating that service providers are accustomed to Inline XBRL requirements and will be able to transition RILAs within our proposed compliance period.700 Another commenter opposed having the same compliance period for the Inline XBRL requirements and the other final amendments, stating that RILA issuers without variable products will not be familiar with Inline XBRL.701 We are not creating a separate, longer compliance period for filers to comply with the Inline XBRL requirements because we have determined that compliance by May 1, 2026 is feasible. Insurance companies already have experience with Inline XBRL tagging. In this regard, 22 of the 23 insurers that issue RILAs also offer products that are subject to tagging requirements on Forms N–3, N–4, or N–6 or otherwise have experience tagging registration statements.702 Further, although we permitted a phased-in compliance date for Inline XBRL tagging in connection with the variable product summary prospectus rulemaking, we reasoned in that rulemaking that we could collect better data as a result because we could observe the new disclosures and create better taxonomies prior to the end of the XBRL compliance period, which in turn could lead to more accurate tagging and increased comparability of tagged disclosures.703 The benefit of additional time is reduced in this rulemaking because we already update and release our taxonomies annually, which allows us to address any concerns about the quality of the tagged data we receive. In light of insurers’ existing experience with tagging registration statements and our ability to update taxonomies, any increase in data quality gained from extending the Inline XBRL compliance period to May 2027 would be marginal compared to the impact on investors and the Commission from not having tagged data until 2027—specifically, reduced comparability, data aggregation, and a general ability to synthesize and consume non-variable annuity disclosures. One commenter stated that registration on Form N–4 should be 700 See XBRL US Comment Letter. 701 See CAI Comment Letter. 702 See Proposing Release at n.472 and accompanying text. 703 See VASP Adopting Release at n.917 and accompanying text. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 optional for registered MVA annuity offerings that no longer involve the issuance of new contracts (i.e., closed blocks).704 In the alternative, if such ‘‘closed block’’ registered MVA annuities were required to register on Form N–4, this commenter stated that the compliance period should be extended from 12 months to 24 months. As we discussed above, we are requiring all registered MVA annuities to register on Form N–4.705 Providing a single compliance date of May 1, 2026, however, provides a similar period of time to the commenter’s suggestion. One commenter asked that we clarify whether a registrant can choose to comply with only a portion of final Form N–4 prior to the end of the compliance period.706 For an insurance company that continues to use either Form S–1 or Form S–3 for non-variable annuity offerings prior to the compliance date, the requirements of those forms and associated rules will continue to apply until the insurance company begins using Form N–4. An insurance company that uses Form N– 4 for non-variable annuity offerings must comply with all of the requirements of final Form N–4 and associated rules, including, for example, filling fees on Form 24F–2, after the effective date, provided that the insurance company is not required to comply with Inline XBRL tagging requirements until the compliance date. The Commission has taken a similar approach in other contexts with respect to early compliance by issuers.707 In a change from the proposal, we are not providing a compliance period for the amendments to rule 156 after the amended rule is effective.708 The rule is designed to protect investors by addressing practices that could lead to materially misleading sales literature in connection with the offer or sale of a security, and historically the Commission has not provided a transition period to comply with amendments to this rule in light of investor protection concerns associated with the dissemination of materially misleading sales literature.709 Further, CAI Comment Letter. supra Section II.B. 706 See VIP Working Group Comment Letter. 707 See VASP Adopting Release at paragraph preceding n.994. 708 While the Proposing Release did not specifically discuss a compliance period for the proposed amendments to rule 156, we stated that the compliance period would apply for all of the amendments in the release other than the technical amendments to Form N–6. See Proposing Release at n.371. 709 This approach is consistent with our past practice regarding the rule’s compliance date. See PO 00000 704 See 705 See Frm 00075 Fmt 4701 Sfmt 4700 60051 we understand that a number of insurance companies already comply with rule 156 with respect to their offerings of non-variable annuities and so compliance with the rule should not impose significant additional burdens.710 We are also not providing an additional compliance period for technical amendments to Forms N–3 and N–6, as these amendments entail no compliance burden. We appreciate that these amendments will result in changes in practices for insurance companies, both in updating disclosures and in registering contract offerings. The final amendments also could result in insurance companies reviewing their sales literature in light of the final amendments to rule 156. In considering these changes, insurance companies are encouraged to contact the Commission staff with any questions they may have about these issues. III. Other Matters Pursuant to the Congressional Review Act,711 the Office of Information and Regulatory Affairs has designated the final amendments as a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. IV. Economic Analysis A. Introduction We are mindful of the costs imposed by, and the benefits obtained from, our rules. Section 3(f) of the Exchange Act, section 2(b) of the Securities Act, and section 2(c) of the Investment Company Act state that when the Commission is engaging in rulemaking under such titles and is required to consider or determine whether the action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, the Commission shall consider whether the action will promote efficiency, competition, and capital formation, in addition to the protection of investors. Further, section 23(a)(2) of the Exchange Act requires the Commission to consider, among other matters, the Tailored Shareholder Reports Adopting Release at Section II.J. 710 At all times the Federal securities laws prohibit materially misleading communications in connection with the offer or sale of any security (including non-variable annuity offerings). See 15 U.S.C. 77q(a); 15 U.S.C. 78j(b); rule 10b–5. 711 5 U.S.C. 801 et seq. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60052 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations impact such rules would have on competition and states that the Commission shall not adopt any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. We are adopting amendments to our rules designed to carry out the requirements of Section 101(b) Division AA, Title I of the Consolidated Appropriations Act, 2023, to establish a registration form for RILAs. The Commission is amending the form currently used by most variable annuity separate accounts, Form N–4, to require insurance companies to register offerings of RILAs, as well as registered MVA annuities on that form as well. To facilitate this amendment, the Commission is also amending certain filing rules and making other related amendments to Form N–4 that apply to all issuers that use that form. The final amendments also require insurance companies to comply with rule 156, a current Commission rule that provides guidance as to when sales literature is materially misleading under the Federal securities laws to RILA and registered MVA annuity advertisements and sales literature. While the Commission has developed a set of specific registration forms for variable insurance contracts and their issuers, insurance companies that offer non-variable annuities cannot use those forms because those issuers are not investment companies. Currently, insurance companies register the offerings of non-variable annuities on the Securities Act registration forms that are typically used to register traditional debt or equity offerings, Forms S–1 and S–3. Because Forms S–1 and S–3 are not tailored to the particular characteristics of non-variable annuities (or indeed insurance products more generally), these forms include a number of disclosure requirements that may be less material to investors when evaluating an insurance product like a RILA or registered MVA annuity and do not include line-item requirements mandating specific information that is of importance to investors in these products. The inclusion of disclosures that are of little relevance to their investors and the omission of information that is of importance to their investors limits the usefulness of the information investors currently receive about RILAs and registered MVA annuities and thus their ability to make informed investment decisions. In addition, Forms S–1 and S–3 require the use of GAAP financial statements, rather than the SAP financial statements that the State insurance regulators require. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 SAP financial statements, which focus on an issuer’s ability to meet its obligations under its insurance contracts, as regulated by State law, provide material information for investors evaluating RILAs and registered MVA annuities and assessing an issuer’s solvency. For those insurers that will be able to include or incorporate SAP financial statements in the Form N–4 registration statement, investors will benefit from the lower cost burdens on issuers provided by the use of SAP financial statements, to the extent that those savings are passed along to investors. We have considered the potential costs and benefits that will result from the final rules in Section IV.C., as well as the potential effects on efficiency, competition, and capital formation in Section IV.D. Certain potential economic effects of the final amendments will stem from the statutory mandate, while others will stem from the discretion we are exercising in amending Form N–4, rule 498A, the filing and prospectus delivery rules, as well as the communication rules applicable to non-variable annuities. We also consider certain alternatives to our approach to implementing the statutory mandate, as discussed in Section IV.E. Where possible, we have attempted to quantify the economic effects. In some cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide a reasonable and reliable estimate. For example, the final amendments could reduce the amount of time and effort investors require to make an investment decision. We do not have data on the extent to which the final amendments would reduce the amount of time and effort investors require to make an investment decision, or the value of that time and effort to investors. Also, because the final amendments facilitate not only the evaluation and comparison among non-variable annuities, but also facilitate the comparison of non-variable annuities to other annuity products, we may observe a change in investment in annuities. We do not have data that would allow us to estimate the extent to which we may observe a change in investment in annuities. Nevertheless, as described more fully below, the Commission is providing both a qualitative assessment and quantified estimate of the economic effects, where feasible. The Commission has sought comment on all aspects of the economic analysis, especially any data or information that would better enable a quantification of economic effects, and PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 the analysis below takes into consideration relevant comments received. B. Baseline 1. Affected Parties The final amendments affect issuers of and investors in RILAs, issuers of and investors in registered MVA annuities, as well as issuers of and investors in variable annuities currently registered on Form N–4. a. The Market for Annuity Products As of May 1, 2024, there were 104 RILAs registered with the Commission issued by 29 insurance companies.712 Among the 104 RILAs, 60 are standalone RILA products, while 44 are products with a RILA component. The number of RILAs registered on Form S– 1 is 64, while the remaining 40 are registered on Form S–3. About 60% of the registered RILAs (63 RILAs) report SAP financials, with the remainder (41 RILAs) reporting GAAP financials.713 RILA contracts offer a variety of index-linked options. Specifically, RILA contracts offer index-linked options whose returns are linked, in part to, indices such as the S&P 500, Russell 2000, and NASDAQ–100. RILA contracts offer index-linked options with less well-known indices and ETFs as well, but with much lower frequency.714 As discussed in Section I, indexlinked options whose returns are based, in part, on the same index may nevertheless have different elements that contribute to an investor’s returns. Notably, different index-linked options whose returns are linked to the same index may offer different crediting periods (the set length of time for measuring growth of contract value based on the performance of the linked index—for example, one or three years), crediting methodologies, and buffer or floor levels.715 The final amendments also affect issuers of and investors in registered MVA annuities. As of May 1, 2024, there were 53 registered MVA annuities registered with the Commission issued 712 Based on analysis of Forms S–1, S–3 and POS AM filed by RILA issuers. 713 EDGAR Database. Certain Commission letters, or portions thereof, exempt certain insurance companies from the requirement to provide financial statements prepared in accordance with GAAP in connection with the registration of an offering of RILAs on Form S–1. See supra Section II.E. 714 See Proposing Release at Section III.B.1. for more details. 715 For more details, see Proposing Release at Section III.B.1. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations by 16 insurance companies.716 The number of registered MVA annuities registered on Form S–1 is 26, while the remaining 27 are registered on Form S– 3. A little over one third of the registered MVA annuities (18 MVA annuities) report SAP financials, with the remainder (35 MVA annuities) reporting GAAP financials. Table 10 provides information on the dollar amount of RILA sales over the past eight years.717 RILA sales increased 60053 from $7.3 billion in 2016 to $47.4 billion in 2023, which represents a 549% increase between these seven years.718 We do not have access to data on the sales of registered MVA annuities. TABLE 10—SALES OF RILAS [$ billions] Sales of RILAs ................. 2016 2017 2018 2019 2020 2021 2022 2023 7.3 9.0 11.2 17.4 24.1 38.7 41.1 47.4 Source: Fact Tank: Sales Data, Life Insurance Marketing and Research Association, https://www.limra.com/en/newsroom/fact-tank/ (using data from the U.S. Individual Annuity Sales surveys for Q4 for each year from 2016 through 2023). Additionally, the final amendments affect issuers of and investors in variable annuities currently registered on Form N–4. As of 2019, there were a total of 2,396 unique variable annuity products offered by a total of 33 companies.719 Net assets totaled $2,018.0 billion. Also in 2019, variable annuity sales totaled $98.3 billion.720 Of the total sales, $62.8 billion (64% of total sales) were annuities within qualified plans and $35.5 (36%) were non-qualified annuities.721 Investors purchased annuities across various distribution channels—captive agents, $34.5 billion, (35% of total sales); independent financial planners/NASD firms, $39.2 billion (40%); banks/credit unions, $9.2 billion (9%); wire houses/ regional broker-dealers, $12.6 billion (13%); and direct response, $2.8 billion (3%).722 b. Issuing Insurance Companies ddrumheller on DSK120RN23PROD with RULES2 The number of insurance companies currently offering securities registered as RILAs with the Commission is 29, from 24 insurance company complexes. Out of these 29 insurance companies, 20 register RILAs on Form S–1, while the remaining 9 use Form S–3.723 Insurance 716 Based on analysis of Forms S–1, S–3 and POS AM filed by RILA issuers. 717 Fact Tank: Sales Data, Life Insurance Marketing and Research Association, https:// www.limra.com/en/newsroom/fact-tank/ (using data from the U.S. Individual Annuity Sales surveys for Q4 for each year from 2016 through 2023). 718 A recent survey of insurers found that 85% of respondents believed in 2021 that RILA sales would increase by 10% or more over the next three years, 10% believed that RILA sales would increase by less than 10%, while 5% believed that RILA sales would remain the same over that time period. No respondents indicated that they believed RILA sales would decrease. See discussion in Proposing Release at Section III.B.1.a. 719 See Insured Retirement Institute Retirement Fact Book 2020 (‘‘IRI Fact Book’’). In 2018 (the last year for which this information is available in the 2020 edition), the total number of variable annuity contracts in force was 17.9 million, with an average individual contract value of $113,053. 720 Id. 721 Id. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 companies offer, on average, 4.3 RILA contracts, ranging from a maximum of 13 RILAs to a minimum of 1 RILA. The top five issuers offer 58 RILAs in total, or 56% of the number of existing RILAs.724 The number of insurance companies currently offering registered MVA annuities registered with the Commission is 16, from 14 insurance company complexes.725 Out of the 16 insurance companies, 8 register MVA annuities on Form S–1 and 8 register MVA annuities on Form S–3.726 Insurance companies offer, on average, 3.8 registered MVA annuity contracts, ranging from a maximum of 8 registered MVA annuity contracts to a minimum of 1 registered MVA annuity. The top five issuers offer 32 registered MVA annuities in total, or 60 percent of the number of existing registered MVA annuities.727 c. Investors In 2023 there were an estimated 82.3 million individuals aged 45–64 and 59.3 million individuals aged 65 or older in the United States, representing 25 percent and 18 percent of the total population, respectively.728 The number 722 Id. of May 1, 2024. Data obtained from Forms S–1, S–3 and POS AM filed by RILA issuers. 724 Calculated using data obtained from Forms S– 1, S–3 and POS AM filed by RILA issuers, as of May 1, 2024. 725 Some of these insurance companies also issue RILAs, or annuity contracts offering index-linked options and MVA options. There are 38 insurance companies in total that issue RILAs, registered MVA annuities, or annuity contracts offering indexlinked options and MVA options. 726 As of May 1, 2024. Data obtained from Forms S–1, S–3 and POS AM filed by MVA annuity issuers. 727 Calculated using data obtained from Forms S– 1, S–3 and POS AM filed by MVA annuity issuers, as of May 1, 2024 728 U.S. Census Bureau, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States: Apr. 1, 2020, to July 1, 2023 (NC–EST2023–AGESEX–RES). We do not have demographic data on RILA investors. A 2022 survey found that 84 percent of individual annuity PO 00000 723 As Frm 00077 Fmt 4701 Sfmt 4700 of individuals aged 65 or older is projected to be 63 million (19 percent of the projected population) in 2025, 76 million (22 percent of the projected population) in 2035, 80 million (22 percent of the projected population) in 2045, and 85 million (23 percent of the projected population) in 2055.729 Individuals may face meaningful burdens (e.g., search costs) when trying to identify appropriate investments or savings products. Once identified, investors may face additional burdens (e.g., acquiring and analyzing large amounts of information) to determine which specific investments or saving products among the ones identified allow investors to best meet their savings goals.730 In addition, financial innovation has led to more complex financial products.731 As a result of the burden associated with identifying appropriate investments, as well as the burden of acquiring and analyzing information to choose among the set of appropriate investments, investors may choose to limit the time and effort (i.e., resources) expended to make investment decisions. Decision making limitations may be particularly problematic in the context investors purchased their first annuity before age 65, including 45% who were between the ages of 50 and 64 years old. The average age of investors at first purchase of an annuity is 51. The average current annuity investor age is 74. See The Gallup Organization and Mathew Greenwald & Associates for The Committee of Annuity Insurers, Survey of Owners of Individual Annuity Contracts (2022), available at https://www.annuity-insurers.org/wpcontent/uploads/2023/07/Gallup-Survey-ofOwners-of-Individual-Annuity-Contracts-2022.pdf. 729 Projected Age Groups and Sex Composition of the Population: Main Projections Series for the United States, 2023 to 2100. U.S. Census Bureau, Population Division: Washington, DC. 730 John Y. Campbell et al., Consumer Financial Protection, 25 J. Econ. Perspectives 91 (2011) (‘‘Campbell et al. Paper’’). Campbell et al. note that making decisions about financial products often requires considerable information on terms and conditions, particularly for financial decisions that are undertaken only infrequently. 731 See Campbell Paper. E:\FR\FM\24JYR2.SGM 24JYR2 60054 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations of saving for retirement because learning from experience is difficult. Investing in retirement products is only done infrequently and the outcomes of investing decisions are delayed, perhaps for decades, and are subject to large random shocks, so that personal experience is slow to accumulate and is contaminated by noise. Also, financial innovation can reduce the relevance of an investor’s prior experiences. For example, prior experience investing in investment vehicles with unbounded returns would be less relevant for investing in RILAs (which have bounded returns) than it would be for investing in variable annuities (which have unbounded returns).732 ddrumheller on DSK120RN23PROD with RULES2 2. Current Regulatory Requirements As discussed in Section I above, nonvariable annuities are securities for purposes of the Securities Act, and public offerings of non-variable annuities, therefore, must be registered with the Commission.733 Unlike variable annuity contracts for which the Commission has adopted a specific 732 See Campbell et al. Paper. The Campbell et al. Paper identifies five aspects of ‘‘financial ignorance’’ that may lead to poor investor decision making. First, investors may lack understanding of basic concepts necessary to make appropriate decisions. For example, investors appear to lack an understanding of diversification and the tradeoff between risk and return. Second, investors may not understand the terms of financial contracts. Third, it appears that, rather than using all available historical data to form views about future returns on alternative strategies, investors rely on their own specific experiences to form an opinion. Fourth, individuals appear to not understand their own difficulties with financial decision making. Finally, investors appear to not understand the incentives faced by other parties and the effect these incentives have on their strategic behavior. Other studies suggest poor investment decisions may result from investor uncertainty and lack of investor familiarity with different assets. For example, individuals may invest sub-optimally because individuals are unable, given historical experience, to form precise estimates of how they expect assets to perform in the future. See, e.g., Raymond Kan and Guofu Zhao (2007). Optimal Portfolio Choice with Parameter Uncertainty, Journal of Financial and Quantitative Analysis, 27(3), 621–656. Rather than being unable to form precise estimates of how they expect assets to perform in the future, investors may not have, perhaps due to not having the requisite experience, the ability to form any expectation about how an asset will perform in the future. If investors’ ambiguity is great enough, they simply may choose not to invest in particular assets. See, e.g., David Easley and Maureen O’Hara (2009). Ambiguity and Nonparticipation: The Role of Regulation, Review of Financial Studies, 22(5), 1817–1843. Finally, investors may make poor investment decisions because they choose to overweight investment in assets with which they are familiar, and underweight, or exclude, investment assets with which they are less familiar. See, e.g., Gur Hubberman (2001). Familiarity Breeds Investment, Review of Financial Studies, 14(3), 659–680 and Massimo Massa and Andrei Simonov (2006). Hedging, Familiarity, and Portfolio Choice, Review of Financial Studies, 19(2), 633–685. 733 See supra footnote 26 and accompanying text. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 registration form tailored to those products, insurance companies register non-variable annuity offerings on Form S–1 or Form S–3. Form S–1 is available to any issuer (except foreign governments and issuers of asset-backed securities) to register securities for which no other registration form is authorized or prescribed. A registration statement on Form S–1 contains extensive disclosure about all aspects of the issuer’s business and financial condition and consists of two parts: a prospectus (Part I), and additional information not required to be included in the prospectus (Part II), but that is publicly available on EDGAR. Form S–1 allows incorporation by reference only on a very limited basis. The prospectus must contain financial statements meeting the requirements of Regulation S–X, which generally requires audited financial statements prepared in accordance with GAAP.734 Currently, disclosures about nonvariable annuity offerings are largely unstructured. However, the audited financial statements in the prospectus, if prepared in accordance with GAAP, must be tagged in Inline XBRL if the Form S–1 contains a price or a price range.735 Form S–1 must be declared effective by the Commission before any sales of the registered securities may be made. The time required for Commission review will depend on the number and complexity of Commission comments and the issuer’s ability to adequately address those comments. The issuer must pay the Commission registration fee before it files a Form S– 1. The amount of the fee is based on the proposed maximum aggregate offering price.736 The issuer must indicate the 734 Certain Commission letters, or portions thereof, exempt certain insurance companies from the requirement to provide financial statements prepared in accordance with GAAP in connection with the registration of an offering of non-variable annuities on Form S–1. As discussed in Section IV.B.1.a, 63 RILAs and 18 registered MVA annuities report SAP financials. 735 See 17 CFR 229.601(b)(101)(i)(B). 736 Generally, Form S–1 (or Form S–3) fees paid for a withdrawn registration statement are available to the issuer for use with its future registration statements. The amount available for use as an offset under rule 429 under the Securities Act equals the portion of the filing fee paid that is associated with any unsold securities of the same class registered on an earlier registration statement. Once a filing fee has been used as an offset, those unsold securities on the earlier registration statement are deemed deregistered. Non-variable annuities are continuously offered to investors, who in many cases are long-term investors that may make additional allocations or other investment decisions with respect to an investment in a RILA. Because non-variable annuity investors may make additional allocations or other investment decisions with respect to an investment, unless a prior nonvariable annuity offering is completely unsold, nonvariable annuity issuers may have increased PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 amount of each type of security being registered and calculate the fee payable for each security. Form S–3 is a ‘‘short-form’’ registration statement under the Securities Act that can be used by companies that have been subject to reporting obligations under the Exchange Act for at least one year and that satisfy certain other requirements.737 Reporting obligations under the Exchange Act include audited financial statements prepared in accordance with GAAP and are structured in Inline XBRL. A registration statement on Form S–3 contains extensive disclosure about all aspects of the issuer’s business and financial condition and consists of two parts: a prospectus which includes, either directly or incorporated by reference from the issuer’s Exchange Act filings, detailed information about the issuer (Part I), and additional information not required to be included in the prospectus (Part II), but that is publicly available on EDGAR. Registration using Form S–3 offers issuers advantages over registration using Form S–1. First, Form S–3 allows significant incorporation by reference, which allows for shorter prospectuses and makes Form S–3 easier to complete. Also, Form S–3 also allows for forward incorporation by reference, eliminating the need to file post-effective amendments to keep registration statements current.738 difficulty in using filing fees associated with unsold securities of a prior offerings. 737 The issuer must be either organized under U.S. law with its principal business operations in the United States or a foreign private issuer that reports under the Exchange Act using the domestic reporting forms. The issuer must have a class of securities registered under section 12(b) or 12(g) of the Exchange Act, or be required to file reports under section 15(d) of the Exchange Act. The issuer must have been subject to the reporting requirements of the Exchange Act and have filed all reports and materials required under sections 13, 14, and 15(d) of the Exchange Act for the 12 calendar months preceding the filing of Form S–3, and, with certain exceptions, must have timely filed all such reports and other materials required to be filed during the 12 calendar months and any portion of a month immediately preceding the filing of the registration statement. An issuer that meets all of the requirements of Form S–3 and that has a public float of $75 million or more (i.e., ‘‘seasoned issuers’’) may use Form S–3 to register any offering of debt or equity for cash. 738 One commenter noted that it can be more efficient and provide a better investor experience to register RILAs on Form S–3 rather than on Form S– 1 because, unlike an S–1 prospectus, due to the fact that Form S–3 incorporates by reference companyrelated information from periodic reports filed on Forms 10–K and 10–Q, an S–3 prospectus concentrates on disclosures about the features, benefits, and risks associated with the RILA contract that is not impeded by extensive and irrelevant company-related disclosures. See CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations A Form S–3 filed by a non-WKSI must be declared effective by the Commission.739 A Form S–3 receives either a full review or a targeted review of one or more sections of the registration statement. The time to resolve any Commission comments will depend on the number and complexity of the Commission’s comments. An issuer must pay Commission filing fees before it files Form S–3. The amount of the filing fee is based on the proposed maximum aggregate offering price. Under the Federal securities laws applicable to all securities (including non-variable annuity offerings), it is unlawful for any person to use materially misleading communications in connection with the offer or sale of any security.740 Rule 156 is an interpretive rule that provides factors to be weighed in considering whether a statement involving a material fact is or might be misleading in the specific context of investment company sales literature, including literature relating to the sale of variable annuities. As discussed in Section I above, in 2022 Congress enacted the RILA Act directing the Commission to adopt a new registration form for RILAs within 18 months of enactment (i.e., the end of June 2024). If the Commission fails to adopt the form by the end of June 2024, the RILA Act provides that issuers can begin registering the offering of RILAs on Form N–4. 3. Market Practice Annuities can play a role in helping investors save for retirement and receive guaranteed lifetime income during retirement.741 There are multiple types of annuities available to help investors who have different financial goals or tolerances for risk save for retirement: fixed annuities (including registered MVA annuities), variable annuities, and RILAs. Generally, fixed annuities offer investors preservation of their investment by guaranteeing a minimum rate of return, but with little opportunity for asset growth. For example, during the accumulation phase,742 a traditional (i.e., book value) fixed annuity offers ddrumheller on DSK120RN23PROD with RULES2 739 Currently, none of the insurance companies that issue non-variable annuities currently claim status as a well-known seasoned issuer. See supra footnote 598. 740 See 15 U.S.C. 77q(a); 15 U.S.C. 78j(b); 17 CFR 240.10b–5. 741 See IRI Fact Book (arguing that annuities give investors the ability to create their own pensions). For example, as also discussed in the IRI Fact Book, death benefits provide principal protection in the event that an investor dies during a market downturn. 742 See id. During the accumulation phase, also called the savings phase, capital builds up. In this phase, the investor pays premiums into the contract to accumulate assets. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 investors a fixed rate of return (known in advance) for a given period of time.743 A registered MVA annuity is similar to a traditional fixed annuity, but the surrender value is subject to a market value adjustment based on interest rate changes. Fixed index annuities guarantee a certain rate of return, but also provide the potential for (limited) additional returns based on the performance of a specified market index.744 Variable annuities accumulate savings based on the performance of the underlying investment options chosen by an investor. Typically, investors are able to choose among investment options that pass on the returns of a wide variety of mutual funds such as equity funds, bond funds, funds that combine equities and bonds, actively managed funds, index funds, domestic funds, and international funds.745 Depending on the investment options chosen, variable annuities can offer investors the greatest opportunity for asset growth, but they also can involve the greatest amount of investment-based risk, compared to other types of annuities.746 RILAs are an index-linked product that can be purchased by individual investors as part of both qualified and non-qualified retirement accounts.747 RILAs combine features of fixed-index annuities and variable annuities. RILAs limit or reduce downside risk, but also limit upside performance. In exchange for giving up the complete protection of principal offered by fixed annuities, a RILA investor is potentially afforded greater upside potential than that 743 Id. The IRI Fact Book also notes that fixed annuities involve less investment risk because they offer a guaranteed minimum rate of interest. The minimum rate is not affected by fluctuations in market interest rates. Also, the surrender value is based on the annuity’s purchase value plus credited interest, net of any charges. Currently, insurance companies with a minimum A.M. Best Insurance Ratings of A- offer fixed rate annuities that guarantee between 3.55% and 5.40% for a threeyear period, and between 3.20% and 5.40% for a ten-year period. Multi-Year Guarantee Annuities (MYGA), Annuity Advantage (accessed Feb. 16, 2024, and filtered by ‘‘State’’ of ‘‘- All’’; ‘‘Min AM Best’’ of ‘‘A-’’; ‘‘Years’’ of ‘‘10’’; and ‘‘Range’’ of ‘‘Exact’’), available at https:// www.annuityadvantage.com/annuity-rates-quotes/ multi-year-guarantee-annuities/ ?rating=4&years=10&pos=300&sort=guarantee_ period_yield&limit=all. 744 See id. 745 Id. 746 Additionally, variable annuities often involve direct fees, such as insurance charges, and indirect expenses, including management and other fees and expenses associated with the underlying mutual funds in which the variable annuity subaccounts invest. See IRI Fact Book. 747 Thorsten Moenig, It’s RILA Time: An Introduction to Registered Index-Linked Annuities, 89 J. Risk & Ins. 339 (2022) (‘‘Moenig Paper’’). PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 60055 provided by fixed annuities, though typically less than the potential upside of investing in the same index within a variable annuity.748 RILAs allow investors some ability to customize a level of risk with which they are comfortable.749 Like other annuities, RILAs have an accumulation phase followed by a payout phase. The accumulation phase is divided into one or more crediting periods.750 Also like other annuities, after a ‘‘surrender charge’’ period (generally, 3 to 10 years following an investor’s last premium payment), investors can usually surrender their contract at the end of any crediting period and receive full account value.751 Investors, however, may lose money if they withdraw early from an investment option or, in some RILAs, from the contract within a specified period, as explained in Section II.C.6 above. At the end of a crediting period, the issuer credits a RILA investor’s contract value with ‘‘interest’’ (which can be either positive or negative) that is based on the performance of a specified index, subject to restrictions on the upside, through a cap and/or ‘‘participation rate,’’ as well as some form of downside protection.752 If the index declines, the credited loss is lessened by either a floor (a maximum loss percentage), a buffer (index losses are credited to the RILA investor’s contract value only when they exceed a certain threshold), or a downside participation rate (the loss credited to contract value is a certain percentage of the index loss).753 RILA downside protection mechanisms typically do not change over time, whereas issuers may, and likely will, change upside limits on gains for both new contracts as well as existing contracts to reflect changing market conditions.754 If a RILA contract offers downside protection in the form of a floor, then the increased volatility would expose the issuer to greater downside risk. To offset the increased downside risk, an issuer might choose 748 See IRI Fact Book. 749 Id. 750 Id. 751 Id. 752 Id. 753 Id. See also Moenig Paper arguing that RILAs are structurally similar to fixed-index annuities except that RILAs may credit negative returns. A fixed-index annuity can be viewed as a special case of a RILA with a floor of 0%. The insurer provides full protection on the index return in exchange for a low cap rate (commonly between 2% and 4%). 754 See Moenig Paper. One commenter agreed, stating that although index-linked options include multiple parts, including an index, crediting period, upside crediting feature and rate, downside protection feature and rate, and associated fees (as applicable), the only ‘‘moving part’’ is the upside protection. See CAI Comment Letter. E:\FR\FM\24JYR2.SGM 24JYR2 60056 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations to reduce its upside risk by lowering cap rates.755 If the RILA contract offers downside protection in the form of a buffer, then increased volatility would expose the issuer to reduced downside risk. The reduced downside risk might cause issuers to increase cap rates.756 Also, unlike variable annuities, most RILAs do not include any direct ongoing fees or charges to the investor. Insurance companies, however, potentially can benefit from offering RILAs in at least three ways.757 First, insurance companies can benefit from a favorable imbalance between the downside protections that a RILA contract offers, and the upside limits the contract offers.758 That is, insurance companies might benefit to the extent the cost of providing the downside protection is less than the value, to the insurance company, of the upside limits.759 One 755 Id. ddrumheller on DSK120RN23PROD with RULES2 756 Id. 757 One commenter observed, without providing examples, that insurance companies utilize a variety of means to produce profit from RILAs. See ACLI Comment Letter. 758 See Moenig Paper. One commenter agreed with our description, stating that RILAs are ‘‘spread’’ products, meaning that the issuer’s profits are principally embedded in the structuring of the product and are not a portion of an overt fee or charge. The same commenter noted that there is an inextricable relationship between the limits on potential gains and the protection from potential losses while also stating that spreads cover expenses and compensate the insurer not only for the investment elements of the product, but liquidity, protection and other insurance features that are bundled together. See CAI Comment Letter. Another commenter stated that the amount of market participation or upside performance is oftentimes directly related to the amount of downside risk the investor wishes to assume. See Gainbridge Comment Letter. Also, one commenter noted that distribution costs are not recouped through the spread, but through explicit surrender charges. See CAI Comment Letter. 759 We understand that insurance companies may use derivative securities to closely approximate the insurer’s liabilities from a RILA contract at the end of each crediting period. See, e.g., Moenig Paper and CAI Comment Letter. For example, for a RILA with both a floor and a cap, the insurance company can hedge its liability by purchasing a call option (with an appropriate strike price given the floor) and selling a call (with a higher strike price that is dependent on the cap). The insurance company may be able to offer a cap such that the proceeds from selling the call with the higher strike price exceed the cost of purchasing the call option with the lower strike price. For a RILA with a downside buffer (as opposed to a floor) and a cap, the process for insurance companies to hedge their liabilities is similar, but with a different mix of options. In the case of a RILA with a downside buffer and a cap, the insurance company could purchase a call option, sell a call option (with a higher strike price), and sell a put option (with a lower strike price, as appropriate given the downside buffer). In this case, the insurance company might be able to offer a cap such that the proceeds from selling the call and the put exceed the cost of the call option with the lower of the two strike prices. One commenter stated that insurance companies set downside protections and upside limits such that a favorable imbalance between the two does not exist. See CAI Comment VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 study estimates an average annual cost to investors from the imbalance between the downside protections and the upside limits that a RILA contract offers is approximately 0.17% of the RILA investment amount.760 Similarly, holding constant the other terms of the contract, insurance companies can benefit when a RILA offers index-linked options whose index for measuring performance is a price-based index that does not account for dividend payments. For example, if an investor chooses an index-linked option whose performance is based, in part, on the S&P 500 Price Return Index, the credited return may be based on the point-to-point change in the S&P 500, which does not include the dividend payments of the underlying stocks.761 Also, we understand that, generally, insurance companies can benefit from offering RILAs by investing RILA proceeds into fixed-income securities such as corporate bonds, thereby earning a ‘‘credit risk premium.’’ 762 Letter. Another commenter stated that RILAs are intended to produce revenue for insurance companies sufficient to cover the cost of doing business. See ACLI Comment Letter. 760 See Moenig Paper; Public Filings on EDGAR. Staff examined 24 one-year term rates linked to the S&P 500 index, Nasdaq 100 index, Russell 2000 index, and MSCI EAFE and found results consist with the 0.17% estimate of the Moenig Paper. See discussion in Proposing Release, Section III.B.3. 761 See Moenig Paper. The Moenig Paper provides the following example: assuming insurance companies hold the underlying securities, if stock prices rise by 7% on average over the crediting period, in addition to paying 2% in dividends, then the RILA account would be credited 7%, even though investors in the underlying stocks would earn a 9% return. When insurance companies rely on derivative securities, omitting dividend payments can also benefit insurers by reducing the cost of providing a given amount of downside protection (e.g., through lower option prices). Comment letters were mixed regarding whether insurance companies benefit when a RILA offers index-linked options whose index for measuring performance is a price-based index. One commenter noted that insurance companies do not earn or keep any dividends paid by the companies whose securities comprise an index because insurance companies invest in derivatives, rather the underlying securities themselves. The same commenter also noted that while it is true that using a price return index lowers options costs for insurance companies, those lower costs are passed along to RILA investors in the form of greater participation in upside performance. See CAI Comment Letter. Other commenters offered an opposing view. For example, one commenter stated that the biggest ‘‘drag,’’ and benefit to the insurance company, on RILAs and all indexed annuities is the use of a price return index instead of a total return index. In particular, the commenter stated that the insurance company, in essence, gets the total return on its investments and passes along the lower price return, keeping the difference. See Johnson Comment Letter. Another commenter suggested that the use of price return indices misleads investors regarding RILA performance. See Lee Comment Letter. 762 We understand that insurance companies can similarly benefit from offering registered MVA PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 While most RILAs do not include any explicit ongoing fees or charges to the investor, RILAs typically have charges for early or mid-term withdrawals. As discussed in Section II.C.3.b, charges for early or mid-term withdrawals could include surrender charges and contract adjustments. RILAs differ from other annuity contracts in other ways as well. Variable annuities involve a direct investment of premiums into subaccount(s) that correspond to one, or more, of many mutual funds. RILA premiums, on the other hand, are not directly invested into the assets of the underlying index, and typically investors can only choose among index-linked options whose returns are based on a small number of mainstream indexes.763 In terms of the returns an investor experiences, the issuer of a variable annuity has no contractual obligations to fund such returns, in that premiums are directly invested into subaccounts which in turn are invested in shares of underlying portfolio companies. On the other hand, the RILA issuer does have contractual obligations relating to the returns an investor experiences, taking into account RILA contracts’ bounded return structures, because the RILA premiums are not directly invested in the assets of the underlying index. These obligations are short-term (i.e., they are limited to the crediting period of the index-linked option the investor selects, which is usually one, two, three, or six years) and tied to the performance of a common index, so that issuers can hedge the embedded liabilities accurately through the financial markets.764 Like RILAs, registered MVA annuities have an accumulation phase divided into one or more crediting periods followed by a payout phase. Also like RILAs, registered MVA annuities apply contract adjustments upon withdrawals prior to term maturity. Unlike RILAs, however, registered MVA annuities’ credited interest is not linked to the performance of an index. Registered MVA annuities offer a rate of return that is determined by the insurance company for a set period, subject to a specified minimum.765 At the end of the period, the insurance company may annuities to the extent insurance companies’ investment yields exceed interest credited to investors. One commenter stated that insurance companies do not benefit from the entire credit risk premium when offering RILAs. The commenter stated that much of the credit risk premium is used to pass additional value to customers via greater participation in upside performance. See CAI Comment Letter. 763 See Moenig Paper. 764 Id. 765 See IRI Fact Book. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 offer a new rate for the next period.766 Like RILAs, generally registered MVA annuities typically do not impose direct fees on the investor, other than surrender charges. Instead, insurance companies can benefit from the difference between what the insurance companies expects to earn on the proceeds from registered MVA annuity sales and what the insurance company has committed to paying out (i.e., the ‘‘spread’’).767 Additionally, non-variable annuities and variable annuities differ with respect to their use of proceeds. As discussed in Section II.C.5, variable annuity proceeds are held in separate accounts insulated from the insurance company’s general account and, therefore, are insulated from the issuer’s general account creditors. Variable annuity proceeds in unitized subaccounts must be invested as the investor chooses and returns are credited to the account directly. On the other hand, contract values, benefits, and guarantees provided by nonvariable annuities are paid out of assets held in the insurance company’s general account or a non-unitized separate account, and may not be insulated from the claims of the insurer’s general creditors (and thus subject to the insurance company’s claims-paying ability). Also, non-variable annuity proceeds can be invested as the issuer sees fit. We understand that insurance companies are able to invest RILA proceeds in derivative securities that closely approximate the issuer’s liabilities from RILA contracts.768 In doing so, insurance companies are able to hedge away their risk at a low cost. Further, we understand that insurance companies can invest remaining proceeds into fixed-income securities (e.g., corporate bonds) that allow them to earn a ‘‘credit risk premium.’’ 769 The credit risk premium can be an important source of benefits to RILA issuers.770 766 Id. Generally, registered MVA annuities specify a minimum credited interest rate for the lifetime of the contract. 767 See IRI Fact Book. 768 See Moenig Paper. One commenter noted that investments supporting RILA contracts are not generally specifically earmarked to a contract, but rather are managed based on the insurer’s aggregate reserves supporting all its RILA contracts. See CAI Comment Letter. 769 Id. 770 Id. One commenter noted that insurance companies do not benefit from the entire credit risk premium, stating that ‘‘Much of this credit risk premium is used to pass additional value to customers via greater participation in upside performance.’’ See CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 C. Benefits and Costs 1. Benefits a. Use of Form N–4 Unlike variable annuity offerings that are registered on Form N–4, insurance companies register non-variable annuity offerings on Forms S–1 or S–3. Forms S–1 and S–3 include a number of disclosure requirements that are specific to the insurance company issuing the non-variable annuity that the Commission does not require in the registration statements for offerings of variable annuities. The final amendments require that insurance companies use Form N–4 to register the offering of RILAs and registered MVA annuities and we are adapting Form N–4 for that purpose.771 Because it is an existing form, nonvariable annuity issuers and investors are familiar with Form N–4. As a result of expanding the scope of Form N–4 to address non-variable annuities, nonvariable annuity offerings will be registered on the same form as variable annuities. Requiring insurance companies to register non-variable annuity offerings on Form N–4 leverages insurance-product specific disclosure requirements reflected in the form and also makes use of the summary prospectus layered disclosure framework the Commission adopted in 2020 for variable annuities. The following sections discuss the specific benefits deriving from the contents and requirements of the form in detail. In addition to these benefits, expanding the scope of Form N–4 to include RILAs and registered MVA annuities will benefit investors by making it easier for them to evaluate and compare non-variable annuities, and also to compare other annuity products with non-variable annuities. For example, investors may require less effort to evaluate and compare annuity products that register using the same form and may find the focus of Form N– 4 on insurance-product specific information helpful in evaluating and comparing these annuity products. Additionally, investors in combination contracts will benefit by receiving one prospectus that describes the entire contract and available investment options, rather than two prospectuses that separately describe variable and non-variable options (and that repeat information about contract features that variable- and non-variable annuity contracts have in common). To the extent that investors require less effort 771 See Form N–4, proposed General Instruction B.1. Commenters broadly supported this element of the proposal. See discussion in supra Section II.A. PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 60057 to evaluate and compare these annuity products, investors may be more likely to make decisions that better align with their investment goals. Commenters broadly agreed that the proposed amendments to Form N–4 would provide RILA investors with more meaningful and helpful disclosures as compared to the more generic disclosures required on Forms S–1 and S–3.772 One commenter, who agreed with the Commission’s proposal to amend Form N–4 to include existing disclosures for registered MVA annuities that are filed on Form S–1 or S–3, requested that MVA issuers be permitted to continue to register MVA contracts no longer offered for sale to new investors on Form S–1 or S–3.773 The commenter went on to state that the costs of transitioning a closed block of MVAs from Form S–1 or S–3 to Form N–4 could ‘‘significantly outweigh the benefits.’’ 774 We disagree with the commenter’s statement that the costs of transitioning a closed block of MVAs from Form S–1 or S–3 to Form N–4 could significantly outweigh the benefits. By requiring rather than permitting insurance companies to register all MVA annuities on Form N– 4, investors will benefit by having access to more tailored and comparable information necessary to make informed investment decisions.775 For registered offerings of closed block registered MVA annuities, tailored disclosures will benefit investors when making additional investments in the contract or deciding how to reallocate their existing investment at the expiration of the MVA period. b. Contents of Form N–4 The final amendments are designed to help investors make informed investment decisions regarding the annuity products that are registered on Form N–4. The registration process on Form N–4 uses a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and reader-friendly presentation, with access to more detailed information for those investors who want it. Providing investors with key information is particularly 772 See discussion in supra Section II.A. With respect to issuers that already provide the same or similar disclosures on Forms S–1 or S–3 as are required by the final amendments, the benefits of disclosure of that same information may be mitigated. 773 See CAI Comment Letter. 774 See id. See also IRI Comment Letter (stating that transitioning registered MVA annuities that are no longer offered or sold to new investors to Form N–4 would be unnecessary.) 775 See discussion in supra Section II.B. E:\FR\FM\24JYR2.SGM 24JYR2 60058 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 important in the context of annuity contracts such as RILAs, registered MVA annuities, and variable annuities because their structures are typically more complex than other types of investment products commonly sold to retail investors. In particular, the final amendments update the contents of Form N–4 to specifically address non-variable annuities, including by: (1) amending the form’s general instructions; (2) amending the requirements for front and back cover pages; (3) updating the Key Information Table (or ‘‘KIT’’); (4) providing new principal disclosures regarding non-variable annuity investment options; and (5) providing for new contract adjustment and fee disclosures. The final amendments also include certain other technical and conforming amendments to Form N–4 and related rules designed to accommodate the inclusion of nonvariable annuity offerings on that form as well as requiring the insurance company to provide disclosure in response to the remaining items on Form N–4 to the extent applicable.776 General Instructions The final amendments require RILA and registered MVA annuity offerings registered on Form N–4 to comply with the general instructions of that form, including requirements related to: (1) using document design techniques that promote effective communication; (2) organizing information to make it easier for investors to understand; (3) including information in the prospectus or SAI not otherwise required so long as the additional information is not incomplete, inaccurate, or misleading, and does not obscure or impede understanding of the information that is required; (4) requiring Form N–4 filers to define special terms used in the prospectus in any presentation that clearly conveys meaning to investors; (5) allowing insurance companies to describe multiple contracts that are essentially identical in a single prospectus; (6) making available the dates of both the prospectus and SAI; (7) providing an interactive data file related to certain information on the form; (8) requiring insurance companies to include active hyperlinks, or other means of facilitating access that leads directly to the relevant website, for an electronic version of the prospectus; and (9) the use of incorporation by reference. The general instructions are designed to require clear and consistent disclosure 776 The technical amendments to Forms N–3 and N–6 discussed in Section II.I have no economic effects. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 to investors about annuity contracts currently registered on the form and to make clear how filers must prepare and file their registration statements. One commenter stated that the proposed amendments would delete the last sentence of General Instruction C.3.(a), which states that information required in the KIT or the overview section need not be repeated elsewhere in the prospectus. That commenter stated that excessive repetition adds to the length of the prospectus without any commensurate value to investors.777 The final form amendments take commenter concerns into account and address areas where the discussion of the same or similar topics in multiple locations could be limited while continuing to promote the goal of highlighting key information about nonvariable annuities and enhancing understanding of non-variable annuity features and risks.778 Also, the final amendments, like the proposal, incorporate layered disclosure. The use of layered disclosure means that the disclosure requirements necessarily address particular topics in more than one location in the registration statement. Where this occurs, the disclosure requirements intentionally include summary disclosure in the first ‘‘layer,’’ and additional details building on the summary in the second ‘‘layer.’’ Clear disclosure benefits investors by making it easier for investors to evaluate and compare offerings. Concise and decision-useful disclosures can help facilitate the investment decisionmaking process. Also, the presentation of information in a consistent manner will facilitate not only the evaluation and comparison among RILA and registered MVA annuity offerings, but also will facilitate the comparison of non-variable annuities to other annuity products.779 Further, certain investors, while aware of variable annuities, simply may not be aware of RILAs or registered MVA annuities as investment options. Presentation of information in a consistent manner on Form N–4 could increase investor awareness of nonvariable annuities as an investment option. Front and Back Cover Pages The final amendments make certain changes to information currently CAI Comment Letter. discussion of comments related to repetition informing the final amendments in Section I.D.2. 779 The consistent presentation of information also could facilitate information collection by third parties such as investment advisers and data aggregators who could then, in turn, provide information to investors. PO 00000 777 See 778 See Frm 00082 Fmt 4701 Sfmt 4700 required on the front and back pages of a prospectus for all registrants on Form N–4. Like variable annuities registered on Form N–4, RILAs and registered MVA annuities are required to present certain information on the front and back cover pages of the prospectus. The final amendments require several new cover page disclosures for all Form N– 4 issuers. One set of changes provides additional information distinguishing among the investment options available in the annuities registering on Form N– 4 and cross-reference the prospectus appendix that provides additional information about each option. These changes could help investors better understand what investment options are available under the contract, in an easily identifiable location. Some commenters suggested that the proposed cover page disclosures were too voluminous given the purpose of the front cover page and could cut against the form’s layered disclosure approach, thereby reducing the benefits to investors.780 The number of specific features and risks highlighted on the cover page is driven by the complex nature of the non-variable annuity being registered. Further, because these points are generalized on the cover page but discussed in more detail later in the prospectus, they are consistent with the concept of layered disclosure. Some commenters also raised concerns about specific required front and back cover disclosures.781 Generally, the disclosures highlight risks that are particularly prevalent in non-variable annuities. These new disclosures should benefit investors by putting them on notice of key considerations at the outset, helping investors make informed decisions. Key Information Table As required for current Form N–4 issuers, the final amendments require RILA and registered MVA annuity issuers to provide a Key Information Table in their registration statements. The KIT includes a summary of five areas: (1) fees, expenses, and adjustments; (2) risks; (3) restrictions; (4) taxes; and (5) conflicts of interest. The KIT is important summary disclosure for investors that is included in the prospectus, and the final amendments to the KIT requirements are intended to highlight important considerations related to non-variable annuities, including certain unique and/ or opaque aspects of non-variable 780 See 781 See E:\FR\FM\24JYR2.SGM discussion in supra Section II.C.1. discussion in supra Section II.C.1. 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 annuities.782 Consistent with our layered disclosure approach for variable annuities registered on Form N–4, nonvariable annuity issuers are required to provide cross-references in the KIT to the location in the statutory prospectus where the subject matter is described in greater detail. Certain of the amended KIT requirements apply to all Form N– 4 issuers. In particular, in a change from the current KIT requirements for Form N–4 issuers, the final amendments require that responses to various line items be presented in a Q&A format.783 Some commenters stated that the format requirement would reduce the benefits of the KIT because it may reduce comparability and because answers provided may not always be concise.784 As discussed above, because the KIT disclosures as amended continue to be brief, we anticipate that any negative effect that the Q&A format may have on comparability or conciseness will be limited.785 In addition, as stated in the Proposing Release, the Q&A format should improve investor comprehension of variable and non-variable annuities and contract adjustment-specific topics based on the results of our quantitative investor testing.786 In a change for all Form N–4 issuers, the final amendments change the order in which the KIT appears relative to the Overview of the Contract disclosures in the prospectus. We received one comment on this aspect of the proposal. The commenter stated that the repetition of information required in the Overview of the Contract and KIT would reduce the benefits of the KIT.787 We disagree that covering the same topics in the Overview of the Contract and the KIT would reduce the benefits of the KIT. The disclosure is included in both locations to allow the reader to understand the contract at a high level (in the Overview of the Contract), as well as key features and risks of the 782 Many of the summary points presented in the KIT are discussed in greater detail in other parts of the form. In this way, the KIT is an integral part of the layered disclosure approach the Commission traditionally has taken with annuity products. To ensure that the KIT serves this function effectively, final rule will delete Form N–4’s general instruction stating that where the discussion of information required by the Overview of the Contract (currently Item 3) or KIT (currently Item 2) also responds to the disclosure requirements in other items of the prospectus, registrants need not include additional disclosure in the prospectus that repeats the information disclosed in the Overview of the Contract or the KIT. See supra footnote 163 and accompanying text. 783 Currently, such format is suggested but not required. See Form N–4, General Instruction C.3.(c). 784 See ACLI Comment Letter; CAI Comment Letter. 785 See discussion in supra Section II.C.3.a. 786 See supra footnote 160. 787 See discussion in supra Section II.C.2. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 annuity whose offering is being registered (in the KIT). Further, KIT requirements that address the same topic in different contexts may aid investor understanding of complex disclosure, and this approach is consistent with a layered disclosure approach. Overall, the final KIT requirements (like the KIT requirements for variable annuities prior to these amendments) are designed to provide a brief description of key facts about RILAs and registered MVA annuities in a specific sequence and in a standardized presentation that is designed to be easy to read and navigate. A standardized presentation that is designed to be easy to read and navigate benefits investors by making it easier for investors to evaluate and compare non-variable annuity offerings. Also, the standardized presentation of information could facilitate not only the evaluation and comparison among nonvariable annuity offerings, but also could facilitate the comparison of RILAs and registered MVA annuities to other annuity products. Principal Disclosure Regarding IndexLinked or MVA Options The final amendments to Form N–4 require disclosures that will provide investors with information about all annuities whose offerings are registered on Form N–4 as well as with specific information about RILAs and registered MVA annuities and non-variable options under the contract. With regard to Form N–4 issuers generally, the final amendments require registrants to disclose market risk, early withdrawal risk, contract benefits risk, insurance company risk, and the risk of contract changes. With regard to specific information about non-variable annuities, the final amendments include requirements related to: (1) information about non-variable annuities generally and an overview of certain key elements of any index-linked option offered under the contract; (2) a more in-depth description of any index-linked investment options available under the contract; (3) the inclusion of an appendix that consolidates certain summary information related to any index-linked options and fixed options available under the contract (which will accompany similar information about variable options offered under a ‘‘combination’’ contract); and (4) certain principal risk disclosures relating to investing in the non-variable annuity contract that the prospectus describes. The final requirements are designed to provide additional information regarding the risk of investing in Form PO 00000 Frm 00083 Fmt 4701 Sfmt 4700 60059 N–4 products generally, as well as the unique aspects of non-variable annuities and certain summary and detailed information about index-linked options available under a non-variable annuity contract. The information should benefit investors by making it easier for investors to evaluate and compare variable and non-variable annuity products registered on Form N–4. The required disclosure relating to indexlinked and fixed options available under a contract should benefit investors by facilitating the comparison of these investment options to other investment options available under the contract, as well as to investment options that other non-variable annuity contracts offer. The final amendments permit insurance companies to disclose current upside rates in the prospectus either by disclosing the information directly in the prospectus, as proposed, or by including a website address where the current upside rates can be found and incorporating by reference the information on the website into the prospectus.788 Investors likely will find it more efficient to obtain current upside rates on the insurer’s website identified in the prospectus than to review a potentially high number of prospectus supplements. It also will be familiar to many investors because this is the approach that many RILA investors currently use to obtain information about current upside rates. Moreover, allowing insurance companies to disclose current upside rates on a website and to incorporate this information by reference into the prospectus also will retain prospectus and registration statement liability, and ready accessibility of information that is a core aspect of the RILA offering. It will also accommodate RILA issuers’ practice of changing current upside rates in response to market conditions. Because the approach we are adopting is consistent with current practice, we anticipate that all insurance companies will choose to use the website posting approach to disclose current upside rates instead of disclosing such information directly in the prospectus. To the extent the approach we are adopting is consistent with current practice, the benefits discussed above would be reduced. Addition of Contract Adjustments and Other Amendments to Fee and Expense Disclosures RILA and registered MVA annuity investors have the ability to withdraw or transfer their money before the end of a 788 Final Form N–4, Instruction 1 to Item 6(d)(2)(ii)(B). E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60060 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations crediting period. If amounts are removed from an index-linked option before the end of a crediting period, typically an insurance company will apply an IVA to the investor’s contract value. The IVA, which adjusts the contract value based on a formula, typically changes with market conditions throughout the crediting period and may adjust daily. Similarly, a positive or negative market value adjustment could apply if amounts are partially or fully withdrawn from the contract or from an MVA option before the end of a specified period. These contract adjustments, whose calculation varies by insurance company, may have a positive or negative effect on the value of the contract. The final amendments to Form N–4 require specific disclosures with respect to contract adjustments. Currently, Form N–4 requires variable annuity registrants to provide comprehensive information on the fees and expenses that investors will pay when buying, owning, and surrendering a contract, including expenses paid each year during the time the investor owns the contract. Although RILAs and registered MVA annuities typically do not charge the explicit fees and expenses common to variable annuities, they do typically utilize contract adjustments. Since negative adjustments may result in substantial costs to investors, it is important to include a detailed description of contract adjustments in the registration statement. Specifically, the final amendments expand current disclosure requirements to address contract adjustments that could affect investors’ contract value when buying, owning, and surrendering or making withdrawals from an investment option. The final amendments also require certain other specific disclosures about contract adjustments, such as requiring disclosures about the maximum potential loss that an investor could experience in connection with a negative contract adjustment. Some commenters opposed certain changes to Item 4 and Item 7, arguing that the changes would mischaracterize the nature or magnitude of the quantities being disclosed, thereby reducing the benefits of the disclosures to investors.789 The required disclosures help ensure that investors have access, in one place, to full disclosure regarding the economic consequences of withdrawing money from an index option or the contract. These disclosures will benefit investors by enabling them to better evaluate the costs of 789 See discussion in supra Section II.C.6. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 purchasing and owning annuity contracts, including non-variable annuities. In addition, these disclosures can make less-informed investors aware of non-variable annuities’ unique characteristics, which could increase investor understanding of non-variable annuities as an investing option. Some commenters on the proposal raised concerns about the inclusion of the maximum potential loss as part of the fee table disclosure requirements in Item 4, stating that contract adjustments do not reflect fees.790 One commenter further stated that characterizing contract adjustments as a fee or charge is confusing.791 The final amendments clarify the exposition within Item 4 by presenting information related to the maximum potential contract adjustment in a separate ‘‘adjustments’’ table. Further, the description of the new table makes it clear that these contract adjustments are in addition, and thus distinct, from fees. As a result, the revised disclosure should mitigate the concerns raise by commenters on the proposal. At the same time, addressing contract adjustments in the Item 4 disclosure—and clearly distinguishing them from fees—will alert an investor to the possibility of experiencing a contract adjustment, in addition to paying certain fees, if the investor removes money prematurely from an index-linked option or an MVA option, or the contract.792 Therefore, including this information in Item 4 could benefit some investors by allowing them to more easily consider the economic consequences of removing amounts from an investment option before the end of a crediting period. Other Amendments to Form N–4 The final amendments include certain other amendments to Form N–4 and related rules designed to accommodate the inclusion of RILA and registered MVA annuity offerings on Form N–4. These include amendments to Form N– 4’s facing sheet, definitions, exhibit list, and required representations, as well as amendments to certain Securities Act rules. Because these other amendments to Form N–4 and related rules are designed to accommodate the inclusion 790 See, e.g., CAI Comment Letter; VIP Working Group Comment Letter; Gainbridge Comment Letter. 791 See CAI Comment Letter (stating that characterizing maximum potential loss due to a negative contract adjustment as a fee or charge is ‘‘inaccurate and far more confusing than informative’’). 792 Additional information regarding contract adjustments also is available to investors in other parts of the prospectus where those adjustments are discussed in greater detail. See, e.g., Items 5, 6, 7, 12, 22, and 31A. PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 of non-variable annuity offerings on Form N–4, the benefits that could accrue as a result of these other amendments are those that result from RILA issuers registering offerings on Form N–4 rather than Form S–1 or Form S–3. For example, amending Form N–4 and related rules to accommodate the inclusion of non-variable annuity offerings on Form N–4 benefits investors because Form N–4 should make it easier for investors to evaluate and compare non-variable annuities, and also to compare other annuity products with non-variable annuities. The final amendments also amend Form N–4’s required exhibits list to add new Item 27(p) for all issuers, which requires the filing of any power of attorney included pursuant to rule 483(b). While this exhibit is already required to be filed with a Form N–4 registration statement under rule 483(b), practices differ regarding the placement of a required power of attorney exhibit within the exhibit list. This amendment will benefit investors in comparing these exhibits for all annuity products whose offerings are registered using Form N–4 by standardizing the location of these exhibits in the registration statement. Facilitating the comparison of annuity products could benefit investors by helping them to invest in non-variable annuities in a manner that is consistent with their overall financial needs and objectives.793 The final amendments also add new Item 31A in Form N–4 to require census-type information regarding nonvariable annuities offered in connection with the applicable registration statement. Under this new item, insurance companies have to provide information regarding any non-variable annuity offered through the registration statement, as of the most recent calendar year-end, including (1) the name of each contract; (2) the number of contracts outstanding; (3) the total value of investor allocations attributable to index-linked or fixed options; (4) the number of contracts sold during the prior calendar year; (5) the gross premiums received during the prior calendar year; (6) the amount of contract value redeemed during the prior calendar year; and (7) whether the contract is a combination contract. One commenter stated that the information in Item 31A would not be useful to investors in making investment decisions and would require insurance companies to publicly reveal ‘‘private and confidential’’ information that could be used by competitors. We 793 We did not receive any comments on the proposed amendments to Item 27. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations disagree with the comment suggesting this information to be disclosed will result in private and confidential information being disclosed that will aid competitors.794 The information that will be reported would complement the parallel census-type information that is currently required to be reported annually on Form N–CEN by registered unit investment trusts offering variable annuities. Moreover, information that insurance companies will report in response to Item 31A will be aggregated at the contract level, which reduces the possibility that any confidential or private information would be disclosed. The information in new Item 31A will help the Commission and staff in identifying trends in insurance companies’ offerings of RILAs and registered MVA annuities by providing a more complete understanding of the marketplace for annuity securities. A more complete understanding of the marketplace for annuity securities will benefit investors by helping us carry out regulatory responsibilities, including monitoring risk and trends, formulating policy and guidance, and reviewing registration statements. The final amendments also amend Item 34 of Form N–4 to require insurance companies to include two specific undertakings in their registration statements on Form N–4: (1) to file, during any period in which offers or sales are made, through a posteffective amendment to their registration statement, any prospectus required by section 10(a)(3) of the Securities Act and; (2) that, for the purposes of determining liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. These undertakings are the same as two undertakings insurance companies were required to provide in registration statements registered on Forms S–1 or S–3. It remains appropriate for insurance companies to continue to furnish these representations concerning posteffective amendments to a registration statement as, under the final amendments, non-variable annuities may be continuously offered on a registration statement for an indefinite amount of time.795 Remaining Items The final amendments require RILA and MVA annuity issuers to provide disclosure in response to the remaining items on Form N–4 to the extent applicable. These are items that we have previously determined are relevant in the context of variable annuity offerings. Requiring RILA and MVA annuity filers to provide disclosure in response to the remaining items on Form N–4 to the extent applicable will help ensure that comparable information is provided in a standardized, consistent manner for all filers using Form N–4. Standardized, consistent disclosure of comparable information benefits investors by making it easier for investors to evaluate and compare RILA and registered MVA annuity offerings. Also, the presentation of information in a standardized, consistent manner across all filers using Form N–4 will facilitate not only the evaluation and comparison among non-variable annuities, but also the comparison of non-variable annuities to variable annuities. Further, certain investors, while aware of variable annuities, simply may not be aware of RILAs and registered MVA annuities as investment options. Presentation of information in a standardized, consistent manner on Form N–4 could increase investor awareness of RILAs and registered MVA annuities as investing options. Facilitating the comparison of annuity products could benefit investors by helping them to invest in non-variable annuities in a manner that is consistent with their overall financial needs and objectives. Inline XBRL The final amendments require many of the newly added disclosures on Form N–4 to be structured (i.e., tagged) in Inline XBRL, a structured, machinereadable data language.796 In addition, RILA and registered MVA annuity issuers will have to tag those prospectus disclosures that Form N–4 currently requires to be tagged. As discussed in Section II.C.10., one commenter stated that the Inline XBRL requirements would be beneficial to all investors because they would facilitate access to data about non-variable annuities in a structured, machinereadable format.797 Some commenters stated that tagging the newly added disclosures on Form N–4 would benefit investors by highlighting key elements of a RILA, allowing ‘‘investors and their investment professionals (as well as data aggregators, financial analysts, and 794 See discussion in supra Section II.C.7. did not receive any comments on the proposed amendments to Item 34. 796 See 795 We VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 supra section II.B.11. US Comment Letter. 797 XBRL PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 60061 other data users) to efficiently analyze and compare information about available contracts.’’ 798 However, one commenter stated Inline XBRL has little value for investment companies and insurance products.799 Inline XBRL has value for companies and insurance products, investors, investment professionals, and third parties such as data aggregators, financial analysts and other data users because it will make the tagged disclosures more readily accessible for aggregation, comparison, filtering, and other analysis. The Inline XBRL requirement will facilitate access to data about non-variable annuities, which could improve investor understanding of the disclosed information and indirectly benefit insurance companies.800 For example, the data tagging could allow third parties such as financial data aggregators to efficiently compare and otherwise process the disclosed information into analyses accessible to investors. This could benefit insurance companies and nonvariable annuity issuers by increasing investor understanding of non-variable annuities as an investment option, or make investors aware of RILAs’ and registered MVA annuities’ unique characteristics that may be appropriate for their particular situation. Additionally, an Inline XBRL requirement will enable other analyses that could directly benefit insurance companies, such as the ability to compare/redline disclosures automatically against the same disclosures in other periods, or perform targeted searches and redline comparisons of specific disclosure items, rather than performing such assessments on an unstructured 798 CAI Comment Letter. See XBRL US Comment Letter; see also infra footnote 449 and accompanying text. 799 Johnson Comment Letter. 800 It has been observed XBRL requirements improve investor understanding for public operating company financial statement disclosures. See, e.g., Birt, J., Muthusamy, K. & P. Bir, XBRL and the Qualitative Characteristics of Useful Financial Information, 30 Account. Res. J. 107 (2017) (finding ‘‘financial information presented with XBRL tagging is significantly more relevant, understandable and comparable to non-professional investors’’); Cahan, S.F. et al., The roles of XBRL and processed XBRL in 10–K readability, J. Bus. Fin. Account. (2021) (finding 10–K file size reduces readability before XBRL’s adoption since 2012, but increases readability after XBRL adoption, indicating ‘‘more XBRL data improves users’ understanding of the financial statements’’); Efendi, J., Park, J.D. & C. Subramaniam, Does the XBRL Reporting Format Provide Incremental Information Value? A Study Using XBRL Disclosures During the Voluntary Filing Program, 52 Abacus 259 (2016) (finding XBRL filings have larger relative informational value than HTML filings). E:\FR\FM\24JYR2.SGM 24JYR2 60062 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations document.801 Accordingly, for Form N– 4 filers, Inline XBRL can enhance the efficiency of review, yield savings in time and cost of preparing machinereadable data, and potentially enhance the quality of the data over other machine-readable standards as certain errors will be easier to identify and correct because the data is also humanreadable.802 ddrumheller on DSK120RN23PROD with RULES2 c. Option to Use a Summary Prospectus The final amendments to rule 498A permit non-variable annuity issuers, as well as issuers of ‘‘combination contracts’’ offering a combination of index-linked options and variable options, to use a summary prospectus to satisfy statutory prospectus delivery obligations. Investors will continue to have access to the non-variable annuity statutory prospectus and other information about the non-variable annuity contract online, with paper or electronic copies of this information upon request. The current summary prospectus rule for variable contracts uses a layered disclosure approach designed to provide investors directly with key information relating to the contract’s terms, benefits, and risks in a concise and reader-friendly presentation, with more detailed information available elsewhere. The final amendments to rule 498A broaden the scope of the rule to expand the layered disclosure approach to nonvariable annuity contracts.803 As discussed in Section II.D above, the final amendments to rule 498A involve the use of two distinct types of summary prospectuses for non-variable annuity contracts, employing the same 801 While these studies were not done within the insurance company context, it has been observed that XBRL requirements improve firm disclosures and decision making. See Olivia Berkman, XBRL: What are the Benefits, FEI Daily (Aug. 29, 2019), https://www.financialexecutives.org/FEI-Daily/ August-2019/XBRL-What-are-the-Benefits.aspx (noting in an interview with a public company’s chief financial officer that the company is able to ‘‘search through XBRL filings to find similar companies within [its] industry that have had to present certain similar [disclosures] in the past,’’ which has helped the company ‘‘craft[ ] [its] disclosures to make sure that [the company is] complying with the spirit of GAAP and providing the information that [the company is] supposed to be providing’’); see also Hyun Woong (Daniel) Chang, et al., The Effect of iXBRL Formatted Financial Statements on the Effectiveness of Managers’ Decisions when Making Inter-Firm Comparisons. J. Info. Sys. (2020) (finding ‘‘iXBRL filings facilitate information search and information match by allowing users to view XBRL data in HTML filings,’’ and ‘‘managers make more effective decisions when presented with financial information formatted in iXBRL (XBRL)’’). 802 See VASP Adopting Release at Section II.D (articulating similar benefits for tagging variable annuities). 803 Some commenters questioned the inclusion of certain items. See discussion in supra Section II.D. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 approach the rule currently uses for variable contracts. An ‘‘initial summary prospectus,’’ covering contracts offered to new investors, will include certain key information about the contract’s most salient features, benefits, and risks, presented in plain English in a standardized order. The rule amendments also require ‘‘updating summary prospectuses’’ to be provided to existing investors in non-variable annuity contracts. The updating summary prospectus includes a brief description of certain changes to the contract that occurred during the previous year, as well as a subset of the information required to appear in the initial summary prospectus. Certain key information about the index-linked options that the contract offers as investment options will be provided in both the initial summary prospectus and updating summary prospectus. The final amendments create a choice for insurance companies. Insurance companies may meet their prospectus delivery obligations by providing the statutory prospectus, or by providing a summary prospectus and making statutory prospectuses and other required documents available online. Those insurance companies that expect to benefit by providing summary prospectuses would choose to rely on the final amendments to meet their prospectus delivery obligations. For example, as discussed in Section II.F.3, we understand that non-variable annuity issuers typically deliver prospectuses to accompany or precede other communications, such as annuity applications. It is possible that providing layered disclosure through a summary contract prospectus regime (including costs of delivering initial summary and updating summary prospectuses and making statutory prospectuses and other documents available online) could result in reduced costs for issuers.804 Conversely, those insurance companies that do not expect to benefit from this optional prospectus delivery regime would choose to VASP Adopting Release. In the VASP Adopting Release we estimate that printing and mailing expenses are $0.18 less for initial and updating summary prospectuses than for statutory prospectuses. Because we understand RILA prospectuses to not be as long as variable annuity prospectuses, we would expect savings among RILA issuers to be less than the VASP Adopting Release savings, but we do not have a basis for believing savings for RILA issuers will be of an order of magnitude less than the VASP Adopting Release savings. We therefore believe savings for RILA issuers will be between approximately $.02 and $.18. We estimate the internal cost time of online posting of contract documents to be $772. See infra Table 11. PO 00000 804 See Frm 00086 Fmt 4701 Sfmt 4700 continue to provide statutory prospectuses to investors. If insurance companies choose to meet their prospectus delivery obligations by delivering summary prospectuses to investors, with other documents available online, investors will then have a choice as well. Under the layered disclosure framework we are adopting for non-variable annuities, investors will receive information in the form of a summary prospectus, with more detailed information available online if the investor chooses to access it.805 Thus, investors can continue to review the statutory prospectuses by accessing them online, or they may request paper or electronic delivery of statutory prospectuses on an ad hoc basis. Alternatively, investors may choose only to consult the summary prospectuses. Further, if investors want to rely on some combination of summary and statutory prospectuses to receive information about the contract, that choice is available to them as well. Given the Commission’s experience administering the optional summary prospectus regime for variable annuities, we expect a majority of nonvariable annuity issuers will choose to use summary prospectuses. Thus, we expect that the vast majority of investors will have the option to use both summary prospectuses and statutory prospectuses in their decision-making, in whatever proportion investors think is best for their preferences. The presentation required for the initial summary prospectus may reduce the investor effort required to compare non-variable annuity contracts, to consider different index-linked options that RILAs offer, or to compare nonvariable annuity contracts with each other and with variable annuity contracts, when an investor considers a new investment. Information provided in a concise, user-friendly presentation could allow investors to compare information across contracts and as a result, may lead investors to make decisions that better align with their investment goals.806 805 During investor testing, several participants felt they would need information beyond the information contained in the KIT to make a decision about a RILA. See OIAD Investor Testing Report at Section 5, Qualitative Testing, Results from Round 1. 806 Research suggests that individuals are generally able to make more efficient decisions when they have comparative information that allows them to assess relevant trade-offs. See, e.g., Christopher K. Hsee et al., (1999). Preference Reversals Between Joint and Separate Evaluations of Options: A Review and Theoretical Analysis, Psychological Bulletin, 125(5), 576–90; see also Samuel B. Bonsall & Brian P. Miller, The Impact of Narrative Disclosure Readability on Bond Ratings and the Cost of Debt, 22 Rev. Acct. Stud. 608 (2017) E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 Initial Summary Prospectus. Should insurance companies issuing nonvariable annuities choose to use summary prospectuses, investors may benefit in a number of ways.807 The initial summary prospectus for nonvariable annuities will be limited to describing only the contract and features currently available under the statutory prospectus. This focus could make more salient the features and risks of a non-variable annuity, thereby facilitating investors’ evaluation of those features and risks. The final amendments require a standardized presentation for nonvariable annuity initial summary prospectuses to require certain disclosure items that will be most relevant to investors to appear at the beginning of the initial summary prospectus, followed by supplemental information. An initial summary prospectus must contain the information required by the rule, and only that information, in the order specified by the rule.808 The information is required to appear in the same order, and under relevant corresponding headings, as the rule specifies. The required presentation could also facilitate comparisons of different non-variable annuity contracts, as well as comparisons between nonvariable annuity contracts and variable annuities. Standardized, consistent disclosure of comparable information benefits investors by making it easier for investors to evaluate and compare nonvariable offerings. Also, the presentation of information in a standardized, consistent manner will facilitate not only the evaluation and comparison and Alistair Lawrence, Individual Investors and Financial Disclosure, 56 J. ACCT. & ECON. 130 (2013) (finding that shorter and more focused disclosures could be more effective at increasing investor understanding than longer, more complex disclosures). Consistent with these findings, other empirical evidence suggests that disclosure simplification may benefit consumers of disclosed information. See, e.g., Sumit Agarwal, et al., Regulating Consumer Financial Products: Evidence from Credit Cards Nat’l Bureau of Econ. Rsch (working paper no. 19484, Sept. 28, 2013, last revised Mar. 29, 2023), available at https:// ssrn.com/abstract=2332556 (finding that a series of requirements in the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), including several provisions designed to promote simplified disclosure, have produced substantial decreases in both over-limit fees and late fees, thus saving U.S. credit card users $12.6 billion annually). 807 Some investors may prefer to read statutory prospectuses, and therefore, the advantages associated with summary disclosure, as described in this section, may not apply to those investors. The statutory prospectus will, under the final amendments, be available online and in paper or electronic format upon request. 808 Rule 498A(b)(5). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 among non-variable offerings, but also will facilitate the comparison of nonvariable annuities to other variable annuities. Further, certain investors, while aware of variable annuities, simply may not be aware of RILAs and registered MVA annuities as investment options. Presentation of information in a standardized, consistent manner in an initial summary prospectus could increase investor awareness of RILAs and registered MVA annuities as investing options. In addition, given the time required to review a statutory prospectus, nonvariable annuity investors may benefit from summary prospectuses because they offer a shorter alternative to statutory prospectus disclosure. There is evidence that suggests that consumers benefit from summary disclosures.809 Within the specific context of investing, there is evidence from related contexts that suggests that summary prospectuses allow investors to spend less time and effort to arrive at the same portfolio decision as if they had relied on a statutory prospectus.810 This research is consistent with the 2012 Financial Literacy Study, which showed that at least certain investors favor a layered approach to disclosure with the use, wherever possible, of summary documents containing key information 809 There is evidence that the summarization of key information is useful to consumers. See, e.g., Sumit Agarwal et al., Regulating Consumer Financial Products: Evidence from Credit Cards (NBER Working Paper No. 19484, rev. 2014), available at https://www.nber.org/papers/w19484. The authors find that a series of requirements in the CARD Act, including provisions designed to promote simplified disclosure, has produced decreases in both over-limit and late fees, saving US credit card users $20.8 billion annually; see also Robert L. Clark, Jennifer A. Maki & Melinda Sandler Morrill, Can Simple Informational Nudges Increase Employee Participation in a 401(k) Plan? 80 S. Econ. J. 677 (2014). The authors find that a flyer with simplified information about an employer’s 401(k) plan, and about the value of contributions compounding over a career, had a significant effect on participation rates. 810 See John Beshears et al., How Does Simplified Disclosure Affect Individuals’ Mutual Funds Choices? in Explorations in the Economics of Aging 75 (David A. Wise ed., 2010) (‘‘Beshears Paper’’), available at https://scholar.harvard.edu/laibson/ publications/how-does-simplified-disclosure-affectindividuals-mutual-fund-choices. We note, however, that while the authors find evidence that investors spend less time making their investment decision when they are able to use summary prospectuses, there is no evidence that the quality of their investment decisions is improved. In particular, ‘‘On the positive side, the Summary Prospectus reduces the amount of time spent on the investment decision without adversely affecting portfolio quality. On the negative side, the Summary Prospectus does not change, let alone improve, portfolio choices. Hence, simpler disclosure does not appear to be a useful channel for making mutual fund investors more sophisticated . . .’’ Id. at 13 (manuscript page). PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 60063 about an investment product or service.811 Also, investors allocate their attention selectively,812 and the sheer volume of disclosure in a statutory prospectus may discourage some investors from reading contract statutory prospectuses. The observations of a telephone survey conducted on behalf of the Commission with respect to mutual fund statutory prospectuses (which are typically shorter than variable contract statutory prospectuses, and shorter than nonvariable annuity statutory prospectuses are expected to be under the proposal) are consistent with the view that the volume of disclosure may discourage investors from reading statutory prospectuses.813 That survey observed that many mutual fund investors do not read statutory prospectuses because they are long, complicated, and hard to understand. Responses to investor surveys in other contexts, also suggest that shareholders may be more likely to read more concise shareholder reports.814 To the extent summary prospectuses increase readership of non-variable annuity contract disclosures, they could improve the quality and efficiency of portfolio allocations made on the basis of disclosed information for those investors who otherwise will not have read the statutory prospectus. The required presentation for the initial summary prospectus may also reduce the investor effort required to compare non-variable annuity contracts, to consider different index-linked options that a RILA offers, or to compare non-variable annuity contracts with each other and with variable annuity contracts, when an investor considers a new investment. Information provided 811 See 2012 Financial Literacy Study. George Loewenstein, Cass R. Sunstein & Russell Golman. (2014) Disclosure Psychology Changes Everything, 6 Ann. Rev. Econ. 391 (2014). 813 Prior to the Commission’s 2009 adoption of mutual fund summary prospectus rules, the Commission engaged a consultant to conduct focus group interviews and a telephone survey concerning investors’ views and opinions about various disclosure documents filed by companies, including mutual funds. During this process, investors participating in focus groups were asked questions about a hypothetical Summary Prospectus. Investors participating in the telephone survey were asked questions relating to several disclosure documents, including mutual fund prospectuses. See Abt SBI, Inc., Final Report: Focus Groups on a Summary Mutual Fund Prospectus (May 2008), available at https://www.sec.gov/ comments/s7-28-07/s72807-142.pdf. Although the results from the investor testing reflect stated investor preferences, they do not provide us with information with respect to the extent to which RILA investors would actually be more likely to read a RILA summary prospectus relative to a statutory prospectus. 814 See Tailored Shareholder Reports Adopting Release. 812 See E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60064 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations in a concise, user-friendly presentation could allow investors to compare information across contracts and as a result, may lead investors to make decisions that better align with their investment goals.815 For example, the final amendments require insurance companies to distill certain key product information into tables, which could facilitate comparison across different products. Further, the final framework for nonvariable annuity contract summary and statutory prospectuses also includes design elements to facilitate investor use. In particular, the final amendments include requirements for linking both within the electronic version of a contract statutory prospectus and between the electronic versions of the contract statutory prospectus and the contract summary prospectus. The linking requirement will permit investors who use the electronic versions of contract prospectuses to quickly navigate between related sections within the contract statutory prospectus and back and forth between related sections of the contract summary prospectus and the contract statutory prospectus. Further, the final amendments also require that investors either be able to view the definition of each special term used in an online summary prospectus upon command, or to move directly back and forth between each special term and the corresponding entry in any glossary or list of definitions that the summary prospectus includes. This requirement will facilitate understanding of terms that may be confusing or unfamiliar among investors viewing the documents online. Updating Summary Prospectus. As under current rule 498A, we are not requiring that RILA and registered MVA annuity issuers send an updated initial summary prospectus to investors each year. Instead, any non-variable annuity issuer that relies on rule 498A will send an updating summary prospectus, which will provide a brief description of certain changes with respect to the contract that occurred within the prior year.816 The updating summary prospectus will also include certain of the information required in the initial summary prospectus that we consider most relevant to investors when considering additional investment decisions.817 Further, updating summary prospectuses for non-variable annuity contracts, like initial summary prospectuses, will include specific disclosure items appearing in a 815 See infra footnote 806. 498A(c)(1). 817 See Table 8. prescribed order, under relevant corresponding headings.818 An updating summary prospectus for a non-variable annuity contract will have to contain the information required by the rule, and only that information, in the order specified by the rule. The updating summary prospectus for RILAs and registered MVA annuities will have many of the same benefits for investors associated with the initial summary prospectus discussed above, with respect to presenting key information in an easier and less timeconsuming manner for investors. Specifically, because many terms of the non-variable annuity contract do not change from year-to-year, the contract statutory prospectus may contain large amounts of disclosure that is duplicative of disclosure that the investor has previously received. Those changes that do occur may be important to investors, but the disclosure about these changes could be difficult for the investor to identify given the volume of prospectus disclosure that investors would otherwise receive, and the current lack of a requirement to identify new or changed information. Under the final amendments, the updating summary prospectus will include a concise description of important changes affecting the statutory prospectus disclosure relating to certain topics that occurred within the prior year—namely: (1) the availability of investment options under the contract, (2) the overview of the contract, (3) the KIT, (4) certain information about fees, (5) benefits available under the contract, (6) purchases and contract value, and (7) surrenders and withdrawals. These are topics that are most likely to entail contract changes and, for the reasons previously noted, are the types of contract changes most likely to be important to investors because they affect how investors evaluate nonvariable annuity contracts and are relevant to investors when considering whether to continue in the existing option (if available) or transfer funds to a different option. The updating summary prospectus, if used by issuers to satisfy their prospectus delivery obligations, will likely reduce the burden on investors and increase their understanding of their contract by highlighting certain changes to the contract made during the previous year, while forgoing the repetition of most information that had remained unchanged. 816 Rule VerDate Sep<11>2014 21:21 Jul 23, 2024 818 Rule Jkt 262001 PO 00000 498A(c)(6). Frm 00088 Fmt 4701 Sfmt 4700 d. Use of Statutory Accounting The final amendments permit RILA and registered MVA annuity issuers to provide financial statements on amended Form N–4 in the same way that insurance companies currently provide financial statements on that form.819 As a result of this change, the financial statements filed in connection with a registration statement that relates to the offering of either of these securities may be prepared in SAP to the same extent as currently permitted for insurance companies’ financial statements filed on that form. We expect this approach to appropriately recognize the cost burdens if we were to require GAAP financial statements in cases where the insurance company is not otherwise required to prepare financial information in accordance with GAAP. In addition, SAP financial statements, which focus on an issuer’s ability to meet its obligations under its insurance contracts, as regulated by State law, provide material information for investors evaluating RILAs and registered MVA annuities. As a result, permitting insurance companies to provide SAP financial statements when registering the offering of a RILA or registered MVA annuity to the same extent as they can in connection with variable annuities on Form N–4 will be consistent with maintaining investor protection. Also, investors could benefit to the extent the reduced cost burdens provided by SAP financial statements are passed along to investors. The final amendments also require insurance companies registering nonvariable annuities to provide information relating to changes in and disagreements with accountants on accounting and financial disclosure as detailed in 17 CFR 229.304 (‘‘Item 304 of Regulation S–K’’). Further, insurance companies will be required to provide as an exhibit any letter from the insurance company’s former independent accountant regarding its concurrence or disagreement with the statements made by the insurance company in the registration statement concerning the resignation or dismissal as the insurance company’s principal accountant. These items are currently provided by RILAs and registered MVA 819 Certain Commission letters, or portions thereof, exempt certain insurance companies from the requirement to provide financial statements prepared in accordance with GAAP in connection with the registration of an offering of RILAs on Form S–1. As discussed in Section III.B.1.a, among RILA contracts that are currently registered with the Commission, 47 RILAs report SAP financials and 43 RILAs report GAAP financials. Comments received on this aspect of the proposal are discussed in Section II.E. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 annuities on Forms S–1, 8–K, and 10– K, as applicable, and are designed to address the practice of ‘‘opinion shopping’’ for an auditor willing to support a proposed accounting treatment designed to help a company achieve its reporting objectives even though that treatment might frustrate reliable reporting.820 Because the requirements for Form N–4 filers under the final amendments are the same as for Form S–1, Form 8–K, and Form 10– K filers currently, we do not expect any additional benefits from the requirement to provide information relating to changes in and disagreements with accountants on accounting and financial disclosure. e. Filing Rules Fee Payment Method and Amendments to Form 24F–2. The final filing rules require RILA and registered MVA annuity issuers to pay registration fees for using the same method that other filers on Form N–4 currently use.821 Issuers registering the offerings of non-variable annuities on amended Form N–4 are deemed to be registering an indeterminate amount of nonvariable annuities upon effectiveness of the registration statement. These issuers will then be required to pay registration fees annually based on their net sales of these securities, no later than 90 days after the issuer’s fiscal year ends, on the form that is used by current Form N–4 filers to pay registration fees (Form 24F– 2). The final filing rule further specifies the calculation method for paying nonvariable annuity registration fees, consistent with the fee calculation methodology that applies to current Form N–4 filers. The final filing rule also indicates when issuers can take credits for non-variable annuity redemptions that pre-date their use of that form and when expiring annuity contracts are rolled over into a new crediting period as well as other minor technical amendments. The final filing rules will provide benefits to insurance companies. Registering an indeterminate amount of securities benefits insurance companies by eliminating the risk that a nonvariable annuity issuer may inadvertently oversell securities with respect to a registration statement on Form N–4. The payment of fees on an annual net basis furthermore should lead to a reduction in overall filing fees relating to non-variable annuities. For 820 See Disclosure Amendments to Regulation S– K, Form 8–K and Schedule 14A; see also Form S– 1, Item 11(i). 821 Some commenters had specific recommendations on how we could modify Form 24F–2. See discussion in supra Section II.F.1. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 example, insurance companies will no longer pay fees on registered, but unsold, securities. To the extent that there are cost savings for issuers, some of those savings may potentially be passed on to investors. Post-Effective Amendments and Prospectus Supplements. As discussed in Section II.F.2, the final amendments require RILA and registered MVA annuity issuers to use the same framework for filing post-effective amendments to the registration statement as is currently used by other filers on Form N–4. First, the final amendments amend rule 485 under the Securities Act to require non-variable annuity issuers to use that rule when amending non-variable annuity registration statements on Form N–4. Requiring non-variable annuity issuers to use rule 485 when amending nonvariable annuity registration statements on Form N–4 permits non-variable annuity issuers to file post-effective amendments that become automatically effective under rule 485(a) after a specified period of time after the filing or, in certain enumerated circumstances, immediately effective under rule 485(b). Issuers may benefit to the extent automatic effectiveness allows issuers to tap favorable windows of opportunity in the non-variable annuity market, to structure terms of non-variable annuities on a real-time basis to accommodate investor demand, and to determine or change the plan of distribution in response to changing market conditions. Second, the final amendments require RILA and registered MVA annuity issuers to apply rule 497 under the Securities Act when appropriate to file non-variable annuity prospectuses and prospectus supplements with the Commission. Under the final amendments, a non-variable annuity issuer is required to file every prospectus relating to a non-variable annuity offering that varies in form from a previously filed prospectus before it is first used. This approach—rather than requiring filing only if the issuer makes substantive changes from or additions to a previously-filed prospectus—may benefit both investors and issuers. The requirement that insurance companies file every prospectus that varies in form from a previously filed prospectus before it is first used could facilitate investor evaluation and comparison by making publicly available the most timely information currently available to investors. We expect this benefit to be minimal, however, because rule 424 under the Securities Act requires nonvariable annuity issuers only to file prospectuses that contain substantive PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 60065 changes. Prospectuses required to be filed under rule 497 that will not be required to file under rule 424, then, will be prospectuses updated with minor, non-substantive changes and likely of limited informational benefit to investors. Issuers may benefit from applying rule 497 as well. The final amendments facilitate a uniform post-effective amendment and prospectus filing framework for all Form N–4 filers, which will provide insurance companies with more consistent filing requirements across similar products. This, in turn, could benefit insurance companies by making it easier to execute such offerings and may decrease compliance costs. As discussed above, certain issuers use a short-form registration statement on Form S–3, which requires less information than Form S–1 and allows for significant incorporation by reference. Certain issuers also can rely on rule 430B under the Securities Act to omit certain information from the ‘‘base’’ prospectus when the registration statement becomes effective and later provide that information in a subsequent Exchange Act report (forward) incorporated by reference, a prospectus supplement, or a posteffective amendment. Issuers registering annuity product offerings on Form N–4, on the other hand, have limited ability to incorporate information by reference into their registration statements and cannot forward incorporate information from subsequently filed Exchange Act reports. Issuers registering annuity product offerings on Form N–4 also cannot rely on rule 430B to omit certain information from the base prospectus. Under the final amendments, then, nonvariable annuity investors will generally have all the information available in one location (other than current rates, which will be permitted to be incorporated by reference from a website) rather than needing to separately access the information on a website or request the incorporated materials. As a result, costs to investors for assembling and assimilating necessary information could decrease, with a potentially stronger effect for investors that may not have the technical capabilities or monetary resources to search efficiently through multiple information sources. f. Materially Misleading Statements in RILA Sales Literature We are amending rule 156 to make its provisions applicable to RILA and registered MVA annuity sales literature. Rule 156 is an interpretive rule that provides factors to be weighed in considering whether a statement E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60066 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations involving a material fact is or might be misleading in the specific context of investment company sales literature, including literature relating to the sale of variable annuities. The final amendments to rule 156 indicate that whether a statement involving a material fact is misleading in nonvariable annuity sales literature will depend on an evaluation of the context in which it is made, with the rule providing non-exhaustive factors to guide in this determination. For example, rule 156(b)(1)(ii) provides that a statement could be misleading because of the absence of explanations, qualifications, limitations or other statements necessary or appropriate to make such statement not misleading. Under this provision, where made applicable to non-variable annuity sales literature, consideration should be given about whether an advertisement will be materially misleading if it markets the investment as a growth investment, a loss-avoidance vehicle, or a customizable product in the absence of qualifying explanations or statements. Similarly, under the provision, where made applicable to non-variable annuity sales literature, consideration should be given about whether an advertisement will be materially misleading if sales literature advertises a particular feature of the product’s bounded return structure that is not available for the life of the product without providing additional context as to the issuer’s discretion to make changes. Further, rule 156(b)(4), prior to these amendments, provided that representations about fees or expenses associated with an investment in a fund could be misleading because of statements or omissions made involving a material fact, including situations where portrayals of the fees and expenses associated with an investment in the fund omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading. The final amendments change this provision to also address representations about the fees or expenses associated with a nonvariable annuity contract and provide guidance about the contextual analysis to use in determining whether a particular representation in a nonvariable annuity advertising could be materially misleading. As discussed in Section II.G.1., when complying with this provision in the context of nonvariable annuity sales literature, under final rule 156(b)(4), insurance companies are prompted to consider whether representations or portrayals either of a non-variable annuity’s costs or charges, or optional benefits that are VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 subject to a contract adjustment, would necessitate qualifying statements or explanations regarding the economic costs to the investor to receive an advertised benefit or those generally associated with the non-variable annuity. Also, rule 156(b)(2)(i) states that representations about past or future investment performance could be misleading because of statements or omissions made involving a material fact. This includes situations where portrayals of past income, gain, or growth of assets convey an impression of the net investment results achieved by an actual or hypothetical investment which would not be justified under the circumstances, including portrayals that omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading. Under the provision, where made applicable to non-variable annuity sales literature, consideration should be given about whether illustrations about the operation of a non-variable annuity or its features could be misleading because, for example, they use assumptions that are not currently offered or exceed what could be reasonably anticipated or use ‘‘cherry picked’’ data. By reducing the potential for misleading or fraudulent statements in non-variable annuity sales literature, applying rule 156 to RILAs and registered MVA annuities provides investors with protections and helps ensure that investors receive the information necessary to make informed decisions about these products. Ensuring that investors receive the information necessary to make informed decisions could benefit investors by facilitating investor evaluation of RILAs and registered MVA annuities as well as investor comparison of non-variable annuities to other annuity products. We are also making a technical amendment to rule 433 to maintain the status quo for insurance companies that can meet that rule’s conditions to use a free writing prospectus in connection with the offering of non-variable annuities without meeting the prospectus delivery requirements, notwithstanding their use of Form N–4 going forward. Absent such an amendment, the rulemaking would have the effect of imposing new, universal prospectus delivery requirements in connection with RILA marketing materials, even for RILA issuers that would otherwise be eligible to rely on rule 433 by virtue of registering on Form S–3. Because the technical amendment to rule 433 maintains the status quo for PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 insurance companies that can meet the rule’s conditions to use a free writing prospectus in connection with the offering of non-variable annuities without the prospectus delivery requirements, we do not believe this amendment to rule 433 will create additional economic effects. 2. Costs The final amendments will likely lead to certain additional costs for insurance companies registering non-variable annuities. These costs will likely vary across insurance companies, depending on their existing lines of business. Costs may also vary depending on the extent to which insurance companies will, as a result of the final amendments, create prospectuses that vary in form from previously filed prospectuses and the frequency of certain events, such as changes in accountants and disagreements with accountants on accounting and financial disclosure. Generally, the costs will be lower for insurance companies that currently offer products that register on Form N–4, for those insurance companies that do not change or remove key features of nonvariable annuities frequently, and for those insurance companies that do not experience changes in, and disagreements with, accountants on accounting and financial disclosure. The costs of the final amendments may also be mitigated to the extent that insurance companies already provide the same or similar disclosures on Forms S–1 and S–3, 8–K, and 10–K, as applicable, as are required by the final amendments. The costs to insurance companies will be composed of both direct compliance costs and indirect costs. Direct costs for insurance companies will consist of internal costs (for compliance attorneys and other non-legal staff, such as computer programmers, to prepare and review the required disclosure) and external costs (including filing fees, outside legal and accounting fees, as well as any costs associated with outsourcing all or a portion of the Form N–4 filing responsibilities to a filing agent, software consultant, or other third-party service provider). The final amendments could lead to certain costs for investors as well. Direct costs that will be incurred by the insurance companies in coming into compliance with the final amendments ultimately may be passed on to investors. Investors also may bear costs associated with certain final amendments such as the change in filing rules as well as an insurance companies’ option to use a summary prospectus. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 a. Direct Costs Form N–4. The direct costs associated with the final amendments will be most significant for the first Form N–4 registration statement that an insurance company will be required to prepare and file because the insurance company will need to familiarize itself with the new registration form and may need to configure its systems to efficiently gather the required information. In subsequent periods, we anticipate that insurance companies will incur significantly lower costs because much of the work involved in the initial registration statement preparation and filing is non-recurring and because of efficiencies realized from system configuration and reporting automation efforts accounted for in the initial filing period. The costs associated with preparing and filing a new registration statement (on Form N–4 as opposed to Forms S–1/S–3) will be lower to the extent an insurance company already has experience and systems in place to prepare and file registration statements on Form N–4 (e.g., because the insurance company currently offers variable annuities whose offerings are registered on Form N–4). Under the final amendments, insurance companies will register nonvariable and variable annuity contract offerings on final Form N–4. In addition, the Commission is adopting other amendments to Form N–4 that will apply to all issuers that use that form.822 We estimate the average cost of the final amendments for Form N–4 to be around $200,000 per contract per year.823 Insurance companies will also incur compliance costs to tag many of the newly required Form N–4 disclosures (as well as those prospectus disclosures that Form N–4 currently requires to be tagged) in Inline XBRL. Various XBRL 822 For example, compared to the current Form N–4, the final amendments switch the order of the Key Information Table and Overview of the Contract items, require issuers to present information in the KIT in a Q&A format, and require more specific principal risk disclosures. 823 The $200,000 estimate is based on the following calculations: $159,600 (blended hourly rate for compliance attorney and senior programmer at $420 for 380 hours) + $40,000 (costs for external services) ≈ $200,000. Salaries for estimates presented in this section are derived from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. See Table 12 (with relevant details about estimates in footnotes 2–5). This estimate assumes that the annual cost per contract is the same regardless of whether a contract is first registered or whether the issuer files a post-effective amendment. We anticipate that the cost of filing post-effective amendments (see Table 13) will be lower than the cost of initial filings. As a result, this estimate is conservative. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 and Inline XBRL preparation solutions have been developed and used by operating companies and investment companies to fulfill their structuring requirements, and some evidence suggests that, for smaller operating companies, XBRL compliance costs have decreased over time.824 To the extent these insurance companies comply with Inline XBRL requirements internally rather than outsourcing to an external service provider, they may already be familiar with Inline XBRL software and may be able to leverage existing Inline XBRL preparation processes and/or expertise in complying with the new tagging requirements. This will limit the compliance costs arising from the new tagging requirements for these issuers to only those costs related to selecting additional Inline XBRL tags for those new disclosures to be tagged, and reviewing the tags selected for those disclosures. We estimate the average annual cost for XBRL compliance will be around $500 for each current N–4 filer, which is already familiar with structured disclosure in the context of Form N–4, and around $2,400 for each non-variable annuity issuer, which would newly file Form N–4.825 However, 32 of the 38 insurers that issue RILAs and registered MVA annuities also offer variable products registered on Forms N–3, N–4, or N–6, all of which are currently structured, or otherwise have experience tagging registration statements, which would 824 An AICPA survey of 1,032 public operating companies with $75 million or less in market capitalization in 2018 found an average cost of $5,850 per year, a median cost of $2,500 per year, and a maximum cost of $51,500 per year for fully outsourced XBRL creation and filing, representing a 45% decline in average cost and a 69% decline in median cost since 2014. See AICPA, XBRL Costs for Small Companies Have Declined 45% since 2014 (2018), available at https://us.aicpa.org/ content/dam/aicpa/interestareas/frc/ accountingfinancialreporting/xbrl/ downloadabledocuments/xbrl-costs-for-smallcompanies.pdf. Note that this survey was limited to small operating companies. Additionally, a NASDAQ survey of 151 listed issuers and other respondents in 2018 found an average XBRL compliance cost of $20,000 per quarter, a median XBRL compliance cost of $7,500 per quarter, and a maximum XBRL compliance cost of $350,000 per quarter in XBRL costs per quarter. See Letter from Nasdaq, Inc. (Mar. 21, 2019); Request for Comment on Earnings Releases and Quarterly Reports, Securities Act Release No. 10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)]. 825 The $500 estimate is based on the following calculations: $406 (blended hourly rate for compliance attorney and senior programmer at $406 for 1 hours) + $50 (costs for external services) ≈ $500. The $2,400 estimate is based on the following calculations: $1,624 (blended hourly rate for compliance attorney and senior programmer at $406 for 4 hours) + $700 (costs for external services) ≈ $2,300. See Table 16 (with relevant details about estimates in footnotes 2–9). PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 60067 reduce the cost to these issuers compared to our estimate.826 Option to Use a Summary Prospectus. Issuers will benefit from the option to use a summary prospectus to the extent that providing layered disclosure through a summary prospectus regime (including costs of producing and delivering initial summary and updating summary prospectuses and of making statutory prospectuses, and other documents available online) is less expensive than providing statutory prospectuses to new investors and updated statutory prospectuses to existing investors annually. Insurance companies choosing to provide summary prospectuses will bear a onetime cost of preparing both the initial summary prospectus and the updating summary prospectus, as well as costs associated with preparing updated versions the updating summary prospectus in the future on at least an annual basis.827 We estimate the average annual cost to prepare initial and updating summary prospectuses to be around $2,600 for each separate account registrant, who use rule 498A currently, and around $13,000 for each insurance company that issues non-variable annuities.828 Insurance companies that choose to provide summary prospectuses are required to make statutory prospectuses and other materials available online. We estimate the average annual cost to comply with the final website posting requirements of the rule to be around $900 for each insurance company that 826 Based on analysis of Forms S–1, S–3, and POS AM filed by RILA issuers as of May 2024. See also infra footnote 867. 827 The final amendments require insurance companies to use Form N–4 for registered MVA annuities and, as is the case with non-variable annuities and variable annuities, allowing registered MVA annuities the option to use a summary prospectus. As a result, additional insurance companies may opt to use summary prospectuses in connection with registering offerings compared to the proposal. 828 The $2,600 estimate is based on the following calculations: hourly rate for compliance attorney at $425 for 6 hours ≈ $2,600. The $13,000 estimate is based on the following calculations: $7,512 (blended hourly rate for compliance attorney and intermediate accountant at $313 for 24 hours) + $897 (hourly rate for webmaster at $299 for 3 hours) + $5,000 (costs for external services) ≈ $13,000. This estimate includes the cost to include inter-and intra-document linking and special terms definitions. In addition, we estimate that nonvariable annuity issuers will incur printing and mailing costs of approximately $1,500 per registrant for initial summary prospectuses and approximately $12,000 per registrant for updating summary prospectuses. (Separate account registrants already incur these printing and mailing costs under the baseline.) See Table 11 (with relevant details about estimates in footnotes 2–9). E:\FR\FM\24JYR2.SGM 24JYR2 60068 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations issues non-variable annuities.829 However, some of these costs may have already been incurred by issuers of contracts offering variable options as well as non-variable annuities. Filing the Prospectus. As discussed in Section II.F, insurance companies registering offerings of RILAs and registered MVA annuities follow different processes to file prospectuses than current Form N–4 filers. For example, a RILA issuer is required to file a prospectus only if the issuer makes substantive changes or additions to a previously-filed prospectus, whereas current Form N–4 filers are required to file every prospectus that varies from any previously-filed prospectus. Accordingly, under the final amendments, a non-variable annuity issuer is required to file every prospectus relating to a non-variable annuity offering that varies in form from a previously filed prospectus before it is first used. This requirement could increase the number of prospectuses required to be filed by non-variable annuities which could, in turn, increase costs for issuers.830 One commenter stated that the proposed rule would require RILA issuers to include the current rate in the prospectus on the day it goes effective and subsequently update such rates through the proposed 497 RILA rate-setting regime.831 The commenter stated further that the requirement would be a significant change, and added expense, for RILA issuers, particularly companies that change current rates frequently. The commenter provided an example from a member firm suggesting that the member firm would need to file 432 supplements each year. The commenter did not provide an estimate of the cost of providing a supplement. As discussed further in Section II.C.4.a, certain commenters suggested that current upside rates should be posted online instead of included directly in the prospectus. After considering comments, we have determined to permit insurance companies to disclose current upside rates in the prospectus either by disclosing the information ddrumheller on DSK120RN23PROD with RULES2 829 The $900 estimate is based on the following calculations: hourly rate for webmaster at $299 for 3 hours. See Table 11 (with relevant details about estimates in footnotes 2–9). 830 The potential increase in cost could be greater for Form S–3 filers than for Form S–1 filers. Form S–3 requires less information than Form S–1. Also, Form S–1 allows incorporation by reference only on a very limited basis. Form S–3 allows for forward incorporation by reference. Form S–3 filers may need to produce incrementally more information to file on Form N–4 than Form S–1 filers. Transitioning to Form N–4 could be more expensive for Form S–3 filers than for Form S–1 filers, as a result. 831 See CAI Comment Letter. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 directly in the prospectus, as proposed, or by including a website address where the current upside rates can be found and incorporating by reference the information on the website into the prospectus. Additionally, all upside rate information for the prior calendar year must be filed annually with the Commission in a structured data format in response to Item 31A of Form N–4. Because the approach we are adopting is largely consistent with current practice, we anticipate that insurance companies will not incur significant additional costs. Securities Registration Fees. Insurance companies registering offerings of RILAs and registered MVA annuities will be required to pay securities registration fees relating to non-variable annuity offerings in arrears annually by filing Form 24F–2. Like Form N–4, insurance companies will need to familiarize themselves with the new form and may need to configure their systems to efficiently gather the required information. We estimate the average annual cost of this requirement to be around $1,200 for each insurance company that issues non-variable annuities.832 Materially Misleading Statements in Non-Variable Annuity Sales Literature. The final amendments make the provisions of rule 156 applicable to nonvariable annuity sales literature. The cost of the final amendments includes the direct cost of analyzing advertising materials in light of the guidance rule 156 provides. Insurance companies may review and approve advertisements beyond what occurs currently, particularly because determining whether a statement involving a material fact is misleading in nonvariable annuity sales literature will depend on an evaluation of the context in which it is made. We expect some of these costs to be borne in the first year after adoption of the final amendments. That is, these costs will be transition costs and not sustained beyond the first year. We estimate that the transition costs associated with the advertising rule amendments will be around $5,800 per advertisement.833 Also, ongoing sales literature activity may require internal review and approval of advertisements. We estimate that the 832 The $1,200 estimate is based on the following calculations: $246 (rate for compliance clerk at $82 for 3 hours) + $938 (rate for programmer at $316 for 3 hours) ≈ $1,200. See Table 15. 833 See Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements adopting release at n.744. However, these costs may be lower to the extent the advertisement at issue is less complex. PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 costs associated with ongoing sales literature activity will be around $1,900 annually per advertisement.834 These costs will be borne by insurance companies that issue and advertise nonvariable annuities and third parties who prepare these advertisements. b. Indirect Costs Form N–4. While the prospectuses and other registration statement disclosure required by the final amendments will likely facilitate investor evaluation and comparison of non-variable annuities, investors could experience certain transition costs, and some investors may experience other ongoing costs. Transition costs will include the costs of the inconvenience to some investors of adapting to the new materials and to the changes in the presentation of information. Investors will also bear a one-time cost of the inconvenience of adjusting to the changes in the disclosures they receive. These costs are likely to be relatively lower for investors with less experience investing in non-variable annuities who are accustomed to existing non-variable annuity practices. Also, one commenter stated that while the proposed rule would facilitate comparison of nonvariable annuities and variable annuities (both registered on Form N–4), the proposed rule would result in inconsistency in the disclosure of nonvariable annuities and similar life insurance product offerings (that are not registered on Form N–4).835 However, investors only would bear any associated cost to the extent investors consider life insurance products to be substitutes for non-variable and variable annuities. Generally, investors may treat variable life insurance products as supplements to their non-variable and variable annuity investments, rather than as substitutes.836 As a result, we do not believe this cost, to the extent it exists, would be meaningful for investors. Option to Use a Summary Prospectus. While we expect that, should insurance companies opt to use summary 834 See Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements adopting release at n.745. However, these costs may be lower to the extent the advertisement at issue is less complex or higher if it is more complex. 835 See CAI Comment Letter. 836 The Insured Retirement Institute states that ‘‘The cash value available in a whole life policy can be used to supplement retirement income.’’ For example, ‘‘A whole life insurance policy can be used to soften the effects of a down market by allowing investors to either withdraw cash or take a loan from the life policy and avoid drawing down their other retirement savings at the least opportune time.’’ See IRI Fact Book. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 prospectuses, the majority of investors will benefit from their disclosures, certain investors may incur costs. For example, although research indicates that investors generally prefer to receive summary disclosures, there may be nonvariable annuity investors who prefer to rely on statutory prospectuses when making investment decisions. While non-variable annuity statutory prospectuses will continue to be available online and in paper or electronic copy upon request, access to those statutory prospectuses will require investors to take additional steps, imposing some burden. For example, investors choosing to access the statutory prospectus online rather than requesting a paper copy will need to manually enter a hyperlink from a paper updating summary prospectus or click on a link to a website containing the statutory prospectus. To the extent that internet access and use among nonvariable annuity investors is not universal, those investors without home internet access might experience a reduction in their ability to access statutory prospectus information quickly and easily.837 Even for those investors with home internet access, there may be some resistance to taking the additional step of accessing the statutory prospectus online. Use of Statutory Accounting Principles. The final amendments permit RILA and registered MVA annuity issuers to provide financial statements on amended Form N–4 in the same way that insurance companies currently do on Form N–4. One consequence of this change will be that the financial statements filed in connection with a non-variable annuity registration statement could be prepared in SAP to the same extent as currently permitted for insurance companies’ financial statements filed on that form. The final amendments create a choice for certain insurance companies. They may prepare their financial statements 837 According to the most recent U.S. census data, approximately 85% of U.S. households had some form of broadband internet access in their home in 2018, and 92% had a computer (e.g., desktop, laptop, tablet or smartphone). See Michael Martin, Computer and internet Usage in the United States: 2018, U.S. Census Bureau (Apr. 21, 2021), available at https://www.census.gov/library/publications/ 2021/acs/acs-49.html; see also Pew Research Center, internet/Broadband Fact Sheet (Apr. 7, 2021), available at https://www.pewresearch.org/ internet/fact-sheet/internet-broadband/ (‘‘Today, 93% of American adults use the internet.’’ and ‘‘Today, roughly three-quarters of American adults have broadband internet service at home.’’); see also Ani Petrosyan, internet Usage in the United States—Statistics & Facts, Statista (Aug. 31, 2023), available at https://www.statista.com/topics/2237/ internet-usage-in-the-united-states/#topicOverview (‘‘Today, over 90 percent of Americans have access to the internet’’). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 for use in a registration statement in SAP, or they may prepare their financial statements for use in a registration statement in GAAP. Those insurance companies that expect to benefit from preparing their financial statements for use in a registration statement in SAP (e.g., through reduced costs) will choose SAP.838 Those insurance companies that do not expect to benefit from the option to prepare their financial statements for use in registration statement in SAP will continue to prepare their financial statements for use in a registration statement in GAAP. Because the final amendments will create the option, but not the obligation, to prepare their financial statements for use in a registration statement in SAP, we do not believe this provision of the final amendments will create additional costs. Filing and Prospectus Delivery Rules. As discussed in Section II.F, when a non-variable annuity issuer seeks to amend a non-variable annuity registration statement on Form S–1, the issuer must file a post-effective amendment that is typically declared effective by Commission staff acting pursuant to delegated authority on such date as the Commission may determine. To the extent that investors previously benefited from the Commission staff’s review of these filings before they become effective, allowing filings of non-variable annuity offerings to become automatically effective may eliminate such reviews and, as a result, possibly increase the costs to investors. However, issuers will still face liability under the Federal securities laws for registration statement disclosures (e.g., sections 12 and 17 of the Securities Act and section 10(b) and rule 10b-5 under the Exchange Act), which may ameliorate the potential costs associated with reduced staff review. Moreover, rule 485 only permits updates to become immediately effective in limited, enumerated circumstances, in order to provide an opportunity for staff review for all other changes. Materially Misleading Statements in RILA Sales Literature. While reducing the potential for misleading or fraudulent statements in non-variable annuity sales literature will provide investors with protections and help ensure that investors receive the information necessary to make informed decisions about these products, investors could bear the costs of these amendments through increased 838 Some commenters stated that permitting the use of SAP financials would reduce the burdens on many insurance companies offering or seeking to offer RILAs. See supra footnote 568. PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 60069 expenses that issuers would incur to implement the final amendments. Alternatively, if the cost of compliance with these final amendments is significant, some non-variable annuity issuers might reduce advertising to lower the extra costs of compliance. If this occurs, investors who would otherwise rely on advertisements to make investment decisions about nonvariable annuities or compare nonvariable annuities with other investment products might have less complete information for these purposes. D. Effects on Efficiency, Competition, and Capital Formation Efficiency. To investors, the costs of purchasing a non-variable annuity are more than just the dollar cost of the contract and include the value of an individual’s time spent evaluating the contract and its various aspects. Further, for those investors who do not gain a full understanding of the contract, there could be a cost stemming from a potential mismatch between an investor’s goals and the purchased contract. Depending on the size of an individual’s potential purchase, certain of these additional costs could be considerable in comparison to the monetary costs associated with a contract purchase and could discourage investors from considering non-variable annuities even in circumstances where investment in a non-variable annuity would be beneficial. For their part, insurance companies only supply RILAs and registered MVA annuities to the extent they expect the benefits derived from providing the contracts to be greater than the costs of supplying the contract. For issuers, costs include not only those costs associated with producing and servicing non-variable annuities, but also those costs associated with meeting various statutory and regulatory obligations. These costs borne by both insurance companies and individuals are examples of market ‘‘frictions.’’ Market frictions have the effect of reducing the benefits from (i.e., the efficiency of) contracting between market participants.839 Rules that reduce costs for investors, issuers, or both, reduce market frictions and potentially enhance the benefits from contracting between market participants. By facilitating investor evaluation and comparison of RILAs and registered MVA annuities as well as facilitating the comparison of non-variable annuities to other annuity contracts, the final amendments could reduce frictions for investors. Requiring 839 If market frictions are sufficiently large, market frictions can eliminate exchange altogether. E:\FR\FM\24JYR2.SGM 24JYR2 60070 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 insurance companies to use a single registration form and filing process for all non-variable annuities as well as all variable annuity separate accounts that are structured as unit investment trusts, as well as allowing non-variable annuity issuers to provide financial statements on amended Form N–4 in the same way that insurance companies currently do on Form N–4, may also reduce certain compliance burdens for insurance companies. In addition, requiring nonvariable annuity issuers to tag certain key information in Inline XBRL will enable investors, third-party information providers, Commission staff, and other data users to capture and analyze that information more quickly and efficiently than is possible when the same information is provided solely in a static, text-based format. These increases in efficiency could lead investors to save more appropriately to meet their retirement goals. For example, for existing nonvariable annuity investors the final amendments may increase the likelihood that investors choose to invest more or less money in nonvariable annuities in a manner that is consistent with their overall financial needs and objectives—a level that may be higher or lower than current levels. Similarly, the final amendments may lead existing investors to choose to allocate their money into different investment options that the non-variable annuity offers, or different non-variable annuities (or other insurance products like variable annuities) that best meet their needs.840 The final amendments also could help promote investment in non-variable annuities by investors who currently do not invest in non-variable annuities, to the extent such investments are appropriate for them. Finally, access to clearer information about the contract provisions may reduce the chances that an investor makes mid-crediting period withdrawals or transfers or surrenders a non-variable annuities when the costs of doing so do not justify the benefits. Competition. If the final amendments increase efficiency of exchange in the non-variable annuity market, then we may observe a change in investment in non-variable annuities. For example, if there are individuals who currently do 840 One commenter stated that extending the relief provided by Form N–4 to issuers of RILA contracts will enable more insurance companies to enter the RILA market, which will increase market competition and the choices available to investors among products for retirement and other long-term purposes. See CAI Comment Letter. Increased choice in the future could benefit investors to the extent increased choices allow investors to allocate their money into different investments that better match their overall financial needs and objectives. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 not invest in non-variable annuities (or invest less than they would have) because the costs other than the price of the contract are too high (including the effort to gain sufficient understanding of the product) or they are not aware of non-variable annuities as an investment, then to the extent the final amendments lower those costs or make investors more aware of non-variable annuities, we will expect to observe more investors entering the non-variable annuity market (i.e., there could be an increase in demand for non-variable annuities). Conversely, there may be non-variable annuity investors who, because of the burden, choose not to read statutory prospectuses. To the extent those investors are more likely to read summary prospectuses, those investors may decide, as a result, that other investments or products are better suited to their investment goals. This could result in fewer investments in non-variable annuities (i.e., there could be a decrease in demand for nonvariable annuities). As stated in the Proposing Release, if there are insurance companies who limited their participation in the nonvariable annuity market prior to the final amendments as a result of the requirement to register non-variable annuity offerings on Form S–1 or Form S–3 or because of the costs of current prospectus delivery requirements, those insurance companies might increase participation in the non-variable annuity market (i.e., there could be an increase the supply of non-variable annuities) as a result of the final amendments.841 Commenters agreed with this assessment in the context of the proposal for RILAs, and provided comments that could similarly apply to registered MVA annuities. For example, several commenters noted that the ability of RILA issuers to provide financial statements on final Form N–4 in the same way that insurance companies currently do on Form N–4 would facilitate new entrants to, and enhanced competition in, the RILA marketplace.842 More generally, one commenter stated that Forms S–1 and S–3 are not well-suited for insurance products and, as a result, the use of Form S–1 and S–3 has impeded the entry of new issuers to the RILA marketplace. While stating that certain provisions of the proposed rule would promote market competition, this commenter did express concern—specific to RILAs— that the proposed requirement to Proposing Release at Section III.D. e.g., IRI Comment Letter; Gainbridge Comment Letter; CAI Comment Letter. PO 00000 841 See disclose a guaranteed minimum limit on index losses for the life of the contract for each index-linked option would unreasonably constrain insurance companies from offering competitive upside rates or even certain classes of index-linked options altogether and might have an inadvertent chilling effect on product innovation and, in turn, investor choice.843 As discussed in Section II.C.1, we are modifying the disclosure requirement to reflect the fact that not all non-variable annuities provide minimum guaranteed limits on index loss for the life of the contract. By clarifying that disclosure of minimum guaranteed limits on index loss for the life of the contract is not intended to require insurance companies to establish such minimums, the adopted change mitigates the commenter’s concern. To the extent that competition in a market is related to the size of the market, the net effect of these potential changes in investor demand for, and issuer supply of, non-variable annuities might affect competition in the nonvariable annuity market. The final amendments might also affect competition by requiring that information about non-variable annuities be presented in a concise, user-friendly way, which could allow investors to compare information across products. Requiring non-variable annuity issuers to tag certain key information in Inline XBRL could further facilitate comparisons of information across registrants by making it easier for investors (directly or through third-party data aggregators) to extract and aggregate information through automated means for analysis and comparison, which could increase competition among non-variable annuity issuers for investor capital. For example, the final amendments require issuers to distill certain key product information into tables. The presentation of this information in a table facilitates evaluation among different non-variable annuities as well as comparison to variable annuities. Greater comparison among different non-variable annuities as well as comparison to variable annuities could lead to greater competition. Furthermore, by reducing the costs associated with aggregating data across non-variable annuities, the final Inline XBRL requirement could reduce barriers to entry for third-party data aggregators and induce competition among firms that supply information about nonvariable annuities to investors, including other third-party aggregators and sales agents. Accordingly, we do 842 See, Frm 00094 Fmt 4701 Sfmt 4700 843 See E:\FR\FM\24JYR2.SGM CAI Comment Letter. 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 not anticipate that the costs associated with Form N–4 tagging will be significant enough to deter insurance companies from entering the market for RILAs and registered MVA annuities. As such, we do not expect that the new and modified tagging requirements will decrease competition in the market for RILAs and registered MVA annuities.844 The effect on competition between insurance companies could be limited, however, to the extent non-variable annuity investors rely on an agent to help them select their non-variable annuity contract and the investment options under the contract and do not have access to broad comparisons across different non-variable annuities (or among different investment options that non-variable annuities offer) at the time of sale.845 Agents generally only provide their customers with a subset of all nonvariable annuities available in the general marketplace. Thus, while the product information in summary prospectuses will facilitate comparison across products offered by the agent, the effect will likely be limited to the agent’s set of products rather than to the broader market. Capital Formation. As discussed in connection with the potential effects of the final amendments on competition, if the final amendments increase the efficiency of exchange in the nonvariable annuity market, then we may observe a change in investment in nonvariable annuities. As discussed in Section IV.B.3, unlike variable annuities that involve a direct investment of premiums into one or more mutual funds, which in turn invest in underlying securities, non-variable annuity premiums are not directly invested into equity securities, but are typically invested into derivative securities or fixed-income securities such as corporate bonds. To the extent that an increase or decrease in the demand for non-variable annuities is not driven by investors substituting either away from, or into, variable annuities or other investment vehicles as an alternative, we would not expect changing demand for non-variable annuities to have any effect on the underlying securities. An increase or decrease in the demand for non-variable annuities could, however, increase or 844 See also infra Section III.D. do not have data on the extent to which investors rely on agents when purchasing RILAs. In 2019, $95.5 billion of total variable annuity sales of $98.3 billion (97%) were through a distribution channel involving an agent (see IRI Fact Book). If investors rely on agents when purchasing RILAs to the same extent they do when purchasing variable annuities, then the vast majority of RILA investors rely on agents when purchasing RILAs. 845 We VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 decrease the demand for fixed-income securities such as corporate bonds by insurance companies. To the extent the final amendments would cause investors to either substitute away from, or into, variable annuities or another investment that entail investment in underlying funds (which, in turn, invest in a portfolio of securities), there could be an effect on capital formation. If investors substitute away from variable annuities or other investment vehicles into non-variable annuities, there could be a reduction in the demand for the underlying securities and, by extension, a reduction in capital formation. If investors substitute away from nonvariable annuities and into variable annuities or other investment vehicles, there could be an increase in the demand for the underlying securities. To the extent issuers invest non-variable annuity proceeds into fixed-income securities such as corporate bonds, there could be an increase in the demand for those securities. The final Inline XBRL requirements could increase the efficiency of capital formation to the extent that making disclosures available in a structured format reduces some of the information barriers that make it costly for nonvariable annuity issuers to find appropriate sources of new investors. Smaller issuers may benefit more from enhanced exposure to investors. If tagging certain disclosures in a structured format increases the availability, or reduces the cost, of collecting and analyzing key information about non-variable annuities, smaller non-variable annuity issuers may benefit from improved coverage by third-party information providers and data aggregators. E. Reasonable Alternatives Considered 1. Creating an Entirely New Registration Form for RILAs The final amendments require the registration of RILA offerings on Form N–4. As an alternative, we considered requiring insurance companies to register RILA offerings on an entirely new form. Most variable annuities use Form N–4, which has disclosure requirements tailored to these investments that provide investors with key information about a variable annuity’s terms, benefits, and risks, along with information about the insurance company and the offering. Currently, insurance companies register RILA offerings on Forms S–1 or S–3, which allow registering general debt or equity offerings. Forms S–1 and S–3 require issuers to disclose not only information about the offering itself, but PO 00000 Frm 00095 Fmt 4701 Sfmt 4700 60071 also extensive information about the registrant issuing the securities. In addition, registrants must include financial statements prepared in accordance with GAAP, unless an exemption has been granted pursuant to 17 CFR 210.3–13 that permits an insurance company to substitute SAP financials for GAAP financials. Form N– 4, on the other hand, allows insurance companies to file financial statements prepared in accordance with SAP if they do not otherwise prepare GAAP financial statements. A completely new registration form for RILA offerings could negatively affect investors’ ability to compare different RILAs with variable annuities that register on Form N–4 (including contracts that offer index-linked options along with other investment options such as variable options or fixed investment options). Furthermore, given that we are amending Form N–4 to add information to capture aspects specific to RILAs, but many of the current form requirements are relevant to the registration of RILA offerings, a completely new and separate form for RILAs would not offer much (if any) benefit to investors in terms of new information compared to the final amendments to Form N–4. Since most variable annuity issuers already use Form N–4 to register their securities, and many RILA contracts are offered as ‘‘combination’’ contracts, the amended Form N–4 will efficiently provide investors with product-specific information about these combination contracts. As a result, investors will be able to compare annuity products, and the investment options that these products offer, with less time and effort.846 To the extent that investors use less time and effort to compare annuity products and their underlying investment options, investors may be more likely to make decisions that align better with their investment goals. Requiring RILA offerings to be registered on Form N–4 rather than on an entirely new form will also be more efficient for insurance companies since they will generally follow the same procedures they already use for the registration of variable annuities.847 Using Form N–4 to register variable annuities and RILA offerings will also be less costly for insurance companies than using Form N–4 for variable annuities and a completely new form for RILAs since registrants are already familiar with Form N–4. It also will be less costly because, if RILA offerings had to be registered on a form other than 846 See CAI Comment Letter. 847 Id. E:\FR\FM\24JYR2.SGM 24JYR2 60072 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES2 Form N–4, combination contracts offering variable options and indexlinked options would have to use two separate registration forms. The Commission will also benefit from using Form N–4 for RILAs because the disclosure requirements for variable annuities and RILAs will be located in one form only, and registration statements for these products will be subject to the same filing and review processes.848 This will reduce the use of resources by Commission staff needed to review the registration statements of RILAs and variable annuities. 2. Alternatives to Specific Form N–4 Amendments The Commission is making amendments to Form N–4 so that insurance companies are required to register non-variable annuity offerings using that form. While the substance of many of the requirements in Form N–4 does not change from the current version of the form, we are updating some items to include disclosures specifically tailored to non-variable annuities. In certain limited circumstances, we have changed the disclosure requirements provided on the form for all filers, including those registering variable annuities. As an alternative, we could have required more or less tailoring of the form for non-variable annuities. A larger number of amendments tailored to nonvariable annuities than the number we adopted would be more costly for insurance companies registering nonvariable annuity offerings because insurance companies that offer combination contracts (or that otherwise register variable annuities on Form N– 4) would have to make more changes to their disclosure. For example, we could have required insurance companies to provide a diagram in the KIT to illustrate surrender charges and contract adjustments during different time periods of the contract, or illustrations showing how caps, floors, and/or buffers could affect an investor’s returns across different market scenarios. Also, we could have required insurance companies to provide information related to the economic tradeoffs associated with index-linked options. For example, we could have required RILA issuers to compare a hypothetical investment in the indexlinked option to the value, or cost, of a combination of (i) derivatives that would provide the index-linked option’s investment exposure; (ii) a fixed-income component; and (iii) the standard insurance features offered with the 848 Id. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 index-linked option, similar to the analysis conducted by the staff in the Proposing Release.849 In such a comparison, we could either have required that the insurance company use the hypothetical investment discounted by the rate of interest the insurance company is crediting, or would credit, on fixed annuities with a term equal to the duration of the crediting periods of the index-linked option, or we could have required the insurance company to use the value of a risk-free zero-coupon bond with a time to maturity equal to the crediting period of the index-linked option. We also considered requiring additional disclosure related to the setting of early withdrawal charges or penalties and their impact on such a comparison of hypothetical investments. For example, we could have required the calculation of a disclosure to explicitly include the impact of early withdrawal charges or penalties on the liquidity of the investment. We could also have required more prominent placement of these features on marketing or other materials, or we could have required a comparison of these features to potential benefits of the RILA to clarify for investors possible trade-offs. Conversely, a smaller number of amendments tailored to non-variable annuities than the number we are adopting would be less costly for insurance companies. Since insurance companies already use Form N–4 to register variable annuities, and most non-variable annuity issuers offer variable annuities registered on Form N–4, the costs of complying with the disclosure requirements of the amended form will not be substantial. The amendments to Form N–4 will promote investor understanding of nonvariable annuity contracts by presenting information in a clear and concise manner. We are not adopting a larger number of amendments tailored to nonvariable annuities because they may add too much, or less relevant, information, which may overwhelm investors who may not have the time or capacity to process all the information.850 851 We 849 See Proposing Release at III.B.3., describing the staff analysis and the similar study conducted in the Moenig paper. 850 See, e.g., Julie R. Agnew and Lisa R. Szykman (2005). Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice, and Investor Experience, Journal of Behavioral Finance, 6(2), 57–70, and Alejandro Bernales, Marcela Valenzuela and Ilknur Zer (2023). Effects of Information Overload on Financial Markets: How Much Is Too Much? International Finance Discussion Papers 1372, Washington: Board of Governors of the Federal Reserve System. 851 Some commenters stated that the disclosure of the economic tradeoffs associated with index-linked PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 are also not adopting only a subset of amendments tailored to non-variable annuities, as compared with the final rule, because they could result in less investor understanding relative to the understanding resulting from the final amendments. 3. Limiting Scope of Structured Data Requirements The adopted rule requires many of the newly added disclosures on Form N–4 to be tagged in Inline XBRL, in addition to those prospectus disclosures that Form N–4 currently requires to be tagged. Alternatively, the Commission could have limited the tagging requirement to only those disclosures being added to Items of Form N–4 that are already tagged in Inline XBRL. Under this alternative, disclosures relating to: the overview of the contract; the description of the Insurance company, registered separate account, and investment options; charges; purchases and contract value; purchase of securities being offered; disagreements with and changes to accountants; information about contracts with index-linked options and fixed options subject to a contract adjustment; and fee representations and undertakings would not be tagged. Limiting the scope of tagging requirements in this manner would result in reduced compliance burdens for insurance companies, which would be required to apply fewer tags to their disclosures on Form N–4 filings. However, the alternative would also remove the informational benefits associated with making those disclosures available in a machinereadable manner. Furthermore, because Form N–4 filers already have Inline XBRL tagging obligations with respect to certain of the form’s disclosure requirements, the burden reductions resulting from such an alternative would be limited. Therefore, we are not excluding the newly added disclosures on Form N–4 from the Inline XBRL tagging requirements. V. Paperwork Reduction Act We are amending several rules and forms that will modify the registration, offering, and communications processes for non-variable annuities under the Securities Act. We also are amending Form N–4 and related rules that will apply to all issuers of that form.852 The options would be irrelevant, and even confusing and misleading, to investors. See IRI Comment Letter; CAI Comment Letter. 852 We are amending rules 485 and 497 of Regulation C (OMB Control No. 3235–0074), which describes the procedures to be followed in preparing and filing registration statements with the E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations amendments will implement the requirements relating to non-variable annuities in the RILA Act. The amendments will have an impact on the current collections of information burdens under the Paperwork Reduction Act of 1995 (‘‘PRA’’) of the following rules and forms: Rule 498A, Form N–4, Investment Company Interactive Data, and Form 24F–2. The titles for the existing collections of information are: (1) ‘‘Rule 498A Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts’’ (OMB Control No. 3235–0765), which we are retitling to ‘‘Rule 498A Summary Prospectus for Variable and Non-Variable Annuity and Variable Life Insurance Contracts;’’ (2) ‘‘Form N–4, Registration Statement of Separate Accounts Organized as Unit Investment Trust’’ (OMB Control No. 3235–0318), which we are retitling to ‘‘Form N–4, Registration Statement of Separate Accounts Organized as Unit Investment Trust or of Index-Linked Annuity Contracts;’’ (3) ‘‘Annual Notice of Securities Sold Pursuant to Rule 24f– 2.’’ (OMB Control No. 3235–0456), which we are retitling to ‘‘Annual Notice of Securities Sold Pursuant to 17 CFR 270.24f–2 or 230.456(e);’’ and (4) ‘‘Investment Company Interactive Data’’ (OMB Control No. 3235–0642). The Commission published notice soliciting comments on the collection of information requirements in the Proposing Release and submitted the proposed collections of information to OMB for review and approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. While the Commission received no comments specifically addressing the estimated PRA burdens and costs that the Proposing Release described, the Commission did receive comments discussing the burdens of implementing certain aspects of the proposal. We discuss those comments below, along with discussing updated estimates of the collection of information burdens associated with the final amendments. We also discuss below the collection of information burdens associated with amendments to rule 498A and Investment Company Interactive Data, as well as Forms N–4 and 24F–2, which are filed with the Commission and are not kept confidential. A description of the amendments, including the need for the information and its use, as well as a description of the likely respondents, can be found in Section II above, and a discussion of the economic effects of the amendments can be found in Section III above. Commission, and rule 405 of Regulation S–T (OMB Control No. 3235–0424), which specifies the requirements that govern the electronic submission of documents. The amendments will require insurance companies that issue non-variable annuities to tag specified information in registration statements filed on Form N–4 or post-effective amendments thereto, as well as in forms of prospectuses filed pursuant to rule 497(c) or 497(e) under the Securities Act that include information that varies from the registration statement using Inline XBRL. These burdens are included in our estimates for the Investment Company Interactive Data collection of information discussed in section V.D below. 853 See CAI Comment Letter. 854 On January 9, 2024, the Office of Management and Budget approved this collection of information estimate for rule 498A. The Proposing Release discussed a prior burden estimate, which the Office of Management and Budget approved on November 13, 2020. See Proposing Release at n.494. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 A. Rule 498A We are amending rule 498A to permit insurance companies registering offerings of non-variable annuities, as well as issuers of ‘‘combination contracts’’ offering a combination of variable and non-variable options, to use a summary prospectus to satisfy statutory prospectus delivery obligations. Consistent with current rule 498A, the use of summary prospectuses for non-variable annuities will be voluntary, but the rule’s requirements will be mandatory for issuers that elect to send or give a summary prospectus in reliance upon rule 498A. We also are making certain amendments to Form N– 4 that will affect the variable annuity summary prospectuses currently provided to investors. The amendments to rule 498A are part of a layered disclosure approach that is designed to provide investors with a summary prospectus to help them make informed investment decisions regarding nonvariable annuities, as discussed in more detail above. These amendments will result in a change in our current estimate of the burdens associated with this collection of information, specifically to account for these additional requirements for issuers that use rule 498A currently and to add nonvariable annuities to the estimates. The respondents to these collections of information will be insurance companies registering offerings of nonvariable annuities and registered variable annuity separate accounts. The information provided under rule 498A will not be kept confidential. PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 60073 The Commission did not receive public comments regarding the PRA estimates for rule 498A in the Proposing Release. Commenters that discussed rule 498A voiced support for the proposal to extend rule 498A to nonvariable annuities.853 As discussed above, in a change from the proposal, we are requiring insurance companies to use Form N–4 to register offerings of registered MVA annuities and, as is the case with non-variable annuities and variable annuities, allowing issuers of registered MVA annuities the option to use a summary prospectus. We have adjusted our numbers to account for the potential that additional insurance companies will opt to use summary prospectuses in connection with offerings of registered MVA annuities. In our most recent Paperwork Reduction Act submission for Rule 498A, we estimated for rule 498A a total aggregate annual hour burden of 7,634 hours, and a total aggregate annual external cost burden of $9,094,866.854 We have historically estimated the paperwork burden of rule 498A based on the number of variable annuity and variable life insurance separate account registrants, and our estimates of the updated burden resulting from the final amendments are similarly based on the number of non-variable annuity issuers.855 We estimate that there are 38 insurance companies that issue RILAs, registered MVA annuities, or annuity contracts offering index-linked options and MVA options, and that there are 416 separate account registrants on current Form N–4 that would be impacted by the proposed amendments.856 The summary prospectus is voluntary, so the percentage of non-variable annuity issuers that will choose to utilize it is uncertain. Given this uncertainty, we have assumed that insurance companies will choose to use a summary prospectus for 90% of all non-variable annuities, which is the same as our current estimate for variable annuity separate accounts. The table below summarizes our PRA initial and ongoing annual burden estimates associated with the final amendments to rule 498A. 855 VASP Adopting Release at Section V.E. non-variable annuity issuer estimate is based on a review of non-variable annuity registration statements filed with the Commission as of May 2024. See supra footnote 725. The estimate of variable annuity separate accounts is based on Form N–CEN data as of December 31, 2023. The Office of Management and Budget approved the burden estimate for rule 498A on January 9, 2024. 856 The E:\FR\FM\24JYR2.SGM 24JYR2 60074 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations TABLE 11—RULE 498A—PRA ESTIMATES Internal initial burden hours Internal annual burden hours Annual external cost burden Internal time costs Wage rate PROPOSED ESTIMATES Separate Account Registrants Proposed Amendments ............................................................. Number of registrants ................................................................ Total annual burden .................................................................. Use of summary prospectus ..................................................... Total new annual burden for Reliance on Rule 498A .............. 9 ........................ ........................ ........................ ........................ 6 × 419 2,514 × 90% 2,262.60 I $425 (compliance attorney) .... .................................................. .................................................. .................................................. .................................................. I $2,550 × 419 $1,068,450 × 90% $961,605 I ........................ ........................ ........................ ........................ ........................ I RILA Registrants Preparation and filing of Initial Summary Prospectus/Updating Summary Prospectus. Online Posting of Contract Documents ..................................... Total burden per registrant ........................................................ Number of registrants ................................................................ Total annual burden .................................................................. Use of summary prospectus ..................................................... Total new annual burden for Reliance on Rule 498A .............. 40 24.67 $313 (blended rate) ................. $7,709.38 $5,000 2 ........................ ........................ ........................ ........................ ........................ 2.67 27.34 × 90 2,460.60 × 90% 2,214.54 $289 (webmaster) ................... .................................................. .................................................. .................................................. .................................................. .................................................. $771.63 8,481.01 × 90 $763,290.90 × 90% $686,961.81 ........................ $5,000 × 90 $405,000 × 90% $364,500 Initial Summary Prospectus .................................................................................................................................................................................................. Updating Summary Prospectus ............................................................................................................................................................................................ Total annual burden .............................................................................................................................................................................................................. Use of summary prospectus ................................................................................................................................................................................................. Total new annual burden for Reliance on Rule 498A .......................................................................................................................................................... $120,000 $1,048,000 $1,168,000 × 90% $1,051,200 PROPOSED ESTIMATES FOR PRINTING AND MAILING BY RILA REGISTRANTS Total Proposed Estimated Burdens Responses Current aggregate annual burden estimates ............................ Aggregate proposed additional annual burden estimates ........ Revised aggregate annual burden estimates ........................... Internal hour estimate 676 + 83 = 759 14,688 + 4,477.14 = 19,165.14 Internal initial burden hours Internal hour cost estimate External cost estimate .................................................. .................................................. .................................................. $3,900,193 + 1,648,566.81 = 5,548,759.81 $11,559,420 + $1,415,700 = $12,975,120 Wage rate 1 Internal time costs Annual external cost burden Internal annual burden hours FINAL ESTIMATES Separate Account Registrants Final Amendments .................................................................... Number of separate account registrants ................................... Total annual burden .................................................................. Use of summary prospectus ..................................................... Total new annual burden for Reliance on Rule 498A .............. 26 416 2,496 × 90% 2,246 9 ........................ ........................ ........................ ........................ $2,550 × 416 $1,060,800 × 90% $954,720 ........................ ........................ ........................ ........................ ........................ (blended rate) .............. $7,512 6 $5,000 $299 (webmaster) ................... .................................................. .................................................. .................................................. .................................................. .................................................. $897 $8,409 × 38 $319,542 × 90% $287,588 ........................ $5,000 × 38 $190,000 × 90% $171,000 Initial Summary Prospectus .................................................................................................................................................................................................. Updating Summary Prospectus ............................................................................................................................................................................................ Total annual burden .............................................................................................................................................................................................................. Use of summary prospectus ................................................................................................................................................................................................. Total new annual burden for Reliance on Rule 498A .......................................................................................................................................................... $57,000 $456,000 $513,000 × 90% $461,700 3× $425 (compliance attorney) .... .................................................. .................................................. .................................................. .................................................. Non-Variable Annuity Registrants Preparation and filing of Initial Summary Prospectus/Updating Summary Prospectus. Online Posting of Contract Documents ..................................... Total burden per registrant ........................................................ Number of non-variable annuity issuers ................................... Total annual burden .................................................................. Use of summary prospectus ..................................................... Total new annual burden for Reliance on Rule 498A .............. 40 4 24 2 ........................ ........................ ........................ ........................ ........................ 73 27 38 1026 × 90% 923 8× 5 $313 ddrumheller on DSK120RN23PROD with RULES2 FINAL ESTIMATES FOR PRINTING AND MAILING BY NON-VARIABLE ANNUITY REGISTRANTS 9 Total Final Estimated Burdens Responses Current aggregate annual burden estimates ............................ Aggregate proposed additional annual burden estimates ........ VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 I Frm 00098 663 + 35 Internal hour estimate 7,634 + 3,169 (2,246 + 923) I Fmt 4701 Sfmt 4700 Internal hour cost estimate .................................................. .................................................. E:\FR\FM\24JYR2.SGM 24JYR2 $2,337,471 + $1,242,308 ($954,720 + $287,588) External cost estimate $9,094,866 + $632,700 ($171,000 + $461,700) Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60075 TABLE 11—RULE 498A—PRA ESTIMATES—Continued Internal initial burden hours Revised aggregate annual burden estimates ........................... = 698 Internal annual burden hours Wage rate = 10,803 .................................................. Internal time costs Annual external cost burden = $3,579,779 = $9,727,566 Notes: 1 The Commission’s estimates of the relevant wage rates are based on salary information for the securities industry compiled by the Securities Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013. The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013 (as adjusted to account for inflation, the ‘‘SIFMA Wage Report’’). 2 Internal annual burden hours represents initial burden estimates annualized over a three-year period (9 hours/3 = 3 hours) plus 3 hours of ongoing annual burden hours. 3 Estimate is based on a review of Form N–CEN reports through December 31, 2023. In its most recently approved PRA submission, the Commission estimated that 419 registrants on Form N–4 would be subject to the information collection burden under current rule 498A. For the estimated burden of the amendments to rule 498A, we have taken into account updated data regarding the number of registrants on Form N–4. 4 Represents initial burden estimates annualized over a three-year period plus 11 hours of ongoing annual burden hours ((40 hours/3 = approximately 13 hours) + 11 hours = approximately 24 hours). 5 Represents a blended wage rate of a compliance attorney ($425 per hour) and an intermediate accountant ($200 per hour). $313 is based on the following calculation: ($425 + $200)/2 = $313 rounded to the nearest whole dollar. 6 We estimate that each insurance company that chooses to rely on rule 498A with regards to a non-variable annuity will incur a one-time collective external cost burden of $10,000 per registration statement to prepare both a new initial summary prospectus and a new updating summary prospectus for offerings on Form N–4. We also estimate an on-going collective burden of $2,500 per registration statement during each subsequent year to prepare updates to these materials. The threeyear average cost of these estimates is $5,000. 7 Represents initial burden estimates annualized over a three-year period plus two hours of ongoing annual burden hours ((2 hours/3 = approximately 1 hour) + 2 hours = approximately 3 hours). 8 This estimate is based on the number of insurance companies issuing non-variable annuities. See supra footnote 725. The proposal reflected an estimate of the number of RILA s, as opposed to the number of insurance companies issuing RILAs. We have updated this approach to better reflect the way that the burden for rule 498A has historically been calculated (reflecting the number of variable annuity separate accounts relying on rule 498A—thus, reflecting the registrants that rely on the rule, not the number of contracts with summary prospectuses under the rule). 9 Costs associated with printing and mailing for separate account registrants are already accounted for in the currently approved burdens for rule 498A. Estimates for non-variable annuity issuers printing and mailing costs are based on the currently approved burdens for printing and mailing costs under rule 498A (approximately $1,500 per registrant for initial summary prospectuses and approximately $12,000 per registrant for updating summary prospectuses). 10 The estimated number of new responses is based on the total of the number of non-variable annuity responses under the proposed amendments (38 responses) and the difference between the number of responses for registered separate accounts under the current aggregate annual burden estimate (419 responses) and the final additional annual burden estimates (416 responses). (38 non-variable annuity issuer responses subtracted by 3 registered separate account responses). ddrumheller on DSK120RN23PROD with RULES2 B. Form N–4 Under the final amendments, insurance companies will register nonvariable and variable annuity contract offerings on Form N–4, as amended, to address the features and risks of nonvariable annuities, including RILAs and registered MVA annuities. In addition, we are adopting other amendments to Form N–4 that will apply to all issuers that use that form. For example, the final amendments will switch the order of the Key Information Table and Overview of the Contract items, require issuers to present information in the KIT in a Q&A format, and to require more specific principal risk disclosures. These amendments will result in a change in our current estimate of the burdens associated with this collection of information, specifically to account for these additional requirements for issuers that use Form N–4 currently and to add non-variable annuities to the estimates. The Commission received no comments specifically addressing the estimated PRA burdens for the proposed amendments to Form N–4. Rather, as discussed above, the Commission received comments supporting the ability of non-variable annuities to register on Form N–4.857 Those commenters generally suggested that the current burdens on insurance 857 See supra sections II.A. and II.B. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 companies that register non-variable annuities on Form S–1 or S–3 may be lessened by having such contracts register on Form N–4.858 As discussed in the proposal, Form N–4 generally imposes two types of reporting burdens on issuers that use the form: (1) the burden of preparing and filing the initial registration statement; and (2) the burden of preparing and filing post-effective amendments to a previously effective registration statement. In our most recent Paperwork Reduction Act submission for Form N–4, we estimated for Form N–4 a total aggregate annual hour burden of 292,487 hours, and a total aggregate annual external cost burden of $33,348,866.859 Compliance with the disclosure requirements of Form N–4 is mandatory, and the responses to the disclosure requirements will not be kept confidential. The respondents to these collections of information will be nonvariable annuity issuers and registered variable annuity separate accounts. The purpose of the information collection requirements on Form N–4 is to meet the filing and disclosure requirements of the Securities Act and Investment Company Act, as applicable, and to provide investors with information 858 Id. 859 On Oct. 26, 2021, the Office of Management and Budget approved without change this burden estimate. PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 necessary to evaluate an investment in an offering of securities registered on the form. At proposal, we presented our information collection estimates by the product type that would be registered on Form N–4. Our proposed information collection estimates addressed RILAs and the initial burdens that a RILA issuer would incur to register a nonvariable annuity on Form N–4 and file post-effective amendments; these estimates were the majority of the burden associated with the proposed amendments to rule 498A. We also included information collection estimates that would apply to variable annuity issuers that currently register their offerings on Form N–4, which were more incremental in nature. For each of these proposed information collection estimates—those associated with RILAs and those associated with variable annuities—we based our proposed information collection estimates on average burdens that we anticipated issuers would incur. We are adopting amendments that require not only issuers of variable annuities and RILAs, as proposed, to register offerings of these annuity products on Form N–4, but also require issuers of registered MVA annuities to register offerings of these annuities on Form N–4. Accordingly, our final information collection estimates reflect these additional registrants as well as updated data since the proposal. E:\FR\FM\24JYR2.SGM 24JYR2 60076 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Specifically, our final information collection estimates reflect that the number of entities and responses have been modified from the proposal to include issuers of registered MVA annuities, and also to reflect that the estimated number post-effective amendments filed by issuers of variable annuities have declined from January 1, 2021 to December 31, 2023. Our final information collection estimates reflect that our per-entity and per-response estimates have not changed from our proposed information collection estimates. This is because we received no comments specifically addressing the estimated PRA burdens for the proposed amendments to Form N–4, and also we do not anticipate that any of the changes from the proposal we are adopting will make any substantive modifications to the per-entity and perresponse estimates or impose any additional substantive recordkeeping or information collection requirements within the meaning of the PRA compared to the proposal. Our final information collection estimates, like our proposed information collection estimates, are based on average burdens that we anticipate issuers will incur in registering annuity offerings and filing post-effective amendments on Form N– 4. For ease of administration and in a change from the proposed approach to calculating these estimates, our final information collection estimates do not separately address the Form N–4 burdens that issuers of different types of annuities (e.g., RILAs, registered MVA annuities, variable annuities) would incur. Instead, the final estimates include average estimates that any Form N–4 issuer would incur. We estimate that there will be 1,235 responses that will be subject to collection of information requirements under the final amendments to Form N– 4.860 The tables below summarize our PRA initial and ongoing annual burden estimates associated with the final amendments to Form N–4. TABLE 12—FORM N–4 INITIAL FILINGS—PRA ESTIMATES Internal initial burden hours Internal annual burden hours Internal time costs Wage rate Annual external cost burden PROPOSED ESTIMATES Separate Account Registrants Proposed Amendments ......................................................... 12 14 Estimated number of annual responses ............................... Total new annual burden ...................................................... ........................ ........................ × 42 588 $406 (blended rate for compliance attorney and senior programmer). ................................................ ................................................ $5,684 ........................ × 42 $238,728 ........................ ........................ $158,701.34 $40,000 $143 × 20 $3,176,886.80 ........................ × 20 $800,000 RILA Issuers Proposed amendments to Form N–4 .................................... 300 390.89 Website availability requirement ........................................... Estimated number of annual responses ............................... Total new annual burden ...................................................... ........................ ........................ ........................ 0.5 × 20 7,827.80 $406 (blended rate for compliance attorney and senior programmer). $286 (webmaster) ................. ................................................ ................................................ Total Proposed Burdens Responses Current aggregate annual burden estimates ........................ Aggregate proposed additional annual burden estimates .... Revised aggregate annual burden estimates ....................... Internal hour estimate 30 + 32 = 62 8,427 + 8,416.80 = 16,843.80 Internal hour cost estimate ................................................ ................................................ ................................................ $2,494,716 + $3,416,614.80 = $5,911,330.80 External cost estimate $754,740 + $800,000 = $1,554,740 FINAL ESTIMATED BURDENS Internal initial burden hours Internal annual burden hours 1 Final Amendments to Form N–4 3 ......................................... 300 3 380 Estimated number of annual responses 6 ............................. Total estimated annual new burden ...................................... ........................ ........................ × 101 38,380 Wage rate 2 Internal time cost $420 (blended rate for compliance attorney and senior programmer) 5. ................................................ ................................................ Annual external cost burden $159,600 6 $40,000 × 101 $16,119,600 × 101 $4,040,000 Final Total Burdens ddrumheller on DSK120RN23PROD with RULES2 Responses Current aggregate annual burden estimates ........................ Aggregate additional annual burden estimate 7 8 .................. Revised aggregate annual burden estimates ....................... Internal hour estimate 30 + 71 = 101 8,427 + 29,953 = 38,380 Internal hour cost estimate ................................................ ................................................ ................................................ $2,494,716 + $13,624,884 = $16,119,600 External cost estimate $754,740 + $3,285,260 = $4,040,000 Notes: 860 This includes the number of initial filings plus post-effective amendments that we estimate below. See Table 14. Certain disclosure required by Form N–4 may not be applicable to insurance companies that register the offerings of non-variable annuities. Further, insurance companies that register RILA VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 contracts, may post the current limit on index gains for each index-linked option on a website. For the ease of administering this collection, the information collection estimates are average estimates reflecting that different registrants could, in practice, incur different burdens regarding the PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 Form N–4 disclosure requirements depending on the type of product being registered. For both variable and non-variable annuity registrants, this estimate is based on a review of annuity registration statements filed with the Commission from January 1, 2021 through December 31, 2023. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60077 1 This estimate includes the initial burden estimates annualized over a three-year period, plus the estimate of ongoing annual burden hours. 2 The Commission’s estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. 3 This estimated burden applies to an issuer of any annuity registered on Form N–4. 4 The final estimate includes the initial burden estimates annualized over a three-year period (300 hours/3 = 100 hours), plus 280 hours of ongoing annual burden hours (the estimate of ongoing internal hours associated with post-effective amendments (which will be filed in the year following an initial registration statement), as referenced in Table 13 infra). The final amendments will permit issuers of RILA contracts to incorporate information about current contract limits on gains by reference into their prospectuses from a website. See Item final Form N–4, Item 6. Because this incorporation by reference approach is permitted but not required, burdens associated with this permissible website disclosure are reflected in the burden estimate for the final amendments to Form N–4. For purposes of this information collection, we estimate that 100% of issuers of RILAs would incur burdens associated with website disclosure. 5 The $420 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($440) and a senior programmer ($399). $420 is based on the following calculation: ($440 + $399)/2 = $420 rounded to the nearest whole dollar. 6 We estimate that the external cost to prepare and file an initial registration statement on Form N–4 is $40,000 per filing. This estimate is based on the currently approved external cost estimate for Form N–4 filings, adjusted to reflect staff experience of the costs associated with drafting and filing a registration statement on Form N–4, such as the cost of outside legal services. 7 The estimate of the annual number of registration statements filed on Form N–4 is based on the average annual number of annuity filings (variable annuity, RILA, and registered MVA annuities) received by the Commission over the past three years (Jan. 1, 2021 to Dec. 31, 2023) on Forms N–4, S–1, and S–3. In its most recently approved PRA submission, the Commission estimated that insurance companies that issue variable annuities will make approximately 30 initial registration statement filings per year. For the estimated burden of the amendments to Form N–4, we have taken into account updated data regarding the number of initial annuity filings on Forms N–4, S–1 and S–3. 8 The estimated number of new responses, 71 responses, is based on the total of the number of responses under the final amendments, 101 responses, less 30 responses which represents the number of responses for registered separate accounts under the current aggregate annual burden estimate. Similarly, the estimated additional internal hours figure reflects the total estimated annual new burden (38,380 hours) and subtracts the current internal hour estimate (8,427 hours) to avoid double counting the current burden that is applicable to registered separate accounts; the estimated additional internal hour cost figure reflects the total estimated annual new internal hour cost estimate ($16,119,600) and subtracts the current internal hour cost estimate ($2,494,716) to avoid double counting current internal hour cost applicable to registered separate accounts; and the estimated additional external cost figure reflects the total estimated annual new external cost ($4,040,000) and subtracts the current external cost estimate ($754,740) to avoid double counting current external costs applicable to registered separate accounts. TABLE 13—FORM N–4 POST-EFFECTIVE AMENDMENT FILINGS—PRA ESTIMATES Internal initial burden hours Internal annual burden hours Internal time costs Wage rate Annual external cost burden PROPOSED ESTIMATES Separate Account Registrants Proposed Amendments ............................................................ Estimated number of annual responses .................................. Total new annual burden ......................................................... 12 ........................ ........................ I 6 I × 1,016 6,096 $406 (blended rate for compliance attorney and senior programmer). ................................................. ................................................. $2,436 ........................ × 1,016 $2,474,976 ........................ ........................ $113,659.70 $24,000 $143 × 90 10,242,243 ........................ × 90 $2,160,000 RILA Issuers Proposed amendments to Form N–4 ....................................... 210 279.95 Website availability requirement .............................................. Estimated number of annual responses .................................. Total new annual burden ......................................................... ........................ ........................ ........................ 0.5 × 90 25,240.50 I I $406 (blended rate for compliance attorney and senior programmer). $286 (webmaster) .................. ................................................. ................................................. Total Burdens Responses Current aggregate annual burden estimates ........................... Aggregate proposed additional annual burden estimates ....... Revised aggregate annual burden estimates .......................... 1,366 ¥260 = 1,106 I Internal hour estimate I Internal hour cost estimate + 284,060 + 31,336.50 = 315,369.50 ................................................. ................................................. ................................................. $84,100,454 + $12,717,219 = 96,817,673 External cost estimate + $32,594,126 + $2,160,000 = $34,754,126 FINAL ESTIMATED BURDENS Internal initial burden hours Internal annual burden hours Final Amendments to Form N–4 2 ............................................ 210 2 3 280 Estimated number of annual responses 5 ................................ Total new annual burden ......................................................... ........................ ........................ × 1,164 325,920 Wage rate 1 Internal time costs $420 (blended rate for compliance attorney and senior programmer) 4. ................................................. ................................................. Annual external cost burden $117,600 5 $24,000 × 1,164 $136,886,400 × 1,164 $27,936,000 FINAL TOTAL BURDENS ddrumheller on DSK120RN23PROD with RULES2 Responses Current aggregate annual burden estimates ........................... Aggregate additional annual burden estimates 6 ..................... Revised aggregate annual burden estimates .......................... 1,366 ¥202 = 1,164 Internal hour estimate I 284,060 + 41,860 = 325,920 ................................................. ................................................. ................................................. Internal hour estimate External cost estimate $84,100,454 + $52,785,946 = $136,886,400 $32,594,126 $¥4,658,126 = $27,936,000 Notes: 1 The Commission’s estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. 2 This estimated burden applies to an issuer of any annuity registered on Form N–4. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 60078 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 3 The final estimate includes the initial burden estimates annualized over a three-year period, plus 208 hours of ongoing annual burden hours ((210 hours/3 = 70 hours ) + 208 hours = 278 hours (rounded up to 280 hours)). The ongoing annual burden is estimated to be equal to the currently approved ongoing annual burden for initial filings on Form N–4 plus an addition 2 hours of ongoing annual burden hours. The final amendments will permit issuers of RILA contracts to incorporate information about current contract limits on gains by reference into their prospectuses from their website. See final Form N–4, Item 6. Because this incorporation by reference approach is permitted but not required, burdens associated with this permissible website disclosure requirement are reflected in the burden estimate for the final amendments to Form N–4. For purposes of this information collection, we estimate that 100% of issuers of RILAs would incur burdens associated with website disclosure. 4 The $420 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($440) and a senior programmer ($399). $420 is based on the following calculation: ($440 + $399)/2 = $420 rounded to the nearest whole dollar. 5 We estimate that the external cost to prepare and file a post-effective registration statement on Form N–4 is approximately $24,000 per filing. 6 The estimate of the average annual number of post-effective amendments to annuity filings (variable annuity, RILA, and registered MVA annuities) received by the Commission over the past three years (Jan. 1, 2021 to Dec. 31, 2023) on Forms N–4, S–1, and S–3. In its most recently approved PRA submission, the Commission estimated that insurance companies that issue variable annuities will make approximately 1,336 post-effective amendments per year. For the estimated burden of the amendments to Form N–4, we have taken into account updated data regarding the number of post-effective amendments for annuities on Forms N–4, S–1 and S–3. The estimate of annual the annual number of post-effective amendments to annuity filings reflects that the average number of post-effective amendments filed by separate account registrants with the Commission has declined over the past three years. See infra note 6. 7 The aggregate final additional annual burden estimate reflects that the average number of post-effective amendments over the past three years (Jan. 1, 2021 to Dec. 31, 2023) by separate account registrants (1,088) has declined from the current aggregate annual burden estimate (1,366). The aggregate additional burden estimate takes 1,088 (the average number of post-effective amendments over the past three years by separate account registrant) and deducts 1,366 (the current aggregate burden estimate) which equals ¥278 and then adds 75 (the average number of post-effective amendments filed by insurance companies that issue RILA and registered MVA contracts over the past three years) which equals ¥202, as adjusted for rounding. Similarly, the estimated additional internal hours figure reflects the total estimated annual new burden (325,920) and subtracts the current internal hour estimate (284,060) to avoid double counting the current burden that is applicable to registered separate accounts; the estimated additional internal hour cost figure reflects the total estimated annual new internal hour cost estimate ($137,061,000) and subtracts the current internal hour cost estimate ($84,100,454) to avoid double counting current internal hour cost applicable to registered separate accounts; and the estimated additional external cost figure reflects the total estimated annual new external cost ($27,936,000) and subtracts the current external cost estimate ($32,594,126) to avoid double counting current external costs applicable to registered separate accounts. TABLE 14—FORM N–4 TOTAL BURDEN—PRA ESTIMATES Responses Internal annual burden hours 1 Internal time costs 2 Annual external cost burden TOTAL BURDEN ESTIMATES INCLUDING AMENDMENTS Proposed Estimates Current aggregate annual burden estimates ........................................................................ Aggregate proposed additional annual burden estimates .................................................... Revised proposed aggregate annual burden hours ............................................................. 1,366 ¥228 = 1,168 292,487 + 39,753.30 = 332,240.30 $86,595,170 + $16,133,833.80 = $102,729,004 $33,348,866 + $2,914,740 = $36,263,606 Final Estimates Current aggregate annual burden estimates ........................................................................ Aggregate final additional annual burden estimates ............................................................ Revised aggregate annual burden hours ............................................................................. 1,366 292,487 $86,595,170 $33,348,866 3 ¥131 4 71,813 5 $66,410,830 6 $¥1,372,886 1,235 364,300 $153,006,000 $31,975,980 Notes: 1 This estimate includes the initial burden estimates annualized over a three-year period. 2 This estimate is based on the Commission’s estimates of relevant wage rates based on the SIFMA Wage Report. The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. The particular wage rates that were considered are discussed in Table 12 and Table 13 above. 3 The aggregate final additional annual burden estimates reflect that the average number of post-effective amendments over the past three years (Jan. 1, 2021 to Dec. 31, 2023) by separate account registrants (1,088) has declined from the current aggregate annual burden estimate (1,366). The aggregate final additional annual burden estimate for responses adds 71 (the aggregate annual additional burden estimate for initial registration statements) and ¥202 (the aggregate annual additional burden estimate for post-effective amendments) = ¥131. 4 The aggregate final additional annual burden estimate for the internal annual burden hours adds 29,953 (the aggregate annual additional burden estimate for initial registration statements) and 41,860 (the aggregate annual additional burden estimate for post-effective amendments) = 71,813. 5 The aggregate final additional annual burden estimate for internal time costs adds $13,624,884 (the aggregate annual additional burden estimate for initial registration statements) and $52,785,946 (the aggregate annual additional burden estimate for post-effective amendments) = $66,410,830. 6 The aggregate final additional annual burden estimate for the annual external cost burden adds $3,285,260 (the aggregate annual additional burden estimate for initial registration statements) and $¥4,658,126 (the aggregate annual additional burden estimate for post-effective amendments) = $¥1,372,886. ddrumheller on DSK120RN23PROD with RULES2 C. Form 24F–2 Under the amendments, insurance companies will be required to pay applicable securities registration fees relating to non-variable annuities in arrears on Form 24F–2. Consistent with the other elements of this rulemaking, these amendments are designed to require insurance companies to use the same framework to pay securities registration fees for non-variable annuities that they do for variable annuities. Form 24F–2 is the annual notice of securities sold by certain funds that accompanies the payment of registration fees with respect to the securities sold during the fiscal year, net of securities redeemed or repurchased during the year. Compliance with Form 24F–2 is mandatory. Responses to this form are not kept confidential. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 The Commission did not receive public comments regarding the PRA estimates for Form 24F–2 in the Proposing Release. Commenters generally supported the proposal to require insurance companies to pay fees in arrears on Form 24F–2 and did not indicate that they found this fee payment method burdensome.861 As discussed above, in a change from the proposal, we are requiring insurance companies to pay fees for registered MVA annuities via Form 24F–2. We have adjusted our numbers to account for the fact that more insurance companies than originally anticipated will pay fees with Form 24F–2. In our most recent Paperwork Reduction Act submission for Form 861 See CAI Comment Letter; IRI Comment Letter; Gainbridge Comment Letter. PO 00000 Frm 00102 Fmt 4701 Sfmt 4700 24F–2, we estimated for Form 24F–2 a total aggregate annual hour burden of 20,464 hours, and a total aggregate annual external cost burden of $0.862 The likely respondents to the proposed amendments will include non-variable annuity issuers and current Form 24F– 2 filers, which open-end investment companies, unit investment trusts, registered closed-end investment companies that make periodic repurchase offers under 17 CFR 270.23c–3, and face-amount certificate companies. We estimate that 38 nonvariable annuity issuers will be subject to these final amendments and will file 862 On April 17, 2024, the Office of Management and Budget approved this burden estimate. Before that, the Office of Management and Budget approved a burden estimate for Form 24F–2 on November 13, 2020. The 2020 OMB-approved burden estimate was cited in the Proposing Release. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations one Form 24F–2 filing each per year.863 The table below summarizes our PRA initial and ongoing annual burden 60079 estimates associated with the final amendments to Form 24F–2. TABLE 15—FORM 24F–2—PRA ESTIMATES Internal initial burden hours Internal annual burden hours Internal time costs Wage rate Annual external cost burden PROPOSED ESTIMATES Clerical work to file Form 24F–2 ............................................ Submission in a structured data format ................................. Total annual burden per response ......................................... Number of annual responses ................................................. Total new annual burden ........................................................ 3 3 ........................ ........................ ........................ 3 3 6 × 90 540 $82 (compliance clerk) .......... $316 (programmer) ................ ................................................ ................................................ ................................................ $246 $948 $1,194 × 90 $107,460 $0 $0 .............................. × 90 $0 TOTAL ESTIMATED PROPOSED BURDENS INCLUDING AMENDMENTS Responses Current aggregate annual burden .......................................... Aggregate proposed additional annual burden estimates ...... Revised aggregate burden estimates ..................................... Internal annual burden hours 6,794 + 90 = 6,884 Internal initial burden hours 27,176 + 540 = 27,716 Internal annual burden hours Internal time costs ................................................ ................................................ ................................................ Wage rate 2 $4,633,508 + $107,460 = $4,140,968 Internal time costs Annual external cost burden $0 + $0 = $0 Annual external cost burden FINAL ESTIMATES Clerical work to file Form 24F–2 ............................................ Submission in a structured data format ................................. Total annual burden per response ......................................... Number of annual responses 3 ............................................... Total new annual burden ........................................................ 13 3 3 ........................ ........................ ........................ 13 6 × 38 228 $82 (compliance clerk) 2 ........ $316 (programmer) 2 .............. ................................................ ................................................ ................................................ $246 $948 $1,194 × 38 $45,372 $0 $0 .............................. .............................. $0 TOTAL ESTIMATED FINAL BURDENS INCLUDING AMENDMENTS Responses Current aggregate annual burden .......................................... Aggregate final additional annual burden estimates .............. Revised aggregate final burden estimates ............................. Internal annual burden hours 5,116 + 38 = 5,154 20,464 + 228 = 20,692 Internal time costs ................................................ ................................................ ................................................ $4,072,336 + $45,372 = $4,117,708 Annual external cost burden $0 + $0 = $0 Notes: 1 The estimate includes the initial burden estimates annualized over a three-year period (3 hours/3 = 1 hour), plus 2 hours of ongoing annual burden hours. 2 The Commission’s estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. 3 This estimate is based on the number of insurance companies issuing non-variable annuities. See supra footnote 725. The proposal reflected an estimate of the number of RILAs, as opposed to the number of insurance companies issuing RILAs. We have updated this approach to better reflect the way that the burden for Form 24F–2 has historically been calculated. ddrumheller on DSK120RN23PROD with RULES2 D. Investment Company Interactive Data The Investment Company Interactive Data collection of information references current requirements for certain registered investment companies and BDCs to submit to the Commission in Inline XBRL certain information provided in response to specified form and rule requirements included in their registration statements and Exchange Act reports. We are amending Form N– 4, as well as rule 405 of Regulation S– T, that will require certain new structured data reporting requirements for insurance companies that register offerings of non-variable annuities.864 The amendments will require insurance companies that issue non-variable annuities to tag specified information in registration statements filed on Form N– 4 or post-effective amendments thereto, as well as in forms of prospectuses filed pursuant to rule 497(c) or 497(e) under the Securities Act that include information that varies from the registration statement using Inline XBRL.865 The purpose of the information collection is to make information regarding non-variable annuities and variable annuities easier for investors to analyze and to help automate regulatory filings and business information processing, and to improve consistency across all types of 863 This estimate is based on a review of nonvariable annuity registration statements filed with the Commission as of May 2024. See supra footnote 725. We do not believe that the amendments to Form 24F–2 will affect the estimated burdens associated with current Form 24F–2 filers. We have not amended the currently approved burdens for current Form 24F–2 filers with more recent data for the purposes of this PRA estimate. 864 The Investment Company Interactive Data collection of information do not impose any separate burden aside from that described in our discussion of the burden estimates for this collection of information. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00103 Fmt 4701 Sfmt 4700 investment products offered on Form N–4 with respect to the accessibility of information they provide to the market. Insurance companies that use Form N–4 to register variable annuities are currently required to tag certain registration statement disclosure items using Inline XBRL.866 For the insurance companies that will now be registering non-variable annuities, including registered MVA annuities, on Form N– 4, our amended data tagging requirements would represent new burdens. Nevertheless, non-variable annuity issuers generally do have prior experience submitting filings to the Commission in Inline XBRL. The vast majority of insurance companies that 865 See supra Section II.C.10. General Instruction C.3(h) of current Form N–4. As discussed above, some of the amended items will also require certain variable annuity issuers to provide a few additional disclosures, which though relatively minor, will also have to be tagged. 866 See E:\FR\FM\24JYR2.SGM 24JYR2 60080 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations currently register non-variable annuities on Forms S–1 and S–3 also separately file Form N–4 to register variable annuities and variable life insurance products or currently tag their nonvariable annuity registration statements and are thus familiar with the current Form N–4 tagging requirements.867 In addition, insurance companies that register non-variable annuities on Forms S–1 and S–3 that file GAAP financial statements must tag them using Inline XBRL.868 Given this prior experience, we do not expect the tagging requirements to be as burdensome to many insurance companies that issue non-variable annuities as it will be for issuers that will be going through the Inline XBRL tagging and submission process for the first time. The Commission did not receive public comments regarding the PRA estimates associated with the Investment Company Interactive Data requirements in the Proposing Release. Commenters who referenced this aspect of our proposal did not mention the hourly or monetary cost burden of the interactive data requirement.869 As discussed above, in a change from the proposal, we are requiring insurance companies that offer registered MVA annuities to use amended Form N–4, which includes additional interactive data requirements. However, as mentioned above, insurance companies that issue registered MVA annuities currently do so with Form S–1 or S–3, which also have structuring requirements, thereby reducing the likelihood that these insurance companies will lack familiarity with structured data requirements. We are updating our estimated number of insurance companies and related filings that likely would be impacted by the amended interactive data requirements on Form N–4 to accommodate the requirement that registered MVA annuities use the form. The Commission recognizes that certain RILAs and registered MVA annuities will be subject to different interactive data requirements given that they will be subject to different aspects of Form N– 4 and its accompanying disclosure requirements. Although certain structured disclosure requirements in Form N–4 might not be applicable to some contracts, depending on the type of annuity being registered, the information collection estimates are average estimates reflecting that different filers could in practice incur different burdens relating to the Form N–4 disclosure requirements that are applicable to particular annuities. In our most recent Paperwork Reduction Act submission for the Investment Company Interactive Data collection of information, we estimated a total annual hour burden of 327,571 hours, and a total annual external cost burden of $16,791,000.870 Compliance with the interactive data requirements is mandatory, and the responses will not be confidential. The table below summarizes our PRA estimates for the burdens associated with the tagging requirements that would apply to non-variable annuities that file with the Commission on Form N–4. TABLE 16—INVESTMENT COMPANY INTERACTIVE DATA—PRA ESTIMATES Internal initial burden hours Internal annual burden hours Annual external cost burden Internal time costs Wage rate Proposed Burdens Proposed disclosures for current N–4 filers ........................... 1 1 Number of current N–4 filers .................................................. Total proposed new burden estimates for current N–4 filers Proposed Form N–4 disclosures for RILAs ............................ ........................ ........................ 9 × 400 400 4 Number of RILAs .................................................................... Total proposed new burden estimates for RILAs ................... Total proposed new aggregate annual burden ...................... ........................ ........................ ........................ × 90 360 760 $406 (blended rate for compliance attorney and senior programmer). ................................................ ................................................ $406 (blended rate for compliance attorney and senior programmer). ................................................ ................................................ ................................................ $406 $50 × 400 $162,400 $1,624 × 400 $20,000 $700 × 90 $146,160 $308,560 × 90 $63,000 $63,000 Total Proposed Estimated Burdens Including Amendments Responses Current aggregate annual burden estimates .......................... Proposed additional annual burdens ...................................... Revised aggregate annual burden estimates ......................... Internal hour estimate 14,702 + 90 14,792 I I 323,724 + 760 324,484 Internal hour cost estimate I ................................................ ................................................ ................................................ I $27,066,240 + $308,560 $27,374,800 External cost estimate I $16,041,450 + $63,000 $16,124,450 Final Estimated Burdens ddrumheller on DSK120RN23PROD with RULES2 Internal initial burden hours Internal annual burden hours 1 Final disclosures for current N–4 filers 3 ................................. 1 41 Number of current N–4 filers 6 ................................................ Total final new burden estimates for current N–4 filers ......... ........................ ........................ × 416 416 867 Based on analysis of Forms S–1, S–3, and POS AM filed by insurance companies that issue nonvariable annuities, 32 of the 38 insurance companies that issue RILAs and registered MVA annuities also offer variable products registered on Forms N–3, N–4, or N–6, all of which are currently VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Wage rate 2 $406 (blended rate for compliance attorney and senior programmer). ................................................ ................................................ structured, or otherwise have experience tagging registration statements. 868 See Inline XBRL Filing of Tagged Data, Securities Act Release No. 10514 (June 28, 2018) [83 FR 40846 (Aug. 16, 2018)]. 869 See supra footnote 496 and accompanying text. PO 00000 Frm 00104 Fmt 4701 Sfmt 4700 Internal time costs Annual external cost burden $406 5 $50 × 416 $168,896 × 416 $20,800 870 This estimate is based on the last time the PRA renewal for the Investment Company Interactive Data information collection was approved, on January 23, 2024. See ICR Reference No. 202212– 3235–007, available at https://www.reginfo.gov/ public/do/PRAViewICR?ref_nbr=202212-3235-007. E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60081 TABLE 16—INVESTMENT COMPANY INTERACTIVE DATA—PRA ESTIMATES—Continued Internal initial burden hours Final Form N–4 disclosures for non-variable annuity issuers 7. 9 Number of non-variable annuity issuers 10 ............................. Total final new burden estimates for non-variable annuity issuers. Total final new aggregate annual burden ............................... ........................ ........................ Internal annual burden hours 84 Annual external cost burden $1,624 9 $700 38 152 $406 (blended rate for compliance attorney and senior programmer). ................................................ ................................................ × 38 $61,712 × 38 $26,600 12 568 ................................................ 13 $230,608 14 $47,400 hours 11 × ........................ Internal time costs Wage rate Total Final Estimated Burdens Including Amendments Responses Current aggregate annual burden estimates .......................... Final additional annual burdens ............................................. Revised final aggregate annual burden estimates ................. Internal hour estimate 15,498 + 38 15,536 327,571 + 568 328,139 Internal hour cost estimate ................................................ ................................................ ................................................ $28,628,918 + $230,608 $28,859,526 External cost estimate $16,791,000 + $47,400 $16,838,400 ddrumheller on DSK120RN23PROD with RULES2 Notes: 1 Includes initial burden estimates annualized over a 3-year period. 2 The PRA estimates assume that the types of professionals that will be involved in complying with the new interactive data requirements. The Commission’s estimates of the relevant wage rates are based on the SIFMA Wage Report. The $406 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($425) and a senior programmer ($386). $406 is based on the following calculation: ($425 + $386)/2 = $406. This estimate represents the average burden for a filer on Form N–4 that is currently subject to interactive data requirements. 3 Estimated incremental burden for a variable annuity Form N–4 filer that is subject to the form’s current interactive data requirements. 4 Includes initial burden estimates annualized over a three-year period, plus 0.67 hour of ongoing annual burden hours. The estimate of 1 hour is based on the following calculation: ((1 initial hour/3) + 0.67 hour of additional ongoing burden hours) = 1 hour. 5 Estimated incremental external cost for Form N–4 variable annuity registrants that already submit certain information using Inline XBRL. 6 Based on a review of Form N–CEN reports through December 31, 2023, we estimate that 416 variable annuity registrants file on Form N–4. 7 Estimated average burden for a RILA that files on Form N–4 that is currently subject to interactive data requirements on other Commission forms. 8 Includes initial burden estimates annualized over a three-year period, plus 1 hour of ongoing annual burdens. The estimate of 4 hours is based on the following calculation: ((9 initial hours/3 = 3 hours) + 1 hour of additional ongoing burden hours) = 4 hours. 9 We estimate an incremental external cost for RILAs that would be newly filing on Form N–4 of $700 to reflect one-time compliance and initial set-up costs. This estimate is based on past estimates of costs—including costs of outside legal services and other service providers—relating to issuers that are newly required to submit certain disclosures in Inline XBRL format. Because RILAs are currently subject to Inline XBRL tagging requirements on other forms, we do not estimate any burdens related to one-time costs associated with becoming familiar with structured data requirements (e.g., the acquisition of new software or the services of consultants). 10 This estimate is based on the number of insurance companies issuing non-variable annuities. See supra footnote 725. The proposal reflected an estimate of the number of RILAs, as opposed to the number of insurance companies issuing RILAs. We have updated this approach to better reflect the way that the burden for Investment Company Interactive Data has historically been calculated. 11 In connection with variable and non-variable annuity products, insurance companies only need to tag filings for annuities that are offered to new investors. See VASP Adopting Release at Section II.D. As a result, many non-variable annuity issuers do not—and will not—need to tag their disclosures because their annuities are no longer offered to new investors. Here, because we are not distinguishing between filings associated with annuities offered to new investors and those that are not, we likely are over-estimating the burden. 12 568 hours = 416 hours + 152 hours. 13 $230,608 internal time cost = $168,896 + $61,712. 14 $47,400 annual external cost = $20,800 + $26,600. VI. Regulatory Flexibility Act Certification The Commission certified, pursuant to section 605(b) of the Regulatory Flexibility Act of 1980 (‘‘Regulatory Flexibility Act’’) 871 that, if adopted, the proposed amendments to Forms N–4 and 24F–2, rules 313 and 405 of Regulation S–T, and rules 156, 172, 405, 415, 424, 456, 457, 485, 497, and 498A under the Securities Act, would not, if adopted, have a significant economic impact on a substantial number of small entities. The Commission included this certification in Section V of the Proposing Release. Commenters did not respond to the Commission’s requests for comment regarding the Commission’s certification, and we continue to believe that there will not be a significant economic impact of the amendments on a substantial number of small entities. As discussed in the Proposing Release, RILA issuers are not investment companies and based on a review of EDGAR filings of existing 871 5 U.S.C. 605(b). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 RILA issuers, we do not expect any RILA issuers will be treated as small entities.872 Similarly, while the analysis is different for existing N–4 filers (i.e., variable annuity issuers) because the insurance company separate accounts registering variable annuities are deemed to be investment companies, we expect few, if any, separate account to be treated as small entities.873 872 For purposes of the Securities Act and the Regulatory Flexibility Act, generally, an issuer, other than an investment company, will be considered a small entity if it has net assets of $5 million or less as of the end of its most recent fiscal year, and the issuer’s offering does not exceed $5 million. 5 U.S.C. 601 (defining ‘‘small entity’’ to mean ‘‘small business,’’ ‘‘small organization,’’ or ‘‘small governmental jurisdiction’’); 17 CFR 230.157 (defining ‘‘small business’’ or ‘‘small organization’’ under the Securities Act for purposes of the Regulatory Flexibility Act). 873 Generally, for purposes of the Investment Company Act and the Regulatory Flexibility Act, an investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year. 17 CFR 270.0–10(a). Because State law generally treats separate account assets as the property of the sponsoring insurance company, rule PO 00000 Frm 00105 Fmt 4701 Sfmt 4700 While the final amendments include some modifications to the Commission’s proposal, we do not believe that these modifications alter the basis upon which the certification in the Proposing Release was made. With regard to the specific changes from the proposal regarding registered MVA annuities, we do not believe these modifications alter the basis upon which the certification in the Proposing Release was made either, as we do not expect any insurance companies that issue registered MVA annuities to be treated as small entities. Similarly, because we do not expect any insurance companies that issue registered MVA annuities or RILAs to be treated as small entities, and the amendments to rule 433 will affect only a subset of those insurance companies, the amendments to rule 433 do not change the basis upon which the certification in the Proposing Release was made. Accordingly, we certify that 0–10 aggregates each separate account’s assets with the assets of the sponsoring insurance company, together with assets held in other sponsored separate accounts. 17 CFR 270.0–10(b). E:\FR\FM\24JYR2.SGM 24JYR2 60082 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations § 230.156 Investment company and registered non-variable annuity sales literature. the final amendments will not have a significant impact on a substantial number of small entities. Statutory Authority The amendments contained in this Release are being adopted under the authority set forth in the Securities Act, particularly sections 6, 7, 8, 10, 19, and 28 thereof [15 U.S.C. 77a et seq.]; the Exchange Act, particularly sections 3, 4, 10, 12, 13, 14, 15, 17, 23, 35A, and 36 thereof [15 U.S.C. 78a et seq.]; the Investment Company Act, particularly, Sections 8, 30, and 38 thereof, and the RILA Act, particularly section 101 thereof [Pub. L. 117–328, div. AA, title I, 136 Stat. 4459 (2022)]. List of Subjects 17 CFR Part 230 Advertising, Confidential business information, Investment companies, Reporting and recordkeeping requirements, Securities. 17 CFR Part 232 Administrative practice and procedure, Reporting and recordkeeping requirements, Securities. 17 CFR Part 239 Reporting and recordkeeping requirements, Securities. 17 CFR Part 274 Investment companies, Reporting and recordkeeping requirements, Securities. Text of Rule and Form Amendments For reasons set forth in the preamble, we are amending title 17, chapter II of the Code of Federal Regulations as follows: PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 1. The authority citation for part 230 continues to read in part as follows: ■ ddrumheller on DSK120RN23PROD with RULES2 Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 28, 80a–29, 80a–30, and 80a–37, and Pub. L. 112–106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless otherwise noted. * * * * * Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s). Sec. 230.457 also issued under secs. 6 and 7, 15 U.S.C. 77f and 77g. * ■ * * * * 2. Revise § 230.156 to read as follows: VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 (a) Under the Federal securities laws, including section 17(a) of the Securities Act of 1933 (15 U.S.C. 77q(a)) and section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78j(b)) and § 240.10b–5 of this chapter (Rule 10b–5) thereunder, it is unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, to use sales literature which is materially misleading in connection with the offer or sale of registered non-variable annuity securities or securities issued by an investment company. Under these provisions, sales literature is materially misleading if it: (1) Contains an untrue statement of a material fact; or (2) Omits to state a material fact necessary in order to make a statement made, in the light of the circumstances of its use, not misleading. (b) Whether or not a particular description, representation, illustration, or other statement involving a material fact is misleading depends on evaluation of the context in which it is made. In considering whether a particular statement involving a material fact is or might be misleading, weight should be given to all pertinent factors, including, but not limited to, those listed below. (1) A statement could be misleading because of: (i) Other statements being made in connection with the offer of sale or sale of the securities in question; (ii) The absence of explanations, qualifications, limitations or other statements necessary or appropriate to make such statement not misleading; or (iii) General economic or financial conditions or circumstances. (2) Representations about past or future investment performance could be misleading because of statements or omissions made involving a material fact, including situations where: (i) Portrayals of past income, gain, or growth of assets convey an impression of the net investment results achieved by an actual or hypothetical investment which would not be justified under the circumstances, including portrayals that omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading; and (ii) Representations, whether express or implied, about future investment performance, including: (A) Representations, as to security of capital, possible future gains or income, PO 00000 Frm 00106 Fmt 4701 Sfmt 4700 or expenses associated with an investment; (B) Representations implying that future gains or income may be inferred from or predicted based on past investment performance; or (C) Portrayals of past performance, made in a manner which would imply that gains or income realized in the past would be repeated in the future. (3) A statement involving a material fact about the characteristics or attributes of an investment company or registered non-variable annuity could be misleading because of: (i) Statements about possible benefits connected with or resulting from services to be provided or methods of operation which do not give equal prominence to discussion of any risks or limitations associated therewith; (ii) Exaggerated or unsubstantiated claims about management skill or techniques, characteristics of the investment company or registered nonvariable annuity or an investment in such company or securities, services, security of investment or funds, effects of government supervision, or other attributes; and (iii) Unwarranted or incompletely explained comparisons to other investment vehicles or to indexes. (4) Representations about the fees or expenses associated with an investment in the fund or registered non-variable annuity could be misleading because of statements or omissions made involving a material fact, including situations where portrayals of the fees and expenses associated with an investment in the fund or registered non-variable annuity omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading. (c) For purposes of this section, the term sales literature shall be deemed to include any communication (whether in writing, by radio, or by television) used by any person to offer to sell or induce the sale of securities of any investment company or registered non-variable annuity. Communications between issuers, underwriters and dealers are included in this definition of sales literature if such communications, or the information contained therein, can be reasonably expected to be communicated to prospective investors in the offer or sale of securities or are designed to be employed in either written or oral form in the offer or sale of securities. (d) Nothing in this section may be construed to prevent a business development company or a registered closed-end investment company from E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations qualifying for an exemption under § 230.168 or § 230.169. ■ 3. Amend § 230.172 by revising paragraph (d) to read as follows: § 230.172 Delivery of prospectuses. * * * * * (d) Exclusions. This section shall not apply to any: (1) Offering of any investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.), other than a registered closed-end investment company; (2) A business combination transaction as defined in § 230.165(f)(1); (3) Offering registered on Form S–8 (§ 239.16b of this chapter); or (4) Offering of any registered nonvariable annuity securities. ■ 4. Amend § 230.405 by adding in alphabetical order definitions for ‘‘Form available solely to investment companies registered under the Investment Company Act of 1940,’’ ‘‘Registered index-linked annuity,’’ ‘‘Registered market value adjustment annuity,’’ and ‘‘Registered non-variable annuity’’ to read as follows: § 230.405 Definitions of terms. ddrumheller on DSK120RN23PROD with RULES2 * * * * * Form available solely to investment companies registered under the Investment Company Act of 1940. A form available solely to investment companies registered under the Investment Company Act of 1940 includes the form used to register the offering of securities of a registered nonvariable annuity for purposes of the Securities Act of 1933. * * * * * Registered index-linked annuity. The term registered index-linked annuity means an annuity or an option available under an annuity: (1) That is deemed a security; (2) That is offered or sold in a registered offering; (3) That is issued by an insurance company that is the subject to the supervision of either the insurance commissioner or bank commissioner of any State or any agency or officer performing like functions as such commissioner; (4) That is not issued by an investment company; and (5) Whose contract value, either during the accumulation period or after annuitization or both, will earn positive or negative interest based, in part, on the performance of any index, rate, or benchmark. * * * * * Registered market value adjustment annuity. The term registered market VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 value adjustment annuity means an annuity or an option available under an annuity, that is not a registered indexlinked annuity, and: (1) That is deemed a security; (2) That is offered or sold in a registered offering; (3) That is issued by an insurance company that is subject to the supervision of either the insurance commissioner or bank commissioner of any State or any agency or officer performing like functions as such commissioner; (4) That is not issued by an investment company; and (5) Whose contract value may reflect a positive or negative adjustment (based on calculations using a predetermined formula, a change in interest rates, or some other factor or benchmark) if amounts are withdrawn before the end of a specified period. * * * * * Registered non-variable annuity. The term registered non-variable annuity means any registered index-linked annuity or registered market value adjustment annuity. * * * * * ■ 5. Amend § 230.415 by revising paragraph (b) to read as follows: § 230.415 Delayed or continuous offering and sale of securities. * * * * * (b) This section shall not apply to any registration statement pertaining to a registered non-variable annuity, securities issued by a face-amount certificate company, or redeemable securities issued by an open-end management company or unit investment trust under the Investment Company Act of 1940 or any registration statement filed by any foreign government or political subdivision thereof. ■ 6. Amend § 230.424 by revising paragraph (f) to read as follows: § 230.424 Filing of prospectuses, number of copies. * * * * * (f) This section shall not apply with respect to prospectuses of an investment company registered under the Investment Company Act of 1940 (other than a registered closed-end investment company) or prospectuses that pertain to a registered non-variable annuity. References to ‘‘form of prospectus’’ in paragraphs (a), (b), and (c) of this section shall be deemed also to refer to the form of Statement of Additional Information. * * * * * ■ 7. Amend § 230.433 by revising paragraph (b)(1) as follows: PO 00000 Frm 00107 Fmt 4701 Sfmt 4700 60083 § 230.433 Conditions to permissible postfiling free writing prospectuses. * * * * * (b) * * * (1) Eligibility and prospectus conditions for seasoned issuers, wellknown seasoned issuers, and offerings of registered non-variable annuity securities. Subject to the provisions of Rule 164(e), (f), and (g), the issuer or any other offering participant may use a free writing prospectus in the following offerings after a registration statement relating to the offering has been filed that includes a prospectus that, other than by reason of this section or Rule 431, satisfies the requirements of section 10 of the Act: (i) Offerings of securities registered on Form S–3 (§ 239.13 of this chapter) pursuant to General Instruction I.B.1, I.B.2, I.C., or I.D. thereof or on Form SF– 3 (§ 239.45 of this chapter) or on Form N–2 (§§ 239.14 and 274.11a–1 of this chapter) pursuant to General Instruction A.2 with respect to the same transactions; (ii) Offerings of securities registered on Form F–3 (§ 239.33 of this chapter) pursuant to General Instruction I.A.5, I.B.1, I.B.2, or I.C. thereof; (iii) Any other offering not excluded from reliance on this section and Rule 164 of securities of a well-known seasoned issuer; (iv) Any other offering not excluded from reliance on this section and Rule 164 of securities of an issuer eligible to use Form S–3 or Form F–3 for primary offerings pursuant to General Instruction I.B.1 of such Forms or an issuer eligible to use General Instruction A.2 of Form N–2 to register a primary offering described in General Instruction I.B.1 of Form S–3; and (v) Offerings of registered nonvariable annuity securities registered on Form N–4 (§ 239.17b of this chapter) where the issuer would otherwise be eligible to use Form S–3 (§ 239.13 of this chapter) pursuant to General Instruction I.B.1, I.B.2, I.C, or I.D. * * * * * ■ 8. Amend § 230.456 by adding paragraph (e) to read as follows: § 230.456 Date of filing; timing of fee payment. * * * * * (e)(1) Notwithstanding paragraph (a) of this section, where a registration statement relates to an offering of registered non-variable annuity securities, an issuer shall be deemed to register an offering of an indeterminate amount of such securities and shall, not later than 90 days after the end of any fiscal year during which it has publicly offered such securities, pay a E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60084 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations registration fee to the Commission calculated in accordance with § 230.457(u) (Rule 457(u)) and file Form 24F–2 (referenced in 17 CFR 274.24) with the Commission. Instruction 1 to paragraph (e)(1): To determine the date on which the registration fee must be paid, the first day of the 90-day period is the first calendar day of the fiscal year following the fiscal year for which the registration fee is to be paid. If the last day of the 90-day period falls on a Saturday, Sunday, or Federal holiday, the registration fee is due on the first business day thereafter. (2) When registering an offering of an indeterminate amount of registered nonvariable annuity securities pursuant to paragraph (e)(1) of this section, the securities sold will be considered registered, for purposes of section 6(a) of the Act, if the registration fee has been paid and the issuer has filed a Form 24F–2 filing pursuant to paragraph (e)(1) of this section not later than the end of the 90-day period. (3) A registration statement filed in accordance with the registration fee payment provisions of paragraph (e)(1) of this section will be considered filed as to the securities identified in the registration statement for purposes of this section and section 5 of the Act when it is received by the Commission, if it complies with all other requirements under the Act, including this part. (4) For purposes of this section, if an issuer ceases operations, the date the issuer ceases operations will be deemed to be the end of its fiscal year. In the case of a liquidation, merger, or sale of all or substantially all of the assets (‘‘merger’’) of the issuer, the issuer will be deemed to have ceased operations for the purposes of this section on the date the merger is consummated; provided, however, that in the case of a merger of an issuer or a series of an issuer (‘‘Predecessor’’) with another issuer or a series of an issuer (‘‘Successor’’), the Predecessor will not be deemed to have ceased operations and the Successor will assume the obligations, fees, and redemption credits of the Predecessor incurred pursuant to this section if the Successor: (i) Had no assets or liabilities, other than nominal assets or liabilities, and no operating history immediately prior to the merger; (ii) Acquired substantially all of the assets and assumed substantially all of the liabilities and obligations of the Predecessor; and (iii) The merger is not designed to result in the Predecessor merging with, or substantially all of its assets being VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 acquired by, an issuer (or a series of an issuer) that would not meet the conditions of paragraph (e)(4)(i) of this section. (5) An issuer paying the fee required by paragraph (e)(1) of this section or any portion thereof more than 90 days after the end of the fiscal year of the issuer shall pay to the Commission interest on unpaid amounts, calculated based on the interest rate in effect at the time of the interest payment by reference to the ‘‘current value of funds rate’’ on the Treasury Department’s Bureau of Fiscal Service internet site at https:// fiscal.treasury.gov/, or by calling (202) 874–6995, and using the following formula: I = (X) (Y) (Z/365), where: I = Amount of interest due; X = Amount of registration fee due; Y = Applicable interest rate, expressed as a fraction; Z = Number of days by which the registration fee payment is late. The payment of interest pursuant to this paragraph (e)(5) shall not preclude the Commission from bringing an action to enforce the requirements of this paragraph (e). (6) An immaterial or unintentional failure to comply with a requirement of this paragraph (e) will not result in a violation of section 6(a) of the Act (15 U.S.C. 77f(a)), so long as: (i) A good faith and reasonable effort was made to comply with the requirement; and (ii) In the case of a late payment of a registration fee, the issuer pays the registration fee and any interest due thereon as soon as practicable after discovery of the failure to pay the registration fee. ■ 9. Amend § 230.457 by revising paragraph (u) to read as follows: § 230.457 Computation of fee. * * * * * (u) Where an issuer elects or is required to register an offering of an indeterminate amount of exchangetraded vehicle securities in accordance with § 230.456(d) (Rule 456(d)) or registered non-variable annuity securities in accordance with § 230.456(e) (Rule 456(e)), the registration fee is to be calculated in the following manner: (1) Determine the aggregate sale price of such securities sold during the fiscal year. (2) Determine the sum of: (i) The aggregate redemption or repurchase price of such securities redeemed or repurchased during the fiscal year; and (ii) The aggregate redemption or repurchase price of such securities redeemed or repurchased during a prior fiscal year that were not used previously PO 00000 Frm 00108 Fmt 4701 Sfmt 4700 to reduce registration fees payable to the Commission, if the prior fiscal year ended no earlier than August 1, 2021 in the case of exchange traded vehicle securities, or September 23, 2024 in the case of registered non-variable annuity securities. (3) Subtract the amount in paragraph (u)(2) of this section from the amount in paragraph (u)(1) of this section. If the resulting amount is positive, the amount is the net sales amount. If the resulting amount is negative, it is the amount of redemption credits available for use in future years to offset sales. (4) The registration fee is calculated by multiplying the net sales amount by the fee payment rate in effect on the date of the fee payment. If the issuer determines that it had net redemptions or repurchases for the fiscal year, no registration fee is due. ■ 10. Amend § 230.485 by revising the section heading and paragraphs (a)(1) and (b) introductory text to read as follows: § 230.485 Effective date of post-effective amendments filed by certain registered investment companies or issuers offering registered non-variable annuities. (a) * * * (1) Except as otherwise provided in this section, a post-effective amendment to a registration statement filed by a registered open-end management investment company, unit investment trust or, separate account as defined in section 2(a)(37) of the Investment Company Act of 1940 [15 U.S.C. 80a– 2(a)(37)] or to register an offering of a registered non-variable annuity securities shall become effective on the sixtieth day after the filing thereof, or a later date designated by the registrant on the facing sheet of the amendment, which date shall be no later than eighty days after the date on which the amendment is filed. * * * * * (b) Immediate effectiveness. Except as otherwise provided in this section, a post-effective amendment to a registration statement filed by a registered open-end management investment company, unit investment trust or separate account as defined in section 2(a)(37) of the Investment Company Act of 1940 [15 U.S.C. 80a– 2(a)(37)] or to register an offering of a registered non-variable annuity securities shall become effective on the date upon which it is filed with the Commission, or a later date designated by the registrant on the facing sheet of the amendment, which date shall be not later than thirty days after the date on which the amendment is filed, except that a post-effective amendment E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations including a designation of a new effective date pursuant to paragraph (b)(1)(iii) of this section shall become effective on the new effective date designated therein, Provided, that the following conditions are met: * * * * * ■ 11. Amend § 230.497 by revising the section heading and paragraphs (c) and (e) to read as follows: § 230.497 Filing of investment company or registered non-variable annuity prospectuses—number of copies ddrumheller on DSK120RN23PROD with RULES2 * * * * * (c) For investment companies filing on §§ 239.15A and 274.11A of this chapter (Form N–1A), §§ 239.17a and 274.11b of this chapter (Form N–3), §§ 239.17b and 274.11c of this chapter (Form N–4), or §§ 239.17c and 274.11d of this chapter (Form N–6), or an offering of registered non-variable annuities being filed on Form N–4, within five days after the effective date of a registration statement or the commencement of a public offering after the effective date of a registration statement, whichever occurs later, 10 copies of each form of prospectus and form of Statement of Additional Information used after the effective date in connection with such offering shall be filed with the Commission in the exact form in which it was used. Investment companies filing on Forms N–1A, N–3, N–4, or N–6 and issuers of registered non-variable annuities filing on Form N–4 must, if applicable pursuant to General Instruction C.3.(g) of Form N–1A, General Instruction C.3.(h) of Form N–3, General Instruction C.3.(h) of Form N–4, or General Instruction C.3.(h) of Form N–6, submit an Interactive Data File (as defined in § 232.11 of this chapter). * * * * * (e) For investment companies filing on §§ 239.15A and 274.11A of this chapter (Form N–1A), §§ 239.17a and 274.11b of this chapter (Form N–3), §§ 239.17b and 274.11c of this chapter (Form N–4), or §§ 239.17c and 274.11d of this chapter (Form N–6), or an offering of registered non-variable annuities being filed on Form N–4, after the effective date of a registration statement, no prospectus that purports to comply with Section 10 of the Act (15 U.S.C. 77j) or Statement of Additional Information that varies from any form of prospectus or form of Statement of Additional Information filed pursuant to paragraph (c) of this section shall be used until five copies thereof have been filed with, or mailed for filing to the Commission. Investment companies filing on Forms N–1A, N–3, N–4, or N– VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 6 and issuers of registered non-variable annuities filing on Form N–4 must, if applicable pursuant to General Instruction C.3.(g) of Form N–1A, General Instruction C.3.(h) of Form N– 3, General Instruction C.3.(h) of Form N–4, or General Instruction C.3.(h) of Form N–6, submit an Interactive Data File (as defined in § 232.11 of this chapter). * * * * * ■ 12. Revise § 230.498A to read as follows: § 230.498A Summary prospectuses for separate accounts offering variable annuity and variable life insurance contracts and for offering registered non-variable annuity contracts. (a) Definitions. For purposes of this section: Class means a class of a Contract that varies principally with respect to distribution-related fees and expenses. Contract means a Variable Annuity Contract, a Variable Life Insurance Contract, a RILA Contract, or a Registered Market Value Adjustment Annuity Contract as defined in this section, respectively, as well as any Contract that offers a combination of Index-Linked Options, Variable Options, and/or Fixed Options (including Fixed Options subject to a Contract Adjustment). Contract Adjustment means a positive or negative adjustment made to the value of the Contract by the Insurance Company if amounts are withdrawn from an Investment Option or from the Contract before the end of a specified period. This adjustment may be based on calculations using a predetermined formula, or a change in interest rates, or some other factor or benchmark. Fixed Option means an Investment Option under a Contract pursuant to which the value of the Contract (for a Form N–3 or Form N–4 Registrant, either during an accumulation period or after annuitization, or both) will earn interest at a rate specified by the Company, subject to a minimum guaranteed rate under the Contract. The term Fixed Option includes Fixed Options that are subject to a Contract Adjustment. Index-Linked Option means an Investment Option offered under a Contract, pursuant to which the value of the Contract, either during an accumulation period or after annuitization, or both, will earn positive or negative interest based, in part, on the performance of a specified index, rate, or benchmark (such as a registered exchange-traded fund that tracks an index). PO 00000 Frm 00109 Fmt 4701 Sfmt 4700 60085 Initial Summary Prospectus means the initial summary prospectus described in paragraph (b) of this section. Insurance Company means the insurance company issuing the Contract, which company is subject to State supervision. The Insurance Company may also be the depositor or sponsor of any Registered Separate Account in which the Contract participates. Investment Option means a Fixed Option, an Index-Linked Option, and/or a Variable Option, as applicable. Portfolio Company means any company in which a Registrant on Form N–4 or Form N–6 invests and which may be selected as a Variable Option by the investor. Portfolio Company Prospectus means the Statutory Prospectus of a Portfolio Company and a summary prospectus of a Portfolio Company permitted by § 230.498. Registered Market Value Adjustment Annuity Contract means a registered market value adjustment annuity contract, any portion thereof, or any unit of interest or participation therein, issued by an Insurance Company. Registered Separate Account means a separate account (as defined in section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) that has an effective registration statement on §§ 239.17a and 274.11b of this chapter (Form N–3), §§ 239.17b and 274.11c of this chapter (Form N–4), or §§ 239.17c and 274.11d of this chapter (Form N–6) and that has a current prospectus that satisfies the requirements of section 10(a) of the Act (15 U.S.C. 77j(a)). Registrant means, as applicable, a Registered Separate Account or the Insurance Company. RILA Contract means any registered index-linked annuity contract, any portion thereof, or any unit of interest or participation therein, issued by an Insurance Company, that offers IndexLinked Options. Statement of Additional Information means the statement of additional information required by Part B of Form N–1A, Form N–3, Form N–4, or Form N–6. Statutory Prospectus means a prospectus that satisfies the requirements of section 10(a) of the Act (15 U.S.C. 77j(a)). Summary Prospectus refers to both the Initial Summary Prospectus and the Updating Summary Prospectus. Updating Summary Prospectus means the updating summary prospectus described in paragraph (c) of this section. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60086 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Variable Annuity Contract means any accumulation contract or annuity contract, any portion thereof, or any unit of interest or participation therein, issued by an Insurance Company, pursuant to which the value of the contract, either during an accumulation period or after annuitization, or both, varies according to the investment experience of a Portfolio Company. Variable Life Insurance Contract means a life insurance contract, issued by an Insurance Company, that provides for death benefits and cash values that may vary with the investment performance of any separate account. Variable Option means: (i) In the context of a Registrant on Form N–4 or Form N–6, an Investment Option under any Contract pursuant to which the value of the Contract (for a Form N–4 Registrant, either during an accumulation period or after annuitization, or both) varies according to the investment experience of a Portfolio Company; (ii) In the context of a Registrant on Form N–3, any portfolio of investments in which a Registrant on Form N–3 invests and which may be selected as an option by the investor. (b) General Requirements for Initial Summary Prospectus. An Initial Summary Prospectus that complies with this paragraph (b) will be deemed to be a prospectus that is authorized under section 10(b) of the Act (15 U.S.C. 77j(b)) and section 24(g) of the Investment Company Act (15 U.S.C. 80a–24(g)) for the purposes of section 5(b)(1) of the Act (15 U.S.C. 77e(b)(1)). (1) Scope of Initial Summary Prospectus. An Initial Summary Prospectus may only describe a single Contract (but may describe more than one Class of the Contract) currently offered by the Registrant under the Statutory Prospectus to which the Initial Summary Prospectus relates. (2) Cover Page or Beginning of Initial Summary Prospectus. Include on the front cover page or the beginning of the Initial Summary Prospectus: (i) The Insurance Company’s name; (ii) The name of the Contract, and the Class or Classes if any, to which the Initial Summary Prospectus relates; (iii) A statement identifying the document as a ‘‘Summary Prospectus for New Investors’’; (iv) The approximate date of the first use of the Initial Summary Prospectus; (v) The following legend, which for Initial Summary Prospectuses of Contracts registered on Form N–4 would be included along with the statements described in Item 1(a)(6) through (8) of Form N–4: VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 This Summary Prospectus summarizes key features of the [Contract]. Before you invest, you should also review the prospectus for the [Contract], which contains more information about the [Contract’s] features, benefits, and risks. You can find this document and other information about the [Contract] online at [lll]. You can also obtain this information at no cost by calling [lll] or by sending an email request to [lll]. You may cancel your [Contract] within 10 days of receiving it without paying fees or penalties [although we will apply the Contract Adjustment]. In some States, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total contract value. You should review the prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply. Additional information about certain investment products, including [type of Contract], has been prepared by the Securities and Exchange Commission’s staff and is available at Investor.gov. (A) A Registrant may modify the legend so long as the modified legend contains comparable information. (B) The legend must provide a website address, other than the address of the Commission’s electronic filing system; toll-free telephone number; and email address that investors can use to obtain the Statutory Prospectus and other materials, request other information about the Contract, and make investor inquiries. The website address must be specific enough to lead investors directly to the Statutory Prospectus and other materials that are required to be accessible under paragraph (h)(1) of this section, rather than to the home page or other section of the website on which the materials are posted. The website could be a central site with prominent links to each document. The legend may indicate, if applicable, that the Statutory Prospectus and other information are available from a financial intermediary (such as a broker-dealer) through which the Contract may be purchased or sold. If a Registered Separate Account that has an effective registration statement on Form N–3 relies on § 270.30e–3 of this chapter to transmit a report, the legend must also include the website address required by § 270.30e– 3(c)(1)(iii) of this chapter if different from the website address required by this paragraph (b)(2)(v)(B). (C) The paragraph of the legend regarding cancellation of the Contract may be omitted if not applicable. If this PO 00000 Frm 00110 Fmt 4701 Sfmt 4700 paragraph is included in the legend, the paragraph must be presented in a manner reasonably calculated to draw investor attention to that paragraph. (D) The legend may include instructions describing how a shareholder can elect to receive prospectuses or other documents and communications by electronic delivery. (vi) For a RILA Contract and any Contract that offers Index-Linked Options along with other Investment Options, the statement required by rule 481(b)(1) under the Securities Act [17 CFR 230.481(b)(1)]. (3) Back Cover Page or Last Page of Initial Summary Prospectus. (i) If a Registrant incorporates any information by reference into the Summary Prospectus, include a legend identifying the type of document (e.g., Statutory Prospectus) from which the information is incorporated and the date of the document. If a Registrant incorporates by reference a part of a document, the legend must clearly identify the part by page, paragraph, caption, or otherwise. If information is incorporated from a source other than the Statutory Prospectus, the legend must explain that the incorporated information may be obtained, free of charge, in the same manner as the Statutory Prospectus. (ii) Include on the bottom of the back cover page or the last page of the Initial Summary Prospectus the EDGAR contract identifier for the contract in type size smaller than that generally used in the prospectus (e.g., 8-point modern type). (4) Table of Contents. An Initial Summary Prospectus may include a table of contents meeting the requirements of § 230.481(c). (5) Contents of Initial Summary Prospectus. An Initial Summary Prospectus must contain the information required by this paragraph (b)(5) with respect to the applicable registration form, and only the information required by this paragraph (b)(5), in the order provided in paragraphs (b)(5)(i) through (ix) of this section, except that, for an Initial Summary Prospectus related to a Contract registered on Form N–4, provide the information provided in paragraph (b)(5)(ii) before the information provided by paragraph (b)(5)(i). (i) Under the heading ‘‘Important Information You Should Consider About the [Contract],’’ the information required by Item 2 of Form N–3, Item 3 of Form N–4, or Item 2 of Form N–6. (ii) Under the heading ‘‘Overview of the [Contract],’’ the information required by Item 3 of Form N–3, Item 2 of Form N–4, or Item 3 of Form N–6. E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (iii) Under the heading ‘‘Standard Death Benefits,’’ the information required by Item 10(a) of Form N–6. (iv) Under the heading ‘‘Benefits Available Under the [Contract],’’ the information required by Item 11(a) of Form N–3 or Item 10(a) of Form N–4. Under the heading ‘‘Other Benefits Available Under the [Contract],’’ the information required by Item 11(a) of Form N–6. (v) Under the heading ‘‘Buying the [Contract],’’ the information required by Item 12(a) of Form N–3, Item 11(a) of Form N–4, or Item 9(a) through (c) of Form N–6. (vi) Under the heading ‘‘How Your [Contract] Can Lapse,’’ the information required by Item 14(a) through (c) of Form N–6. (vii) Under the heading ‘‘Making Withdrawals: Accessing the Money in Your [Contract],’’ the information required by Item 13(a) of Form N–3, Item 12(a) of Form N–4, or Item 12(a) of Form N–6. (viii) Under the heading ‘‘Additional Information About Fees,’’ the information required by Item 4 of Form N–3, Item 4 of Form N–4, or Item 4 of Form N–6. (ix) Under the heading ‘‘Appendix: [Portfolio Companies][Investment Options] Available Under the Contract,’’ include as an appendix the information required by Item 18 of Form N–3, Item 17 of Form N–4, or Item 18 of Form N– 6. Alternatively, an Initial Summary Prospectus for a Contract registered on Form N–3 may include the information required by Item 19 of Form N–3, under the heading ‘‘Additional Information About Investment Options Available Under the Contract.’’ (c) General Requirements for Updating Summary Prospectus. An Updating Summary Prospectus that complies with this paragraph (c) will be deemed to be a prospectus that is authorized under section 10(b) of the Act (15 U.S.C. 77j(b)) and section 24(g) of the Investment Company Act (15 U.S.C. 80a–24(g)) for the purposes of section 5(b)(1) of the Act (15 U.S.C. 77e(b)(1)). (1) Use of Updating Summary Prospectus. A Registrant may only use an Updating Summary Prospectus if the Registrant uses an Initial Summary Prospectus for each currently offered Contract described under the Statutory Prospectus to which the Updating Summary Prospectus relates. (2) Scope of Updating Summary Prospectus. An Updating Summary Prospectus may describe one or more Contracts (and more than one Class) described under the Statutory VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Prospectus to which the Updating Summary Prospectus relates. (3) Cover Page or Beginning of Updating Summary Prospectus. Include on the front cover page or at the beginning of the Updating Summary Prospectus: (i) The Insurance Company’s name; (ii) The name of the Contract(s) and the Class or Classes, if any, to which the Updating Summary Prospectus relates; (iii) A statement identifying the document as an ‘‘Updating Summary Prospectus’’; (iv) The approximate date of the first use of the Updating Summary Prospectus; and (v) The following legend, which must meet the requirements of paragraphs (b)(2)(v)(A), (B), and (D) of this section, as applicable, and for Updating Summary Prospectuses of Contracts registered on Form N–4 would be included along with the statements described in Item 1(a)(6) through (8) of Form N–4: The prospectus for the [Contract] contains more information about the [Contract], including its features, benefits, and risks. You can find the current prospectus and other information about the [Contract] online at [lll]. You can also obtain this information at no cost by calling [lll] or by sending an email request to [lll]. Additional information about certain investment products, including [type of Contract], has been prepared by the Securities and Exchange Commission’s staff and is available at Investor.gov. (vi) For a RILA Contract and any Contract that offers Index-Linked Options along with other Investment Options, the statement required by rule 481(b)(1) under the Securities Act [17 CFR 230.481(b)(1)]. (4) Back Cover Page or Last Page of Updating Summary Prospectus. Include on the bottom of the back cover page or the last page of the Updating Summary Prospectus: (i) The legend required by paragraph (b)(3)(i) of this section; and (ii) The EDGAR contract identifier(s) for each contract in type size smaller than that generally used in the prospectus (e.g., 8-point modern type). (5) Table of Contents. An Updating Summary Prospectus may include a table of contents meeting the requirements of § 230.481(c). (6) Contents of Updating Summary Prospectus. An Updating Summary Prospectus must contain the information required by this paragraph (c)(6) with respect to the applicable registration form, in the order provided PO 00000 Frm 00111 Fmt 4701 Sfmt 4700 60087 in paragraphs (c)(6)(i) through (iv) of this section. (i) If any changes have been made with respect to the Contract after the date of the most recent Updating Summary Prospectus or Statutory Prospectus that was sent or given to investors with respect to the availability of Investment Options (for Registrants on Form N–3 and Form N–4) or Portfolio Companies (for Registrants on Form N–6) under the Contract (including, for RILA Contracts, a change to any of the features of the IndexLinked Options disclosed in the table that Item 17(b)(1) of Form N–4 requires, and for Contracts that offer Fixed Options, a change to any of the features of the Fixed Options disclosed in the table that Item 17(c) of Form N–4 requires), or the disclosure that the Registrant included in response to Item 2 (Key Information), Item 3 (Overview of the Contract), Item 4 (Fee Table), Item 11 (Benefits Available Under the Contract), Item 12 (Purchases and Contract Value), or Item 13 (Surrenders and Withdrawals) of Form N–3; Item 2 (Overview of the Contract), Item 3 (Key Information), Item 4 (Fee Table), Item 10 (Benefits Available Under the Contract), Item 11 (Purchases and Contract Value), or Item 12 (Surrenders and Withdrawals) of Form N–4; and Item 2 (Key Information), Item 3 (Overview of the Contract), Item 4 (Fee Table), Item 9 (Premiums), Item 10 (Standard Death Benefits), Item 11 (Other Benefits Available Under the Contract), Item 12 (Surrenders and Withdrawals), or Item 14 (Lapse and Reinstatement) of Form N–6, include the following as applicable, under the heading ‘‘Updated Information About Your [Contract]’’: (A) The following legend: ‘‘The information in this Updating Summary Prospectus is a summary of certain [Contract] features that have changed since the Updating Summary Prospectus dated [date]. This may not reflect all of the changes that have occurred since you entered into your [Contract].’’ (B) As applicable, provide a concise description of each change specified in paragraph (c)(6)(i) of this section. Provide enough detail to allow investors to understand the change and how it will affect investors, including indicating whether the change only applies to certain Contracts described in the Updating Summary Prospectus. (ii) In addition to the changes specified in paragraph (c)(6)(i) of this section, a Registrant may provide a concise description of any other information relevant to the Contract within the time period that paragraph (c)(6)(i) of this section specifies, under the heading ‘‘Updated Information E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 60088 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations About Your [Contract].’’ Any additional information included pursuant to this paragraph (c)(6)(ii) should not, by its nature, quantity, or manner of presentation, obscure or impede understanding of the information that paragraph (c)(6)(i) of this section requires. (iii) Under the heading ‘‘Important Information You Should Consider About the [Contract],’’ provide the information required by Item 2 of Form N–3, Item 3 of Form N–4, or Item 2 of Form N–6. (iv) Under the heading ‘‘Appendix: [Portfolio Companies][Investment Options] Available Under the [Contract],’’ include as an appendix the information required by Item 18 of Form N–3, Item 17 of Form N–4, or Item 18 of Form N–6. Alternatively, an Updating Summary Prospectus for a Contract registered on Form N–3 may include, under the heading ‘‘Additional Information About [Investment Options] Available Under the [Contract],’’ the information required by Item 19 of Form N–3. (d) Incorporation by Reference into a Summary Prospectus. (1) Except as provided by paragraph (d)(2) of this section, information may not be incorporated by reference into a Summary Prospectus. Information that is incorporated by reference into a Summary Prospectus in accordance with paragraph (d)(2) of this section need not be sent or given with the Summary Prospectus. (2) A Registrant may incorporate by reference into a Summary Prospectus any or all of the information contained in the Registrant’s Statutory Prospectus and Statement of Additional Information, and any information from the Registrant’s reports under § 270.30e– 1 of this chapter that the Registrant has incorporated by reference into the Registrant’s Statutory Prospectus, provided that: (i) The conditions of paragraphs (b)(2)(v)(B), (c)(3)(v), and (h) of this section are met; (ii) A Registrant may not incorporate by reference into a Summary Prospectus information that paragraphs (b) and (c) of this section require to be included in an Initial Summary Prospectus or Updating Summary Prospectus, respectively; and (iii) Information that is permitted to be incorporated by reference into the Summary Prospectus may be incorporated by reference into the Summary Prospectus only by reference to the specific document that contains the information, not by reference to another document that incorporates such information by reference. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 (3) For purposes of § 230.159, information is conveyed to a person not later than the time that a Summary Prospectus is received by the person if the information is incorporated by reference into the Summary Prospectus in accordance with paragraph (d)(2) of this section. (e) Terms used in the Summary Prospectus. Define special terms used in the Initial Summary Prospectus and Updating Summary Prospectus using any presentation style that clearly conveys their meaning to investors, such as the use of a glossary or list of definitions. (f) Transfer of the Contract Security. Any obligation under section 5(b)(2) of the Act (15 U.S.C. 77e(b)(2)) to have a Statutory Prospectus precede or accompany the carrying or delivery of a Contract security in an offering registered on Form N–3, Form N–4, or Form N–6 is satisfied if: (1) A Summary Prospectus is sent or given no later than the time of the carrying or delivery of the Contract security (an Initial Summary Prospectus in the case of a purchase of a new Contract, or an Updating Summary Prospectus in the case of additional purchase payments in an existing Contract); (2) The Summary Prospectus is not bound together with any materials except Portfolio Company Prospectuses for Portfolio Companies available as Variable Options under the Contract, provided that: (i) All of the Portfolio Companies are available as investment options to the person to whom such documents are sent or given; and (ii) A table of contents identifying each Portfolio Company Prospectus that is bound together, and the page number on which each document is found, is included at the beginning or immediately following a cover page of the bound materials. (3) The Summary Prospectus that is sent or given satisfies the requirements of paragraph (b) or (c) of this section, as applicable, at the time of the carrying or delivery of the Contract security; and (4) The conditions set forth in paragraph (h) of this section are satisfied. (g) Sending Communications. A communication relating to an offering registered on Form N–3, Form N–4, or Form N–6 sent or given after the effective date of a Contract’s registration statement (other than a prospectus permitted or required under section 10 of the Act) shall not be deemed a prospectus under section 2(a)(10) of the Act (15 U.S.C. 77b(a)(10)) if: PO 00000 Frm 00112 Fmt 4701 Sfmt 4700 (1) It is proved that prior to or at the same time with such communication a Summary Prospectus was sent or given to the person to whom the communication was made; (2) The Summary Prospectus is not bound together with any materials, except as permitted by paragraph (f)(2) of this section; (3) The Summary Prospectus that was sent or given satisfies the requirements of paragraph (b) or (c) of this section, as applicable, at the time of such communication; and (4) The conditions set forth in paragraph (h) of this section are satisfied. (h) Availability of the Statutory Prospectus and Certain Other Documents. (1) The current Initial Summary Prospectus, Updating Summary Prospectus, Statutory Prospectus, Statement of Additional Information, and in the case of a Registrant on Form N–3, the Registrant’s most recent annual and semi-annual reports to shareholders under § 270.30e– 1 of this chapter, are publicly accessible, free of charge, at the website address specified on the cover page or beginning of the Summary Prospectuses, on or before the time that the Summary Prospectuses are sent or given and current versions of those documents remain on the website through the date that is at least 90 days after: (i) In the case of reliance on paragraph (f) of this section, the date that the Contract security is carried or delivered; or (ii) In the case of reliance on paragraph (g) of this section, the date that the communication is sent or given. (2) The materials that are accessible in accordance with paragraph (h)(1) of this section must be presented on the website in a format, or formats, that: (i) Are human-readable and capable of being printed on paper in humanreadable format; (ii) Permit persons accessing the Statutory Prospectus or Statement of Additional Information for the Contract to move directly back and forth between each section heading in a table of contents of such document and the section of the document referenced in that section heading; provided that, in the case of the Statutory Prospectus, the table of contents is either required by § 230.481(c) or contains the same section headings as the table of contents required by § 230.481(c); and (iii) Permit persons accessing a Summary Prospectus to move directly back and forth between: (A) Each section of the Summary Prospectus and any section of the Statutory Prospectus and Contract E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Statement of Additional Information that provides additional detail concerning that section of the Summary Prospectus; or (B) Links located at both the beginning and end of the Summary Prospectus, or that remain continuously visible to persons accessing the Summary Prospectus, and tables of contents of both the Statutory Prospectus and the Contract Statement of Additional Information that meet the requirements of paragraph (h)(2)(ii) of this section. (iv) Permit persons accessing the Summary Prospectus to view the definition of each special term used in the Summary Prospectus (as required by paragraph (e) of this section) upon command (e.g., by moving or ‘‘hovering’’ the computer’s pointer or mouse over the term, or selecting the term on a mobile device); or permits persons accessing the Contract Summary Prospectus to move directly back and forth between each special term and the corresponding entry in any glossary or list of definitions in the Contract Summary Prospectus (as described in paragraph (e) of this section). (3) Persons accessing the materials specified in paragraph (h)(1) of this section must be able to permanently retain, free of charge, an electronic version of such materials in a format, or formats, that meet each of the requirements of paragraphs (h)(2)(i) and (ii) of this section. (4) The conditions set forth in paragraphs (h)(1) through (3) of this section shall be deemed to be met, notwithstanding the fact that the materials specified in paragraph (h)(1) of this section are not available for a time in the manner required by paragraphs (h)(1) through (3) of this section, provided that: (i) The Registrant has reasonable procedures in place to ensure that the specified materials are available in the manner required by paragraphs (h)(1) through (3) of this section; and (ii) The Registrant takes prompt action to ensure that the specified documents become available in the manner required by paragraphs (h) through (3) of this section, as soon as practicable following the earlier of the time at which it knows or reasonably should have known that the documents are not available in the manner required by paragraphs (h)(1) through (3) of this section. (i) Other Requirements (1) Delivery upon request. If paragraph (f) or (g) of this section is relied on with respect to a Contract, the Registrant (or a financial intermediary through which the VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 Contract may be purchased) must send, at no cost to the requestor and by U.S. first class mail or other reasonably prompt means, a paper copy of the Contract Statutory Prospectus, Contract Statement of Additional Information, and in the case of a Registrant on Form N–3, the Registrant’s most recent annual and semi-annual reports to shareholders under § 270.30e–1 of this chapter, to any person requesting such a copy within three business days after receiving a request for a paper copy. If paragraph (f) or (g) of this section is relied on with respect to a Contract, the Registrant (or a financial intermediary through which Contract may be purchased) must send, at no cost to the requestor, and by email, an electronic copy of any of the documents listed in this paragraph (i)(1) to any person requesting a copy of such document within three business days after receiving a request for an electronic copy. The requirement to send an electronic copy of a document may be satisfied by sending a direct link to the online document; provided that a current version of the document is directly accessible through the link from the time that the email is sent through the date that is six months after the date that the email is sent and the email explains both how long the link will remain useable and that, if the recipient desires to retain a copy of the document, he or she should access and save the document. (2) Greater prominence. If paragraph (f) or (g) of this section is relied on with respect to a Contract, the Summary Prospectus shall be given greater prominence than any materials that accompany the Summary Prospectus. (3) Convenient for reading and printing. If paragraph (f) or (g) of this section is relied on with respect to a Contract: (i) The materials that are accessible in accordance with paragraph (h)(1) of this section must be presented on the website in a format, or formats, that are convenient for both reading online and printing on paper; and (ii) Persons accessing the materials that are accessible in accordance with paragraph (h)(1) of this section must be able to permanently retain, free of charge, an electronic version of such materials in a format, or formats, that are convenient for both reading online and printing on paper. (4) Website addresses. If paragraph (f) or (g) of this section is relied on with respect to a Contract, any website address that is included in an electronic version of the Summary Prospectus must include an active hyperlink or provide another means of facilitating access through equivalent methods or PO 00000 Frm 00113 Fmt 4701 Sfmt 4700 60089 technologies that lead directly to the relevant website address. This paragraph (i)(4) does not apply to electronic versions of a Summary Prospectus that are filed on the EDGAR system. (5) Compliance with this paragraph (i) not a condition to reliance on paragraph (f) or (g) of this section. Compliance with this paragraph (i) is not a condition to the ability to rely on paragraph (f) or (g) of this section with respect to a Contract, and failure to comply with this paragraph (i) does not negate the ability to rely on paragraph (f) or (g) of this section. (j) Portfolio Company Prospectuses— (1) Transfer of the Portfolio Company security. Any obligation under section 5(b)(2) of the Act to have a Statutory Prospectus precede or accompany the carrying or delivery of a Portfolio Company security is satisfied if, and information contained in the documents referenced in paragraph (j)(1)(ii) of this section is conveyed for purposes of § 230.159 when: (i) An Initial Summary Prospectus is used for each currently offered Contract described under the related registration statement; (ii) A summary prospectus is used for the Portfolio Company (if the Portfolio Company is registered on Form N–1A); and (iii) The current summary prospectus, Statutory Prospectus, Statement of Additional Information, and most recent annual and semi-annual reports to shareholders under § 270.30e–1 of this chapter for the Portfolio Company are publicly accessible, free of charge, at the same website address referenced in paragraph (h)(1) of this section, and are accessible under the conditions set forth in paragraphs (h)(1), (h)(2)(i) and (ii), and (h)(3) and (4) of this section, with respect to the availability of documents relating to the Contract. (2) Communications. Any communication relating to a Portfolio Company (other than a prospectus permitted or required under section 10 of the Act) shall not be deemed a prospectus under section 2(a)(10) of the Act (15 U.S.C. 77b(a)(10)) if the conditions set forth in paragraph (j)(1) of this section are satisfied. (3) Other requirements. The materials referenced in paragraph (j)(1)(iii) of this section must be delivered upon request, presented, and able to be retained under the conditions set forth in paragraphs (i)(1) and (3) of this section. Compliance with this paragraph (j)(3) is not a condition to the ability to rely on paragraph (j)(1) or (2) of this section, and failure to comply with this paragraph (j)(3) does not negate the E:\FR\FM\24JYR2.SGM 24JYR2 60090 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations ability to rely on paragraph (j)(1) or (2) of this section. PART 232—REGULATION S–T— GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS 13. The general authority citation for part 232 continues to read as follows: ■ Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 78n–1, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 80a–30, 80a–37, 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted. * * * * * 14. Amend § 232.313 by revising paragraphs (a) and (b) to read as follows: ■ ddrumheller on DSK120RN23PROD with RULES2 § 232.313 Identification of investment company type and series and/or class (or contract). (a) Registered investment companies, business development companies, and offerings of registered non-variable annuities must indicate their investment company type, based on whether the registrant’s last effective registration statement or amendment (other than a merger/proxy filing on Form N–14 (§ 239.23 of this chapter) was filed on Form N–1 (§§ 239.15 and 274.11 of this chapter), Form N–1A (§§ 239.15A and 274.11A of this chapter), Form N–2 (§§ 239.14 and 274.11a–1 of this chapter), Form N–3 (§§ 239.17A and 274.11b of this chapter), Form N–4 (§§ 239.17b and 274.11c of this chapter), Form N–5 (§§ 239.24 and 274.5 of this chapter), Form N–6 (§§ 239.17c and 274.11d of this chapter), Form S–1 (§ 239.11 of this chapter), Form S–3 (§ 239.13 of this chapter), or Form S–6 (§ 239.16 of this chapter) in those EDGAR submissions identified in the EDGAR Filer Manual. (b) Registered investment companies or offerings of registered non-variable annuities whose last effective registration statement or amendment (other than a merger/proxy filing on Form N–14 (§ 239.23 of this chapter) was filed on Form N–1A (§§ 239.15A and 274.11A of this chapter), Form N– 3 (§§ 239.17A and 274.11b of this chapter), Form N–4 (§§ 239.17b and 274.11c of this chapter), or Form N–6 (§§ 239.17c and 274.11d of this chapter) must, under the procedures set forth in the EDGAR Filer Manual: (1) Provide electronically, and keep current, information concerning their existing and new series and/or classes (or contracts, in the case of separate accounts), including series and/or class (contract) name and ticker symbol, if any, and be issued series and/or class (or contract) identification numbers; (2) Deactivate for EDGAR purposes any series and/or class (or contract, in VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 the case of separate accounts) that are no longer offered, go out of existence, or deregister following the last filing for that series and/or class (or contract, in the case of separate accounts), but the registrant must not deactivate the last remaining series unless the registrant deregisters; and (3) For those EDGAR submissions identified in the EDGAR Filer Manual, include all series and/or class (or contract) identifiers of each series and/ or class (or contract) on behalf of which the filing is made. * * * * * ■ 15. Amend § 232.405 by revising paragraphs (a)(3), (b)(1), (b)(2), and Note 1 to the section to read as follows: § 232.405 Interactive Data File Submissions. * * * * * (a) * * * (3) Be submitted using Inline XBRL: (i) If the electronic filer is not a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), a separate account as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, a registered non-variable annuity issuer as defined in Rule 405 under the Securities Act (17 CFR 230.405), a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a– 2(a)(48)), a unit investment trust as defined in Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–4), a clearing agency that provides a central matching service, or is subject to §§ 242.800 through 242.835 (Regulation SE), and is not within one of the categories specified in paragraph (f)(1)(i) of this section, as partly embedded into a filing with the remainder simultaneously submitted as an exhibit to: (A) A filing that contains the disclosure this section requires to be tagged; or (B) An amendment to a filing that contains the disclosure this section requires to be tagged if the amendment is filed no more than 30 days after the earlier of the due date or filing date of the filing and the Interactive Data File is the first Interactive Data File the electronic filer submits; or (ii) If the electronic filer is a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), a separate account (as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, a PO 00000 Frm 00114 Fmt 4701 Sfmt 4700 registered non-variable annuity issuer as defined in Rule 405 under the Securities Act (17 CFR 230.405), a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a– 2(a)(48)), a unit investment trust as defined in Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–4), a clearing agency that provides a central matching service, or is subject to §§ 242.800 through 242.835 (Regulation SE), and is not within one of the categories specified in paragraph (f)(1)(ii) of this section, as partly embedded into a filing with the remainder simultaneously submitted as an exhibit to a filing that contains the disclosure this section requires to be tagged; and * * * * * (b) * * * (1) If the electronic filer is not a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), a separate account (as defined in Section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment Company Act of 1940, a registered non-variable annuity issuer as defined in Rule 405 under the Securities Act (17 CFR 230.405), a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a– 2(a)(48)), a unit investment trust as defined in Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–4), or a clearing agency that provides a central matching service, an Interactive Data File must consist of only a complete set of information for all periods required to be presented in the corresponding data in the Related Official Filing, no more and no less, from all of the following categories: (i) The complete set of the electronic filer’s financial statements (which includes the face of the financial statements and all footnotes); (ii) As applicable, all schedules set forth in Article 6A of Regulation S–X (§§ 210.6A–01–210.6A–05) and Article 12 of Regulation S–X (§§ 210.12–01– 210.12–29), and all schedules prepared by plans in accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.) and filed with the Commission on Form 11– K (§ 249.311); and (iii) The disclosure set forth in paragraph (b)(4) of this section. Note to paragraph (b)(1): It is not permissible for the Interactive Data File to present only partial face financial statements, such as by excluding E:\FR\FM\24JYR2.SGM 24JYR2 ddrumheller on DSK120RN23PROD with RULES2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations comparative financial information for prior periods. (2) If the electronic filer is an openend management investment company registered under the Investment Company Act of 1940, a separate account (as defined in Section 2(a)(14) of the Securities Act) registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), a registered nonvariable annuity issuer as defined in Rule 405 under the Securities Act (17 CFR 230.405), a unit investment trust as defined in Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–4), or a clearing agency that provides a central matching service, an Interactive Data File must consist of only a complete set of information for all periods required to be presented in the corresponding data in the Related Official Filing, no more and no less, from the information set forth in: (i) Items 2, 3, and 4 of §§ 239.15A and 274.11A of this chapter (Form N–1A), as well as any information provided in response to Item 27A(b)–(h) of Form N– 1A included in any report to shareholders filed on §§ 249.331 and 274.128 of this chapter (Form N–CSR); (ii) Items 2, 4, 5, 11, 18 and 19 of §§ 239.17a and 274.11b of this chapter (Form N–3); (iii) Items 2(b)(2), 2(d), 3, 4, 5, 6(a) (instruction), 6(d), 6(e), 7(e), 10, 17, 26(c), or 31A of §§ 239.17b and 274.11c of this chapter (Form N–4); (iv) Items 2, 4, 5, 10, 11, and 18 of §§ 239.17c and 274.11d of this chapter (Form N–6); (v) Any disclosure provided in response to Item 18 of §§ 249.331 and 274.128 of this chapter (Form N–CSR), or (vi) Item 11 of § 274.12 of this chapter (Form N–8B–2) pursuant to Instruction 2, including to the extent required by § 239.16 of this chapter (Form S–6); as applicable. * * * * * Note 1 to § 232.405: Section 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S–K) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to §§ 239.11 (Form S–1), 239.13 (Form S–3), 239.25 (Form S–4), 239.18 (Form S–11), 239.31 (Form F–1), 239.33 (Form F–3), 239.34 (Form F–4), 249.310 (Form 10–K), 249.308a (Form 10–Q), and 249.308 (Form 8–K) of this chapter. General Instruction F of § 249.311 of this chapter (Form 11–K) specifies the circumstances under which an Interactive Data File must be submitted, and the 556 circumstances under which VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 it is permitted to be submitted, with respect to Form 11–K. Paragraph (101) of Part II—Information not Required to be Delivered to Offerees or Purchasers of § 239.40 of this chapter (Form F–10) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form F–10. Paragraph 101 of the Instructions as to Exhibits of § 249.220f of this chapter (Form 20–F) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form 20–F. Paragraph B.(15) of the General Instructions to § 249.240f of this chapter (Form 40–F) and Paragraph C.(6) of the General Instructions to § 249.306 of this chapter (Form 6–K) specify the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to §§ 249.240f (Form 40–F) and 249.306 (Form 6–K) of this chapter. Section 240.17Ad–27(d) of this chapter (Rule 17Ad27(d) under the Exchange Act) specifies the circumstances under which an Interactive Data File must be submitted with respect to the reports required under Rule 17Ad–27. Note D.5 of § 240.14a–101 of this chapter (Schedule 14A) and Item 1 of § 240.14c– 101 of this chapter (Schedule 14C) specify the circumstances under which an Interactive Data File must be submitted with respect to Schedules 14A and 14C. General Instruction L of § 240.14d–100 of this chapter (Schedule TO) specifies the circumstances under which an Interactive Data File must be submitted with respect to Schedule TO. Section 240.13a–21 of this chapter (Rule 13a–21 under the Exchange Act) and General Instruction I to § 249.333 of this chapter (Form F–SR) specify the circumstances under which an Interactive Data File must be submitted, with respect to Form F–SR. §§ 242.829 and 242.831 of this chapter (Rules 829 and 831 of Regulation SE) and the Registration Instructions to § 249.1701 of this chapter (Form SBSEF), as applicable, specify 557 the circumstances under which an Interactive Data File must be submitted with respect to filings made under Regulation SE. Item 601(b)(101) of Regulation S–K, paragraph (101) of Part II—Information not Required to be Delivered to Offerees or Purchasers of Form F–10, paragraph 101 of the Instructions as to Exhibits of Form 20– F, paragraph B.(15) of the General Instructions to Form 40–F, and PO 00000 Frm 00115 Fmt 4701 Sfmt 4700 60091 paragraph C.(6) of the General Instructions to Form 6–K all prohibit submission of an Interactive Data File by an issuer that prepares its financial statements in accordance with §§ 210.6– 01 through 210.6–10 of this chapter (Article 6 of Regulation S–X). For an issuer that is a management investment company or separate account registered under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), a registered non-variable annuity issuer as defined in Rule 405 under the Securities Act (17 CFR 230.405), a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(48)), or a unit investment trust as defined in Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a–4), General Instruction C.3.(g) of Form N–1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N–2 (§§ 239.14 and 274.11a–1 of this chapter), General Instruction C.3.(h) of Form N–3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N–4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N–6 (§§ 239.17c and 274.11d of this chapter), General Instruction 2.(l) of Form N–8B–2 (§ 274.12 of this chapter), General Instruction 5 of § 239.16 of this chapter (Form S–6), and General Instruction C.4 of §§ 249.331 and 274.128 of this chapter (Form N–CSR), specify when electronic filers are required or permitted to submit an Interactive Data File (§ 232.11), as further described in note 1 to this section and General Instruction C.4 of Form N–CSR (§§ 249.331 and 274.128 of this chapter), as applicable, specifies the circumstances under which an Interactive Data File must be submitted. PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 16. The general authority citation for part 239 continues to read as follows: ■ Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 80a–37; and sec. 71003 and sec. 84001, Pub. L. 114–94, 129 Stat. 1321, unless otherwise noted. * * * * * 17: Revise Form N–3 (referenced in §§ 239.17a and 274.11b). ■ Note: Form N–3 is attached as Appendix B to this document. Form N–3 does not appear in the Code of Federal Regulations. 18. Revise Form N–4 (referenced in §§ 239.17b and 274.11c). ■ E:\FR\FM\24JYR2.SGM 24JYR2 60092 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Note: Form N–4 is attached as Appendix A to this document. Form N–4 does not appear in the Code of Federal Regulations. 19. Revise Form N–6 (referenced in §§ 239.17c and 274.11d). ■ Note: Form N–6 is attached as Appendix C to this document. Form N–6 will not appear in the Code of Federal Regulations. ■ 20. Add § 239.66 to read as follows: § 239.66 Form 24F–2, annual filing of securities sold pursuant to registration of certain investment company securities and registered non-variable annuities. ddrumheller on DSK120RN23PROD with RULES2 Form 24F–2 shall be used as the annual report filed by face amount certificate companies, open-end management companies, unit investment trusts, and registered nonvariable annuities pursuant to §§ 230.456, 230.457, or 270.24f–2 of this chapter for reporting securities sold during the fiscal year. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 21. Revise Form 24F–2 (referenced in §§ 239.66 and 274.24). ■ Note: Form 24F–2 is attached as Appendix D to this document. Form 24F–2 will not appear in the Code of Federal Regulations. PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940 22. The authority citation for part 274 continues to read as follows: ■ Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78n–1, 78o(d), 80a–8, 80a–24, 80a–26, 80a–29, and sec. 939A, Pub. L. 111–203, 124 Stat. 1376, unless otherwise noted. * ■ PO 00000 * * * * 23. Revise § 274.24 to read as follows: § 274.24 Form 24F–2, annual filing of securities sold pursuant to registration of certain investment company securities and registered non-variable annuities. Form 24F–2 shall be used as the annual report filed by face amount certificate companies, open-end management companies, unit investment trusts, and registered nonvariable annuities pursuant to §§ 230.456, 230.457, or 270.24f–2 of this chapter for reporting securities sold during the fiscal year. By the Commission. Dated: July 1, 2024. Vanessa A. Countryman, Secretary. Note: The following appendices will not appear in the Code of Federal Regulations. BILLING CODE 8011–01–P Appendix A—Form N–4 Frm 00116 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM 24JYR2 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60093 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORMN-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. □ Post-Effective Amendment No. □ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. □ (Check appropriate box or boxes.) (Exact Name of Registered Separate Account) (Name of Insurance Company) (Address oflnsurance Company's Principal Executive Offices) (Zip Code) (Insurance Company's Telephone Number, including Area Code) (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ □ immediately upon filing pursuant to paragraph (b) □ on (date) pursuant to paragraph (b) □ 60 days after filing pursuant to paragraph (a)(l) 0 on (date) pursuant to paragraph (a)(l) of rule 485 under the Securities Act of 1933 ("Securities Act"). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00117 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.001</GPH> ddrumheller on DSK120RN23PROD with RULES2 It is proposed that this filing will become effective (check appropriate box): 60094 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations If appropriate, check the following box: □ This post-effective amendment designates a new effective date for a previously filed posteffective amendment. Check each box that appropriately characterizes the Registrant: □ New Registrant (as applicable, a Registered Separate Account or Insurance Company that has not filed a Securities Act registration statement or amendment thereto within 3 years preceding this filing) □ Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 ("Exchange Act")) □ If an Emerging Growth Company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act □ Insurance Company relying on Rule 12h-7 under the Exchange Act □ Smaller reporting company (as defined by Rule 12b-2 under the Exchange Act) Omit from the facing sheet reference to the other Act if the registration statement or amendment is filed under only one of the Acts. Include the "Approximate Date of Proposed Public Offering" only where securities are being registered under the Securities Act. A Registrant is required to disclose the information specified by Form N-4, and the Commission will make this information public. A Registrant is not required to respond to the collection of information contained in Form N-4 unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549. The 0MB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00118 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.002</GPH> ddrumheller on DSK120RN23PROD with RULES2 Form N-4 is to be used by (1) separate accounts that are unit investment trusts that offer variable annuity contracts to register under the Investment Company Act of 1940 and to offer their securities under the Securities Act, (2) insurance companies to register the offerings of registered index-linked annuity contracts, as defined in rule 405 under the Securities Act [17 CFR 230.405], (3) insurance companies to register the offerings of registered market value adjustment annuity contracts, as defined in rule 405 under the Securities Act, and (4) insurance companies to register the offerings of annuity contracts that have any combination of these options under the applicable statutes. The Commission has designed Form N-4 to provide investors with information that will assist them in making a decision about investing in these contracts. The Commission also may use the information provided on Form N-4 in its regulatory, disclosure review, inspection, and policy making roles. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60095 CONTENTS OF FORM N-4 GENERAL INSTRUCTIONS ............................................................................................................................ iv A. Definitions ...................................................................................................................................................... iv B. Filing and Use of Form N-4 ............................................................................................................................ v C. Preparation of the Registration Statement ...................................................................................................... vi D. Incorporation by Reference ............................................................................................................................. x PART A- INFORMATION REQUIRED IN A PROSPECTUS ..................................................................... 1 Item 1. Front and Back Cover Pages ...................................................................................................................... 1 Item 2. Overview of the Contract ........................................................................................................................... 2 Item 3. Key Information ......................................................................................................................................... 4 Item 4. Fee Table .................................................................................................................................................. 10 Item 5. Principal Risks oflnvesting in the Contract.. ........................................................................................... 14 Item 6. Description oflnsurance Company, Registered Separate Account, and Investment Options ................. 15 Item 7. Charges and Adjustments ......................................................................................................................... 21 Item 8. General Description of Contracts ............................................................................................................. 23 Item 9. Annuity Period .......................................................................................................................................... 25 Item 10. Benefits Available Under the Contract ................................................................................................... 25 Item 11. Purchases and Contract Value ................................................................................................................ 27 Item 12. Surrenders and Withdrawals ................................................................................................................... 27 Item 13. Loans ...................................................................................................................................................... 28 Item 14. Taxes ....................................................................................................................................................... 29 Item 15. Legal Proceedings ................................................................................................................................... 29 Item 16. Financial Statements ............................................................................................................................... 29 Item 17. Investment Options Available Under the Contract... .............................................................................. 29 PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION..... 35 Item 18. Cover Page and Table of Contents ......................................................................................................... 35 Item 19. General Information and History ............................................................................................................ 35 Item 20. Non-Principal Risks oflnvesting in the Contract ................................................................................... 36 Item 21. Services ................................................................................................................................................... 36 Item 22. Purchase of Securities Being Offered ..................................................................................................... 37 Item 23. Underwriters ........................................................................................................................................... 38 Item 24. Calculation of Performance Data ........................................................................................................... 39 Item 25. Annuity Payments ................................................................................................................................... 41 Item 26. Financial Statements ............................................................................................................................... 41 SIGNATURES..................................................................................................................................................... 50 VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00119 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.004</GPH> Item 34. Fee Representation and Undertakings .................................................................................................... 48 ER24JY24.003</GPH> ddrumheller on DSK120RN23PROD with RULES2 PART C - OTHER INFORMATION ............................................................................................................... 44 Item 27. Exhibits ................................................................................................................................................... 44 Item 28. Directors and Officers of the Insurance Company ................................................................................. 46 Item 29. Persons Controlled by or Under Common Control with the Insurance Company or the Registered Separate Account .................................................................................................................................................. 46 Item 30. Indemnification ....................................................................................................................................... 46 Item 31. Principal Underwriters ............................................................................................................................ 47 Item 3 lA. Information about Contracts with Index-Linked Options and Fixed Options Subject to a Contract Adjustment ............................................................................................................................................................ 48 Item 32. Location of Accounts and Records ......................................................................................................... 48 Item 33. Management Services ............................................................................................................................. 48 60096 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations GENERAL INSTRUCTIONS A. Definitions References to sections and rules in this Form N-4 are to the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.] (the "Investment Company Act"), unless otherwise indicated. Terms used in this Form N4 have the same meaning as in the Investment Company Act or the related rules, unless otherwise indicated. As used in this Form N-4, the terms set out below have the following meanings: "Class" means a class of a Contract that varies principally with respect to distribution-related fees and expenses. "Contract" means any accumulation contract or annuity contract, any portion thereof, or any unit of interest or participation therein issued by an Insurance Company that offers Index-Linked Options, Variable Options, and/or Fixed Options, as applicable, pursuant to the registration statement prepared on this Form. "Contract Adjustment" means a positive or negative adjustment made to the value of the Contract by the Insurance Company if amounts are withdrawn from an Investment Option or from the Contract before the end of a specified period. This adjustment may be based on calculations using a predetermined formula, or a change in interest rates, or some other factor or benchmark. "Crediting Period" means the period of time over which an Index's performance is measured, subject to applicable limits on Index gains and losses, to determine the amount of positive or negative interest that will be credited to an Index-Linked Option at the end of the period. "Fixed Option" means an Investment Option under the Contract pursuant to which the value of the Contract, either during an accumulation period or after annuitization, or both, will earn interest at a rate specified by the Insurance Company, subject to a minimum guaranteed rate under the Contract. The term Fixed Option includes Fixed Options that are subject to a Contract Adjustment. "Index" or "Indexes" means any index, rate, or benchmark (such as a registered exchange-traded fund that tracks an index) used in the calculation of positive or negative interest credited to an Index-Linked Option. "Index-Linked Option" means an Investment Option offered under any Contract, pursuant to which the value of the Contract, either during an accumulation period or after annuitization, or both, will earn positive or negative interest based, in part, on the performance of a specified Index. "Insurance Company" means the insurance company issuing the Contract, which company is subject to State supervision. The Insurance Company may be the depositor or sponsor of any Registered Separate Account in which the Contract participates. If there is more than one Insurance Company, the information called for in this Form about the Insurance Company shall be provided for each Insurance Company. "Investment Option" means a Fixed Option, an Index-Linked Option, and/or a Variable Option, as applicable. "Portfolio Company" means any investment company in which the Registered Separate Account invests and which may be selected by the investor in connection with a Variable Option. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00120 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.005</GPH> ddrumheller on DSK120RN23PROD with RULES2 "Platform Charge" means any fee charged by the Insurance Company to make a Portfolio Company available in connection with a Variable Option under the Contract, and that varies solely on the basis of the Portfolio Company selected. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60097 "Registered Separate Account" means a separate account (as defined in section 2(a)(37) of the Investment Company Act [15 U.S.C. 80a-2(a)(37)]) in which the Contract participates with respect to Variable Options offered under the Contract. "Registrant" means, as applicable, a Registered Separate Account or the Insurance Company. "SAi" means the Statement of Additional Information required by Part B of this Form. "Securities Act" means the Securities Act of 1933 [15 U.S.C. 77a et seq.]. "Securities Exchange Act" means the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.]. "Statutory Prospectus" means a prospectus that satisfies the requirements of section l0(a) of the Securities Act [15 U.S.C. 77j(a)]. "Summary Prospectus" has the meaning provided by paragraph (a) of rule 498A under the Securities Act [17 CFR 230.498A(a)]. "Variable Option" means an Investment Option under any Contract pursuant to which the value of the Contract, either during an accumulation period or after annuitization, or both, varies according to the investment experience of a Portfolio Company. B. Filing and Use of Form N-4 1. What is Form N-4 used for? Form N-4 is used by all separate accounts organized as unit investment trusts and offering Contracts with Variable Options and all Insurance Companies that offer Contracts with Variable Options, IndexLinked Options, and/or Contract Adjustments to file: (a) An initial registration statement under the Investment Company Act and any amendments to the registration statement; (b) An initial registration statement required under the Securities Act and any amendments to the registration statement, including amendments required by section 10(a)(3) of the Securities Act [15 U.S.C. 77j(a)(3)]; or (c) Any combination of the filings in paragraph (a) or (b). 2. What is included in the registration statement? (a) For registration statements or amendments filed under both the Investment Company Act and the Securities Act or only under the Securities Act, include the facing sheet of the Form, Parts A, B, and C, and the required signatures. 3. What are the fees for Form N-4? No registration fees are required with the filing of Form N-4 to register as an investment company under the Investment Company Act or to register securities under the Securities Act. If a filing on Form N-4 is VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00121 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.006</GPH> ddrumheller on DSK120RN23PROD with RULES2 (b) For registration statements or amendments filed only under the Investment Company Act, include the facing sheet of the Form, responses to all Items of Parts A (except Items 1, 4, 5, 9, and 16), B, and C (except Items 27(c), (k), (1), and (m)), and the required signatures. 60098 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations made to register securities under the Securities Act and securities are sold to the public, registration fees must be paid on an ongoing basis after the end of the Registrant's fiscal year. See section 24(f) [15 U.S.C. 80a-24(f)] and rules 24f-2 [17 CFR 270.24f-2], 456 [17 CFR 230.456], and 457 [17 CFR 230.457]. 4. What rules apply to the filing of a registration statement on Form N-4? (a) For registration statements and amendments filed under both the Investment Company Act and the Securities Act or under only the Securities Act, the general rules under the Securities Act, particularly the rules regarding the filing ofregistration statements in Regulation C [17 CFR 230.400 -230.498A], apply to the filing ofregistration statements on Form N-4. Specific requirements concerning investment companies, registered index-linked annuities, and registered market value adjustment annuities appear in rules 480,488 and 495 - 498A of Regulation C. (b) For registration statements and amendments filed only under the Investment Company Act, the general rules under the Investment Company Act, particularly the provisions in rules 8b-1 - 8b31 [17 CFR 270.8b-1 to 8b-31 ], apply to the filing ofregistration statements on Form N-4. (c) The plain English requirements of rule 421(d) under the Securities Act [17 CFR 230.421(d)] apply to prospectus disclosure in Part A of Form N-4. (d) Regulation S-T [17 CFR 232.10 - 232.501] applies to all filings on the Commission's Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). C. Preparation of the Registration Statement (a) The requirements of Form N-4 are intended to promote effective communication between the Registrant and prospective investors. A Registrant's prospectus should clearly disclose the fundamental features and risks of the Contracts, using concise, straightforward, and easy to understand language. A Registrant should use document design techniques that promote effective communication. (b) The prospectus disclosure requirements in Form N-4 are intended to elicit information for an average or typical investor who may not be sophisticated in legal or financial matters. The prospectus should help investors to evaluate the risks of an investment and to decide whether to invest in a Contract by providing a balanced disclosure of positive and negative factors. Disclosure in the prospectus should be designed to assist an investor in comparing and contrasting a Contract with other Contracts. (c) Responses to the Items in Form N-4 should be as simple and direct as reasonably possible and should include only as much information as is necessary to enable an average or typical investor to understand the particular characteristics of the Contracts. The prospectus should avoid including lengthy legal and technical discussions and simply restating legal or regulatory requirements to which Contracts generally are subject. Brevity is especially important in describing the practices or aspects of the Registrant's operations that do not differ materially from those of other separate accounts or insurance companies. Avoid excessive detail, technical or legal terminology, and complex language, including the use of formulas as the primary means of communicating certain terms or features of the Contract. Also avoid lengthy sentences and paragraphs that may make the prospectus difficult for investors to understand and detract from its usefulness. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00122 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.007</GPH> ddrumheller on DSK120RN23PROD with RULES2 1. Administration of the Form N-4 Requirements Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (d) 60099 The requirements for prospectuses included in registration statements on Form N-4 will be administered by the Commission in a way that will allow variances in disclosure or presentation if appropriate for the circumstances involved while remaining consistent with the objectives of FormN-4. 2. Form N-4 is divided into three parts: (a) Part A. Part A includes the information required in a Registrant's prospectus under section lO(a) of the Securities Act. The purpose of the prospectus is to provide essential information about the Registrant and the Contracts in a way that will help investors to make informed decisions about whether to purchase the securities described in the prospectus. In responding to the Items in Part A, avoid crossreferences to the SAi unless otherwise prescribed by the Form. Cross-references within the prospectus are most useful when their use assists investors in understanding the information presented and does not add complexity to the prospectus. (b) Part B. Part B includes the information required in a Registrant's SAi. The purpose of the SAi is to provide additional information about the Registrant and the Contracts that the Commission has concluded is not necessary or appropriate in the public interest or for the protection of investors to be in the prospectus, but that some investors may find useful. Part B affords the Registrant an opportunity to expand discussions of the matters described in the prospectus by including additional information that the Registrant believes may be of interest to some investors. The Registrant should not duplicate in the SAi information that is provided in the prospectus, unless necessary to make the SAi comprehensible as a document independent of the prospectus. (c) Part C. Part C includes other information required in a Registrant's registration statement. (a) Organization ofInformation. Organize the information in the prospectus and SAi to make it easy for investors to understand. Notwithstanding rule 421(a) under the Securities Act [17 CPR 230.421(a)] regarding the order of information required in a prospectus, disclose the information required by Item 2 (Overview of the Contract), Item 3 (Key Information), and Item 4 (Fee Table) in numerical order at the front of the prospectus. Do not precede Items 2, 3, and 4 with any other Item except the Cover Page (Item 1), a glossary, if any (General Instruction C.3.(d)), or a table of contents meeting the requirements of rule 481(c) under the Securities Act [17 CPR 230.481(c)]. (b) Other Information. A Registrant may include, except in response to Items 2 and 3, information in the prospectus or the SAi that is not otherwise required so long as the information is not incomplete, inaccurate, or misleading and does not, because of its nature, quantity, or manner of presentation, obscure or impede understanding of the information that is required to be included. For example, Registrants are free to include in the prospectus financial statements required to be in the SAi, and may include in the SAi financial statements that may be placed in Part C. However, information regarding non-principal risks that is not otherwise required to be in the prospectus must be disclosed in the SAi and not the prospectus, in accordance with Items 5 and 20. (c) Presentation ofInformation. To aid investor comprehension, Registrants are encouraged to use, as appropriate, question-and-answer formats, tables, side-by-side comparisons, captions, bullet points, numeric examples, illustrations or similar presentation methods. For example, such presentation methods would be appropriate when presenting disclosure for similar Contract features, prospectuses describing multiple Contracts, or the operation of optional benefits or annuitization. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00123 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.008</GPH> ddrumheller on DSK120RN23PROD with RULES2 3. Additional Matters 60100 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (d) (e) Use of Terms. (i) Definitions. Define the special terms used in the prospectus (e.g., accumulation unit, participant, Crediting Period, etc.) in any presentation that clearly conveys meaning to investors. If the Registrant elects to include a glossary or list of definitions, only special terms used throughout the prospectus must be defined or listed. If a special term is used in only one section of the prospectus, it may be defined there (and need not be included in any glossary or list of definitions that the Registrant includes). (ii) Alternate Terminology. A Registrant may use alternate terminology other than that used in the form so long as the terminology used by the Registrant clearly conveys the meaning of, or provides comparable information as, the terminology included in the form. Use ofForm N-4 to Register Multiple Contracts (i) A single prospectus may describe multiple Contracts that are essentially identical. Whether (A) Paragraph (a) of General Instruction C.3 requires Registrants to disclose the information required by Items 2, 3, and 4 in numerical order at the front of the prospectus and generally not to precede the Items with other information. As a general matter, Registrants providing disclosure in a single prospectus for more than one Contract, may depart from the requirement of paragraph (a) as necessary to present the required information clearly and effectively (although the order of information required by each Item must remain the same). For example, the prospectus may present all of the Item 2 information for the Contracts, followed by all of the Item 3 information for several Contracts (e.g., by providing several Key Information Tables sequentially or by providing a single Key Information Table containing separate disclosures for each Contract to the extent that such disclosures would vary by Contract), and followed by all of the Item 4 information for the Contracts. Alternatively, the prospectus may present Items 2, 3, and 4 for each of several Contracts sequentially. Other presentations also would be acceptable if they are consistent with the Form's intent to disclose the information required by Items 2, 3, and 4 in a standard order at the beginning of the prospectus. Registrants that present Items 2, 3, and 4 for each of several Contracts sequentially or that utilize another presentation should consider whether investors might benefit from a brief explanation about how the information in the prospectus is presented, such as headings for each contract in the prospectus' table of contents and/or a brief narrative at the beginning of the prospectus explaining the presentation. Registrants are encouraged to present information in a manner that limits repetition. (B) The Registrant should generally include appropriate titles, headings, or any other information to promote clarity and facilitate understanding regarding which disclosures apply to which Contract, if such disclosures would vary based on the Contract. (ii) Multiple prospectuses may be combined in a single registration statement on Form N-4 when the prospectuses describe Contracts that are substantially similar. For example, a Registrant could determine it is appropriate to include multiple prospectuses in a registration statement VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00124 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.009</GPH> ddrumheller on DSK120RN23PROD with RULES2 the prospectus describes Contracts that are "essentially identical" will depend on the facts and circumstances. For example, a Contract that does not offer optional benefits would not be essentially identical to one that does for a charge. Similarly, group and individual Contracts would not be essentially identical. However, Contracts that vary only due to State regulatory requirements would be essentially identical. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60101 in the following situations: (i) the prospectuses describe the same Contract that is sold through different distribution channels; (ii) the prospectuses describe Contracts that differ only with respect to Portfolio Companies offered; or (iii) the prospectuses describe both the original and a modified version of the same Contract (where the "modified" version differs in the features or options that the Registrant offers under that Contract). (f) Dates. Rule 423 under the Securities Act [17 CPR 230.423] applies to the dates of the prospectus and the SAi. The SAi should be made available at the same time that the prospectus becomes available for purposes of rules 430 and 460 under the Securities Act [17 CPR 230.430 and 230.460]. (g) Sales Literature. A Registrant may include sales literature in the prospectus so long as the amount of this information does not add substantial length to the prospectus and its placement does not obscure essential disclosure. (h) Interactive Data File (i) An Interactive Data File (see rule 232.11 of Regulation S-T [17 CPR 232.11]) is required to be submitted to the Commission in the manner provided by rule 405 of Regulation S-T [ 17 CPR 232.405] for any registration statement or post-effective amendment thereto on Form N4 that includes or amends information provided in response to Items 2(b)(2), 2(d), 3, 4, 5, 6(a) (instruction), 6(d), 6(e), 7(e), 10, 17, 26(c), or 3 lA with regard to Contracts that are being sold to new investors. (A) Except as required by paragraph (h)(i)(B), the Interactive Data File must be submitted as an amendment to the registration statement to which the Interactive Data File relates. The amendment must be submitted on or before the date the registration statement or post-effective amendment that contains the related information becomes effective. (B) In the case of a post-effective amendment to a registration statement filed pursuant to paragraphs (b)(l)(i), (ii), (v), (vi), or (vii) of rule 485 under the Securities Act [17 CPR 230.485(b)], the Interactive Data File must be submitted either with the filing, or as an amendment to the registration statement to which the Interactive Data Filing relates that is submitted on or before the date the post-effective amendment that contains the related information becomes effective. (ii) An Interactive Data File is required to be submitted to the Commission in the manner provided by rule 405 of Regulation S-T for any form of prospectus filed pursuant to paragraphs (c) or (e) of rule 497 under the Securities Act [17 CPR 230.497(c) or (e)] that includes information provided in response to Items 2(b)(2), 2(d), 3, 4, 5, 6(a) (instruction), 6(d), 6(e), 7(e), 10, 17, 26(c), or 31A that varies from the registration statement with regard to Contracts that are being sold to new investors. The Interactive Data File must be submitted with the filing made pursuant to rule 497. (iii) The Interactive Data File must be submitted in accordance with the specifications in the (i) VerDate Sep<11>2014 Website Addresses. Any website address included in an electronic version of the Statutory Prospectus must include an active hyperlink or other means of facilitating access that leads 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00125 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.010</GPH> ddrumheller on DSK120RN23PROD with RULES2 EDGAR Filer Manual, and in such a manner that will permit the information for each Contract, and, for any information that does not relate to all of the Classes in a filing, each Class of the Contract to be separately identified. 60102 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations directly to the relevant website address. This requirement does not apply to an electronic Statutory Prospectus filed on the EDGAR system. D. Incorporation by Reference 1. General Requirements All incorporation by reference must comply with the requirements of this Form and the following rules on incorporation by reference: rule 411 under the Securities Act [17 CPR 230.411] (general rules on incorporation by reference in a prospectus); rule 303 of Regulation S-T [17 CPR 232.303] (specific requirements for electronically filed documents); and rule 0-4 under the Investment Company Act [17 CPR 270.0-4] (additional rule on incorporation by reference for investment companies). In general, a Registrant may incorporate by reference, in the answer to any item of Form N-4 not required to be in the prospectus, any information elsewhere in the registration statement or in other statements, applications, or reports filed with the Commission. Specific Rules for Incorporation by Reference in Form N-4: (a) A Registrant may not incorporate by reference into a prospectus information that Part A of this Form requires to be included in a prospectus, except as specifically permitted by Part A of the Form. (b) A Registrant may incorporate by reference any or all of the SAI into the prospectus (but not to provide any information required by Part A to be included in the prospectus) without delivering the SAi with the prospectus. (c) A Registrant may incorporate by reference into the SAi or its response to Part C information that Parts B and C require to be included in the Registrant's registration statement. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00126 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.011</GPH> ddrumheller on DSK120RN23PROD with RULES2 2. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60103 PART A- INFORMATION REQUIRED IN A PROSPECTUS Item 1. Front and Back Cover Pages (a) Front Cover Page. Include the following information on the outside front cover page of the prospectus: (1) The Registered Separate Account's name. (2) The Insurance Company's name. (3) The types of Contracts offered by the prospectus (e.g., group, individual, single premium immediate, flexible premium deferred). (4) The name of the Contract and the Class or Classes, if any, to which the Contract relates. (5) The types oflnvestment Options offered under the Contract, and a cross-reference to the prospectus appendix providing additional information about each option. (6) A statement that the Contract is a complex investment and involves risks, including potential loss of principal. For a Contract with Index-Linked Options: (a) Prominently state as a percentage the maximum amount of loss an investor could experience from negative Index performance after taking into account the current limits on Index loss provided under the Contract. The Insurance Company may provide a range of the maximum amount of loss if the Contract offers different limits on Index loss. Prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses, which would mean risk of loss of the entire amount invested; and (b) Prominently state that the Insurance Company limits the amount an investor can earn on an Index-Linked Option. Prominently state, for each type oflimit offered (e.g., cap, participation rate, etc.), the lowest limit on Index gains that may be established under the Contract. (7) A statement that the Contract is not a short-term investment and is not appropriate for an investor who needs ready access to cash. Briefly state that withdrawals could result in surrender charges, negative Contract Adjustments, taxes, and tax penalties, as applicable. Prominently state as a percentage the maximum potential loss resulting from a negative Contract Adjustment, if applicable. (8) A statement that the Insurance Company's obligations under the Contract are subject to its financial strength and claims-paying ability. (9) The date of the prospectus. (11) The statement that additional information about certain investment products, including [type of Contract], has been prepared by the Securities and Exchange Commission's staff and is available at Investor.gov. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00127 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.012</GPH> ddrumheller on DSK120RN23PROD with RULES2 (10) The statement required by rule 481(b)(l) under the Securities Act [17 CFR 230.481(b)(l)]. 60104 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (12) If applicable, the legend: "If you are a new investor in the Contract, you may cancel your Contract within 10 days of receiving it without paying fees or penalties[, although we will apply the Contract Adjustment]. In some States, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total Contract value. You should review this prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply." Instruction. A Registrant may include on the front cover page any additional information, subject to the requirements of General Instruction C.3 .(b) and (c). (b) Back Cover Page. Include the following information on the outside back cover page of the prospectus: (1) A statement that the SAI includes additional information about the Registrant. Explain that the SAI is available, without charge, upon request, and explain how investors may make inquiries about their Contracts. Provide a toll-free (or collect) telephone number for investors to call to request the SAi, to request other information about the Contracts, and to make investor inquiries. Instructions. 1. A Registrant may indicate, if applicable, that the SAi and other information are available on its website and/or by email request. 2. A Registrant may indicate, if applicable, that the SAi and other information are available from an insurance agent or financial intermediary (such as a broker-dealer or bank) through which the Contracts may be purchased or sold. 3. When a Registrant (or an insurance agent or financial intermediary through which Contracts may be purchased or sold) receives a request for the SAi, the Registrant (or insurance agent or financial intermediary) must send the SAI within 3 business days ofreceipt of the request, by first-class mail or other means designed to ensure equally prompt delivery. (2) A statement whether and from where information is incorporated by reference into the prospectus as permitted by General Instruction D. Unless the information is delivered with the prospectus, explain that the Registrant will provide the information without charge, upon request (referring to the telephone number provided in response to paragraph (b)(l)). Instruction. The Registrant may combine the information about incorporation by reference with the statements required under paragraph (b)(1 ). (3) A statement that reports and other information about the Registered Separate Account, and, if applicable, the Insurance Company, are available on the Commission's website at https://www.sec.gov, and that copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov. (4) The EDGAR contract identifier for the Contract on the bottom of the back cover page in type size Item 2. Overview of the Contract VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00128 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.013</GPH> ddrumheller on DSK120RN23PROD with RULES2 smaller than that generally used in the prospectus (e.g., 8-point modem type). Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60105 Provide a concise description of the Contract including the following information: (a) Purpose. Briefly describe the purpose(s) of the Contract (e.g., to help the investor accumulate assets through an investment portfolio, to provide or supplement the investor's retirement income, to provide death and/or other benefits). State for whom the Contract may be appropriate (e.g., by discussing a representative investor's time horizon, liquidity needs, and financial goals). (b) Phases of Contract. Briefly describe the accumulation (savings) phase and annuity (income) phase of the Contract. (1) This discussion should include a brief overview of the Investment Options available under the Contract. Instructions. 1. Prominently disclose that additional information about each Investment Option is provided in an appendix to the prospectus and provide a cross-reference to the appendix. 2. A detailed explanation of the Registered Separate Account, Portfolio Companies, Indexes, and Investment Options is not necessary and should be avoided. (2) With respect to any Index-Linked Option currently offered under the Contract, include the following information. (i) State that the Insurance Company will credit positive or negative interest at the end of a Crediting Period to amounts allocated to an Index-Linked Option based, in part, on the performance of the Index. (ii) Disclose that an investor could lose a significant amount of money if the Index declines in value. (iv)Briefly explain that the Insurance Company limits the positive Index return used in calculating interest credited to an Index-Linked Option at the end of its Crediting Period. Briefly describe the manner( s) in which the Insurance Company limits positive returns through the use of a cap, participation rate, or some other rate or measure. Provide an example of how such rate could operate to limit a positive Index return (e.g., "if the Index return is 12% and the cap rate is 4%, we will credit 4% in interest at the end of the Crediting Period, meaning your Contract value will increase by 4%"). Prominently state, for each type oflimit offered (e.g., cap, participation rate, etc.), the lowest limit on Index gains that may be established under the Contract. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00129 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.014</GPH> ddrumheller on DSK120RN23PROD with RULES2 (iii)Briefly explain that the Insurance Company limits the negative Index return used in calculating interest credited to an Index-Linked Option at the end of its Crediting Period. Briefly describe the manner(s) in which the Insurance Company limits negative returns through the use of a floor, buffer, or some other rate or measure. Provide an example of how such rate could operate to limit a negative Index return (e.g., "if the Index return is -25% and the buffer rate is -10%, we will credit -15% (the amount that exceeds the buffer rate) at the end of the Crediting Period, meaning your Contract value will decrease by 15%"). Prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses. 60106 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (3) State, if applicable, that if an investor annuitizes, the investor will receive a stream of income payments, however (i) the investor will be unable to make withdrawals, and (ii) death benefits and living benefits will terminate. (c) Contract Features. Summarize the Contract's primary features, including death benefits, withdrawal options, loan provisions, and Contract benefits. If applicable, state that the investor will incur an additional fee for selecting a particular benefit. (d) Contract Adjustment. If applicable, state that an investor could lose a significant amount of money due to the Contract Adjustment if amounts are removed from an Investment Option or from the Contract prior to the end of a specified period. Briefly describe transactions subject to a Contract Adjustment. Item 3. Key Information Include the following information: Important Information You Should Consider About the [Contract] FEES, EXPENSES, AND ADIDSTMENTS Are There Charges or Adjustments for Early Withdrawals? Are There Transaction Charges? Are There Ongoing Fees and Expenses? RISKS Is There a Risk of Loss from Poor Performance? Is this a Short-Term Investment? What Are the Risks Associated with the Investment Options? RESTRICTIONS Are There Restrictions on the VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00130 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.015</GPH> ddrumheller on DSK120RN23PROD with RULES2 What Are the Risks Related to the Insurance Company? Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60107 Investment Options? Are There any Restrictions on Contract Benefits? TAXES What Are the Contract's Tax Implications? CONFLICTS OF INTEREST How Are Investment Professionals Compensated? Should I Exchange My Contract? Instructions. l. General. (a) Disclose the required information in the tabular presentation(s) reflected herein, in the order specified. A Registrant may exclude any disclosures that are not applicable, or modify any of the statements required to be included, so long as the modified statement contains comparable information. Notwithstanding this instruction and General Instruction C.3.(d)(ii), the title, headings, and sub-headings for this tabular presentation may not be modified or substituted with alternate terminology unless otherwise provided. (b) Provide cross-references to the location in the Statutory Prospectus where the subject matter is described in greater detail. Cross-references in electronic versions of the Summary Prospectus and/or Statutory Prospectus should link directly to the location in the Statutory Prospectus where the subject matter is discussed in greater detail, or should provide a means of facilitating access to that information through equivalent methods or technologies. The cross-reference should be adjacent to the relevant disclosure, either within the table row, or presented in an additional table column. (c) All disclosures provided in response to this Item should be short and succinct, consistent with the limitations of a tabular presentation. (d) All disclosures provided in this tabular presentation also must be presented in a question and answer format. Unless the context otherwise requires, when answering a question presented on a given row of the table, begin the response with "Yes" or "No" in bold text. (a) Are There Charges or Adjustments for Early Withdrawals? Include a statement that if the investor withdraws money from the Contract within [x] years following the investor's last purchase VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00131 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.016</GPH> ddrumheller on DSK120RN23PROD with RULES2 2. Fees, Expenses, and Adjustments. 60108 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations payment, the investor will be assessed a surrender charge. Include in this statement the maximum surrender charge (as a percentage of [purchase payment or amount surrendered]), and the maximum number of years that a surrender charge may be assessed since the last purchase payment under the Contract. Provide an example of the maximum surrender charge an investor could pay (in dollars) under the Contract assuming a $100,000 investment (e.g., "[i]fyou make an early withdrawal, you could pay a surrender charge of up to $9,000 on a $100,000 investment. This loss will be greater if there is a negative Contract Adjustment, taxes, or tax penalties."). If applicable, include a statement that if all or a portion of Contract value is removed from an Investment Option or from the Contract before the expiration of a specified period, the Insurance Company will apply a Contract Adjustment, which may be negative. Include in this statement the maximum potential loss (as a percentage of the investment) resulting from a negative adjustment (e.g., "[y]ou could lose up to XX% of your investment due to the contract adjustment"). Provide an example of the maximum negative adjustment that could be applied (in dollars) assuming a $100,000 investment (e.g., "[i]fyou allocate $100,000 to an investment option with a 3-year Crediting Period and later withdraw the entire amount before the 3 years have ended, you could lose up to $90,000 of your investment. This loss will be greater if you also have to pay a surrender charge, taxes, and tax penalties."). Provide a brief narrative description of the Contract transactions subject to the Contract Adjustment (e.g., withdrawals, surrender, annuitization, etc.). Are There Transaction Charges? State that in addition to surrender charges and Contract Adjustments (if applicable), the investor may also be charged for other transactions, and provide a brief narrative description of the types of such charges (e.g., front-end loads, charges for transferring cash value between Investment Options, charges for wire transfers, etc.). (b) (c) Are There Ongoing Fees and Expenses? Include the following information, in the order specified: (i) Minimum and Maximum Annual Fee Table. (A) The legend: "The table below describes the fees and expenses that you may pay each year, depending on the Investment Options and optional benefits you choose. Please refer to your Contract specifications page for information about the specific fees you will pay each year based on the options you have elected." (8) Provide Minimum and Maximum Annual Fees in substantially the following tabular format, in the order specified. Minimum [ ]% Maximum [ ]% r l¾ [ ]% r l¾ [ ]% (C) Explain, in a parenthetical or footnote to the table or each caption, the basis for each percentage (e.g., % of separate account value or benefit base, or % of net asset value). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00132 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.017</GPH> ddrumheller on DSK120RN23PROD with RULES2 Annual Fee Base Contract (varies by Contract Class) Portfolio Company fees and expenses Optional benefits available for an additional charge (for a single optional benefit, if elected) Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60109 (D) Calculate Base Contract fees by dividing the total amount of Base Contract fees (including dollar-based Contract expenses) collected during the year that are attributable to the Contract by the total average net assets that are attributable to the Contract. (E) If the Insurance Company offers multiple Portfolio Companies under the Contract, it should disclose the minimum and maximum "Annual Portfolio Company Expenses" calculated in accordance with Item 3 of Form N-lA [17 CFR §§ 239.15A and 274.1 lA] (before expense reimbursements or fee waiver arrangements). If the Insurance Company charges a Platform Charge to make any of the Portfolio Companies available as investment options under the Contract, the Insurance Company should include the maximum Platform Charge associated with each Portfolio Company when calculating minimum and maximum Annual Portfolio Company Expenses. (F) The Minimum Annual Fee means the lowest current fee for each annual fee category (i.e., the least expensive Contract Class, the lowest Portfolio Company Total Annual Operating Expenses, and the least expensive optional benefit available for an additional charge). The Maximum Annual Fee means the highest current fee for each annual fee category (i.e., the most expensive Contract Class, the highest Portfolio Company Total Annual Operating Expenses, and the most expensive optional benefit available for an additional charge). (G) For Contracts that offer Index-Linked Options and impose ongoing fees and expenses on the Index-Linked Options, Variable Options, and/or Fixed Options, precede the table with a prominent statement explaining that: (1) there is an implicit ongoing fee on Index-Linked Options to the extent that an investor's participation in Index gains is limited by the Insurance Company through the use of a cap, participation rate, or some other rate or measure; (2) this means that the investor's returns may be lower than the Index's returns; (3) in return for accepting this limit on Index gains, an investor will receive some protection from Index losses; and (4) this implicit ongoing fee is not reflected in the tables below. (ii) Lowest and Highest Annual Cost Table. (A) The legend: "Because your Contract is customizable, the choices you make affect how much you will pay. To help you understand the cost of owning your Contract, the following table shows the lowest and highest cost you could pay each year, based on current charges. This estimate assumes that you do not take withdrawals from the Contract, which could add surrender charges and negative Contract Adjustments that substantially increase costs." (B) Provide Lowest and Highest Annual Costs in substantially the following tabular format, in the order specified. Lowest Annual Cost: Highest Annual Cost: VerDate Sep<11>2014 sr1 Assumes: • • • • • • 21:21 Jul 23, 2024 Investment of $100,000 5% annual appreciation Least expensive combination of Jkt 262001 PO 00000 Frm 00133 Fmt 4701 Sfmt 4725 Investment of $100,000 5% annual appreciation Most expensive combination of E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.018</GPH> ddrumheller on DSK120RN23PROD with RULES2 sr1 Assumes: 60110 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Lowest Annual Cost: sr l • • • Contract Classes and Portfolio Company fees and expenses No optional benefits No sales charges No additional purchase payments, transfers or withdrawals • • Highest Annual Cost: $[] Contract Classes, optional benefits, and Portfolio Company fees and expenses No sales charges No additional purchase payments, transfers or withdrawals (C) Calculate the Lowest and Highest Annual Cost estimates in the following manner: a. Calculate the dollar amount of fees that would be assessed based on the assumptions described in the table above for each of the first 10 Contract years. b. Total each year's fees (discounted to the present value using a 5% annual discount rate) and divide by 10 to calculate the estimated dollar amounts that are required to be set forth in the table above. c. Sales loads, other than ongoing sales charges, should be excluded from the Lowest and Highest Annual Cost estimates. d. Amounts of any bonus payment should be excluded from the Lowest and Highest Annual Cost estimates. e. Unless otherwise provided, the least and most expensive combination of Contract Classes, Portfolio Company fees and expenses, and optional benefits should be based on the disclosures provided in the Example in Item 4. If a different combination of Contract Classes, Annual Portfolio Company Expenses, and/or optional benefits would result in different Minimum or Maximum fees in different years, use the least expensive and most expensive combination of Contract Classes, Annual Portfolio Company Expenses, and optional benefits each year. (iii) For Contracts that offer Index-Linked Options and that do not impose any ongoing fees and expenses under the Contract, prominently state, in lieu of the disclosure required by Instructions 2(c)(i) and (ii), that (1) there is an implicit ongoing fee on Index-Linked Options to the extent that an investor's participation in index gains is limited by the Insurance Company through the use of a cap, participation rate, or some other rate or measure; (2) this means that the investor's returns may be lower than the Index's returns; and (3) in return for accepting this limit on Index gains, an investor will receive some protection from Index losses. 3. Risks. investing in the Contract. For a Contract with Index-Linked Options, prominently state as a percentage the maximum amount of loss an investor could experience from negative Index performance after taking into account the current limits on Index loss provided under the Contract. The Insurance Company may provide a range of the maximum amount of loss if the Contract VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00134 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.019</GPH> ddrumheller on DSK120RN23PROD with RULES2 (a) Is There a Risk ofLoss from Poor Performance? State that an investor can lose money by Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60111 offers different limits on Index loss. Prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses, which would mean risk of loss of the entire amount invested. (b) Is This a Short-Term Investment? State that a Contract is not a short-term investment and is not appropriate for an investor who needs ready access to cash, accompanied by a brief explanation. State that amounts withdrawn from the Contract may result in surrender charges, taxes, and tax penalties. If applicable, state that amounts removed from an Investment Option or from the Contract before the end of a specified period may also result in a negative Contract Adjustment and loss of positive Index performance. For Investment Options that mature at the end of a specified period, state that Contract value will be reallocated at the end of the period according to the investor's instructions, and disclose the default reallocation in the absence of such instructions. (c) What Are the Risks Associated with the Investment Options? State that an investment in the Contract is subject to the risk of poor investment performance and can vary depending on the performance of the Investment Options available under the Contract (e.g., Portfolio Companies, if a Variable Option, or the Index, if an Index-Linked Option), that each Investment Option (including any Fixed Option) will have its own unique risks, and that the investor should review the available Investment Options before making an investment decision. For Index-Linked Options, also state that: (A)The cap, participation rate, or some other rate or measure, as applicable, will limit positive Index returns (e.g., limited upside). Provide an example for each type of limit imposed under the Contract (e.g., "if the Index return is 12% and the cap rate is 4%, we will credit 4% in interest at the end of the Crediting Period"), and prominently state that this may result in the investor earning less than the Index return; (B) The floor, buffer, or some other rate or measure, as applicable, will limit negative Index returns (e.g., limited protection in the case of market decline). Provide an example for each type of limit imposed under the Contract (e.g., "if the Index return is -25% and the buffer rate is -10%, we will credit -15% (the amount that exceeds the buffer rate) at the end of the Crediting Period"); and (C) If applicable, the Index is a "price return index," not a "total return index," and therefore does not reflect dividends paid on the securities composing the Index, and/or the Index deducts fees and costs when calculating Index performance. In these cases, state that this will reduce the Index return and will cause the Index to underperform a direct investment in the securities composing the Index. subject to the risks related to the Insurance Company, including that any obligations (including under any Fixed Options and Index-Linked Options), guarantees, or benefits are subject to the claims-paying ability of the Insurance Company. Further state that more information about the Insurance Company, including if applicable its financial strength ratings, is available upon request, and indicate how such requests can be made (e.g., via toll-free telephone number). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00135 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.020</GPH> ddrumheller on DSK120RN23PROD with RULES2 (d) What Are the Risks Related to the Insurance Company? State that an investment in the Contract is 60112 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Instruction. A Registrant may include the Insurance Company's financial strength rating(s) and omit the portion of the disclosures regarding the availability of the Insurance Company's financial strength ratings specified by the last sentence of Instruction 3.(d). 4. Restrictions. (a) Are There Limits on the Investment Options? State whether there are any restrictions that may limit the Investment Options that an investor may choose, as well as any limitations on the transfer of Contract value among Investment Options. State any reservation of rights by the Insurance Company or the Registered Separate Account under the Contract, including if applicable, the right to remove or substitute Portfolio Companies, add or remove Index-Linked Options and change the features of an Index-Linked Option from one Crediting Period to the next, including the Index and the current limits on Index gains and losses (subject to any contractual minimum guarantees), substitute the Index of an Index-Linked Option during its Crediting Period, and stop accepting additional purchase payments. (b) Are There Any Restrictions on Contract Benefits? State whether there are any restrictions or limitations relating to benefits offered under the Contract (e.g., death benefits, living benefits, Contract loans, performance "locks" relating to the Contract Adjustment, etc.), and/or whether a benefit may be modified or terminated by the Insurance Company. If applicable, state that withdrawals that exceed limits specified by the terms of a Contract benefit may affect the availability of the benefit by reducing the benefit by an amount greater than the value withdrawn, and/or could terminate the benefit. 5. Taxes-What are the Contract's Tax Implications? State that an investor should consult with a tax professional to determine the tax implications of an investment in and purchase payments received under the Contract, and that there is no additional tax benefit to the investor if the Contract is purchased through a tax-qualified plan or individual retirement account (IRA). Explain that withdrawals will be subject to ordinary income tax and may be subject to tax penalties. 6. Conflicts ofInterest. (a) How Are Investment Professionals Compensated? State that some investment professionals may receive compensation for selling the Contract to investors, and briefly describe the basis upon which such compensation is typically paid (e.g., commissions, revenue sharing, compensation from affiliates and third parties). State that these investment professionals may have a financial incentive to offer or recommend the Contract over another investment. (b) Should I Exchange My Contract? State that some investment professionals may have a financial Instruction. A Registrant may omit these line-items if neither the Registrant nor any of its related companies pay financial intermediaries for the sale of the Contract or related services. Item 4. Fee Table VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00136 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.021</GPH> ddrumheller on DSK120RN23PROD with RULES2 incentive to offer an investor a new contract in place of the one the investor already owns, and that an investor should only exchange their contract if the investor determines, after comparing the features, fees, and risks of both contracts, and any fees or penalties to terminate the existing contract, that it is preferable for the investor to purchase the new contract rather than continue to own the existing contract. 60113 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Include the following information: The following tables describe the fees, expenses, and adjustments that you will pay when buying, owning, and surrendering or making withdrawals from an Investment Option or from the Contract. Please refer to your Contract specifications page for information about the specific fees you will pay each year based on the options you have elected. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, surrender or make withdrawals from an Investment Option or from the Contract, or transfer Contract value between Investment Options. State premium taxes may also be deducted. Transaction Expenses Sales Load Imposed on Purchases (as a percentage of purchase payments) % Deferred Sales Load (or Surrender Charge) (as a percentage of purchase payments or amount surrendered, as applicable) % Transfer Fee % The next table describes the adjustments, in addition to any transaction expenses, that apply if all or a portion of the Contract value is removed from an Investment Option or from the Contract before the expiration of a specified period. Adiustments Contract Adjustment Maximum Potential Loss (as a percentage of Contract value at the start of the Crediting Period or amount withdrawn, as applicable) % The next table describes the fees and expenses that you will pay each year during the time that you own the Contract (not including Portfolio Company fees and expenses). If you choose to purchase an optional benefit, you will pay additional charges, as shown below. Annual Contract Expenses ddrumheller on DSK120RN23PROD with RULES2 VerDate Sep<11>2014 Base Contract Expenses (as a percentage of average account value or Contract value) % Optional Benefit Expenses (as a percentage of benefit base or other (e.g., average account value)) % 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00137 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.022</GPH> $_ Administrative Expenses 60114 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Annual Contract Expenses [n addition to the fees described above, we limit the amount you can earn on [certain ofJ the Index-Linked Options. This means your returns may be lower than the Index's returns. In return for accepting this limit on Index gains, you will receive some protection from Index losses. The next item shows the minimum and maximum total operating expenses charged by the Portfolio Companies that you may pay periodically during the time that you own the Contract. Expenses shown may change over time and may be higher or lower in the future. These amounts also include applicable Platform Charges if you choose to invest in certain Portfolio Companies. A complete list of Portfolio Companies available under the Contract, including their annual expenses, may be found at the back of this document. Annual Portfolio Company Expenses Minimum (expenses that are deducted from Portfolio Company assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) % Maximum % Example This Example is intended to help you compare the cost of investing in the Variable Options with the cost of investing in other annuity contracts that offer variable options. These costs include transaction expenses, annual Contract expenses, and Annual Portfolio Company Expenses. The Example assumes all Contract value is allocated to the Variable Options. The Example does not reflect the Contract Adjustment. Your costs could differ from those shown below if you invest in Index-Linked Options or Fixed Options. The Example assumes that you invest $100,000 in the Variable Options for the time periods indicated. The Example also assumes that your investment has a 5% return each year and assumes the most expensive combination of Annual Portfolio Company Expenses and optional benefits available for an additional charge. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: ddrumheller on DSK120RN23PROD with RULES2 If you annuitize at the end of the applicable time period: 3 years $- $- 1 year 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00138 $ 3 years $- VerDate Sep<11>2014 5 years 5 years $- Fmt 4701 Sfmt 4725 $ E:\FR\FM\24JYR2.SGM 24JYR2 10 years $_ 10 years $ ER24JY24.023</GPH> 1 year If you surrender your Contract at the end of the applicable time period: Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations If you surrender your Contract at the end of the applicable time period: If you do not surrender your Contract: 1 year 3 years 5 years 10 years $_ $_ $_ $_ 1 year 3 years 5 years 10 years $_ $_ $_ $_ 60115 Instructions 1. Include the narrative explanations in the order indicated. A Registrant may modify a narrative explanation if the explanation contains comparable information to that shown, and may omit a narrative explanation that is not applicable under the Contract. 2. Assume that the Contract is owned during the accumulation period for purposes of the table (including the Example). If an annuitant would pay different fees or be subject to different expenses, disclose this in a brief narrative and provide a cross-reference to those portions of the prospectus describing these fees. 3. A Registrant may omit captions if the Registrant does not charge or reserve the right to charge the fees or expenses covered by the captions. 4. Round all dollar figures to the nearest dollar and all percentages to the nearest hundredth of one percent. 5. In the Transaction Expenses, Adjustments, and Annual Contract Expenses tables, the Registrant must disclose the maximum guaranteed charge, unless a specific instruction directs otherwise. If a fee other than a Contract Adjustment is calculated based on a benchmark (e.g., a fee that varies according to volatility levels or Treasury yields), the Registrant must also disclose the maximum guaranteed charge as a single number. The Registrant may disclose the current charge, in addition to the maximum charge, if the disclosure of the current charge is no more prominent than, and does not obscure or impede understanding of, the disclosure of the maximum charge. In addition, the Registrant may include in a footnote to the table a tabular, narrative, or other presentation providing further detail regarding variations in the charge. For example, if deferred sales charges decline over time, the Registrant may include in a footnote a presentation regarding the scheduled reductions in the deferred sales charges. 6. Provide a separate fee table (or separate column within the table) for each Contract offered by the prospectus that has different fees. 7. For a Contract with more than one Class, provide a separate response for each Class. 8. "Sales Load Imposed on Purchases" includes the maximum sales load imposed upon purchase payments and may include a tabular presentation, within the larger table, of the range of such sales loads. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00139 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.024</GPH> ddrumheller on DSK120RN23PROD with RULES2 Transaction Expenses 60116 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 9. "Deferred Sales Load" includes the maximum contingent deferred sales load (or surrender charge), expressed as a percentage of the original purchase price or amount surrendered, and may include a tabular presentation, within the larger table, of the range of contingent deferred sales loads over time. 10. "Transfer Fee" includes the maximum fee charged for any exchange or transfer of Contract value between Investment Options or from the Registered Separate Account to another investment company or from the Registered Separate Account to the insurance company's general account. The Registrant may include a tabular presentation of the range of transfer fees unless such a presentation would be so lengthy as to encumber the larger table, in which case the Registrant should only provide a crossreference to the narrative portion of the prospectus discussing the transfer fee. 11.Ifthe Registrant (or any other party pursuant to an agreement with the Registrant) charges any other transaction fee, add another caption describing it and list the (maximum) amount or basis on which the fee is deducted. Adjustments 12. "Contract Adjustment Maximum Potential Loss" includes the maximum negative Contract Adjustment that may be imposed, expressed as a percentage of Contract value at the start of the Crediting Period or of the amount withdrawn, as applicable. The Registrant should list in a footnote the Contract transactions subject to a Contract Adjustment. Annual Contract Expenses 13.Administrative Expenses include any Contract, account, or similar fee imposed on a dollar basis and charged on any recurring basis (e.g., $50 per year). 14.Base Contract Expenses include mortality and expense risk fees and account fees and expenses. Account fees and expenses include all fees and expenses charged to any Investment Option (except sales loads, mortality and expense risk fees, and optional benefits expenses) that are deducted on a percentage basis. 15.Optional Benefits Expenses include any optional features (e.g., enhanced death benefits and living benefits) offered under the Contract for an additional charge. 16.Ifthe Registrant (or any other party pursuant to an agreement with the Registrant) imposes any other recurring charge (other than Annual Portfolio Company Expenses), add another caption describing it and list the (maximum) amount or basis on which the charge is deducted. 17. If a Registrant offers multiple Portfolio Companies, it should disclose the minimum and maximum "Annual Portfolio Company Expenses" for any Portfolio Company calculated in accordance with Item 3 of Form N-lA [17 CFR §§ 239.15A and 274.1 lA (before expense reimbursements or fee waiver arrangements). If the Insurance Company charges a Platform Charge to make any of the Portfolio Companies available as investment options under the Contract, the Registrant should include the maximum Platform Charge associated with each Portfolio Company when calculating minimum and maximum Annual Portfolio Company Expenses. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00140 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.025</GPH> ddrumheller on DSK120RN23PROD with RULES2 Annual Portfolio Company Expenses Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60117 18.A Registrant may also reflect, in an additional line-item to the range of Annual Portfolio Company Expenses, minimum and maximum Annual Portfolio Company Expenses calculated in accordance with Item 3 of Form N-lA that include expense reimbursements or fee waiver arrangements that are in place and reflected in the Portfolio Company's registration statement pursuant to Item 3 of Form N1A. If the Registrant provides this disclosure, also disclose the period for which the expense reimbursements or fee waiver arrangement is expected to continue, and, if applicable, that it can be terminated at any time at the option of a Portfolio Company. If the Registrant charges a Platform Charge to make any of the Portfolio Companies available as investment options under the Contract, the Registrant should include the current Platform Charge associated with each Portfolio Company when calculating minimum and maximum Annual Portfolio Company Expenses that include expense reimbursements or fee waiver arrangements. Example 19.For purposes of the Example(s) in the table, provide the following for each Variable Option Contract Class: (a) Assume that the percentage amounts listed under "Annual Contract Expenses" remain the same in each year of the 1-, 3-, 5-, and 10-year periods; (b) The most expensive combination of Contract features must be shown first. Additional expense presentations are permitted, but not required; (c) Assume the maximum sales load that may be deducted from purchase payments is deducted; (d) For any breakpoint in any fee, assume that the amount of Variable Option (and Portfolio Company) assets remains constant as of the level at the end of the most recently completed fiscal year; (e) Assume no exchanges or other transactions; (f) Reflect any Contract expenses by dividing the total amount of Contract expenses (including dollar- based Contract expenses) collected during the year that are attributable to the Contract by the total average net assets that are attributable to the Contract. Add the resulting percentage to Base Contract expenses and assume that it remains the same in each year of the 1-, 3-, 5-, and 10-year periods; (g) Reflect any deferred sales load (or surrender charge) by assuming a complete surrender on the last day of the year; (h) Provide the information required in the second section of the Example only if Variable Option fees upon annuitization are different from those charged upon surrender; and (i) Provide the information required in the third section of the Example only if a sales load or other fee is charged upon a complete surrender. Summarize the principal risks of purchasing a Contract, including as applicable: (a) Market Risk. Explain the principal risks of investing in an Investment Option, including the risks of VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00141 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.026</GPH> ddrumheller on DSK120RN23PROD with RULES2 Item 5. Principal Risks of Investing in the Contract 60118 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations negative investment performance and, for a Contract with Index-Linked Options, prominently state as a percentage the maximum amount of loss an investor could experience from negative Index performance after taking into account the current limits on Index loss provided under the Contract. The Insurance Company may provide a range of the maximum amount of loss if the Contract offers different limits on Index loss. Prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses, which would mean risk of loss of the entire amount invested. (b) Early Withdrawal Risk. State that Contracts are unsuitable as short-term savings vehicles. Explain the limitations on access to cash value through withdrawals, including, as applicable, surrender charges, negative Contract Adjustments, loss of interest, and the possibility of adverse tax consequences. State the maximum potential loss resulting from a negative Contract Adjustment, as a percentage. (c) Index-Linked Option Risk. In addition to the potential loss from negative Index performance, describe the principal risks of investing in any Index-Linked Option offered under the Contract. State that an investor is not invested in the Index or in the securities tracked by the Index. Instructions. Include in this discussion, as applicable: (1) The principal risks relating to limiting positive Index returns , the possibility of losses despite limits on negative Index returns, interest crediting methodologies, the impact of Contract fees on the amount of interest credited, and the reallocation of Contract value at the end of an IndexLinked Option's Crediting Period, (2) The principal risks associated with the Index, including risks relating to type (e.g., market risk, small-cap risk, foreign securities risk, emerging market risk, etc.), the exclusion of dividends from Index return, and market volatility. Specify which risks relate to each Index offered under the Contract. Describe the principal risks related to the possible substitution of the Index before the end of an Index-Linked Option's Crediting Period. (d) Contract Benefits Risk. Describe the principal risks associated with any benefits under the Contract, including the impact of excess withdrawals, if applicable. (e) Insurance Company Risk. Explain the principal risks associated with the Insurance Company's ability to meet its guarantees under the Contract, including risks relating to its financial strength and claimspaying ability. (f) Contract Changes Risk. Describe the principal risks relating to any material reservation of rights under the Contract, including if applicable, the right to remove or substitute Portfolio Companies, add or remove Index-Linked Options and change the features of an Index-Linked Option from one Crediting Period to the next, stop accepting additional purchase payments, and impose investment restrictions or limitations on transfers. Concisely discuss the organization and operation or proposed operation of the Insurance Company, Registered Separate Account, Variable Options, Index-Linked Options, and Fixed Options. Include the information specified below, as applicable. (a) Insurance Company. Provide the name and address of the Insurance Company. State that the Insurance VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00142 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.027</GPH> ddrumheller on DSK120RN23PROD with RULES2 Item 6. Description oflnsurance Company, Registered Separate Account, and Investment Options Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60119 Company is obligated to pay all amounts promised to investors under the Contracts, subject to its financial strength and claims-paying ability. Instruction. If applicable, indicate that the Insurance Company is relying on the exemption provided by rule 12h-7 under the Securities Exchange Act (17 CFR 240.12h-7). (b) Registered Separate Account. Briefly describe the Registered Separate Account. Include a statement indicating that: (1) income, gains, and losses credited to, or charged against, the separate account reflect the separate account's own investment experience and not the investment experience of the Insurance Company's other assets; and (2) the assets of the separate account may not be used to pay any liabilities of the Insurance Company other than those arising from the Contracts. (c) Variable Options. Briefly describe the Variable Options currently offered under the Contract, including statements indicating that: (1) Contract value allocated to a Variable Option will vary based on the investment experience of the corresponding Portfolio Company in which the Variable Option invests. There is a risk of loss of the entire amount invested. (2) Information regarding each Portfolio Company, including (i) its name, (ii) its type (e.g., money market fund, bond fund, balanced fund, etc.) or a brief statement concerning its investment objectives, (iii) its investment adviser and any sub-investment adviser, (iv) current expenses, and (v) performance is available in an appendix to the prospectus, and provide cross-references. State that each Portfolio Company has issued a prospectus that contains more detailed information about the Portfolio Company, and provide instructions regarding how investors may obtain paper or electronic copies. (3) Concisely discuss the rights of investors to instruct the Insurance Company on the voting of shares of the Portfolio Companies, including the manner in which votes will be allocated. (d) Index-Linked Options. (1) Describe the Index-Linked Options currently offered under the Contract, including statements indicating that: (i) The Insurance Company will credit positive or negative interest at the end of a Crediting Period to amounts allocated to an Index-Linked Option based, in part, on the performance of the Index. An investment in an Index-Linked Option is not an investment in the Index or in any Index fund. (ii) An investor could lose a significant amount of money if the Index declines in value. (iii) An investor could lose a significant amount of money due to the Contract Adjustment if amounts (iv) The Insurance Company can add or remove Index-Linked Options and change the features of an Index-Linked Option from one Crediting Period to the next, including the Index and the current limits on Index gains and losses (subject to any contractual minimum guarantees). (v) Information regarding the features of each currently offered Index-Linked Option, including (i) VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00143 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.028</GPH> ddrumheller on DSK120RN23PROD with RULES2 are removed from an Index-Linked Option prior to the end of its Crediting Period. 60120 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations its name, (ii) its type (e.g., market Index, exchange-traded fund, etc.), or a brief statement describing the assets that the Index seeks to track (e.g., U.S. large-cap equities), (iii) its Crediting Period, (iv) its Index crediting methodology, (v) its current limit on Index loss, and (vi) its minimum limit on Index gain, is available in an appendix to the prospectus, and provide crossreferences. Instruction. This statement may be modified to conform to the table provided in response to Item 17(b). (2) Describe how interest is calculated and credited for each Index-Linked Option. (i) Limits on Index Losses (A) State that the Insurance Company will limit the negative Index return used in calculating interest credited to an Index-Linked Option at the end of its Crediting Period. Describe the manner(s) in which the Insurance Company will limit negative returns through the use of a floor, buffer, or some other rate or measure. Provide an example of how such rate could operate to limit a negative Index return (e.g., "if the Index return is -25% and the buffer rate is -10%, we will credit -15% (the amount that exceeds the buffer rate) at the end of the Crediting Period, meaning your Contract value will decrease by 15%"). (B) Disclose the current limit on Index losses for each Index-Linked Option, and state that the current limit on Index losses will not change during an Index-Linked Option's Crediting Period. Prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses. (C) Describe the factors the Insurance Company considers in determining the current limit on Index losses for an Index-Linked Option, and how that choice may impact other features of the option set by the Insurance Company. Explain what an investor should consider regarding limits on Index losses before selecting an Index-Linked Option for investment. (ii) Limits on Index Gains. (A) State that the Insurance Company will limit the positive Index return used in calculating interest credited to an Index-Linked Option at the end of its Crediting Period. Describe the manner(s) in which the Insurance Company will limit positive returns through the use of a cap, participation rate, or some other rate or measure. Provide an example of how such rate could operate to limit a positive Index return (e.g., "if the Index return is 12% and the cap rate is 4%, we will credit 4% in interest at the end of the Crediting Period, meaning your Contract value will increase by 4%"). State the current limit on Index gains for each Index-Linked Option, and state that the current limit on Index gains will not change during an Index-Linked Option's Crediting Period. Prominently state, for each type of limit offered (e.g., cap, participation rate, etc.), the lowest limit on Index gains that may be established under the Contract. Instructions. 1. An insurer may post the current limit on Index gains for each Index-Linked Option on VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00144 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.029</GPH> ddrumheller on DSK120RN23PROD with RULES2 (B) Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60121 a website that is publicly accessible, free of charge, and incorporate this information by reference into the prospectus. An insurer that relies on this approach must state in the prospectus at the place where the information required by this Item would normally appear that the information about current limits on Index gains is incorporated by reference from [provide website address]. 2. The website address must be specific enough to lead investors directly to the current limits on Index gains, rather than to the home page or other section of the website on which the limits are posted. Include on the website current limits that are available for all Contract investors, including variations in limits (e.g., due to distribution channel, state requirements, optional benefits, date of Contract purchase, etc.). Only include those limits that are currently available for the Index-Linked Options offered under the Contract. (C) Describe the factors the Insurance Company considers in determining the current limit on Index gains for an Index-Linked Option, and how that choice may impact other features of the option set by the Insurance Company. Explain what an investor should consider regarding limits on Index gains before selecting an Index-Linked Option for investment. (iii)Crediting Period. (A) Generally describe the Index-Linked Option Crediting Periods available under the Contract (e.g., 1, 3, and 6 years) and the factors an investor should consider regarding different Crediting Period lengths before selecting an Index-Linked Option for investment. (B) Prominently state that amounts must remain in an Index-Linked Option until the end of its Crediting Period to be credited with all or partial interest, as applicable, and to avoid a possible Contract Adjustment in addition to potential surrender charges and tax consequences. Describe the transactions subject to a Contract Adjustment. Provide crossreferences to related disclosure in the prospectus. (iv)Methodology and Examples. (A)For each Index crediting methodology, describe how interest is calculated and credited at the end of a Crediting Period based on the interest crediting formula or performance measure (e.g. point-to-point, step-up calculations, enhanced performance). (B) For each Index, provide a bar chart showing the annual return for each of the last 10 calendar years (or for the life of the Index if less than 10 years). Provide a hypothetical example alongside each Index return that reflects the return after applying a 5% cap and a 10% buffer. The bar chart shown below provides the Index's annual returns for the last 10 calendar years (or for the life of the Index ifless than 10 years), as well as the Index returns after applying a hypothetical 5% cap and a hypothetical -10% buffer. The chart illustrates the variability of the returns from year to year and shows how hypothetical limits on Index gains and losses may affect these returns. Past performance is not necessarily an indication of future performance. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00145 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.030</GPH> ddrumheller on DSK120RN23PROD with RULES2 Include the following legend before the bar chart, in the format specified: 60122 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations The performance below is NOT the performance of any Index-Linked Option. Your performance under the Contract will differ, perhaps significantly. The performance below may reflect a different return calculation, time period, and limit on Index gains and losses than the Index-Linked Options, and does not reflect Contract fees and charges, including surrender charges and the Contract Adjustment, which reduce performance. Instructions. I.Include only one legend if bar charts for multiple Indexes are presented. 2.Provide the corresponding numerical return adjacent to each bar. 3.If the Contract does not offer any Index-Linked Option that uses a cap in its Index crediting methodology, the Insurance Company may reflect the rate or measure used to limit Index gains under the Contract assuming a hypothetical percentage comparable to a 5% cap. If the Contract does not offer any Index-Linked Option that uses a buffer in its Index crediting methodology, the Insurance Company may reflect the rate or measure used to limit Index losses under the Contract assuming a hypothetical percentage comparable to a -10% buffer. 4.If applicable, disclose in a footnote to the table that the Index is a "price return index," not a "total return index," and therefore does not reflect the dividends paid on the assets composing the Index, which will reduce the Index return and cause the Index to underperform a direct investment in the securities composing the Index. 5 .If applicable, disclose in a footnote to the table that the Index provider deducts fees and costs when calculating the Index return, which will reduce the Index return and will cause the Index to underperform a direct investment in the securities composing the Index. 6.Do not include additional performance presentations or historical Index performance that precedes the inception of the Index. (C) Provide a numerical example to illustrate the mechanics of each type of Index crediting methodology in a clear, concise, and understandable manner. Include the following legend, in the format specified: The following examples illustrate how we calculate and credit interest under each Index crediting methodology assuming hypothetical Index returns and hypothetical limits on Index gains and losses. The examples assume no withdrawals. Instructions. 2.Include in the example a positive Index return above the limit on Index gains and a negative Index return below the limit on Index losses. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00146 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.031</GPH> ddrumheller on DSK120RN23PROD with RULES2 I .Assume hypothetical returns and limits that are reasonable based on current and anticipated market conditions and Contract sales. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60123 3 .Reflect any charges subtracted from interest credited or deducted from Contract value in the Index-Linked Options. 4.Additional examples, charts, graphs, or other presentations may be included if clear, concise, and understandable. (v) Indexes. (A) For each Index, briefly describe the types of investments that compose the Index. Direct the investor to additional information about the Index. Instructions. 1. Where there is more than one version of an Index (for example a total return version, price return version), it should be clear which Index relates to the Index-Linked Option. 2. If the Index is an exchange-traded fund ("ETF"), clarify whether the Index performance is based on the ETF's Net Asset Value or closing value. Also clarify if the performance is based on the share price of the ETF and the impact of using share price as opposed to total return. 3. If applicable, state that the Index is a "price return index," not a "total return index," and therefore does not reflect dividends paid on the securities composing the Index. If applicable, state that the Index deducts fees and costs when calculating Index performance. In these cases, state that this will reduce the Index return and cause the Index to underperform a direct investment in the securities composing the Index. (B) State that the Insurance Company reserves the right to substitute an Index prior to the end of a Crediting Period. Explain: (a) all circumstances that could necessitate a substitution; (b) how the Insurance Company would choose a replacement Index; (c) when and how investors will be notified of any such change; (d) how Index return will be calculated at the end of the Crediting Period; and (e) what would happen if a suitable replacement Index were not found, including whether the Index-Linked Option will be discontinued prior to the end of the Crediting Period. (vi)Maturity. State whether investors will receive advance notice of a maturing Index-Linked Option. Disclose how an investor may provide instructions on reallocating Contract value at the end of the Crediting Period, and any automatic default reallocation in the absence of such instructions. (vii) Other Material Features. Describe any other material aspect of the Index-Linked Options, including limitations on transfers to or from the Index-Linked Options, rate holds, "bailout" provisions, start dates, and holding accounts. If applicable, briefly describe how charges may impact Index-Linked Option value. (e) Fixed Options. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00147 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.032</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instruction. Explain how investors will be informed oflndex-Linked Options available for allocation at the end of a Crediting Period, including any changes to currently offered IndexLinked Options, and the discontinuance or addition oflndex-Linked Options. 60124 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations (1) Describe the Fixed Options currently offered under the Contract. State that information regarding the features of each currently offered Fixed Option, including (i) its name, (ii) its term, and (iii) its minimum guaranteed interest rate, is available in an appendix to the prospectus, and provide crossreferences. Instruction. This statement may be modified to conform to the table provided in response to Item 17(c). (2) Describe how interest is calculated and when it is credited for each Fixed Option. Disclose the length of the term and the minimum guaranteed interest rate. Instruction. Disclose the minimum guaranteed interest rate as a numeric rate, rather than referring to any minimums permitted under State law. (i) Contract Adjustment. If applicable, state that an investor could lose a significant amount of money due to the Contract Adjustment if amounts are removed from a Fixed Option prior to the end of its term. Describe the transactions subject to a Contract Adjustment. Provide cross references to related disclosure in the prospectus. (ii) Maturity. If applicable, state whether investors will receive advance notice of a maturing Fixed Option. Disclose how an investor may provide instructions on reallocating Contract value at the end of the term, and any automatic default reallocation in the absence of such instructions. Instruction. Explain how investors will be informed of Fixed Options available for allocation at the end of a term, including how current rates may be obtained and any changes to currently offered Fixed Options, and the discontinuance or addition of Fixed Options. (iii)Other Material Features. Describe any other material aspect of the Fixed Options, including limitations on transfers to or from the Fixed Options, rate holds, start dates, and holding accounts. Item 7. Charges and Adjustments (a) Description. Briefly describe all current charges deducted from purchase payments, Contract value, or Investment Option assets, or any other source (e.g., sales loads, premium taxes and other taxes, administrative and transaction charges, risk charges, Contract loan charges, and optional benefit charges). Indicate whether each charge will be deducted from purchase payments, Contract value, or Investment Option assets, the proceeds of withdrawals or surrenders, or some other source. When possible, specify the amount of any charge as a percentage or dollar figure (e.g., 0.95% of average daily net assets or $5 per exchange). For recurring charges, specify the frequency of the deduction (e.g., daily, monthly, annually). Identify the person who receives the amount deducted, briefly explain what is provided in consideration for the charges, and explain the extent to which any charge can be modified. Where it is possible to identify what is provided in consideration for a particular charge (e.g., use of sales load to pay distribution costs), explain what is provided in consideration for that charge separately. 1. Describe the sales loads applicable to the Contract and how sales loads are charged and calculated, including the factors affecting the computation of the amount of the sales load. If the Contract has a front-end sales load, describe the sales load as a percentage of the applicable measure of purchase payments and as a percentage of the net amount invested for each breakpoint. For Contracts with a deferred sales load, describe the sales load as a percentage of the applicable measure of purchase VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00148 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.033</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instructions. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60125 payments (or other basis) that the deferred sales load may represent. Percentages should be shown in a table. Identify any events on which a deferred sales load is deducted (e.g., surrender or withdrawal). The description of any deferred sales load should include how the deduction will be allocated among Investment Options and when, if ever, the sales load will be waived (e.g., if the Contract provides a free withdrawal amount). 2. Unless set forth in response to Instruction 1, list any special purchase plans or methods established pursuant to a rule or an exemptive order that reflect scheduled variations in, or elimination of, the sales load (e.g., group discounts, waiver of sales load upon annuitization or attainment of a certain age, waiver of deferred sales load for a certain percentage of Contract value ("free corridor"), investment of proceeds from another policy, exchange privileges, employee benefit plans, or the terms of a merger, acquisition or exchange offer made pursuant to a plan of reorganization); identify each class of individuals or transactions to which such plans apply; state each different sales charge available as a percentage of the public offering price and as a percentage of the net amount invested; and state from whom additional information may be obtained. Describe any other special purchase plans or methods established pursuant to a rule that reflect other variations in, or elimination of, the sales load or in any administrative charge or other deductions from purchase payments, and generally describe the basis for the variation or elimination in the sales load or other deduction (i.e., the size of the purchaser, a prior or existing relationship with the purchaser, the purchaser's assumption of certain administrative functions, or other characteristics that result in differences in costs or services). 3. If proceeds from sales loads will not cover the expected costs of distributing the Contracts, identify from what source the shortfall, if any, will be paid. If any shortfall is to be made from assets from the Insurance Company's general account, disclose, if applicable, that any amounts paid by the Insurance Company may consist, among other things, of proceeds derived from Base Contract Expenses. 4. If the Contract's charge for premium or other taxes varies according to jurisdiction, identification of the range of current premium or other taxes is sufficient. (b) Commissions Paid to Dealers. State the commissions paid to dealers as a percentage of purchase payments. (c) Portfolio Company Charges. State that charges are deducted from and expenses paid out of the assets of the Portfolio Companies that are described in the prospectuses for those companies. (d) Operating Expenses. Describe any type of operating expenses for which the Registered Separate Account is responsible. If organizational expenses of the Registered Separate Account are to be paid out of its assets, explain how the expenses will be amortized and the period over which the amortization will occur. (e) Contract A4fustment. Describe any Contract Adjustment under the Contract. 1. State the maximum potential loss, as a percentage, that could result from a negative Contract Adjustment. 2. Define the period during which the Contract Adjustment applies. 3. Describe all transactions subject to the Contract Adjustment. For example, as applicable, state whether an adjustment will be applied if amounts are transferred or withdrawn from an Investment Option or from the Contract due to a partial withdrawal, surrender, election of an annuity option, payment of death VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00149 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.034</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instructions. 60126 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations benefit proceeds, etc., or where a particular Contract option (such as a withdrawal under a guaranteed living benefit) is utilized. Describe any circumstances under which the adjustment will be waived. 4. Briefly describe in simple terms the manner in which the Contract Adjustment is determined, including: (i) whether the adjustment results from the application of a particular formula or set of factors (e.g., a change in value of hypothetical derivative instruments); (ii) the factors that may cause a positive or negative adjustment (e.g., timing of withdrawal, Index volatility, increase in external interest rates, etc.); (iii) a description of any proportionate withdrawal calculations; and (iv) how a positive or negative adjustment is applied (e.g., allocated among the Investment Options, applied to a withdrawal amount). Detailed disclosure on the method of calculating the Contract Adjustment should be placed in the SAi in response to Item 22( d). Provide a cross-reference to the SAi for more information about the Contract Adjustment, including examples illustrating the operation of the adjustment. 5. State how the Contract Adjustment will affect the Contract value, surrender value, death benefit, and any living benefits, and disclose that a negative adjustment could reduce the values under the Contract by an amount greater than the value withdrawn. If applicable, state the impact of the Contract Adjustment on interest to be credited to an Index-Linked Option at the end of its Crediting Period. 6. Describe the relationship between the Contract Adjustment and any other charges, fees, or adjustments applied under the Contract, including, for example, the sequence in which charges, fees, and adjustments are applied. 7. Briefly describe the purpose of the Contract Adjustment (e.g., to transfer risk from the Insurance Company to the investor to protect the Insurance Company from losses on its own investments supporting Contract guarantees if amounts are withdrawn prematurely). 8. Disclose how an investor can obtain information about the current value of a Contract Adjustment. State that this value can fluctuate daily, and the current value quoted to the investor may differ from the actual value calculated at the time of adjustment. Item 8. General Description of Contracts (a) Contract Rights. Identify the person or persons (e.g., the investor, participant, annuitant, or beneficiary) who have material rights under the Contracts, and the nature of those rights (1) during the accumulation period, (2) during the annuity period, and (3) after the death of the annuitant or investor. Instruction. Disclose all material state variations and intermediary-specific variations (e.g., variations resulting from different brokerage channels) to the offering. (b) Contract Provisions and Limitations. Briefly describe any provisions and limitations for: ( 1) minimum Contract value, and the consequences of falling below that amount; (2) allocation of purchase payments among Investment Options; (3) transfer of Contract value between Investment Options, including transfer programs (e.g., dollar cost averaging, portfolio rebalancing, asset allocation programs, and automatic transfer programs); Instruction. In discussing conversion or exchange of Contracts, the Registrant should include any time limits on conversion or exchange, the name of the company issuing the other contract and whether that company is affiliated with the issuer of the Contract, and how the cash value of the Contract will be affected by the conversion or exchange. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00150 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.035</GPH> ddrumheller on DSK120RN23PROD with RULES2 (4) conversion or exchange of Contracts for another contract, including a fixed or variable annuity or life insurance contract; and Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60127 (5) buyout offers, including interests or participations therein. (c) General Account. Describe the obligations under the Contract that are funded by the Insurance Company's general account (e.g., Index-Linked or Fixed Options, death benefits, living benefits, or other benefits available under the Contract), and state that these amounts are subject to the Insurance Company's claims-paying ability and financial strength. (d) Contract or Registered Separate Account Changes. Briefly describe the changes that can be made in the Contracts or the operations of the Registered Separate Account by the Registered Separate Account or the Insurance Company, including: (1) why a change may be made (e.g., changes in applicable law or interpretations oflaw); (2) who, if anyone, must approve any change (e.g., the investor or the Commission); and (3) who, if anyone, must be notified of any change. Instruction. Describe only those changes that would be material to a purchaser of the Contracts, such as a reservation of the right to deregister the Registered Separate Account under the Investment Company Act or to substitute one Portfolio Company for another. Do not describe possible non-material changes, such as changing the time of day at which accumulation unit values are determined. (e) Class ofPurchasers. Disclose any limitations on the class or classes of purchasers to whom the Contract is being offered. (f) Frequent Transfers among Variable Options. (1) Describe the risks, if any, that frequent transfers of Contract value among Variable Options may present for other investors and other persons (e.g., participants, annuitants, or beneficiaries) who have material rights under the Contract. (2) State whether or not the Registered Separate Account or Insurance Company has adopted policies and procedures with respect to frequent transfers of Contract value among Variable Options. (3) If neither the Registered Separate Account nor the Insurance Company has adopted any such policies and procedures, provide a statement of the specific basis for the view of the Insurance Company that it is appropriate for the Registered Separate Account and Insurance Company not to have such policies and procedures. (4) If the Registered Separate Account or Insurance Company has any such policies and procedures, describe those policies and procedures, including: (i) whether or not the Registered Separate Account or Insurance Company discourages frequent transfers of Contract value among Variable Options; (iii) any policies and procedures of the Registered Separate Account or Insurance Company for deterring frequent transfers of Contract value among Variable Options, including any restrictions imposed by the Registered Separate Account or Insurance Company to prevent or minimize frequent transfers. Describe each of these policies, procedures, and restrictions with specificity. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00151 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.036</GPH> ddrumheller on DSK120RN23PROD with RULES2 (ii) whether or not the Registered Separate Account or Insurance Company accommodates frequent transfers of Contract value among Variable Options; and 60128 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Indicate whether each of these restrictions applies uniformly in all cases or whether the restriction will not be imposed under certain circumstances, including whether each of these restrictions applies to trades that occur through omnibus accounts at intermediaries, such as investment advisers, broker-dealers, transfer agents, and third party administrators. Describe with specificity the circumstances under which any restriction will not be imposed. Include a description of the following restrictions, if applicable: (A)any restrictions on the volume or number of transfers that may be made within a given time period; (B) any transfer fee; (C) any costs or administrative or other fees or charges that are imposed on persons deemed to be engaged in frequent transfers of Contract value among Variable Options, together with a description of the circumstances under which such costs, fees, or charges will be imposed; (D)any minimum holding period that is imposed before a transfer may be made from a Variable Option into another; (E) any restrictions imposed on transfer requests submitted by overnight delivery, electronically, or via facsimile or telephone; and (F) any right of the Registered Separate Account or Insurance Company to reject, limit, delay, or impose other conditions on transfers or to terminate or otherwise limit Contracts based on a history of frequent transfers among Variable Options, including the circumstances under which such right will be exercised. (5) If applicable, include a statement, adjacent to the disclosure required by paragraphs (f)(l) through (£)(4) of this Item, that the Statement of Additional Information includes a description of all arrangements with any person to permit frequent transfers of Contract value among Variable Options. Item 9. Annuity Period Briefly describe the annuity options available. The discussion should include: (a) Material factors that determine the level of annuity benefits; (b) The annuity commencement date (give the earliest and latest possible dates); (c) Frequency and duration of annuity payments, and the effect of these on the level of payment; (d) The effect of assumed investment return; (e) Any minimum amount necessary for an annuity option and the consequences of an insufficient amount; and (f) Rights, if any, to change annuity options or to effect a transfer of investment base after the annuity Instructions: 1. VerDate Sep<11>2014 Describe the choices, if any, available to a prospective annuitant, and the effect of not specifying a 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00152 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.037</GPH> ddrumheller on DSK120RN23PROD with RULES2 commencement date. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60129 choice. Where an annuitant is given a choice in assumed investment return, explain the effect of choosing a higher, as opposed to a lower, assumed investment return. 2. Detailed disclosure on the method of calculating annuity payments should be placed in the SAI in response to Item 25. (g) If applicable, state that the investor will not be able to withdraw any Contract value amounts after the annuity commencement date. Item 10. Benefits Available Under the Contract (a) Include the following information: The following table[s] summarize information about the benefits available under the contract. Name of Benefit Purpose Is Benefit Standard or Optional Maximum Fee Brief Description of Restrictions/ Limitations rl¾ rl¾ Instructions. l. General. (a) The table required by paragraph (a) of this Item is meant to provide a tabular summary overview of the benefits described in paragraph (b) of this Item (e.g., standard or optional death benefits, standard or optional living benefits, etc.). (b) If the Contract offers multiple benefits of the same type (e.g., death benefit, accumulation benefit, withdrawal benefit, long-term care benefit), the Registrant may include multiple tables in response to paragraph (a) of this Item, if doing so might better permit comparisons of different benefits of the same type. Registrants that choose to use a single table should consider whether grouping together multiple benefits of the same type, with appropriate headings, might similarly permit better comparisons of those benefits. (c) The Registrant should include appropriate titles, headings, or any other information to promote clarity and facilitate understanding of the table(s) presented in response to paragraph (a) of this Item. For example, if certain optional benefits are only available to certain investors (e.g., investors who invested during specific time periods), the table could include footnotes or headings to identify which optional benefits are affected and to whom those optional benefits are available. 2. Name ofBenefit. State the name of each benefit included in the table(s). 4. Is Benefit Standard or Optional. State whether the benefit is standard or optional. If the Registrant includes titles or headings for the table(s) specifying whether the benefit is standard or optional, the Registrant does not need to include the "Is Benefit Standard or Optional" column in the table(s). 5. Maximum Fee. State the maximum fee associated with each benefit included in the table(s). Include parentheticals providing information about what the stated percentage refers to (e.g., percentage of VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00153 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.038</GPH> ddrumheller on DSK120RN23PROD with RULES2 3. Purpose. Briefly describe the purpose of each benefit included in the table(s). 60130 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Contract value, percentage of benefit base, etc.). 6. Current Fee. The Registrant may disclose the current charge in a separate column titled "Current Charge," if the disclosure of the current charge is no more prominent than, and does not obscure or impede understanding of, the disclosure of the maximum charge. 7. BriefDescription ofRestrictions/Limitations. Briefly describe the restriction(s) or limitation(s) associated with each benefit. Registrants are encouraged to use short phrases (e.g., "benefit limits investment options available," "withdrawals could terminate benefit") to describe the restriction(s) or limitation(s). (b) Briefly describe any benefits (e.g., death benefits, living benefits, etc.) offered under a Contract, including: (1) Whether the benefit is standard or optional; (2) The operation of the benefit, including the amount of the benefit and how the benefit amount may vary, the circumstances under which the value of the benefit may increase or be reduced (including the effect of withdrawals), and how the benefit may be terminated; (3) Fees and costs, if any, associated with the benefit; and (4) How the benefit amount is calculated and payable and the effect of choosing a specific method of payment on calculation of the benefit. (c) Briefly describe any limitations, restrictions and risks associated with any benefit offered under the Contract (e.g., restrictions on which Portfolio Companies or Investment Options may be selected; risk of reduction or termination of benefit or of additional costs resulting from excess withdrawals). Instruction. In responding to paragraphs (b) and (c) of this Itern, provide one or more examples illustrating the operation of each benefit in a clear, concise, and understandable manner. Item 11. Purchases and Contract Value (a) Briefly describe the procedures for purchasing a Contract. Include a concise explanation of: (1) the minimum initial and subsequent purchase payments required and any limitations on the amount of purchase payments that will be accepted (if there are separate limits for each Investment Option, state these limits); (2) a statement of when initial and subsequent purchase payments are credited; and (3) a description of how purchase payments are allocated to the Investment Options, including how such allocation would take place in the absence of instructions from the investor. (1) Describe the manner in which purchase payments are credited, including: (A) an explanation that purchase payments are credited on the basis of accumulation unit value; (B) how accumulation unit value is determined; and (C) how the number of accumulation units credited to a Contract is determined. (2) Explain that investment performance of the Portfolio Companies, expenses, and deduction of VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00154 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.039</GPH> ddrumheller on DSK120RN23PROD with RULES2 (b) For Variable Options: Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60131 certain charges affect accumulation unit value and/or the number of accumulation units. (3) Describe when calculations of accumulation unit value are made and that purchase payments are credited to a Contract on the basis of accumulation unit value next determined after receipt of a purchase payment. (c) Identify each principal underwriter (other than the Insurance Company) of the Contracts and state its principal business address. If the principal underwriter is affiliated with the Registrant or any affiliated person of the Registrant, identify how they are affiliated (e.g., the principal underwriter is controlled by the Insurance Company). Item 12. Surrenders and Withdrawals (a) Surrender and Withdrawal. Briefly describe how surrenders and withdrawals can be made from a Contract, including any limits on the ability to surrender, how the proceeds are calculated, and when they are payable. Briefly describe the potential effect of such surrenders and withdrawals. (b) Additional Information Regarding Surrender and Withdrawal. Indicate generally whether and under what circumstances surrenders and withdrawals are available under a Contract, including the minimum and maximum amounts that may be surrendered or withdrawn, any limits on their availability, how the proceeds are calculated, and when the proceeds are payable. (c) Effect of Surrender and Withdrawal. Indicate generally whether and under what circumstances surrenders or withdrawals will affect a Contract's cash value, death benefit(s), and/or any living benefits, and whether any charge(s) and Contract Adjustment will apply. (d) Investment Option Allocation. Describe how surrenders and withdrawals will be allocated to the Investment Options, including how such allocation would take place in the absence of instructions from the investor. Instruction. The Registrant should generally describe the terms and conditions that apply to surrender and withdrawal transactions. Technical information regarding the determination of amounts available to be surrendered or withdrawn should be included in the SAL (e) Involuntary Redemption. Briefly describe any provision for involuntary redemptions under the Contract and the reasons for it, such as the size of the account or infrequency of purchase payments. (f) Revocation Rights. Briefly describe any revocation rights (e.g., "free look" provisions), including a description of how the amount refunded is determined. Disclose the method for crediting Variable Option earnings to purchase payments during the free look period, and whether Investment Options are limited during the free look period. Item 13. Loans Briefly describe the loan provisions of the Contract, including any of the following that are applicable. (a) Availability ofLoans. State that a portion of the Contract's cash surrender value may be borrowed. State (b) Limitations. Describe any limits on availability ofloans (e.g., a prohibition on loans during the first Contract year). (c) Interest. Describe how interest accrues on the loan, when it is payable, and how interest is treated if not VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00155 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.040</GPH> ddrumheller on DSK120RN23PROD with RULES2 how the amount available for a loan is calculated. 60132 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations paid. Explain how interest on the amount in the collateral account is credited to the Contract and allocated to the investment options. (d) Effect on Contract Value and Death Benefit. Describe how loans and loan repayments affect Contract value and how they are allocated among the investment options, including, if applicable, how such allocation would take place in the absence of instructions from the investor. Include (i) a brief explanation that amounts borrowed under a Contract do not participate in the investment experience of an Investment Option and that loans, therefore, can affect the Contract value and death benefit whether or not the loan is repaid, and (ii) a brief explanation that the Contract value at surrender and the death proceeds payable will be reduced by the amount of any outstanding Contract loan plus accrued interest. (e) Other Effects. Describe any other effect that a loan could have on the Contract (e.g., the effect of a Contract loan in excess of Contract value). (f) Procedures. Describe the loan procedures, including how and when amounts borrowed are transferred out of the Investment Options and how and when amounts repaid are credited to the Investment Options. Item 14. Taxes (a) Tax Consequences. Describe the material tax consequences to the investor and beneficiary of buying, holding, exchanging, or exercising rights under the Contract. Instruction. Discuss the taxation of annuity payments, death benefit proceeds, periodic and non-periodic withdrawals, loans, and any other distribution that may be received under the Contract, as well as the tax benefits accorded the Contract, and other material tax consequences. Describe, if applicable, whether the tax consequences vary with different uses of the Contract. (b) Qualified Plans. Identify the types of qualified plans for which the Contracts are intended to be used. Instructions: 1. Identify the types of persons who may use the plans (e.g., corporations, self-employed individuals) and disclose, if applicable, that the terms of the plan may limit the rights otherwise available under the Contracts. 2. Do not describe the Internal Revenue Code requirements for qualifications of plans or the non-annuity tax consequences of qualification (e.g., the effect on employer taxation). (c) Effect. Describe the effect, if any, of taxation on the determination of cash values or Contract values. Item 15. Legal Proceedings Instruction. For purposes of this requirement, legal proceedings are material only to the extent that they are likely to have a material adverse effect on the Registered Separate Account, the ability of the principal VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00156 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.041</GPH> ddrumheller on DSK120RN23PROD with RULES2 Describe any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Registered Separate Account, the principal underwriter, or the Insurance Company is a party. Include the name of the court where the case is pending, the date instituted, the principal parties involved, a description of the factual basis alleged to underlie the proceeding, and the relief sought. Include similar information as to any proceedings instituted, or known to be contemplated, by a governmental authority. 60133 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations underwriter to perform its contract with the Registrant, or the ability of the Insurance Company to meet its obligations under the Contracts. Item 16. Financial Statements If all of the required financial statements of the Registered Separate Account and the Insurance Company (see Item 26 and General Instruction C.3.(b)) are not in the prospectus, state, under a separate caption, where the financial statements may be found. Briefly explain how investors may obtain any financial statements not in the Statement of Additional Information. Item 17. Investment Options Available Under the Contract Include the following information as an Appendix under the heading "Appendix: Investment Options Available Under the Contract." A Registrant may modify the Appendix heading as appropriate under the Contract. (a) Variable Options. Include the following legend, in the format specified below: The following is a list of Portfolio Companies available under the Contract. More information about the Portfolio Companies is available in the prospectuses for the Portfolio Companies, which may be amended from time to time and can be found online at L_]. You can also request this information at no cost by calling [ _ ] or by sending an email request to L_]. The current expenses and performance information below reflects fee and expenses of the Portfolio Companies, but do not reflect the other fees and expenses that your Contract may charge [, such as Platform Charges]. Expenses would be higher and performance would be lower if these other charges were included. Each Portfolio Company's past performance is not necessarily an indication of future performance. Type/Investm ent Objective [Insert] Portfolio Company and Adviser/ Subadviser Current Expenses Average Annual Total Returns (as of 12/31/_j [Names of Portfolio Company and adviser/subadviser ] LJ% 1 year 5 year lOyear LJ% [_J% [_J% Instructions. 1. General. (a) Only include Portfolio Companies that are investment options under the Contract. Indicate if (b) The introductory legend to the table must provide a website address, other than the address of the Commission's electronic filing system; toll free telephone number; and email address that investors can use to obtain the prospectuses of the Portfolio Companies and to request other VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00157 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.042</GPH> ddrumheller on DSK120RN23PROD with RULES2 investments in any of the Portfolio Companies are restricted (e.g., because of a "hard" or "soft" close). 60134 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations information about the Portfolio Companies. The website address must be specific enough to lead investors directly to the prospectuses of the Portfolio Companies, rather than to the home page or other section of the website on which the materials are posted. The website could be a central site with prominent links to each document. (c) The legend may indicate, if applicable, that the prospectuses and other information are available from a financial intermediary (such as an insurance sales agent or broker-dealer) through which the Contract may be purchased or sold. (d) Registrants not relying upon rule 498AG) under the Securities Act [17 CFR 230.498AG)] with respect to the Portfolio Companies that are investment options under the Contract may, but are not required to, provide the next-to-last sentence of the first paragraph of the introductory legend to the table regarding online availability of the prospectuses. (e) If applicable, include a statement explaining that updated performance information is available and providing a website address and/or toll-free (or collect) telephone number where the updated information may be obtained. (f) Registrants may include additional rows to the table to group Portfolio Companies belonging to the same fund complex, or otherwise modify the tabular presentation, provided that the presentation does not obscure or impede understanding of the information that is required to be included, or substantially alter the required format of the table. 2. Type/Investment Objective. Briefly describe each Portfolio Company's type (e.g., money market fund, bond fund, balanced fund, etc.), or include a brief statement describing the Portfolio Company's investment objectives. 3. Portfolio Company and Adviser/Subadviser. State the name of each Portfolio Company and its adviser/subadviser, as applicable. The adviser's/sub-adviser's name may be omitted if it is incorporated into the name of the Portfolio Company. A Registrant also need not identify a subadviser whose sole responsibility for the Portfolio Company is limited to day-to-day management of the Portfolio Company's holdings of cash and cash equivalent instruments, unless the Portfolio Company is a money market fund or other Portfolio Company with a principal investment strategy of regularly holding cash and cash equivalent instruments. If the Portfolio Company has three or more sub-advisers, each of which manages a portion of the Portfolio Company's portfolio, the Registrant need not identify each such sub-adviser, except that the Registrant must identify any sub-adviser that is (or is reasonably expected to be) responsible for the management of a significant portion of the Portfolio Company's net assets. For purposes of this paragraph, a significant portion of a Portfolio Company's net assets generally will be deemed to be 30% or more of the Portfolio Company's net assets. 5. Platform Charge. If the Insurance Company charges a Platform Charge to make any of the Portfolio Companies available as investment options under the Contract, add a column titled "Platform Charge" disclosing the current Platform Charge for each Portfolio Company. If applicable, also provide a VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00158 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.043</GPH> ddrumheller on DSK120RN23PROD with RULES2 4. Current Expenses. Report "Total Annual Fund Operating Expenses" as calculated pursuant to Item 3 of Form N-lA [17 CFR §§ 239.15A and 274.1 lA], reflecting any expense reimbursements or fee waiver arrangements that are in place and reported in the Portfolio Company's registration statement pursuant to Itern 3 of Form N-1 A. If applicable, identify each Portfolio Company subject to an expense reimbursement or fee waiver arrangement and provide a footnote stating that their annual expenses reflect temporary fee reductions. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60135 footnote indicating the highest level to which any relevant Platform Charge may be increased. 6. Current Expenses+ Platform Charge. If the Insurance Company charges a Platform Charge to make any of the Portfolio Companies available as investment options under the Contract, add a column titled "Current Expenses+ Platform Charge." The column contemplated by this Instruction must be presented in a manner reasonably calculated to draw investor attention to that column. 7. Average Annual Total Returns. For purposes of this Item, "average annual total returns" means the "average annual total return" (before taxes) as calculated pursuant to Item 4(b)(2)(iii) of Form N-lA. (b) Index-Linked Options. (1) Include the following legend, in the format specified below: The following is a list of Index-Linked Options currently available under the Contract. We may change the features of the Index Linked Options listed below (including the Index and the current limits on Index gains and losses), offer new Index-Linked Options, and terminate existing Index-Linked Options. We will provide you with written notice before making any changes other than changes to current limits on Index gains. Information about current limits on Index gains is available at [website address]. Note: If amounts are removed from an Index-Linked Option before the end of its Crediting Period, we [may/will] apply a Contract Adjustment. This may result in a significant reduction in your Contract value that could exceed any protection from Index loss that would be in place if you held the option until the end of the Crediting Period. Index Type of Index Crediting Period [Name oflndex] [Insert] [ ] Year Current Minimum Limit on Limit on Index Loss Index Gain (if held until (for the life of Index end of the IndexCrediting Crediting Linked Methodology Period) Option) [ ] [ ]% [ ]% (2) Immediately below the table required by paragraph (b )(1) of Item 17, prominently disclose any minimum limits on Index losses that will always be available under the Contract or, alternatively, prominently state that the Insurance Company does not guarantee that the Contract will always offer Index-Linked Options that limit Index losses. Prominently state, for each type of limit offered (e.g., cap, participation rate, etc.), the lowest limit on Index gains that may be established under the Contract. Instructions. (a) Include appropriate cross-references in the legend to the section(s) of the prospectus that describe the features of the Index-Linked Options as well as the Contract Adjustment. (b) Only include those Index Linked Options that are available under the Contract. Indicate if VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00159 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.044</GPH> ddrumheller on DSK120RN23PROD with RULES2 1. General. 60136 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations investments in any of the Index-Linked Options are restricted (e.g., because of a "hard" or "soft" close). (c) An Insurance Company may add, modify, or exclude table headings only as necessary to describe the material features of an Index-Linked Option. (d) If an Index provider calculates the Index return in a manner that does not reflect the full investment performance of the assets tracked by the Index (e.g., the return does not reflect dividends paid on the assets composing the Index, the return reflects a fee or cost, etc.), then include a footnote to the table stating that the Index is a "price return index," not a "total return index," and therefore does not reflect dividends paid on the securities composing the Index, and/or the Index deducts fees and costs when calculating Index performance, as applicable. In these cases, state that this will reduce the Index return and cause the Index to underperform a direct investment in the securities composing the Index. (e) A website address should be provided in the legend only if the Insurance Company incorporates current limits on Index gains by reference as provided in Instruction 1 to Item 6(d)(2)(ii)(B). This website address in the legend must be the website provided in response to Instruction 1 to Item 6(d)(2)(ii)(B). (f) If the Insurance Company does not incorporate current limits on Index gains by reference, the legend should provide (in lieu of the website address) a cross-reference to the current limits on Index gains disclosed elsewhere in the prospectus pursuant to Item 6(d)(2)(ii)(B). 2. Index. Provide the name of the Index. 3. Type. Briefly describe the type oflndex (e.g., market index, exchange-traded fund, etc.), or include a brief statement describing the assets that the Index seeks to track (e.g., U.S. large-cap equities). 4. Crediting Period. State the duration of the Index-Linked Option. 5. Index Crediting Methodology. If the Insurance Company utilizes multiple index crediting methodologies under the Contract (e.g., point-to-point, step-up, enhanced upside, etc.), include a column indicting the type of methodology used for each Index-Linked Option. 6. Current Limit on Index Loss (if held until end of Crediting Period). State the current percentage used by the Insurance Company in its interest crediting methodology to limit the amount of negative Index return credited to the Index-Linked Option. Identify in the table whether this limit is a buffer, floor, or some other rate or measure. 7. Minimum Limit on Index Gain (for the life of the Index-Linked Option). State the minimum percentage the Insurance Company may use in its interest crediting methodology to limit the amount of positive Index return credited to the Index-Linked Option. Identify in the table whether this limit is a cap, participation rate, or some other rate or measure. The following is a list of Fixed Options currently available under the Contract. We may change the features of the Fixed Options listed below, offer new Fixed Options, and terminate existing Fixed Options. We will provide you with written notice before doing so. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00160 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.045</GPH> ddrumheller on DSK120RN23PROD with RULES2 (c) Fixed Options. Include the following legend, in the format specified below: Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60137 Note: If amounts are withdrawn from a Fixed Option before the end of its term, we [may/willl apply a Contract Adiustment. This may result in a significant reduction in your Contract value. Name Term Minimum Guaranteed Interest Rate [Name of Pixed Option] [ ] Year [ ]% Instructions. l. General. (a) Include appropriate cross-references in the legend to the section(s) of the prospectus that describe the features of the Fixed Options as well as the Contract Adjustment. (b) Only include those Fixed Options that are available under the Contract. (c) A Company may add, modify, or exclude table headings only as necessary to describe the material features of a Fixed Option. 2. Term. State the duration of the Fixed Option. 3. Minimum Guaranteed Interest Rate. Disclose the minimum guaranteed interest rate as a numeric rate, rather than referring to any minimums permitted under State law. (d) Restrictions. If the availability of one or more Investment Options varies by benefit offered under the Contract: (1) The following sentence should be added to the first paragraph of the legend preceding each table above, as applicable: "Depending on the [optional] benefits you choose, you may not be able to invest in certain Investment Options, as noted below."; and VerDate Sep<11>2014 [Investment Option] [Benefit #1] [Benefit #2] [Benefit #3] [Benefit #4] Investment Option A □ □ □ □ Investment Option B □ □ □ Investment Option C □ □ 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00161 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.046</GPH> ddrumheller on DSK120RN23PROD with RULES2 (2) Indicate which Investment Options are available (or are restricted) under the benefits offered under the Contract. The Appendix could incorporate a separate table that is structured pursuant to the following example, or could use any other presentation that might promote clarity and facilitate understanding: Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations [Investment Option] [Benefit #1] Investment Option D □ VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 [Benefit #2] Frm 00162 Fmt 4701 Sfmt 4725 [Benefit #3] E:\FR\FM\24JYR2.SGM 24JYR2 [Benefit #4] ER24JY24.047</GPH> ddrumheller on DSK120RN23PROD with RULES2 60138 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60139 PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION Item 18. Cover Page and Table of Contents (a) Front Cover Page. Include the following information on the outside front cover page of the SAI: (1) The Registered Separate Account's name. (2) The Insurance Company's name. (3) The name of the Contract and the Class or Classes, if any, to which the Contract relates. (4) A statement or statements: (i) That the SAI is not a prospectus; (ii) How the prospectus may be obtained; and (iii) Whether and from where information is incorporated by reference into the SAI, as permitted by General Instruction D. Instruction. Any information incorporated by reference into the SAI must be delivered with the SAL (5) The date of the SAI and the prospectus to which the SAI relates. (b) Table of Contents. Include under appropriate captions (and subcaptions) a list of the contents of the SAI and, when useful, provide cross-references to related disclosure in the prospectus. Item 19. General Information and History (a) Insurance Company. Provide the date and form of organization of the Insurance Company, the name of the State or other jurisdiction in which the Insurance Company is organized, and a description of the general nature of the Insurance Company's business. Instruction. The description of the Insurance Company's business should be short and need not list all of the businesses in which the Insurance Company engages or identify the jurisdictions in which it does business if a general description (e.g., "variable annuity" or "reinsurance") is provided. (b) Registered Separate Account. Provide the date and form of organization of the Registered Separate Account and the Registered Separate Account's classification pursuant to section 4 of the Investment Company Act [15 U.S.C. 80a-4] (i.e., a separate account and a unit investment trust). (d) Ownership of Registered Separate Account Assets. If 10 percent or more of the assets of any Variable Option are not attributable to Contracts or to accumulated deductions or reserves (e.g., initial capital contributed by the Insurance Company), state what percentage those assets are of the total assets of the VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00163 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.048</GPH> ddrumheller on DSK120RN23PROD with RULES2 (c) History ofInsurance Company and Registered Separate Account. If the Insurance Company's name was changed during the past five years, state its former name and the approximate date on which it was changed. If, at the request of any State, sales of contracts offered by the Registered Separate Account have been suspended at any time, or if sales of contracts offered by the Insurance Company have been suspended during the past five years, briefly describe the reasons for and results of the suspension. Briefly describe the nature and results of any bankruptcy, receivership, or similar proceeding, or any other material reorganization, readjustment, or succession of the Insurance Company during the past five years. 60140 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Registered Separate Account. If the Insurance Company, or any other person controlling the assets, has any present intention of removing the assets from the Registered Separate Account, so state. (e) Control ofInsurance Company. State the name of each person who controls the Insurance Company and the nature of its business. Instruction. If the Insurance Company is controlled by another person that, in turn, is controlled by another person, give the name of each control person and the nature of its business. Item 20. Non-Principal Risks of Investing in the Contract Summarize the non-principal risks of purchasing a Contract to the extent not disclosed in the prospectus. Item 21. Services (a) Expenses Paid by Third Parties. Describe all fees, expenses, and costs of the Registered Separate Account that are to be paid by persons other than the Insurance Company or the Registered Separate Account, and identify those persons. (b) Service Agreements. Summarize the substantive provisions of any management-related service contract that may be of interest to a purchaser of the Contracts, under which services are provided to the Registrant in connection with the Contracts, unless the contract is described in response to some other item of the form. Indicate the parties to the contract, and the total dollars paid and by whom for each of the past three years. Instructions: 1. The term "management-related service contract" includes any contract with the Registrant to keep, prepare, or file accounts, books, records, or other documents required under Federal or State law, or to provide any similar services with respect to the daily administration of the Registered Separate Account, but does not include the following: (a) Any agreement with the Registrant to act as custodian or agent to administer purchases and redemptions under the Contracts, and (b) Any contract with the Registrant for outside legal or auditing services, or contract for personal employment entered into with the Registrant in the ordinary course of business. 2. In summarizing the substantive provisions of any management-related service contract, include the following: (a) The name of the person providing the service; (b) The direct or indirect relationships, if any, of the person with the Registered Separate Account, the Insurance Company, or the principal underwriter; and (c) The nature of the services provided, and the basis of the compensation paid for the services for the Registrant's last three fiscal years. (1) Unless disclosed in response to paragraph (b) or another item of this form, identify and state the principal business address of any person who provides significant administrative or business affairs VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00164 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.049</GPH> ddrumheller on DSK120RN23PROD with RULES2 (c) Other Service Providers. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60141 management services for the Registrant in connection with the Contracts (e.g., an "Administrator," "Sub-Administrator," "Servicing Agent"), describe the services provided, and the compensation paid for the services. (2) State the name and principal business address of the Registered Separate Account's custodian and Registrant's independent public accountant and describe generally the services performed by each. (3) If the Registered Separate Account's assets are held by a person other than the Insurance Company, a commercial bank, trust company, or depository registered with the Commission as custodian, state the nature of the business of each such person. (4) If an affiliated person of the Registered Separate Account or the Insurance Company, or an affiliated person of such an affiliated person, acts as administrative or servicing agent for the Registrant in connection with the Contracts, describe the services the person performs and the basis for remuneration. State, for the past three years, the total dollars paid for the services, and by whom. Instruction. No disclosure need be given in response to paragraph (c)(4) of this Item for an administrative or servicing agent who is also the Insurance Company. (5) If the Insurance Company is the principal underwriter of the Contracts, so state. Item 22. Purchase of Securities Being Offered (a) Describe the manner in which Registrant's securities are offered to the public. Include a description of any special purchase plans and any exchange privileges not described in the prospectus. Instruction. Address exchange privileges between Investment Options, between the Registered Separate Account and other separate accounts, and between the Registered Separate Account and contracts offered through the Insurance Company's general account. (b) Describe the method that will be used to determine the sales load on the Contracts offered by the Registrant. Instruction. Explain fully any difference in the price at which Contracts are offered to members of the public, as individuals or as groups, and the prices at which the Contracts are offered for any class of transactions or to any class of individuals, including officers, directors, members of the board of managers, or employees of the Insurance Company, underwriter, Portfolio Company, or investment adviser to the Portfolio Company. (c) Frequent Transfer Arrangements. Describe any arrangements with any person to permit frequent transfers of Contract value among Variable Options, including the identity of the persons permitted to engage in frequent transfers pursuant to such arrangements, and any compensation or other consideration received by the Registered Separate Account, the Insurance Company, or any other party pursuant to such arrangements. 1. The consideration required to be disclosed by paragraph (c) of this Item includes any agreement to maintain assets in the Registered Separate Account or in other investment companies or accounts managed or sponsored by the Insurance Company, any investment adviser of a Portfolio Company, or any affiliated person of the Insurance Company or of any such investment adviser. 2. If the Registrant has an arrangement to permit frequent transfers of Contract value among Variable VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00165 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.050</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instructions: 60142 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Options by a group of individuals, such as the participants in a defined contribution plan that meets the requirements for qualification under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)), the Registrant may identify the group rather than identifying each individual group member. (d) Contract Acijustment. Fully explain the operation of any Contract Adjustment under the Contract, including any formulas used to calculate the adjustment. Instruction. Include one or more numeric examples to illustrate the application of the Contract Adjustment. The example should include a negative adjustment, reflect surrender charges, if applicable, and disclose the percentage change in Contract value as a result of the adjustment. Item 23. Underwriters (a) Identification. Identify each principal underwriter (other than the Insurance Company) of the Contracts, and state its principal business address. If the principal underwriter is affiliated with the Registered Separate Account, the Insurance Company, or any affiliated person of the Registered Separate Account or the Insurance Company, identify how they are affiliated (e.g., the principal underwriter is controlled by the Insurance Company). (b) Offering and Commissions. For each principal underwriter distributing Contracts of the Registrant, state: (1) whether the offering is continuous; and (2) the aggregate dollar amount of underwriting commissions paid to, and the amount retained by, the principal underwriter for each of the Registrant's last three fiscal years. (c) Other Payments. With respect to any payments made by the Registrant to an underwriter of or dealer in the Contracts during the Registrant's last fiscal year, disclose the name and address of the underwriter or dealer, the amount paid and basis for determining that amount, the circumstances surrounding the payments, and the consideration received by the Registrant. Do not include information about: ( 1) Payments made through deduction from purchase payments made at the time of sale of the Contracts; or (2) Payments made from Contract values upon surrender of or withdrawal from the Contracts Instructions. I .Information need not be given about the service of mailing proxies or periodic reports of the Registered Separate Account. 2.Exclude information about bona fide contracts with the Registered Separate Account or the Insurance Company for outside legal or auditing services, or bona fide contracts for personal employment entered into with the Registered Separate Account or the Insurance Company in the ordinary course of business. 4.Information need not be given about payments made under any contract to act as administrative or servicing agent. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00166 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.051</GPH> ddrumheller on DSK120RN23PROD with RULES2 3.Information need not be given about any service for which total payments ofless than $15,000 were made during each of the Registrant's last three fiscal years. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60143 5.Ifthe payments were made under an arrangement or policy applicable to dealers generally, describe only the arrangement or policy. Item 24. Calculation of Performance Data (a) Money Market Funded Sub-Accounts. Yield quotation(s) included in the prospectus for an account or sub- account of a Registered Separate Account that holds itself out as a "money market" account or subaccount should be calculated according to paragraphs (a)(l) - (2). (1) Yield Quotation. Based on the 7 days ended on the date of the most recent balance sheet of the Registered Separate Account included in the registration statement, calculate the yield by determining the net change, exclusive of capital changes and income other than investment income, in the value of a hypothetical pre-existing account having a balance of one accumulation unit of the account or subaccount at the beginning of the period, subtracting a hypothetical charge reflecting deductions from Contracts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then multiplying the base period return by (365/7) with the resulting yield figure carried to at least the nearest hundredth of one percent. (2) Effective Yield Quotation. Based on the 7 days ended on the date of the most recent balance sheet of the Registered Separate Account included in the registration statement, calculate the effective yield, carried to at least the nearest hundredth of one percent, by determining the net change, exclusive of capital changes and income other than investment income, in the value of a hypothetical pre-existing account having a balance of one accumulation unit of the account or sub-account at the beginning of the period, subtracting a hypothetical charge reflecting deductions from Contracts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD= [(BASE PERIOD RETURN+ 1)365/7]-l. 1. When calculating the yield or effective yield quotations, the calculation of net change in account value must include all deductions that are charged to all Contracts in proportion to the length of the base period. For any account fees that vary with the size of the account, assume an account size equal to the sub-account's mean (or median) account size. 2. Deductions from purchase payments and sales loads assessed at the time of redemption or annuitization should not be reflected in the computation of yield and effective yield. However, the amount or specific rate of such deductions must be disclosed. 3. Exclude realized gains and losses from the sale of securities and unrealized appreciation and depreciation from the calculation of yield and effective yield. Exclude income other than investment mcome. 4. If applicable, disclose that the performance information may not reflect all Contract charges (contracts may impose certain charges that are not reflected in the performance of the sub-account, but reduce the value of an investment in the sub-account, such as optional benefit charges). Performance would be lower if these charges were included. (b) Other Sub-Accounts. Performance information included in the prospectus for the Registered Separate VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00167 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.052</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instructions: 60144 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Account should be calculated according to paragraphs (b)(i) - (iii). (1) Average Annual Total Return Quotation. For the 1-, 5-, and 10-year periods ended on the date of the most recent balance sheet of the Registered Separate Account included in the registration statement, calculate the average annual total return by finding the average annual compounded rates of return over the 1-, 5-, and 10-year periods that would equate the initial amount invested to the ending redeemable value, according to the following formula: Where: p a hypothetical initial purchase payment of $1,000 T average annual total return n number of years ERV= ending redeemable value of a hypothetical $1,000 purchase payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion). 1. Assume the maximum sales load (or other charges deducted from purchase payments) is deducted from the initial $1,000 purchase payment. 2. Include all recurring fees that are charged to all Contracts. For any account fees that vary with the size of the account, assume an account size equal to the sub-account's mean (or median) account size. If recurring fees charged to Contracts are paid other than by redemption of accumulation units, they should be appropriately reflected. 3. Determine the ending redeemable value by assuming a complete redemption at the end of the 1-, 5, or 10- year periods and the deduction of all nonrecurring charges deducted at the end of each period. 4. If the Registered Separate Account's registration statement has been in effect less than one, five, or ten years, the time period during which the registration statement has been in effect should be substituted for the period stated. 5. Carry the total return quotation to the nearest hundredth of one percent. 6. Total return information in the prospectus need only be current to the end of the Registered Separate Account's most recent fiscal year. 7. If applicable, disclose that the performance information may not reflect all Contract charges and provide one or more examples of such charges (contracts may impose certain charges that are not reflected in the performance of the sub-account, but reduce the value of an investment in the subaccount, such as optional benefit charges). State that performance would be lower if these charges were included. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00168 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.053</GPH> ddrumheller on DSK120RN23PROD with RULES2 Instructions: Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60145 (2) Yield Quotation. Based on a 30-day (or one month) period ended on the date of the most recent balance sheet of the Registered Separate Account included in the registration statement, calculate yield by dividing the net investment income per accumulation unit earned during the period by the maximum offering price per unit on the last day of the period, according to the following formula: YIELD= 2[(a-b + 1) 6 - 1] cd Where: a = net investment income earned during the period by the Portfolio Company attributable to shares owned by the sub-account b = expenses accrued for the period (net ofreimbursements) c = the average daily number of accumulation units outstanding during the period d = the maximum offering price per accumulation unit on the last day of the period. Instructions: 1. Include among the expenses accrued for the period all recurring fees that are charged to all Contracts. For any account fees that vary with the size of the account, assume an account size equal to the sub-account's mean (or median) account size. 2. If a broker-dealer or an affiliate (as defined in paragraph (b) of rule 1-02 of Regulation S-X [17 CFR 21 O. l-02(b)]) of the broker-dealer has, in connection with directing the Portfolio Company's brokerage transactions to the broker-dealer, provided, agreed to provide, paid for, or agreed to pay for, in whole or in part, services provided to the Portfolio Company (other than brokerage and research services as these terms are defined in section 28(e) of the Securities Exchange Act [15 U.S.C. 78bb(e)]), add to expenses accrued for the period an estimate of additional amounts that would have been accrued for the period if the Portfolio Company had paid for the services directly in an arms-length transaction. 3. Net investment income must be calculated by the Portfolio Company as prescribed by Item 26(b)(4) of Form N-lA. NOTE: (a-b) = net investment income in the Item 26(b)(4) equation. 4. Disclose the amount or specific rate of any nonrecurring account or sales charges. 5. If applicable, disclose that the performance information may not reflect all Contract charges (contracts may impose certain charges that are not reflected in the performance of the sub-account, but reduce the value of an investment in the sub-account, such as optional benefit charges). State that performance would be lower if these charges were included. (3) Non-Standardized Performance Quotation. A Registered Separate Account may calculate performance Item 25. Annuity Payments Describe the method for determining the amount of annuity payments if not described in the prospectus. In VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00169 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.054</GPH> ddrumheller on DSK120RN23PROD with RULES2 using any other historical measure of performance (not subject to any prescribed method of computation) if the measurement reflects all elements ofretum. 60146 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations addition, describe how any change in the amount of a payment after the first payment is determined. Item 26. Financial Statements (a) Registered Separate Account. Provide financial statements of the Registered Separate Account. Instructions. Include, in a separate section, the financial statements and schedules required by Regulation S-X [17 CPR 210]. Financial statements of the Registered Separate Account may be limited to: (i) An audited balance sheet or statement of assets and liabilities as of the end of the most recent fiscal year; (ii) An audited statement of operations of the most recent fiscal year conforming to the requirements of rule 6-07 of Regulation S-X [17 CPR 210.6-07]; (iii) An audited statement of cash flows for the most recent fiscal year if necessary to comply with generally accepted accounting principles; (iv) Audited statements of changes in net assets conforming to the requirements of rule 6-09 of Regulation S-X [17 CPR 210.6-09] for the two most recent fiscal years; and (v) When the anticipated effective date of a registration statement falls within 90 days subsequent to the end of the fiscal year of the Registered Separate Account, the registration statement need not include financial statements of the Registered Separate Account more current than as of the end of the third fiscal quarter of the most recently completed fiscal year of the Registered Separate Account unless the audited financial statements for such fiscal year are available. The exception contained in this Instruction does not apply when the financial statements of the Registered Separate Account have never been included in an effective registration statement for annuity contracts or life insurance contracts under the Securities Act. (b) Insurance Company. Provide financial statements of the Insurance Company. Instructions: 2. All statements and schedules of the Insurance Company required by Regulation S-X, except for the consolidated balance sheets described in rule 3-01 of Regulation S-X [17 CPR 210.3-01], and any notes to these statements or schedules, may be omitted from Part B and instead included in Part C of the registration statement. If any of this information is omitted from Part B and included in Part C, the consolidated balance sheets included in Part B should be accompanied by a statement that additional financial information about the Insurance Company is available, without charge, upon VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00170 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.055</GPH> ddrumheller on DSK120RN23PROD with RULES2 1. Include, in a separate section, the financial statements and schedules of the Insurance Company required by Regulation S-X. If the Insurance Company would not have to prepare financial statements in accordance with generally accepted accounting principles except for use in this registration statement or other registration statements filed on Forms N-3, N-4, or N-6, its financial statements may be prepared in accordance with statutory requirements. The Insurance Company's financial statements must be prepared in accordance with generally accepted accounting principles if the Insurance Company prepares financial information in accordance with generally accepted accounting principles for use by the Insurance Company's parent, as defined in rule l-02(p) of Regulation S-X [17 CPR 210.1-02(p)], in any report under sections 13(a) and 15(d) of the Securities Exchange Act [15 U.S.C. 78m(a) and 78o(d)] or any registration statement filed under the Securities Act. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60147 request. When a request for the additional financial information is received, the Registrant should send the information within 3 business days of receipt of the request, by first-class mail or other means designed to ensure equally prompt delivery. 3. Notwithstanding rule 3-12 of Regulation S-X [17 CFR 210.3-12], the financial statements of the Insurance Company need not be more current than as of the end of the most recent fiscal year of the Insurance Company. In addition, when the anticipated effective date of a registration statement falls within 90 days subsequent to the end of the fiscal year of the Insurance Company, the registration statement need not include financial statements of the Insurance Company more current than as of the end of the third fiscal quarter of the most recently completed fiscal year of the Insurance Company unless the audited financial statements for such fiscal year are available. The exceptions to rule 3-12 of Regulation S-X contained in this Instruction 3 do not apply when: (a) The Insurance Company's financial statements have never been included in an effective registration statement for annuity contracts or life insurance contracts under the Securities Act; or (b) The balance sheet of the Insurance Company at the end of either of the two most recent fiscal years included in response to this Item shows a combined capital and surplus, if a stock company, or an unassigned surplus, if a mutual company, ofless than $2,500,000; or (c) The balance sheet of the Insurance Company at the end of a fiscal quarter within 135 days of the expected date of effectiveness under the Securities Act (or a fiscal quarter within 90 days of filing if the registration statement is filed solely under the Investment Company Act) would show a combined capital surplus, if a stock company, or an unassigned surplus, if a mutual company, ofless than $2,500,000. If two fiscal quarters end within the 135 day period, the Insurance Company may choose either for purposes of this test. Any interim financial statements required by this Item need not be comparative with financial statements for the same interim period of an earlier year. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00171 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.056</GPH> ddrumheller on DSK120RN23PROD with RULES2 (c) Changes in and Disagreements with Accountants. For Contracts with Index-Linked Options and/or Fixed Options subject to a Contract Adjustment, include the information required by Item 304 of Regulation S-K [17 CFR 229.304]. 60148 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations PART C-OTHERINFORMATION Item 27. Exhibits Subject to General Instruction D regarding incorporation by reference and rule 483 under the Securities Act [17 CFR 230.483], file the exhibits listed below as part of the registration statement. Letter or number the exhibits in the sequence indicated and file copies rather than originals, unless otherwise required by rule 483. Reflect any exhibit incorporated by reference in the list below and identify the previously filed document containing the incorporated material. (a) Board ofDirectors Resolution. The resolution of the board of directors of the Insurance Company authorizing the establishment of the Registered Separate Account. (b) Custodian Agreements. All agreements for custody of securities and similar investments of the Registered Separate Account, including the schedule of remuneration. (c) Underwriting Contracts. Underwriting or distribution contracts between the Registered Separate Account or Insurance Company and a principal underwriter and agreements between principal underwriters or the Insurance Company and dealers. (d) Contracts. The form of each Contract, including any riders or endorsements. (e) Applications. The form of application used with any Contract provided in response to (d) above. (f) Insurance Company's Certificate ofIncorporation and By-Laws. The Insurance Company's current certificate of incorporation or other instrument of organization and by-laws and any related amendment. (g) Reinsurance Contracts. Any contract ofreinsurance related to a Contract. (h) Participation Agreements. Any participation agreement or other contract relating to the investment by the Registered Separate Account in a Portfolio Company. (i) Administrative Contracts. Any contract relating to the performance of administrative services in connection with administering a Contract. G) Other Material Contracts. Other material contracts not made in the ordinary course of business to be performed in whole or in part on or after the filing date of the registration statement. (k) Legal Opinion. An opinion and consent of counsel regarding the legality of the securities being registered, stating whether the securities will, when sold, be legally issued and represent binding obligations of the Insurance Company. (1) Other Opinions. Copies of any other opinions, appraisals, or rulings, and consents of their use relied on in preparing this registration statement and required by section 7 of the Securities Act [15 U.S.C. 77g]. (n) Initial Capital Agreements. Any agreements or understandings made in consideration for providing the initial capital between or among the Registered Separate Account, Insurance Company, underwriter, or initial investors and written assurances from the Insurance Company or initial investors that purchases were made for investment purposes and not with the intention of redeeming or reselling. (o) Form ofInitial Summary Prospectuses. The form of any Initial Summary Prospectus that the Registrant VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00172 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.057</GPH> ddrumheller on DSK120RN23PROD with RULES2 (m)Omitted Financial Statements. Financial statements omitted from Item 26. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60149 intends to use on or after the effective date of the registration statement, pursuant to rule 498A under the Securities Act [17 CPR 230.498A]. (p) Power ofAttorney. Any power of attorney included pursuant to rule 483(b) under the Securities Act [17 CPR 230.483(b)]. (q) Letter Regarding Change in Certifying Accountant. For Contracts with Index-Linked Options and/or Fixed Options subject to a Contract Adjustment, a letter from the Insurance Company's former independent accountant regarding its concurrence or disagreement with the statements made by the Insurance Company in the registration statement concerning the resignation or dismissal as the Insurance Company's principal accountant. (r) Historical Current Limits on Index Gains. Any exhibit that contains the information called for in Item 31A(b). Instructions. 1. Schedules (or similar attachments) to the exhibits required by this Item are not required to be filed provided that they do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the exhibit or the disclosure document. Each exhibit filed must contain a list briefly identifying the contents of all omitted schedules. Registrants need not prepare a separate list of omitted information if such information is already included within the exhibit in a manner that conveys the subject matter of the omitted schedules and attachments. In addition, the Registrant must provide a copy of any omitted schedule to the Commission or its staff upon request. 3. The Registrant may redact specific provisions or terms of exhibits required to be filed by paragraphs (g) and G) of this Item if the Registrant customarily and actually treats that information as private or confidential and if the omitted information is not material. If it does so, the Registrant should mark the exhibit index to indicate that portions of the exhibit or exhibits have been omitted and include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both not material and the type that the Registrant treats as private or confidential. The Registrant also must include brackets indicating where the information is omitted from the filed version of the exhibit. If requested by the Commission or its staff, the Registrant must promptly provide on a supplemental basis an unredacted copy of the exhibit and its materiality and privacy or confidentiality analyses. Upon evaluation of the Registrant's supplemental materials, the Commission or its staff may require the Registrant to amend its filing to include in the exhibit any previously redacted information that is not adequately supported by the Registrant's analyses. The Registrant may request confidential treatment of the supplemental material submitted under this Instruction 3 pursuant to Rule 83 of the Commission's Organizational Rules [17 CPR 200.83] while it is in the possession of the Commission or its staff. After completing its review of the supplemental information, the Commission or its staff will return or destroy it, if the Registrant complies with the procedures outlined in Rule 418 under the Securities Act [17 CPR 230.418]. 4. Each exhibit identified in the exhibit index (other than an exhibit filed in eXtensible Business VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00173 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.058</GPH> ddrumheller on DSK120RN23PROD with RULES2 2. The Registrant may redact information from exhibits required to be filed by this Item if disclosure of such information would constitute a clearly unwarranted invasion of personal privacy (e.g., disclosure of bank account numbers, social security numbers, home addresses and similar information). 60150 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Reporting Language) must include an active link to an exhibit that is filed with the registration statement or, if the exhibit is incorporated by reference, an active hyperlink to the exhibit separately filed on EDGAR. If the registration statement is amended, each amendment must include active hyperlinks to the exhibits required with the amendment. 5. Registrants are required to provide the Initial Summary Prospectus exhibits, as required by paragraph (o) of this Item, only in connection with the filing of an initial registration statement, or in connection with a pre-effective amendment or a post-effective amendment filed in accordance with paragraph (a) of rule 485 under the Securities Act [17 CFR 230.485(a)]. Registrants should add a legend clearly identifying the document as a form of Initial Summary Prospectus the Registrant intends to use on or after the effective date of the registration statement. Item 28. Directors and Officers of the Insurance Company Provide the following information about each director or officer of the Insurance Company: (1) (2) Name and Principal Business Address Positions and Offices with Insurance Company Instruction. Registrants are required to provide the above information only for officers or directors who are engaged directly or indirectly in activities relating to the Registered Separate Account or the Contracts, and for executive officers including the Insurance Company's president, secretary, treasurer, and vice presidents who have authority to act as president in the president's absence. Item 29. Persons Controlled by or Under Common Control with the Insurance Company or the Registered Separate Account Provide a list or diagram of all persons directly or indirectly controlled by or under common control with the Insurance Company or the Registered Separate Account. For any person controlled by another person, disclose the percentage of voting securities owned by the immediately controlling person or other basis of that person's control. For each company, also provide the state or other sovereign power under the laws of which the company is organized. Instructions: 1. Include the Registered Separate Account and the Insurance Company in the list or diagram and show the relationship of each company to the Registered Separate Account and Insurance Company and to the other companies named, using cross-references if a company is controlled through direct ownership of its securities by two or more persons. 2. Indicate with appropriate symbols subsidiaries that file separate financial statements, subsidiaries included in consolidated financial statements, or unconsolidated subsidiaries included in group financial statements. Indicate for other subsidiaries why financial statements are not filed. State the general effect of any contract, arrangements, or statute under which any underwriter or affiliated person of the Registrant is insured or indemnified against any liability incurred in his or her official capacity, other than insurance provided by any underwriter or affiliated person for his or her own protection. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00174 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.059</GPH> ddrumheller on DSK120RN23PROD with RULES2 Item 30. Indemnification Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60151 Item 31. Principal Underwriters (a) Other Activity. State the name of each investment company (other than the Registered Separate Account) for which each principal underwriter currently distributing the Registrant's securities also acts as a principal underwriter, Insurance Company, sponsor, or investment adviser. (b) Management. Provide the information required by the following table for each director, officer, or partner of each principal underwriter named in the response to Item 23: (1) (2) Name and Principal Business Address Positions and Offices with Underwriter Instruction. If a principal underwriter is the Insurance Company or an affiliate of the Insurance Company, and is also an insurance company, the above information for officers or directors need only be provided for officers or directors who are engaged directly or indirectly in activities relating to the Registered Separate Account or the Contracts, and for executive officers including the Insurance Company's or its affiliate's president, secretary, treasurer, and vice presidents who have authority to act as president in the president's absence. (c) Compensation From the Registrant. Provide the information required by the following table for all commissions and other compensation received, directly or indirectly, from the Registrant during the Registrant's last fiscal year by each principal underwriter: (1) (2) (3) (4) (5) Name of Principal Underwriter Net Underwriting Discounts Compensation on Redemption Brokerage Commission Other Compensation Instructions: 1. Disclose the type of services rendered in consideration for the compensation listed under column (5). 2. Information need not be given about the service of mailing proxies or periodic reports of the Registered Separate Account. 3. Exclude information about bona fide contracts with the Registered Separate Account or the Insurance Company for outside legal or auditing services, or bona fide contracts for personal employment entered into with the Registered Separate Account or the Insurance Company in the ordinary course of business. 5. Exclude information about payments made under any agreement whereby another person contracts with the Registered Separate Account or the Insurance Company to perform as custodian or administrative or servicing agent. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00175 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.060</GPH> ddrumheller on DSK120RN23PROD with RULES2 4. Exclude information about any service for which total payments ofless than $15,000 were made during each of the Registrant's last three fiscal years. 60152 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Item 31A. Information about Contracts with Index-Linked Options and Fixed Options Subject to a Contract Adjustment (a) For any Contract with Index-Linked Options and/or Fixed Options subject to a Contract Adjustment offered through this registration statement, provide the information required by the following table as of December 31 of the prior calendar year: Name of the Contract Number of Contracts outstanding Total value attributable to the IndexLinked Option and/or Fixed Option subject to a Contract Adjustment Number of Contracts sold during the prior calendar year Gross premiums received during the prior calendar year Amount of Contract value redeemed during the prior calendar year Combination Contract (Yes/No) Instructions: 1. In the case of group Contracts, each participant certificate should be counted as an individual Contract. 2. "Total value attributable to the Index-Linked Option and/or Fixed Option subject to a Contract Adjustment" means the sum of the Contract value in the Index-Linked Options and/or Fixed Options subject to a Contract Adjustment of each individual Contract. For "Combination Contracts," which for purposes of this Item are Contracts that offer Variable Options in addition to Index-Linked Options and/or Fixed Options subject to a Contract Adjustment, exclude amounts allocated to the Registered Separate Account. (b) For any Contract with Index-Linked Options offered through this registration statement that posts current limits on Index gains on a website in accordance with Instruction 1 to Item 6(d)(2)(ii)(B), provide the current limits on Index gains in effect for each Index-Linked Option during the twelve months ending on December 31 of the prior year. Instruction. The information called for in this paragraph may be provided in an exhibit to the registration statement. Item 32. Location of Accounts and Records State the name and address of each person maintaining physical possession of each account, book, or other document, required to be maintained by the Registered Separate Account pursuant to section 31 (a) of the Investment Company Act [15 U.S.C. 80a-30(a)] and the rules under that section. Instruction. The Registered Separate Account may omit this information to the extent it is provided in its most recent report on Form N-CEN [17 CFR 274.101]. Provide a summary of the substantive provisions of any management-related service contract not discussed in Part A or Part B, disclosing the parties to the contract and the total amount paid and by whom for the Registrant's last three fiscal years. Instructions: VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00176 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.061</GPH> ddrumheller on DSK120RN23PROD with RULES2 Item 33. Management Services Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60153 1. The instructions to Item 21 (b) shall also apply to this Item. 2. Exclude information about any service provided for payments totaling less than $15,000 during each of the Registrant's last three fiscal years. Item 34. Fee Representation and Undertakings (a) With regard to Variable Options, provide a representation of the Insurance Company that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Insurance Company. (b) With regard to Index-Linked Options and/or Fixed Options subject to a Contract Adjustment, furnish the following undertakings in substantially the following form: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement to include any prospectus required by section 10(a)(3) of the Securities Act; and VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00177 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.062</GPH> ddrumheller on DSK120RN23PROD with RULES2 2. That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 60154 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant (certifies that it meets all of the requirements for effectiveness of this registration statement under rule 485(b) under the Securities Act and) has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of_ _ _ _ _ _ _ _~ and State of - - - - - - - - - ~ on this_ _ _ _ _day of_ _ _ _ _ _ _~ - - - - - (Registered Separate Account) By--------------------(Signature) (Title) (Insurance Company) By----------------(Name of Officer of Insurance Company) (Title) Instruction: If the registration statement is being filed only under the Securities Act or under both the Securities Act and the Investment Company Act, it should be signed by both the Registered Separate Account and the Insurance Company, if applicable. If the registration statement is being filed only under the Investment Company Act, it should be signed only by the Registered Separate Account. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title BILLING CODE: 8011–01–C Form N–3 * * * * * * VerDate Sep<11>2014 * Appendix C—Form N–6 ‘‘Summary Prospectus’’ has the meaning provided by paragraph (a) of rule 498A under the Securities Act [17 CFR 230.498A(a)]. * A. Definitions * GENERAL INSTRUCTIONS Form N–6 GENERAL INSTRUCTIONS * ‘‘Summary Prospectus’’ has the meaning provided by paragraph (a) of rule 498A under the Securities Act [17 CFR 230.498A(a)]. * * * * * * * * * * * * * * Item 30. Exhibits * 21:21 Jul 23, 2024 A. Definitions * Jkt 262001 PO 00000 Frm 00178 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR2.SGM * * 24JYR2 * * ER24JY24.063</GPH> ddrumheller on DSK120RN23PROD with RULES2 Appendix B—Form N–3 Date Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Instructions. * * * * * ddrumheller on DSK120RN23PROD with RULES2 3. The Registrant may redact specific provisions or terms of exhibits required to be filed by paragraphs (g) and (j) of this Item if the Registrant customarily and actually treats that information as private. If it does so, the Registrant should mark the exhibit index to indicate that portions of the exhibit have been omitted and include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both not material and the type that the Registrant treats as private or confidential. VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 The Registrant also must include brackets indicating where the information is omitted from the filed version of the exhibit. If requested by the Commission or its staff, the Registrant must promptly provide on a supplemental basis an unredacted copy of the exhibit and its materiality and privacy or confidentiality analyses. Upon evaluation of the Registrant’s supplemental materials, the Commission or its staff may require the Registrant to amend its filing to include in the exhibit any previously redacted information that is not adequately supported by the Registrant’s analyses. The Registrant may request confidential treatment of the PO 00000 Frm 00179 Fmt 4701 Sfmt 4700 60155 supplemental material submitted under this Instruction 3 pursuant to rule 83 of the Commission’s Organizational Rules [17 CFR 200.83] while it is in the possession of the Commission or its staff. After completing its review of the supplemental information, the Commission or its staff will return or destroy it, if the Registrant complies with the procedures outlined in rule 418 under the Securities Act [17 CFR 230.418]. * * * * * Appendix D—Form 24F–2 BILLING CODE: 8011–01–P E:\FR\FM\24JYR2.SGM 24JYR2 60156 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM24F-2 Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940 or Rule 456(e) under the Securities Act of 1933 Read Instructions at end of this Form before preparing. 1. Name and address of issuer: 2. The name and EDGAR identifier of each series or class of securities for which this Farm is filed. If the Form is being filed for all series and classes of securities of the issuer, check the box □ but do not list series or classes: 3. Investment Company Act File Number: Securities Act File Number: 4(a). Last day of fiscal year for which this Form is filed: 4(h0 Check box if this Form is being filed late (i.e., more than 90 calendar days after the end of the issuer's fiscal year). (See Instruction A.2) VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00180 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.065</GPH> 4(c:0Check box if this is the last time the issuer will be filing this Form. ER24JY24.064</GPH> ddrumheller on DSK120RN23PROD with RULES2 Note: If the Form is being filed late, interest must be paid on the registration fee due. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 5. 60157 Calculation of registration fee (if calculating on a class-by-class or series-by-series basis, provide the EDGAR identifier for each such class or series): (i) Aggregate sale price of securities sold during the fiscal year pursuant to section 24(f) or rule 456(e): (ii) Aggregate price of securities redeemed or repurchased during the fiscal year: $ $_ _ (iii) Aggregate price of securities redeemed or repurchased during any prior fiscal year ending no earlier than the date the issuer became eligible to use this form that were not previously used to reduce registration ~iv~T_o_ta_l_a_v_a1_·1a_b_l_e_re_d_e_m~t_io_n_c_r_e_d1_·ts~a_d_d_I_te_m_s_5-i-i_a_n_d_S~ii1-·~ - - - - ~ - $ (v) Net sales -- ifltem 5(i) is greater than Item 5(iv) [subtract Item 5(iv) from Item 5(i)]: (vi) Re emption ere its avai a e or use m uture years - ifltem 5(i) is less than Item 5(iv) [subtract Item 5(iv) from Item 5(i)]: $ _ __ ( ) Instruction C.9): (viii) Registration fee due [multiply Item 5(v) by Item 5(vii)] (enter "O" if no fee is due): 6. Interest due -- if this Form is being filed more than 90 days after the end of the issuer's fiscal year (see Instruction D): 7. VerDate Sep<11>2014 Total of the amount of the registration fee due plus any interest due [line 5(viii) plus line 6]: 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00181 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.066</GPH> ddrumheller on DSK120RN23PROD with RULES2 +$_ _ __ 60158 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 8. Explanatory Notes (if any): The issuer may provide any information it believes would be helpful in understanding the information reported in response to any item of this Form. To the extent responses relate to a particular item, provide the item number(s), as applicable. SIGNATURES This report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated. By (Signature and Title)* _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Date ER24JY24.068</GPH> VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00182 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.067</GPH> ddrumheller on DSK120RN23PROD with RULES2 *Please print the name and title of the signing officer below the signature. Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60159 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM24F-2 Annual Notice of Securities Sold Pursuant to Rule 24f-2 under the Investment Company Act of 1940 or Rule 456(e) under the Securities Act of 1933 INSTRUCTIONS A. General This Form should be used by an open-end management investment company, closed-end management company that makes periodic repurchase offers pursuant to§ 270.23c-3(b) of this chapter (an "interval fund"), face amount certificate company, or unit investment trust for annual filings required by rule 24f-2 under the Investment Company Act of 1940 [15 U.S.C. 80a] ("Investment Company Act") or an issuer that offers registered non-variable annuity securities for annual filings required by rule 456 under the Securities Act of 1933 [15 U.S.C. 77a-aa] ("Securities Act") (each an "issuer"). If the issuer has registered more than one class or series of securities that are required to be reported on this form on the same registration statement under the Securities Act, the issuer may file a single Form 24F-2 for those classes or series that have the same fiscal year end. Such an issuer may calculate its fees based on aggregate net sales of the series having the same fiscal year end. An issuer choosing to calculate registration fees on a class-by-class or series-by-series basis should make a single filing consisting of a separate Form 24F-2 for each class or series in a single EDGAR document. 1. 2 This Form must be filed within 90 calendar days after the end of the issuer's fiscal year or, if the last day of the 90 day period falls on Saturday, Sunday or a Federal holiday, the first business day thereafter. For example, a Form 24F-2 for a fiscal year ending on June 30 must be filed no later than September 28. If September 28 falls on a Saturday or Sunday, the Form must be filed on the following Monday. In these instructions, we refer to this as the "Due Date." 3. Pursuant to rule lOl(a)(l)(iv) of Regulation S-T [17 CFR 232.l0l(a)(l)(iv)] this Form must be submitted in electronic format using the Commission's Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system. This Form must be accompanied by the appropriate registration fee. If the Form is being filed late, interest must be paid. See Instruction D. 4. This Form will be deemed filed with the Commission on the date on which it is received and accepted by the Commission. The Commission will not accept for filing any Form accompanied by insufficient payment of the registration fee. A Form accompanied by insufficient payment of the registration fee will not be deemed accepted and filed until receipt by the Commission of proper payment of the registration fee. No part of the registration fee is refundable. Issuers should refer to rule 111 of the Securities Act [17 CFR 230.111], rule 0-8 under the Investment Company Act [17 CFR 270.0-8], rule 3a of the Commission's Rules of Informal and Other VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00183 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.069</GPH> ddrumheller on DSK120RN23PROD with RULES2 5. 60160 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations Procedures [17 CFR 202.3a], and rule 13(c) under Regulation S-T [17 CFR 232.13(c)] for instructions on payment of fees to the Commission. This Form may be used to pay registration fees for multiple offerings with different Securities Act numbers, provided that those Securities Act numbers are under the same Central Index Key ("CIK") number. 6. B. Identifying Information 1. Item 1- Provide the name of the issuer as it appears on the cover of the issuer's most recent Securities Act registration statement or post-effective amendment. Item 2 - If the Form is being filed for all classes and series of securities of the issuer, the issuer should check the box and not list the names of the classes and series. Issuers of registered non-variable annuities should check this box if the Form is being filed for all of the issuer's registered non-variable annuities and classes. 2. 3. Item 3 - If applicable, the Investment Company Act file number should be the number assigned to the issuer's registration statement filed under the Investment Company Act (beginning with "811-"). The Securities Act file number is the number of the issuer's most recent Securities Act registration statement (beginning with "2-", "33-" or "333-") relating to the securities being reported (e.g., issuers of registered non-variable annuities should use the most recent registered non-variable annuity Securities Act registration statement being reported, but not any other intervening Securities Act registration statements relating to securities not being reported). Item 4(a) - In the case of an issuer that ceases operations, the date it ceases operations is deemed the last day of its fiscal year for purposes of section 24(f) of the Investment Company Act or rule 456(e) of the Securities Act. 4. Item 4(b)- Check the box if the Form is filed late. If the issuer files the Form late, the issuer is required under section 24(±) or rule 456(e) to pay interest on unpaid amounts at the rate applicable to Treasury and tax loan accounts. See InstructionD. 5. 6. Item 4(c) - Check the box if this is the last time the issuer will be filing Form 24F-2 (i.e., if the issuer has ceased operations). C. Computation of Registration Fee Item 5 is a work sheet for calculating the registration fee due. An issuer must aggregate prices for all classes or series for which the Form is being filed. If the issuer charges a front-end sales load on its securities, the aggregate sale price must include the sales load. 1. (a) In the case of a liquidation, merger, or sale of all or substantially all of the assets of an issuer ("merger"), the securities of the entity ceasing operation (the "Predecessor") that are exchanged for or converted into the other issuer (the "Successor") should be treated as redemptions on the Predecessor's final Form 24F-2 (not the Successor's). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00184 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.070</GPH> ddrumheller on DSK120RN23PROD with RULES2 2. Mergers- Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 60161 In the case of a merger in which the Predecessor is not deemed to cease operations (e.g., a reorganization), the Successor inherits the sales and redemption credits of the Predecessor, and the Successor must report them as sales and redemptions on its next Form 24F-2 filing. The Predecessor in this type of merger need not file a final Form 24F-2. See Rule 24f-2(b)(l) and (2) [17 CFR 270.24f-2(b)(l) and (2)] and rule 456(e)(4) [17 CFR 230.456(e)(4)]. (b) 3. Special Rule for Unit Investment Trusts - The aggregate sale price of securities sold to a unit investment trust ("UIT") that offers interests that are registered under the Securities Act and on which a registration fee has been or will be paid to the Commission, may be excluded from the aggregate sale price of securities reported in Item 5(i). If the issuer chooses to exclude the aggregate sale price ofthese securities from Item 5(i), the issuer may not use securities redeemed or repurchased from those UITs for purposes of determining the redemption or repurchase price of securities in Items 5(ii) and 5(iii). 4. Special Rule for Registered Non-Variable Annuities - The aggregate sale price of securities sold during the fiscalyearinrelianceuponregistration under rule 456(e) shall include the value of any expiring annuity contract or investment option that is rolled over into a new crediting period. The value of such contracts or options should therefore be reported in Item 5(i). In addition, the value of such expiring annuity contract or options should also be reported in Item 5(ii) as a redemption. Where the contract value of the new and expiring annuity contract is the same, the reported amounts attributable to such contracts in Items 5(i) and 5(ii) would result in a net-zero calculation. 5. Item S(i) - Report the aggregate sale price of securities sold during the fiscal year in reliance upon registration under section 24(±) or rule 456(e). Include securities issued pursuant to dividend reinvestment plans ("DRIP shares") whether or not they are required to be registered under the Securities Act. Do not include the sale price of securities, if any, that were registered under the Securities Act other than pursuant to section 24(±) or rule 456(e), as applicable. [Example: An interval fund issuer sold 1,000,000 shares, 250,000 of which were registered prior to August 1, 2021. Item 5(i) should show the aggregate sale price of 750,000 shares.] 6. Item S(ii) - Report the aggregate redemption or repurchase price of securities redeemed or repurchased during the fiscal year in reliance upon registration under section 24(±) or rule 456(e). Do not include securities that have been redeemed or repurchased, if any, other than pursuant to section 24(±) or rule 456(e), as applicable. 8. Items S(iv) through S(vi) - Report the sum of Items 5(ii) and 5(iii) in Item 5(iv). Subtract Item 5(iv) from Item 5(i). If Item 5(iv) is less than Item 5(i), report the result in Item 5(v) (net sales). Ifltem 5(iv) is greater than Item 5(i), report the resulting negative number in parentheses in Item 5(vi) (net redemptions or repurchases). The amount of redemptions or repurchases reported in Item 5(vi) may be used by the issuer in future years to offset sales (by including it in response to Item 5(iii) of Form 24F-2 filed for the next fiscal year). VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00185 Fmt 4701 Sfmt 4725 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.071</GPH> ddrumheller on DSK120RN23PROD with RULES2 7. Item S(iii) - Report the aggregate redemption or repurchase price of securities redeemed or repurchased during any prior fiscal year ending no earlier than the date the issuer became eligible to use this Form (e.g., August 1, 2021 for interval funds, September 23, 2024 for issuers of registered non-variable annuity securities, and October 11, 1995 for all other filers on this Form) that were not used previously to reduce registration fees payable to the Commission. 60162 Federal Register / Vol. 89, No. 142 / Wednesday, July 24, 2024 / Rules and Regulations 9. Item S(vii) - The registration fee is calculated by multiplying the net sales amount (Item 5(v)) by the fee rate. For the current fee rate, see https://www.sec.gov/ofin/Article/feeamt.html The fee rate in effect at the time of filing applies to all securities sold during the fiscal year, regardless of whether the fee rate changes during the year. 10. Item S(viii) - If the issuer reports net redemptions or repurchases in Item 5(vi), report "0" in Item 5(viii). D. Computation of Interest Due if Form is Filed Late Item 6 - Section 24(f) and rule 456(e) require any issuer that pays its registration fee after the Due Date (see Instruction A.2) to pay interest to the Commission on fees that are not paid on time. The payment of interest does not preclude the Commission from bringing an action to enforce the requirements of section 24(f) or rule 456(e), as applicable. Under section 11 of the Debt Collection Act [31 U.S.C. 3717(a)], the interest rate is published by the Secretary of the Treasury. The rate is computed annually and is effective on January 1 each year. In some circumstances the rate may be changed on a quarterly basis. Filers owing interest should verify the current interest rate. Filers can find the rate by looking for the "current value of funds rate" on the Treasury Department's internet site at https://fiscal.treasury.gov/reportsstatements/cvfr/rates.html. 1. 2. The interest is assessed only on the amount of the registration fee due, and begins to accrue on the day after the Due Date. The amount of interest due should be calculated based on the interest rate in effect at the time the interest payment is made using the following formula: I= (X) (Y) (Z/365) where: I = Amount of interest due X = Amount of registration fee due Y = Applicable interest rate, expressed as a fraction Z = Number of days by which the registration fee payment is late E. Signature The Form must be signed on behalf of the issuer by an authorized officer of the issuer. See rule 302 of Regulation S-T [17 CFR 232.302] regarding signatures on forms filed electronically. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Filing ofthis Form is mandatory. The principal purpose of this collection of information is to enable issuers to calculate the registration fee payable to the Commission. Any member of the public may direct to the Commission any comments concerning the accuracy of the burden estimate of this Form, and any suggestions for reducing this burden. This collection of information has been reviewed by the Office of Management and Budget in accordance with the clearance requirements of 44 U.S.C. 3507. The responses to the collection of information will not be kept confidential. [FR Doc. 2024–14925 Filed 7–23–24; 8:45 am] BILLING CODE 8011–01–C VerDate Sep<11>2014 21:21 Jul 23, 2024 Jkt 262001 PO 00000 Frm 00186 Fmt 4701 Sfmt 9990 E:\FR\FM\24JYR2.SGM 24JYR2 ER24JY24.072</GPH> ddrumheller on DSK120RN23PROD with RULES2 F. SEC's Collection oflnformation

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 142 (Wednesday, July 24, 2024)]
[Rules and Regulations]
[Pages 59978-60162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14925]



[[Page 59977]]

Vol. 89

Wednesday,

No. 142

July 24, 2024

Part II





Securities and Exchange Commission





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17 CFR Parts 230, 232, 239, et al.





Registration for Index-Linked Annuities and Registered Market Value 
Adjustment Annuities; Amendments To Form N-4 for Index-Linked 
Annuities, Registered Market Value Adjustment Annuities, and Variable 
Annuities; Other Technical Amendments; Final Rule

Federal Register / Vol. 89 , No. 142 / Wednesday, July 24, 2024 / 
Rules and Regulations

[[Page 59978]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 232, 239, and 274

[Release No. 33-11294; 34-100450; IC-35273; File No. S7-16-23]
RIN 3235-AN30


Registration for Index-Linked Annuities and Registered Market 
Value Adjustment Annuities; Amendments To Form N-4 for Index-Linked 
Annuities, Registered Market Value Adjustment Annuities, and Variable 
Annuities; Other Technical Amendments

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting rule and form amendments to provide a tailored form to 
register the offerings of registered index-linked annuities 
(``RILAs''). Specifically, the Commission is amending the form 
currently used by most variable annuity separate accounts, Form N-4, to 
require issuers of RILAs to register offerings on that form as well. To 
facilitate this amendment, the Commission is also amending certain 
filing rules and making other related amendments. These changes will 
implement the requirements relating to RILAs contained in the 
Consolidated Appropriations Act, 2023. The Commission is also extending 
the registration, filing, and disclosure requirements that the 
Commission is adopting for RILA offerings to the offerings of 
registered market value adjustment annuities. Further, the Commission 
is adopting other amendments to Form N-4 that will apply to all issuers 
that use that form. The Commission is applying to RILA and registered 
market value adjustment annuity advertisements and sales literature a 
current Commission rule that provides guidance as to when sales 
literature is materially misleading under the Federal securities laws. 
Finally, the Commission is adopting technical amendments to Forms N-6 
and N-3 to correct errors from prior Commission rulemakings.

DATES: 
    Effective date: This rule is effective September 23, 2024.
    Compliance dates: The applicable compliance dates are discussed in 
section II.J of this Release.

FOR FURTHER INFORMATION CONTACT: Pamela Ellis, Alexis Hassell, Rachael 
Hoffman, Michael Khalil, Amy Miller, or Gregory Scopino, Senior 
Counsels; Bradley Gude, Branch Chief; Amanda Hollander Wagner, Senior 
Special Counsel; or Brian McLaughlin Johnson, Assistant Director, 
Investment Company Regulation Office, at (202) 551-6792; Min Oh, Senior 
Counsel; or Elizabeth Bentzinger or Michael Kosoff, Senior Special 
Counsels, Disclosure Review and Accounting Office, at (202) 551-6921, 
Division of Investment Management, Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is amending the following 
rules and forms:
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    \1\ 15 U.S.C. 77a et seq.

----------------------------------------------------------------------------------------------------------------
                   Commission reference                                     CFR citation (17 CFR)
----------------------------------------------------------------------------------------------------------------
Securities Act of 1933 (``Securities Act''): \1\
    Rule 156..............................................  Sec.   230.156.
    Rule 172..............................................  Sec.   230.172.
    Rule 405..............................................  Sec.   230.405.
    Rule 415..............................................  Sec.   230.415.
    Rule 424..............................................  Sec.   230.424.
    Rule 433..............................................  Sec.   230.433.
    Rule 456..............................................  Sec.   230.456.
    Rule 457..............................................  Sec.   230.457.
    Rule 485..............................................  Sec.   230.485.
    Rule 497..............................................  Sec.   230.497.
    Rule 498A.............................................  Sec.   230.498A.
Regulation S-T:
    Rule 313 of Regulation S-T............................  Sec.   232.313.
    Rule 405 of Regulation S-T............................  Sec.   232.405.
Forms:
    Form N-3..............................................  Sec.   239.17a and 274.11b.
    Form N-4..............................................  Sec.   239.17b and 274.11c.
    Form N-6..............................................  Sec.   239.17c and 274.11d.
    Form 24F-2............................................  Sec.   239.66 and Sec.   274.24.
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Table of Contents

I. Introduction and Background
    A. Overview of RILA Features
    B. Overview of Registered MVA Annuity Features
    C. Current Registration Requirements for RILAs and Registered 
MVA Annuities
    D. Developments and Analysis Informing Final Amendments
    1. Investor Testing Informing Final Amendments
    2. Analysis of Comments on Recurring Disclosure Topics Informing 
Final Amendments
    E. Overview of the Final Amendments
II. Discussion
    A. Use of Form N-4 for RILAs
    B. Use of Form N-4 for Registered MVA Annuities
    C. Contents of Form N-4
    1. Front and Back Cover Pages (Item 1)
    2. Overview of the Contract (Item 2)
    3. Key Information Table (Item 3)
    4. Principal Disclosure Regarding Index-Linked Options and MVA 
Options (Items 6 and 17)
    5. Principal Risks of Investing in the Contract (Item 5)
    6. Addition of Contract Adjustments and Other Amendments to Fee 
and Expense Disclosures (Items 4, 7, and 22)
    7. Information About Contracts With Index-Linked and/or MVA 
Options (Item 31A)
    8. Other Amendments and Provisions
    9. Remaining Form N-4 Items
    10. Inline XBRL
    D. Option To Use a Summary Prospectus
    1. Overview--Use of Summary Prospectus for Non-Variable 
Annuities
    2. Initial Summary Prospectus
    3. Updating Summary Prospectus

[[Page 59979]]

    4. Online Accessibility of Contract Statutory Prospectus and 
Certain Other Documents Relating to the Contract
    5. Other Requirements for Summary Prospectus and Other Contract 
Documents
    E. Accounting (Items 16 and 26)
    F. Filing and Prospectus Delivery Rules
    1. Fee Payment Method and Amendments to Form 24F-2
    2. Post-Effective Amendments and Prospectus Supplements
    3. Prospectus Delivery
    G. Communication Rules Applicable to Non-Variable Annuities 
Sales Literature (Rule 156)
    2. Free Writing Prospectuses and Advertisements (Rules 433 and 
482)
    H. Existing Commission Letters
    I. Technical Amendments to Forms N-3 and N-6
    J. Effective and Compliance Dates
III. Other Matters
IV. Economic Analysis
    A. Introduction
    B. Baseline
    1. Affected Parties
    2. Current Regulatory Requirements
    3. Market Practice
    C. Benefits and Costs
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives Considered
    1. Creating an Entirely New Registration Form for RILAs
    2. Alternatives to Specific Form N-4 Amendments
    3. Limiting Scope of Structured Data Requirements
V. Paperwork Reduction Act
    A. Rule 498A
    B. Form N-4
    C. Form 24F-2
    D. Investment Company Interactive Data
VI. Regulatory Flexibility Act Certification Statutory Authority

I. Introduction and Background

    The Commission is adopting rule and form amendments (``final 
amendments'') that are designed to help investors make informed 
decisions regarding RILAs. To modernize and enhance the registration 
and disclosure framework for RILAs, we are adopting amendments that 
will require offerings of RILAs to be registered on Form N-4, the 
registration form for most variable annuities, as well as adapt that 
form to accommodate RILAs. These amendments finalize rule and form 
amendments that the Commission proposed in September 2023.\2\
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    \2\ See Registration for Index-Linked Annuities; Amendments to 
Form N-4 for Index-Linked and Variable Annuities, Investment Company 
Act Release No. 35028 (Sept. 29, 2023) [88 FR 71088 (Oct. 13, 2023)] 
(``Proposing Release'' or ``proposal''). The Commission voted to 
issue the Proposing Release on September 29, 2023. The release was 
posted on the Commission website that day, and comment letters were 
received beginning the same day. The comment period closed on 
November 28, 2023. We have considered all public comment received 
through May 28, 2024. The comment letters on the Proposing Release 
are available at https://www.sec.gov/comments/s7-16-23/s71623.htm.
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    The amendments implement Congress' directive to the Commission in 
Division AA, Title I of the Consolidated Appropriations Act, 2023 
(``RILA Act'') to adopt a new registration form for RILAs within 18 
months of enactment.\3\ The RILA Act requires the Commission to design 
the form to ensure that a purchaser using the form receives the 
information necessary to make knowledgeable decisions, taking into 
account (1) the availability of information; (2) the knowledge and 
sophistication of that class of purchasers; (3) the complexity of the 
RILA; and (4) any other factor the Commission determines appropriate.
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    \3\ Publix Law 117-328; 136 Stat. 4459 (Dec. 29, 2022). The RILA 
Act provides that, if the Commission fails to adopt the form within 
18 months of enactment, RILA issuers can begin registering RILA 
offerings on existing Form N-4.
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    The Commission's amendments will result in disclosure requirements 
for RILAs that are tailored to the particular characteristics of RILAs 
and comparable to variable annuity disclosure. We are also adopting 
related amendments to various Commission rules to effectuate the new 
disclosure requirements for RILAs and for further consistency in the 
registration, filing, and disclosure framework for RILAs compared to 
other similar annuity products. These amendments include, among other 
things: amendments permitting RILA issuers to use summary prospectuses; 
amendments that will result in the same requirements for RILAs and 
variable annuities in terms of updating the issuer's prospectus each 
year; and amendments that address how RILAs will register and pay for 
new shares, as well as other aspects of the registration and offering 
process. Furthermore, we are adopting amendments to extend the 
registration, filing, and disclosure approach we are adopting for RILAs 
to annuity contracts that offer fixed investment options and apply 
market value adjustments (``MVAs'') to amounts withdrawn from a fixed 
option before the end of the fixed option's term, where the offering is 
required to be registered with the Commission because of the MVA 
(``registered MVA annuities'' and, collectively with RILAs, ``non-
variable annuities'').\4\ We are additionally adopting other amendments 
to Form N-4 that will apply to all issuers that use that form, which 
are informed by the staff's historical experience in administering the 
form and relevant investor testing.\5\ We are also adopting amendments 
that will apply a current Commission rule--which provides guidance as 
to when sales literature is materially misleading under the Federal 
securities laws--to RILA and registered MVA annuity advertisements and 
sales literature. Finally, we are adopting technical amendments to 
Forms N-6 and N-3 to update certain references used in those forms.
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    \4\ See facing page of final Form N-4 in final Form N-4; see 
also infra footnote 16 and accompanying text (discussing the 
operation of MVAs); Section II.B (discussing the final amendments' 
requirement for registered MVA annuities to register on Form N-4). 
The term ``non-variable annuities'' distinguishes these annuities 
from variable annuities whose offerings are registered on Form N-4, 
in which investors allocate their purchase payments to a range of 
investment options--typically mutual funds--and the investor's 
account value changes depending on the performance of the investment 
options selected. We understand that this term is understood in the 
industry to refer to annuities other than variable annuities.
    \5\ See infra section I.D.1.
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    The Commission received comments on the proposal from a variety of 
interested parties, including life insurance companies, professional 
and trade associations, a public interest advocacy organization, and 
individuals.\6\ Commenters broadly supported the proposal, including 
the proposed approach of requiring insurance companies to use Form N-4 
to register RILA offerings, the amendments that would permit the use of 
summary prospectuses, and the amendments to filing and fee-payment 
rules. Some commenters suggested modifications and additions to the 
proposed approach, including changes to some of the specific 
disclosures that Form N-4 would require for RILAs. Others suggested we 
include registered MVA annuities (which currently, like RILAs, register 
on Forms S-1 and S-3) and certain other insurance products among those 
required to register on Form N-4. Some commenters also urged the 
Commission to extend rule 482 under the Securities Act, which addresses 
investment company advertising, to RILAs.
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    \6\ Some commenters raised topics that relate to various 
insurance product issues but not to the proposed rulemaking. See, 
e.g., Comment Letter of the Committee of Annuity Insurers (Nov. 28, 
2023) (``CAI Comment Letter'') (suggesting the Commission adopt 
amendments for life insurance products that are similar to RILAs). 
Another commenter sought clarification on topics related to variable 
and non-variable annuities that are unrelated to the proposed 
amendments. VIP Working Group Comment Letter (e.g., seeking guidance 
on the application of Regulation D to certain offerings of variable 
and non-variable annuities). These comments are beyond the scope of 
this rulemaking.
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    After consideration of the comments received, we are adopting the 
proposed

[[Page 59980]]

amendments, with certain modifications. The final amendments retain 
each of the key elements of the proposed rules--the required 
registration of RILA offerings on Form N-4, the core aspects of the 
proposed disclosure requirements, the optional use of summary 
prospectuses by RILAs, the amendments to filing and fee-payment rules, 
and the amendments addressing materially misleading RILA sales 
literature. The resulting framework implements the RILA Act's mandate 
while making the RILA offering process similar to that for other 
insurance investment products, enhancing the information insurance 
companies disclose about RILAs, and extending certain antifraud 
guidance to RILA advertisements. However, we have modified certain 
proposed disclosure requirements and other aspects of the proposal to 
address the comments the Commission received. Additionally, the final 
amendments, in a change from the proposal and in response to comments 
received addressing the Commission's requests for comment about the 
registration of offerings of registered MVA annuities, will require 
these offerings to register on Form N-4. This, along with other 
amendments we are adopting extending the registration, filing, and 
disclosure framework we are adopting for RILAs to registered MVA 
annuities, and extending certain antifraud guidance to registered MVA 
annuity advertisements and sales literature, will result in greater 
uniformity in the regulation of non-variable annuities.

A. Overview of RILA Features

    A RILA is one of several types of annuity contracts that insurance 
companies offer.\7\ An investor in a RILA allocates purchase payments 
to one or more investment options under which the investor's returns 
(both gains and losses) are based at least in part on the performance 
of an index or other benchmark (collectively, ``indexes'') over a set 
period of time (``crediting period''). A RILA may be offered on a 
standalone basis with various index-linked investment options (``index-
linked options'') that investors may choose.\8\ Alternatively, an 
insurance company may offer ``combination'' annuity contracts that 
provide index-linked options together with other investment options, 
such as mutual funds (``portfolio companies'') offered as investment 
options under a variable annuity (``variable options'') or fixed 
investment options, including fixed options subject to an MVA (``MVA 
options'').\9\ The market for RILAs has grown significantly in recent 
years, with annual RILA sales of $47.4 billion in 2023 alone, 15% 
higher than in the prior year, and more than quintupling since 
2017.\10\
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    \7\ An annuity contract (``annuity'' or ``contract'') is a type 
of insurance product in which an investor makes a lump sum payment 
or a series of payments in return for future payments from the 
insurance company to meet retirement and other long-term financial 
goals.
    \8\ Depending on the context, this Release uses the term 
``RILA'' to refer collectively to stand-alone RILAs and the index-
linked options available in a combination contract. When referring 
to the entity registering the RILA, we use the term ``RILA issuer'' 
or ``insurance company.'' One commenter suggested that the 
Commission should use a term other than ``RILA,'' as the term 
``registered'' in ``RILA'' may serve to confuse investors because 
there are other investment products that are registered under both 
the Securities Act and the Investment Company Act of 1940 (the 
``Investment Company Act'') that do not include the term 
``registered'' (e.g., variable annuities, mutual funds, and 
exchange-traded funds). See Comment Letter of VIP Working Group 
(Nov. 10, 2023) (``VIP Working Group Comment Letter''). We continue 
to use the term ``RILA'' in the final amendments and in this Release 
for consistency with the RILA Act, as well as our understanding of 
common industry practice. See, e.g., The Design and Regulatory 
Framework of Registered Index-Linked Annuities, ALI CLE Conference 
on Life Insurance Products 2022.
    \9\ See Updated Disclosure Requirements and Summary Prospectus 
for Variable Annuity and Variable Life Insurance Contracts, 
Investment Company Act Release No. 33814 (Mar. 11, 2020) [85 FR 
25964 (May 1, 2020)] (``VASP Adopting Release'') at nn.4-5, 8, and 
accompanying text (describing the key features of variable annuity 
contracts and variable life insurance contracts (together, 
``variable contracts'')). An investor purchasing a combination 
contract, for example, may have the ability to allocate purchase 
payments under the contract to index-linked options; variable 
options that pass on the returns of mutual funds selected by the 
investor; and/or fixed account options for which the insurance 
company promises to pay a fixed and stated minimum rate of interest.
    \10\ See LIMRA, ``LIMRA: Record-High 2023 Annuity Sales Driven 
by Extraordinary Growth in Independent Distribution,'' news release 
(Mar. 12, 2024) (reporting 2023 RILA sales of $47.4 billion), 
available at https://www.limra.com/en/newsroom/news-releases/2024/limra-record-high-2023-annuity-sales-driven-by-extraordinary-growth-in-independent-distribution/ (stating that high annuity sales were 
``largely due to broader engagement with independent distribution'' 
and that ``[r]ising interest rates have made annuities very 
attractive to a larger group of investors''). The fourth quarter of 
2023 marked the first time RILA product sales surpassed variable 
annuity sales. See also LIMRA, ``LIMRA Secure Retirement Institute: 
Total Annuity Sales Continued to Decline in 2017,'' news release 
(Feb. 21, 2018) (reporting 2017 sales of structured annuity 
products, i.e., RILAs, of $9.2 billion), available at https://www.limra.com/en/newsroom/news-releases/2018/limra-secure-retirement-institute-total-annuity-sales-continued-to-decline-in-2017/.
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    RILAs are complex financial products that are sold to retail 
investors.\11\ The Proposing Release describes some of the most 
prevalent features that contribute to this complexity, and that might 
make it challenging for an investor to assess the features, risks, and 
possible return profile of a RILA.\12\ Under a RILA, the insurance 
company will credit positive or negative ``interest'' to the investor's 
contract value at the end of each crediting period. The amount credited 
is based, in part, on the performance of a specified index, rate, or 
benchmark (e.g., the S&P 500).\13\ One aspect of RILAs' complexity 
involves the various ways that interest may be credited, and how 
contract features that affect how interest is credited work together. 
The Proposing Release details RILAs' traditional bounded return 
structure, which typically limits investors' ability to participate in 
upside index performance (through features such as ``cap rates'' and/or 
``participation rates,'' collectively ``limits on gains''), and also 
limits investors' losses if the performance of the index goes down in 
value (through features such as ``buffers'' or ``floors,'' collectively 
``limits on losses'').\14\ For many RILAs, the investor pays no direct 
or explicit ongoing fees and expenses under the RILA, and this is 
sometimes a feature communicated in RILA marketing materials. However, 
the RILA's bounded return structure requires investors to agree to 
tradeoffs that come with their own economic costs. That is, RILAs limit 
or reduce downside risk, but also limit upside performance. In exchange 
for some protection against losses if the index goes down in value, 
investors must also agree to contractual provisions limiting the gains 
they will receive if the index goes up in value. RILAs allow investors 
some ability to customize a level of risk with which they are 
comfortable.\15\ But despite the bounded return structure, a RILA is 
not necessarily a low-risk investment product as the investor could 
lose a significant amount of money if the index performs poorly.
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    \11\ We understand that RILAs are predominantly sold by broker-
dealers.
    \12\ See Proposing Release at Section I.A. This paragraph and 
the paragraphs that follow summarize the RILA features that Section 
I.A of the Proposing Release discusses.
    \13\ Insurance companies typically choose indexes for the RILA 
contract where any gains in the value of the index do not include 
dividends paid on the securities that make up the index.
    \14\ See Proposing Release at paragraph accompanying n.10. A cap 
rate places an upper limit on an investor's ability to participate 
in the index's upside performance directly. A participation rate 
sets an investor's return to some specified percentage of the 
index's return. A buffer limits the investor's exposure to losses up 
to a fixed percentage. A floor places a lower limit on the 
investor's exposure to loss.
    \15\ See infra Section IV.B.3.
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    Charges and penalties for early withdrawals are another prevalent 
feature of RILAs. Investors can lose significant money if they withdraw 
their money early from an investment option or from the contract. This 
can arise in

[[Page 59981]]

several circumstances: (1) ``surrender charges'' that apply when an 
investor withdraws money from the contract within a certain period 
following the investor's last premium payment; (2) ``interim value 
adjustments'' (or ``IVAs''), which adjust the investor's contract value 
if amounts are withdrawn (for instance, because of movements to a 
different investment option, movements out of the contract, or payment 
of certain benefits) from an index-linked option before the end of its 
crediting period; \16\ and (3) a positive or negative MVA (collectively 
with IVAs, a ``contract adjustment'') to the amount paid to the 
investor resulting from changes in interest rates if the investor 
partially or fully withdraws amounts from the contract or from certain 
fixed options.\17\ Contract adjustments can occur in response to a 
number of contract transactions, such as a surrender, withdrawal, 
payment of the death benefit, or the start of annuity payments, and an 
investor could experience a negative contract adjustment even when the 
investor takes an otherwise permissible withdrawal, such as under a 
guaranteed living benefit. These adjustments also can negatively affect 
other values under the contract, such as the surrender value and death 
benefit. Moreover, these fees and adjustments are not always mutually 
exclusive.\18\ As a result of these charges and penalties, the investor 
could lose a significant amount of money in a RILA investment, even if 
the index has a gain at the time of the withdrawal.
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    \16\ See id. at n.11 and accompanying paragraph. The IVA will 
adjust the contract value based, generally, on a complex formula 
where the IVA may change daily and can be positive or negative.
    \17\ MVAs can apply to RILAs, but, as discussed below, they also 
can apply to a fixed option available under an annuity contract. See 
infra Sections I.B and II.B.
    \18\ See Proposing Release at n.13 and accompanying paragraph. 
An investor may also be subject to income taxes and face a Federal 
income tax penalty if the investor withdraws money before a certain 
age.
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    In addition to the complexities that RILAs' bounded return 
structure and potential charges and penalties for early withdrawals 
entail, under virtually all RILA investments the insurance company may 
change or remove key features of index-linked options, such as the cap 
rates, floors, or even the index.\19\ Also, RILA contracts typically 
state that an investor will be automatically renewed at the end of a 
crediting period into the same or substantially similar index-linked 
option, often with a new limit on gains. Furthermore, special tax rules 
generally apply to RILAs and other annuities, with both tax advantages 
and potential adverse tax impacts in certain circumstances.\20\
---------------------------------------------------------------------------

    \19\ See id. at paragraph following n.13.
    \20\ See id. at n.14 and accompanying paragraph.
---------------------------------------------------------------------------

    For all of these reasons, providing investors with key information 
is particularly important in the context of RILAs, since their features 
are typically complex and their risks may not be apparent or easily 
understood by prospective investors absent clear disclosure.

B. Overview of Registered MVA Annuity Features

    Registered MVA annuities are annuity contracts that offer fixed 
investment options (where the insurance company promises to pay a fixed 
and stated minimum rate of interest) and apply MVAs to amounts 
withdrawn before the end of the fixed option's term.\21\ The insurance 
company might apply an MVA, for example, when an investor withdraws 
money from the contract, transfers money among investment options, or 
annuitizes the contract. For these annuities, fixed options are either 
offered on their own or in a combination contract with index-linked 
options and/or variable options.
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    \21\ See Proposing Release at Section II.H. The Proposing 
Release referred to registered MVA annuities as ``registered MVAs.'' 
For clarity and parallelism with the terms ``RILA'' and ``variable 
annuity'' (which also refer to different types of annuities), we 
refer to these products instead as ``registered MVA annuities'' in 
this Release.
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    As the Commission explained in the Proposing Release, RILAs and 
registered MVA annuities differ only with respect to the manner in 
which interest is calculated and credited.\22\ Interest in a RILA 
contract is calculated and credited at the end of the crediting period 
based at least in part on the performance of an index or other 
benchmark, whereas interest in a registered MVA annuity is guaranteed 
and typically credited daily at a fixed rate.\23\ Registered MVA 
annuities, however, like RILAs, apply contract adjustments upon 
withdrawals prior to term maturity. An investor in a RILA or registered 
MVA annuity therefore can lose money--and potentially a significant 
amount of money--due to a contract adjustment, and the way in which 
these adjustments are calculated may be complex.
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    \22\ See id. One commenter stated that it largely agrees with 
this characterization. See CAI Comment Letter. No commenters 
disagreed with this characterization. See also infra section II.B 
(discussing more broadly the comments received on the Commission's 
request for comment in the Proposing Release on whether to require 
insurance companies to register the offerings of registered MVA 
annuities on Form N-4).
    \23\ See id.; see also CAI Comment Letter (agreeing with the 
Commission's statement in the Proposing Release that RILAs and 
registered MVA annuities differ only with respect to the manner in 
which interest is calculated and credited).
---------------------------------------------------------------------------

    Existing disclosure for registered MVA annuities has many 
similarities to disclosure for RILAs. Like RILA disclosure, registered 
MVA annuity disclosure describes the operation of contract adjustments 
and the risks associated with such contract adjustments.\24\ Disclosure 
for registered MVA annuities, like disclosure for RILAs and other 
annuity contracts, also describes basic annuity features (including, as 
for RILAs, information about surrender charges and applicable tax 
treatment) and the issuer's financial strength.\25\
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    \24\ See CAI Comment Letter.
    \25\ See id.
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C. Current Registration Requirements for RILAs and Registered MVA 
Annuities

    RILAs are securities for purposes of the Securities Act.\26\ Unlike 
variable annuity contracts for which the Commission has adopted a 
specific tailored registration form, insurance companies currently 
register offerings of RILAs on Securities Act registration Forms S-1 or 
S-3.\27\ As the Proposing Release describes in detail and this Release 
summarizes, the current requirements for issuers offering RILAs and 
variable annuities (that is, the requirements prior to the amendments

[[Page 59982]]

the Commission is adopting in this Release) differ in many respects, 
both in terms of the disclosure issuers must provide and the 
registration process.\28\
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    \26\ Under the final amendments, the final Form N-4 will not 
register the RILA or registered MVA annuity issuers themselves, only 
the offering of RILA or registered MVA annuity securities. Unlike 
separate accounts which register variable annuities, RILA and 
registered MVA annuity issuers are not investment companies, and 
thus need not register with the Commission as an investment company 
as separate accounts do. Index annuities that meet the requirements 
of section 989J of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203) or section 3(a)(8) of the 
Securities Act are treated as exempt securities for purposes of the 
Securities Act, but RILAs and registered MVA annuities do not fall 
within this exemption due, in large part, to the shifting of a 
significant level of investment risk from the issuer to the 
investor. RILAs and index-linked options, as used in this Release, 
refer only to those index annuities that are securities for the 
purposes of the Securities Act. See, e.g., sections 101(a)(5) and 
(6) of the RILA Act. Similarly, registered MVA annuities and MVA 
fixed account options, as used in this release, refer only to 
annuities that are securities for the purposes of the Securities 
Act. See infra footnote 29 and accompanying text.
    \27\ See, e.g., General Instruction I of Form S-1 (``This Form 
shall be used for the registration under the Securities Act of 1933 
(`Securities Act') of securities of all registrants for which no 
other form is authorized or prescribed''). The registration forms 
for variable annuity contracts are Form N-3 (for variable annuity 
separate accounts structured as management investment companies) and 
Form N-4 (for variable annuity separate accounts structured as unit 
investment trusts). See Proposing Release at n.6 and accompanying 
text. In this Release, we focus only on Form N-4 and not Form N-3, 
because Form N-4 is the registration form identified in the RILA Act 
and the form used to register most variable annuity contracts.
    \28\ See Proposing Release at Section I.B.
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    Registered MVA annuities also are securities for purposes of the 
Securities Act. They are securities because the MVA feature imposes 
certain investment risks on purchasers.\29\ Like RILA offerings, 
offerings of registered MVA annuities are currently registered on Forms 
S-1 or S-3. While this section of the Release discusses the 
registration requirements for RILAs, the current registration 
requirements for registered MVA annuities are the same as those for 
RILAs and present the same considerations.
---------------------------------------------------------------------------

    \29\ See section 3(a)(8) of the Securities Act and 17 CFR 
230.151; see also SEC v. Variable Annuity Life Insurance Co. of 
America, 359 U.S. 65, 77 (1959).
---------------------------------------------------------------------------

    In general, the disclosure requirements of Forms S-1 and S-3 are 
not specifically tailored to particular kinds of securities given the 
wide range of securities offerings that issuers can register on these 
forms.\30\ Forms S-1 and S-3 thus do not include specific line-item 
requirements addressing disclosures about RILAs and their complex 
features. These forms also require issuers to disclose information 
about the offering itself as well as extensive information about the 
registrant issuing the securities that a RILA investor may view as less 
important than information about the contract's features. Domestic 
registrants also must include financial statements prepared in 
accordance with U.S. generally accepted accounting principles 
(``GAAP'').\31\
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    \30\ See Proposing Release at nn.15-17 and accompanying 
paragraph.
    \31\ See 17 CFR 210.4-01(a)(1) (stating that financial 
statements filed with the Commission which are not prepared in 
accordance with GAAP will be presumed to be misleading or inaccurate 
unless the Commission has otherwise provided). See also Proposing 
Release at n.20.
---------------------------------------------------------------------------

    The Form N-4 disclosure requirements for variable annuities, on the 
other hand, are tailored for variable annuities.\32\ Form N-4's 
disclosure requirements are designed to provide investors with key 
information relating to a variable contract's provisions, benefits, and 
risks, along with information about the insurance company and the 
offering. In addition, rule 498A and Form N-4 together implement a 
layered disclosure approach for variable annuities by permitting 
insurance companies and others to use a summary prospectus framework 
for variable annuities while making the more-detailed statutory 
prospectus, as well as the contract's statement of additional 
information (``SAI''), available online. Form N-4 also provides a 
limited exception for insurance companies to file financial statements 
prepared in accordance with statutory accounting principles (``SAP''), 
referred to as ``statutory requirements'' in the form instructions, 
rather than GAAP.\33\ Structured data requirements for RILA and 
variable annuity disclosure also differ.\34\
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    \32\ See Proposing Release at nn.18-20 and accompanying 
paragraph.
    \33\ Specifically, insurance companies, which act as the 
depositors of variable annuity separate accounts registered on Form 
N-4, may use SAP financials solely when the insurance company does 
not otherwise prepare GAAP financial statements or GAAP financial 
information for use by a parent in the parent's Securities Exchange 
Act of 1934 (``Exchange Act'') reports or the parent's registration 
statements filed under the Securities Act. See id. at n.20 and 
accompanying text.
    \34\ See Proposing Release at n.25 and accompanying text, and 
text following n.26.
---------------------------------------------------------------------------

    The Proposing Release also details key differences in the current 
registration process for RILAs versus variable annuities.\35\ While 
insurance companies pay registration fees at the time they register the 
offer and sale of RILA securities, a separate account that registers 
under the Investment Company Act and offers variable annuity securities 
on Form N-4 pays registration fees based on the net issuance of 
securities, no later than 90 days after each fiscal year end.\36\ 
Updates to RILA offering registration statements occur by filing a 
post-effective amendment to a Form S-1 registration statement (which 
must be declared effective, typically by staff acting pursuant to 
delegated authority) or by the filing of the insurance company's annual 
report on Form 10-K containing audited financial statements, which 
operates as a post-effective amendment to a registration statement on 
Form S-3.\37\ In contrast, a variable annuity registration statement on 
Form N-4 may be updated by filing an immediately-effective post-
effective amendment under rule 485. This permits the efficient 
registration of continuous offerings of variable annuities.
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    \35\ See id. at paragraphs accompanying nn.21-26.
    \36\ See id. at nn.21 and 26 and accompanying text.
    \37\ See id. at nn.22-24 and accompanying text.
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D. Developments and Analysis Informing Final Amendments

1. Investor Testing Informing Final Amendments
    In addition to the RILA Act's requirements described above, the 
RILA Act also requires the Commission to engage in investor testing as 
part of its rulemaking process and to incorporate the results of the 
testing in the design of the new registration form for RILAs, with the 
goal of ensuring that key information is conveyed in terms that a 
purchaser can understand. Consistent with the RILA Act, the Commission 
received feedback on individuals' comprehension and views on RILA 
disclosure through investor testing. Specifically, the Commission's 
Office of the Investor Advocate (``OIAD'') conducted two rounds of 
qualitative interviews with a mix of investors across demographic 
characteristics, locations, and levels of financial literacy who either 
already owned annuities or had expressed interest in investing in an 
annuity product. The results of the two rounds of qualitative testing 
then helped inform a round of quantitative testing with approximately 
2,500 participants.
    This investor testing, which the Proposing Release and a report 
describing investor testing that OIAD conducted describe in detail, 
helped us to identify areas of Form N-4 that we proposed to amend to 
help ensure that a RILA purchaser receives key information that the 
purchaser is able to understand.\38\ Feedback from both rounds of 
qualitative interviews generally showed that the interview participants 
did not have much, if any, familiarity with RILAs. Furthermore, 
interviews in both rounds illustrated that many participants struggled 
to understand the details of the RILA contract presented in sample 
disclosure that could appear in select rows of the ``Key Information 
Table'' (or ``KIT'') in RILA registration statements. Participants 
indicated significant confusion about the features and fees associated 
with RILAs, and often cited certain specific terminology, such as 
``index option,'' ``interim value adjustment,'' ``buffer,'' and 
``investment term,'' as confusing to them. Although interview 
participants may not have been able to understand RILA features and 
economic tradeoffs fully after reviewing sample KIT disclosure, some 
were able to identify certain potential drawbacks and explain certain 
aspects of RILA contracts following their review of this sample 
disclosure.
---------------------------------------------------------------------------

    \38\ Office of Investor Advocate Division, Investor Testing 
Report on Registered Index-Linked Annuities (OIAD Working Paper 
2023-01), (Sep. 2023) (``OIAD Investor Testing Report'') available 
at https://www.sec.gov/files/rila-report-092023.pdf; see also 
Proposing Release at Section I.C.
---------------------------------------------------------------------------

    The investor testing successfully identified a range of barriers to 
investor understanding of RILAs and associated disclosure. However, 
with few exceptions, the variations in RILA disclosures presented to 
participants did not result in significant improvements in investor

[[Page 59983]]

comprehension.\39\ The Commission incorporated the investor testing 
results in its design of the proposed Form N-4 amendments, endeavoring 
to give particular attention to: (1) disclosure variations that 
resulted in statistically significant improvements in investor 
comprehension (specifically, the use of Q&A KIT format); and (2) areas 
of identified investor confusion while leveraging existing disclosure 
requirements.\40\ Because investor testing did not, for the most part, 
provide persuasive evidence of superior disclosures, the Commission 
proposed largely to utilize the existing Form N-4 disclosures that have 
been developed over time, and with which staff, investors, and RILA 
issuers are already familiar.
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    \39\ See Proposing Release at n.58 and accompanying text, and 
paragraphs following n.58.
    \40\ See id. (stating that the Q&A KIT format demonstrated a 
statistically significant, albeit quantitatively small, improvement 
over the non-Q&A KIT format, and stating that investor testing 
successfully identified a range of barriers to investor 
understanding of RILAs and associated disclosures).
---------------------------------------------------------------------------

    The Commission sought comment on this proposed approach, and it 
also sought comment throughout the Proposing Release on specific areas 
for improvement that would aid investor comprehension. Furthermore, the 
Commission requested specific input from the retail investor community 
through a short feedback flyer seeking input on their experiences with 
annuities generally and RILAs specifically (``Feedback Flyer'').\41\ 
Commenters did not generally address the investor testing that informed 
the proposed approach, and the Commission received no Feedback Flyer 
responses.\42\
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    \41\ See id. at n.59 and accompanying text; see also Feedback 
Flyer available at https://www.sec.gov/files/rules/proposed/2023/rila-feedback-flyer.pdf.
    \42\ One commenter, while not commenting on the investor testing 
substantively, discussed the RILA trends that the OIAD Investor 
Testing Report described, as discussed in more detail below. See 
infra footnote 305 and accompanying text.
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    The Commission's Investor Advocate also provided comments 
discussing the investor testing process and supporting the proposed 
rules, stating the belief that the proposed RILA registration form 
would make it easier for investors to understand RILAs.\43\ The 
Investor Advocate stated that the proposed rule's registration form 
would be more helpful for investors than the forms currently used for 
RILA registration. The Investor Advocate also stated that modified Form 
N-4 ``is likely to improve investor comprehension related to the 
features, costs, and risks of RILAs.''
---------------------------------------------------------------------------

    \43\ See Comment Letter of Cristina Martin Firvida, SEC Investor 
Advocate (Dec. 22, 2023) (``Investor Advocate Comment Letter'').
---------------------------------------------------------------------------

    In addition to these statements, the Investor Advocate suggested 
areas in which ``more work can be done to help investors make well-
informed decisions about RILAs and other complex financial products.'' 
The Investor Advocate stated that the proposed rule's registration form 
for RILAs, while informed by investor testing efforts, was not tested 
itself, and that this represents a missed opportunity in the 
Commission's rulemaking process. While the RILA Act directed the 
Commission to ``engage in investor testing'' when developing the 
registration form for RILAs, the Act did not require that the entirety 
of the form be investor tested, and doing so would have been 
impracticable under the circumstances due to the statutory rulemaking 
timeline, taking into account the time it takes to develop and execute 
well-designed and probative investor testing. As a result, investor 
testing efforts necessarily entailed strategic choices about topics on 
which to focus. These timing factors also required consideration of 
disclosure areas where maximizing comprehension could be particularly 
impactful.
    For these reasons, investor testing of RILA registration statement 
disclosure focused primarily on a sample of RILA-related disclosures 
that could appear in the KIT, if Form N-4 were amended to address RILA 
offerings.\44\ As discussed in the Proposing Release and below, the 
KIT--which provides summary disclosure in a specific sequence and in a 
standardized presentation--appears in variable annuity prospectuses, 
and the Commission proposed to include KIT disclosure in RILA 
prospectuses.\45\ The required ordering, contents, and standardization 
of KIT disclosure made the sample RILA-related disclosure especially 
amenable to investor testing, as these structural aspects made it 
possible to test variations on required disclosure elements easily. The 
summary disclosure in the KIT covers core features and risks of the 
annuity that the registration statement describes, with more detail 
elsewhere in the registration statement. For this reason, using the KIT 
to determine areas where investor comprehension could be enhanced was 
particularly impactful, as knowledge gained from this investor testing 
could be applied to disclosure in multiple other areas of the 
registration statement. The KIT is one of the first disclosure items 
that appears not only in the statutory prospectus, but also in the 
summary prospectus for issuers that choose to use summary prospectuses. 
It is also formatted in a manner that is designed to enhance 
readability. The investor testing therefore focused on disclosure that 
could have maximal impact in terms of investor attention.
---------------------------------------------------------------------------

    \44\ See OIAD Investor Testing Report.
    \45\ See Proposing Release at Section II.B.2; see also Item 2 of 
current Form N-4 (current KIT requirements); infra Section II.C.3 
(describing amendments to current KIT requirements).
---------------------------------------------------------------------------

    While the Investor Advocate states that there is no ``data to 
indicate whether the registration form effectively conveys the 
information necessary for investors to make well-informed investment 
decisions about RILAs,'' the sample KIT disclosure did include topics 
that comprise the primary features and risks of RILAs, and the investor 
testing did identify aspects of this disclosure that investors may find 
particularly challenging to understand. This in turn provided helpful 
input in identifying the disclosure areas where clear language, and 
enhanced focus in the registration statement, could help investors 
understand unique, and often complex, aspects of RILAs. We discuss 
these disclosure areas in more depth in Section II below.
    The Investor Advocate further stated that, although the Commission 
has ``made commendable efforts to improve the clarity and conciseness 
of disclosure provided to investors within the existing regulatory 
disclosure infrastructure,'' new and innovative approaches to 
disclosure are encouraged to significantly reduce investors' disclosure 
burden. The Investor Advocate encouraged the Commission ``to explore 
more significant departures from the status quo in the realm of 
disclosure related to RILAs and other complex products.'' We agree that 
exploring innovative disclosure approaches could enhance the investor 
experience for investors in complex products.\46\ A wholesale 
reimagining of disclosure for funds and other registered investment 
products, however, is outside of the scope of this rulemaking and 
impracticable in the context of this rulemaking given statutory time 
constraints. We also believe that requiring RILAs to use Form N-4, and 
adapting the current disclosure approach for variable annuities to 
RILAs, is consistent with the RILA Act's mandate as discussed 
below.\47\

[[Page 59984]]

Furthermore, we agree that continuing to test specific Commission-
mandated disclosures, including to assess how investors respond to 
these disclosures, as well as continuing to analyze the Commission's 
approach to its disclosure regime generally, are important complements 
to our regulatory program. We encourage Commission staff to incorporate 
these investor testing principles not only in the course of 
recommending new disclosure requirements, but also in continuing to 
develop its investor testing program outside of the confines of 
particular rulemaking actions.
---------------------------------------------------------------------------

    \46\ The Commission is continually considering ways to enhance 
disclosure and the retail investor experience. See, e.g., Request 
for Comment on Fund Retail Investor Experience and Disclosure, 
Investment Company Act Release No. 33113 (June 5, 2018) [83 FR 26891 
(June 11, 2018)] (``Investor Experience RFC'').
    \47\ See infra Section II.A.
---------------------------------------------------------------------------

    In addition to investor testing focused specifically on sample RILA 
disclosure, our final amendments--and the current disclosure 
requirements in Form N-4 that we are building upon--also draw on the 
Commission's past investor testing efforts, outreach, and other 
empirical research concerning investors' preferences. This includes, 
for example, information about summary content and layered disclosure 
approaches.\48\ The Commission has historically received feedback 
showing that investors generally prefer concise, layered 
disclosure.\49\ Investors participating in certain past quantitative 
and qualitative investor testing initiatives on the Commission's behalf 
have also expressed preferences for, wherever possible, the use of a 
summary containing key information about an investment product or 
service written in clear, concise, and understandable language and 
presented in an accessible format.\50\ Each of these sources of 
evidence of investor preferences, understanding, and behaviors in 
response to disclosures specific to RILAs and other investment products 
more generally has provided important context and support for the final 
amendments' approach to RILA disclosure.
---------------------------------------------------------------------------

    \48\ See Updated Disclosure Requirements and Summary Prospectus 
for Variable Annuity and Variable Life Insurance Contracts, 
Investment Company Act Release No. 33286 (Oct. 30, 2018) [83 FR 
61730 (Nov. 30, 2018)] (``VASP Proposing Release'') at paragraphs 
accompanying nn.38-43.
    \49\ See, e.g., Investor Experience RFC; see also Proposing 
Release at n.61 (discussing feedback in comments on the Investor 
Experience RFC, generally showing that retail investors prefer 
concise, layered disclosure and feel overwhelmed by the volume of 
information they currently receive, and reflecting a preference for 
shorter summary disclosures, with additional information available 
online or upon request).
    \50\ See Proposing Release at n.62.
---------------------------------------------------------------------------

2. Analysis of Comments on Recurring Disclosure Topics Informing Final 
Amendments
    The proposed amendments collectively were designed to provide 
investors with disclosures tailored to RILAs and to highlight key 
information about these complex products, building on the Commission's 
layered disclosure framework for variable annuities. The proposed 
requirements were developed with consideration for clear, concise, and 
understandable disclosure about RILA features and risks. Certain 
commenters expressed concern, however, that the proposed disclosure 
requirements included ``excessive repetition,'' especially with respect 
to certain topics.\51\ Commenters stated that excessive repetition adds 
to the length of the prospectus without commensurate value to 
investors, obscures new information that investors should be focusing 
on, and is not consistent with plain English principles. In addition to 
general concerns about repetition in the proposed requirements, 
commenters expressed concerns about specific disclosure areas where 
they viewed the proposed requirements as resulting in particularly 
repetitive disclosure.\52\
---------------------------------------------------------------------------

    \51\ See CAI Comment Letter; see also Comment Letter of Ova 
Datop (Oct. 25, 2023) (``Datop Comment Letter'').
    \52\ See CAI Comment Letter (discussing proposed maximum 
potential loss disclosure requirements); Datop Comment Letter 
(discussing proposed risk warnings).
---------------------------------------------------------------------------

    We agree that no disclosure should be repeated simply for the sake 
of repetition, and we also agree that repetition in disclosure can have 
negative effects on investor understanding as commenters expressed. As 
discussed below, the final form amendments take commenters' concerns 
into account. There are certain areas where the final amendments reduce 
the discussion of the same or similar topics in multiple locations, 
where this reduction could appropriately be made while continuing to 
promote the goal of highlighting key information about RILAs and 
enhancing understanding of RILA features and risks.\53\
---------------------------------------------------------------------------

    \53\ See, e.g., discussion below about changes from the proposal 
to remove some of the numeric examples illustrating maximum 
potential loss that, as proposed, would have appeared in multiple 
locations throughout the prospectus (at infra Sections II.C.2 and 
II.C.4).
---------------------------------------------------------------------------

    The final amendments, like the proposal, continue to incorporate 
the principle of layered disclosure. Layered disclosure aims to provide 
investors with key information relating to an investment's features, 
benefits, and risks in a concise and reader-friendly presentation, with 
more-detailed or technical information available to those investors who 
find the information valuable. The use of layered disclosure means that 
the disclosure requirements we are adopting necessarily address 
particular topics in more than one location in the registration 
statement. Where this occurs, the disclosure requirements intentionally 
include summary disclosure in the first ``layer,'' and additional 
details building on the summary in the second ``layer.'' \54\ This 
approach is designed to help investors with different informational 
needs access the information that will be most useful to them.
---------------------------------------------------------------------------

    \54\ For example, the KIT will put investors on notice of the 
existence and general impact of a contract adjustment, while other 
disclosure later in the prospectus discusses contract adjustments in 
detail, including a brief discussion in simple terms of the manner 
in which contract adjustments are determined. See Items 3 and 7(e) 
of final Form N-4. If an investor wants more details about the 
specific formulas that are used to calculate contract adjustments, 
this information is available in the SAI. See Item 22(d) of final 
Form N-4.
---------------------------------------------------------------------------

    Additionally, and as discussed in more detail below, there are 
certain disclosure requirements in Form N-4 as amended that address 
similar topics as other disclosure requirements, where investors could 
benefit from considering these topics in several different contexts. 
This also reflects that, except with respect to certain disclosure 
items that are designed to be read in tandem, RILA investors may not 
necessarily read a prospectus from cover to cover, but instead may 
choose to read sections of the prospectus about topics where they are 
seeking particular information.\55\ For instance, in addition to the 
numeric examples illustrating maximum potential loss, the final 
disclosure requirements include narrative discussion of a RILA's 
maximum potential loss from poor index performance in several locations 
in the prospectus. This is intentional. RILAs are frequently marketed 
as a product that will protect against investment losses through loss-
limiting features. Information about maximum potential loss is relevant 
in the contexts of the contract overview and KIT, as well as in 
considering principal risks and more in-depth disclosure about the 
investment options a contract offers.\56\ Therefore, disclosure that is 
designed to enhance understanding of this aspect of a RILA contract, in 
varying contexts, will help investors make informed decisions that take 
into account this often-misunderstood aspect of investing in a 
RILA.\57\
---------------------------------------------------------------------------

    \55\ As discussed below, we anticipate that investors will read 
the Overview and KIT sections of the prospectus together. See infra 
Sections II.C.2 and II.C.3.
    \56\ See, e.g., infra Sections II.C.2, II.C.3, II.C.4, and 
II.C.5.
    \57\ See, e.g., Proposing Release at Section I.C.

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[[Page 59985]]

E. Overview of the Final Amendments

    We are adopting rule and form amendments that modernize and enhance 
the registration, filing, and disclosure framework for RILAs by 
adapting the existing framework that is familiar to investors and 
issuers for variable annuity separate accounts to accommodate RILAs. 
The final amendments implement the RILA Act's mandate.
     Use of Form N-4 to Register RILA Offerings. As proposed, 
we are amending Form N-4 so that issuers seeking to register the 
offering of RILAs must use that form. To accommodate this, we are also 
adopting amendments to Form N-4 that specifically address the features 
and risks of RILAs, with certain modifications from the proposal in 
consideration of comments received. These modifications address, among 
other things, disclosure relating to the potential for investment loss 
from an investment in a RILA, current limits on index gains, and 
guaranteed limits on index losses or gains. Further, because the 
insurance company will register the offering of a RILA on Form N-4 
under the final amendments, it will be subject to the requirements in 
the form related to financial statements. This includes, as proposed, 
the form instruction that currently permits variable annuity issuers to 
file insurance company SAP financial statements in certain 
circumstances. Generally as proposed, the final amendments require RILA 
issuers to tag certain information in Inline eXtensible Business 
Reporting Language (``Inline XBRL'') format.
     Use of Form N-4 for Registered MVA Annuities. In a change 
from the proposal, the final amendments extend the registration, 
filing, and disclosure requirements we are adopting for RILA offerings 
to offerings of registered MVA annuities on Form N-4.
     Form N-4 Amendments for Variable Annuity Offerings. We are 
adopting form amendments that are applicable to offerings of variable 
annuities. These amendments are informed by the staff's historical 
experience in administering the form and respond to observations from 
investor testing relevant to variable annuity offerings.\58\ We are 
adopting these amendments generally as proposed, with some 
modifications in consideration of comments received.
---------------------------------------------------------------------------

    \58\ See id. at n.63 and accompanying paragraph.
---------------------------------------------------------------------------

     Summary Prospectus. Consistent with the inclusion of RILAs 
on Form N-4 and generally as proposed, we are adopting amendments that 
permit RILA issuers to make use of the summary prospectus framework 
available to variable annuity registrants on Form N-4. In a 
modification from the proposal, issuers of registered MVA annuities 
also will be able to use the summary prospectus framework, consistent 
with the inclusion of registered MVA annuities on Form N-4.
     Updates to the Filing Rules. To accommodate RILA and 
registered MVA annuity offering registrations on Form N-4, we are 
adopting amendments that require issuers of these securities to pay 
fees in arrears on Form 24F-2, as well as amendments to address RILAs 
and registered MVA annuities in the rules that variable annuities use 
to file post-effective amendments and to update prospectuses. We are 
adopting these amendments as proposed with conforming amendments to 
address the inclusion of registered MVA annuities on Form N-4.
     Communications Rules Applicable to Non-Variable Annuities. 
The final amendments, as proposed, require RILA issuers to comply with 
rule 156, which provides guidance as to when sales literature is 
materially misleading under the Federal securities laws. We are 
adopting conforming amendments to rule 156 to address the inclusion of 
registered MVA annuities on Form N-4. Additionally, in a change from 
the proposal, we are also making a technical amendment to rule 433 to 
allow those non-variable annuity issuers that can meet the rule's 
conditions to continue to use a free writing prospectus without it 
needing to be preceded or accompanied by a prospectus that satisfies 
the requirements of section 10 of the Securities Act.

II. Discussion

A. Use of Form N-4 for RILAs

    Most variable annuity issuers register variable annuity offerings 
on Form N-4, which the Commission designed to provide investors with 
product-specific information about annuity contracts, and which 
utilizes the summary prospectus layered disclosure framework the 
Commission adopted in 2020 for variable contracts.\59\ As proposed, we 
are requiring insurance companies to register RILA offerings on Form N-
4, leveraging the form's existing insurance-product specific 
disclosures and framework while incorporating revised disclosures 
informed by investor testing and staff experience to assist investors 
in making knowledgeable decisions about RILA offerings.\60\
---------------------------------------------------------------------------

    \59\ Variable annuities register on Form N-3 if they are issued 
by separate accounts that are organized as management investment 
companies. However, most variable annuities are issued by separate 
accounts that are organized as unit investment trusts and therefore 
use Form N-4. See Proposing Release at n.20. The separate account 
established by the sponsoring insurance company is the legal entity 
that registers its securities. Separate accounts are typically 
registered as investment companies under the Investment Company Act. 
See section 2(a)(37) of the Investment Company Act. The Commission 
first adopted the registration form for variable annuities 
approximately 40 years ago. See Registration Forms for Insurance 
Company Separate Accounts that Offer Variable Annuity Contracts, 
Investment Company Act Release No. 14575 (June 14, 1985) [50 FR 
26145 (June 25, 1985)] (``Forms N-3 and N-4 Adopting Release'').
    \60\ See the facing page of final Form N-4 (Form N-4 is ``to be 
used by insurance companies to register the offerings of registered 
index-linked annuity contracts . . . under the Securities Act''). 
Accordingly, following the compliance date for the final amendments, 
insurance companies will no longer be permitted to register RILA 
offerings on Forms S-1 or S-3, as they do today.
---------------------------------------------------------------------------

    Commenters broadly supported registering RILA offerings on Form N-
4.\61\ A number of commenters agreed that proposed Form N-4 would 
provide RILA investors with more meaningful and helpful disclosures as 
compared to the disclosures required on the registration forms 
currently used by RILAs that are not tailored to RILA features.\62\ 
Some commenters emphasized that the proposed disclosures about the 
contract and its features and the incorporation of Form N-4's layered 
disclosure would be of particular benefit to investors.\63\ 
Additionally, one commenter suggested that requiring RILAs to register 
on forms that are not tailored for RILA offerings has impeded the 
ability of RILA investors to find and understand the information that 
is most relevant to their investment decisions, and has also slowed 
product development and impeded the entry of new issuers to the RILA 
marketplace.\64\ Commenters suggested that investors also would benefit 
from registering RILAs and variable annuity contracts on the same 
registration form because it would facilitate the ability of investors 
to

[[Page 59986]]

compare and contrast different RILA and variable annuity offerings.\65\ 
One of these commenters also stated that, by leveraging the experience 
of investors, registrants, and Commission staff with the existing Form 
N-4 framework, the proposal would help achieve greater regulatory 
uniformity, simplify the registration of RILA and variable annuity 
combination products, and reduce the burdens insurance companies face 
in preparing RILA registrations.\66\
---------------------------------------------------------------------------

    \61\ See Comment Letter of the American Council of Life Insurers 
(Nov. 28, 2023) (``ACLI Comment Letter''); Comment Letter of Better 
Markets, Inc. (Nov. 28, 2023) (``Better Markets Comment Letter''); 
CAI Comment Letter; Comment Letter of Gainbridge Life Insurance 
Company and Delaware Life Insurance Company (Nov. 28, 2023) 
(``Gainbridge Comment Letter''); Investor Advocate Comment Letter; 
Comment Letter of the Insured Retirement Institute (Nov. 28, 2023) 
(``IRI Comment Letter''). No commenters disagreed with the proposed 
use of Form N-4 to register RILA offerings.
    \62\ See id. One of these commenters stated that it would object 
to the inclusion on Form N-4 of additional company-related 
disclosures applicable to registrations under Forms S-1 and S-3 
because those disclosures are less relevant to RILA offerings. See 
CAI Comment Letter.
    \63\ See Better Markets Comment Letter; CAI Comment Letter; 
Gainbridge Comment Letter; IRI Comment Letter; Investor Advocate 
Comment Letter.
    \64\ See IRI Comment Letter.
    \65\ See CAI Comment Letter; Gainbridge Comment Letter.
    \66\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we are adopting a registration 
framework that requires the registration of RILA offerings on Form N-4 
as proposed. Consistent with the views expressed by commenters, 
registering RILA offerings on final Form N-4 should benefit investors 
by requiring tailored disclosures relevant to RILA investors and 
facilitating the ability of investors to compare similar products. 
Registering RILA offerings on final Form N-4 also provides greater 
regulatory uniformity, reducing burdens for both RILA issuers in 
preparing RILA registration statements and Commission staff in 
reviewing them.
    Finally, one commenter requested the Commission provide guidance 
regarding the ability of certain RILA contracts currently registered on 
Form S-3 to rely on 17 CFR 240.12h-7 (``rule 12h-7'') following their 
transition to Form N-4.\67\ Rule 12h-7 provides an exemption from 
Exchange Act reporting applicable to insurance companies with respect 
to certain securities, including RILAs, that are registered under the 
Securities Act and regulated under State law. In order to be eligible 
for this exemption, among other conditions, the issuer of the 
securities must take steps reasonably designed to ensure that a trading 
market for the securities does not develop, including requiring written 
notice to, and acceptance by, the issuer prior to any assignment or 
other transfer of the securities and reserving the right to refuse 
assignments or other transfers at any time on a non-discriminatory 
basis (``anti-assignment clause'').\68\ One commenter suggested that 
there are a number of RILA contracts that do not have an anti-
assignment clause because the issuing insurance companies have chosen 
to register the offerings on Form S-3 and therefore have not relied on 
rule 12h-7 because Form S-3 is only available to issuers subject to 
Exchange Act reporting requirements. This commenter suggested that 
unilaterally adding an anti-assignment clause now to already-issued 
contracts previously registered on Form S-3 would violate State law. 
Now that RILA offerings will be registered on Form N-4, this commenter 
suggested that issuers of these RILA contracts would like to rely on 
rule 12h-7. As the Commission explained in rule 12h-7's adopting 
release, the anti-assignment clause requirement is an important 
condition of the exemption from Exchange Act reporting because it 
ensures that the issuer will take steps reasonably designed to preclude 
the development of a trading market in the contracts.\69\ Although all 
issuers relying on rule 12h-7 are required to take such reasonable 
steps, rule 12h-7 provides that an anti-assignment clause is not 
required where it is prohibited by State law.\70\ Under that rule, 
where an issuer of a RILA contract that is currently registered on Form 
S-3 is seeking now to rely on rule 12h-7, that issuer would not need to 
modify the contract to include an anti-assignment clause where 
including such a clause is prohibited by State law.\71\ Whether 
including an anti-assignment clause is prohibited under State law is 
based on the facts and circumstances and laws of each applicable State.
---------------------------------------------------------------------------

    \67\ See CAI Comment Letter. Under the final amendments, RILAs 
that have previously registered offerings of securities on Forms S-1 
or S-3 prior to the Compliance Date will need to file a post-
effective amendment to their registration statement pursuant to rule 
485(a) by May 1, 2026 using Form N-4. See infra Section II.J.
    \68\ See rule 12h-7(e).
    \69\ See Indexed Annuities and Certain Other Insurance 
Contracts, Exchange Act Release No. 34-59221 (Jan. 8, 2009) [74 FR 
3138 (Jan. 16, 2009)] (``12h-7 Adopting Release'') at Section 
III.B.2.
    \70\ See rule 12h-7(e). Consistent with rule 12h-7(e), by 
``State law'' we mean the law of any State or action of the 
insurance commissioner, bank commissioner, or any agency or officer 
performing like functions of any State.
    \71\ Of course, an issuer seeking to rely on rule 12h-7 would 
also need to comply with the rule's other requirements, including 
that it takes steps reasonably designed to ensure that a trading 
market for the securities does not develop. See rule 12h-7(e).
---------------------------------------------------------------------------

B. Use of Form N-4 for Registered MVA Annuities

    We are adopting amendments to require the offerings of registered 
MVA annuities to be registered on Form N-4 and, as a result, extend the 
registration and disclosure requirements we are adopting for RILAs to 
registered MVA annuities. Similar to the amendments we are adopting for 
RILAs, these amendments will benefit investors by providing a tailored 
disclosure regime with clear, relevant, and layered disclosure. 
Further, by including registered MVA annuities on Form N-4 along with 
RILAs and variable annuities, investors should benefit from being able 
to compare and contrast different types of annuity contracts. Both 
issuers and investors will also benefit by leveraging their existing 
familiarity with the form.
    In the Proposing Release, we solicited comment on whether to 
require insurance companies to register the offerings of registered MVA 
annuities on Form N-4, and we detailed the various changes to 
disclosure that would be necessary to accommodate this change.\72\ 
Commenters that spoke to this issue supported registering offerings of 
registered MVA annuities on Form N-4,\73\ suggesting that investors in 
registered MVA annuities would benefit from a comparable disclosure 
regime that provides clear, relevant, and layered disclosure.\74\ One 
of these commenters stated that registered MVA annuities are a 
significantly simpler product than RILAs and present a subset of 
identical risks to investors as RILAs.\75\ Commenters also stated that 
many of the disclosures that would be required for RILAs on Form N-4 
would also be appropriate for registered MVA annuities, such as 
disclosures on the operation of contract adjustments and the risks 
associated with such contract adjustments.\76\ One commenter stated 
that only minor modifications to the disclosures for RILAs would be 
required to reflect that an investor's return in a RILA is based on the 
performance of an index while the return of a registered MVA annuity is 
based on a stated rate of interest.\77\ Further, this commenter stated 
that registered MVA annuities

[[Page 59987]]

may be offered in combination products with variable annuities and/or 
RILAs that will be registered on Form N-4. Given that such products 
will have one prospectus, this commenter stated that investors, 
issuers, and the Commission would benefit from such products 
registering on Form N-4, rather than registering on both Form N-4 (for 
the variable annuity or RILA component) and Form S-1 or Form S-3 (for 
the registered MVA annuity component).
---------------------------------------------------------------------------

    \72\ Proposing Release at Section II.H.
    \73\ No commenters opposed using Form N-4 to register MVA 
annuity offerings, although one commenter urged that using Form N-4 
should be optional in certain circumstances discussed below. See 
infra footnote 79. One commenter stated that contingent deferred 
annuities (``CDAs'') could be considered covered by the RILA Act and 
insurers should be permitted to use Form N-4 for these annuities 
under the provision in that Act allowing insurers to use Form N-4 
for RILAs if the Commission does not provide a new registration form 
for RILAs by the statutory deadline. See VIP Working Group Comment 
Letter. We disagree. The RILA Act covers annuities that, among other 
things, have returns based on the performance of a benchmark index 
and may be subject to a market value adjustment if amounts are 
withdrawn before the end of the period during which that market 
value adjustment applies. CDA lifetime payment guarantees are not 
based on a benchmark or index and are not subject to such market 
value adjustments. Additionally, because CDAs are substantially 
different products than RILAs, significant modifications to Form N-4 
would be required to accommodate offerings of CDAs.
    \74\ See CAI Comment Letter; IRI Comment Letter; VIP Working 
Group Comment Letter.
    \75\ CAI Comment Letter.
    \76\ See IRI Comment Letter; CAI Comment Letter.
    \77\ CAI Comment Letter.
---------------------------------------------------------------------------

    At the same time, some commenters generally stated that registered 
MVA annuities should be permitted, but not required, to register on 
Form N-4.\78\ Specifically, one commenter stated that, in particular, 
registration on Form N-4 should be optional for ``closed blocks,'' or 
registered MVA annuity offerings that no longer involve the issuance of 
new contracts.\79\
---------------------------------------------------------------------------

    \78\ CAI Comment Letter; IRI Comment Letter.
    \79\ CAI Comment Letter. This commenter urged that if such 
closed blocks were required to register on Form N-4, the compliance 
period be extended from 12 months to 24 months to provide the 
necessary time to convert an additional class of contract to the new 
registration form. See infra Section II.J. for a discussion of 
effective and compliance dates for all rules and forms associated 
with the final amendments.
---------------------------------------------------------------------------

    After considering comments, we have determined to require insurance 
companies to register offerings of registered MVA annuities on Form N-4 
to provide investors with the tailored information necessary to make an 
investment decision, as discussed above.\80\ Further, given the 
parallels outlined above between RILAs and registered MVA annuities and 
the use of combination contracts that can offer RILAs, registered MVA 
annuities, and variable annuities, registering offerings of registered 
MVA annuities on Form N-4 will be efficient for investors, insurance 
companies, and the Commission. As a result, we are requiring, not just 
permitting, the use of Form N-4 for registered MVA annuities. 
Permitting insurance companies to register offerings of closed block 
registered MVA annuities on Forms S-1 or S-3 would not provide these 
investor benefits or efficiencies. It also would hamper comparability 
if different registered MVA annuities provided materially different 
disclosure. However, the Commission administers the requirements for 
prospectuses included in registration statements on Form N-4 in a way 
that allows variances in disclosure or presentation--including now 
those relating to closed blocks of registered MVA annuities--if 
appropriate for the circumstances involved while remaining consistent 
with the objectives of the form.\81\
---------------------------------------------------------------------------

    \80\ See supra Sections I.B. and I.C.
    \81\ See final Form N-4, General Instruction C.1.(d). This 
rulemaking does not affect the Commission position on existing 
variable contracts whose issuers provide alternative disclosures to 
investors as stated in the VASP Adopting Release at Section II.E.3.
---------------------------------------------------------------------------

    As a result of this change, registered MVA annuities must make the 
disclosures required in Form N-4 to the extent applicable. For example, 
they must meet the requirements of the front and back cover pages to 
the extent the disclosures apply to the offering of registered MVA 
annuities being registered.\82\ As outlined in the Proposing Release, 
we also are adopting a number of specific disclosure requirements for 
registered MVA annuities designed to accommodate their inclusion on the 
form and provide investors disclosures tailored to registered MVA 
annuity products and highlight key information about these 
products.\83\
---------------------------------------------------------------------------

    \82\ See, e.g., infra Section II.C.1.
    \83\ See Proposing Release at Section II.H.
---------------------------------------------------------------------------

    Table 1 outlines the key amendments, including certain conforming 
amendments, we are adopting to Form N-4 to accommodate offerings of 
registered MVA annuities:

                           Table 1--Overview of Form N-4 for Registered MVA Annuities
----------------------------------------------------------------------------------------------------------------
                                                               Substantive changes from
                Item                       Description             the current form             Discussion
----------------------------------------------------------------------------------------------------------------
                                               Prospectus (Part A)
----------------------------------------------------------------------------------------------------------------
N/A................................  Facing Page and         Added registered MVA         Section II.C.8(a),
                                      General Instructions.   annuity contracts to list    Section II.C.8(b).
                                                              of permissible uses.
N/A................................  General Instructions..  Added definition of          Section II.C.8(b).
                                                              ``Contract Adjustment'' to
                                                              account for MVA fixed
                                                              account options.
6..................................  Description of the      New contract adjustment      Section II.C.4(a).
                                      Insurance Company,      disclosures for MVA fixed
                                      Registered Separate     account options.
                                      Account, and
                                      Investment Options.
7..................................  Charges and             New contract adjustment      Section II.C.6(b).
                                      Adjustments.            disclosures applicable to
                                                              MVA fixed account options.
17.................................  Investment Options      New contract adjustment      Section II.C.4(b).
                                      Available Under the     disclosures for MVA fixed
                                      Contract.               account options.
----------------------------------------------------------------------------------------------------------------
                                  Statement of Additional Information (Part B)
----------------------------------------------------------------------------------------------------------------
26.................................  Financial Statements..  Providing that insurance     Section II.E.
                                                              companies can use the
                                                              relevant instructions with
                                                              regard to offerings of
                                                              registered MVA annuities
                                                              and adding requirements
                                                              relating to changes in and
                                                              disagreements with
                                                              accountants for registered
                                                              MVA annuities.
----------------------------------------------------------------------------------------------------------------
                                           Other Information (Part C)
----------------------------------------------------------------------------------------------------------------
31A................................  Information about       New disclosure of            Section II.C.7.
                                      contracts with Index-   registered MVA annuity
                                      Linked Options and      specific information.
                                      Fixed Options Subject
                                      to a Contract
                                      Adjustment.
----------------------------------------------------------------------------------------------------------------


[[Page 59988]]

    In addition to these changes to Form N-4, we are providing to 
registered MVA annuities the same offering and filing framework we are 
extending to RILAs for the same reason as we are making these changes 
for RILAs as discussed in more detail below.\84\ This includes, for 
example, amendments permitting registered MVA annuities to use a 
summary prospectus, pay securities fees annually based on net sales, 
and use the same process to update their registration statements that 
will apply to RILAs. To implement the inclusion of registered MVA 
annuities in the amendments to the rules under the Securities Act, we 
also are adding a defined term ``registered market value adjustment 
annuity'' to rule 405 that is consistent with the amendments to Form N-
4.\85\ We are also extending the same requirements as to the use of 
Inline XBRL to registered MVA annuities for the same reasons we are 
extending these requirements to RILAs.\86\
---------------------------------------------------------------------------

    \84\ See infra Sections II.C, D, E, and F.
    \85\ ``Registered market value adjustment annuity'' is defined 
as an annuity or an option available under an annuity, that is not a 
registered index-linked annuity, and (1) that is deemed a security; 
(2) that is offered or sold in a registered offering; (3) that is 
issued by an insurance company that is subject to the supervision of 
either the insurance commissioner or bank commissioner of any State 
or any agency or officer performing like functions as such 
commissioner; (4) that is not issued by an investment company; and 
(5) whose contract value may reflect a positive or negative 
adjustment (based on calculations using a predetermined formula, a 
change in interest rates, or some other factor or benchmark) if 
amounts are withdrawn before the end of a specified period. This 
definition mirrors that of ``registered index-linked annuity'' we 
are adding to rule 405 for RILAs, other than the last provision 
which is based on the definition of ``contract adjustment'' we are 
adding to Form N-4.
    \86\ See infra Section II.C.10.
---------------------------------------------------------------------------

C. Contents of Form N-4

    Consistent with the proposal, many items of current Form N-4 will 
apply to RILAs in final Form N-4. These existing items of current Form 
N-4 will also apply to registered MVA annuities. We are also adopting 
amendments to Form N-4 to require disclosures specific to RILAs as well 
as amendments that also will apply to offerings of variable annuities. 
Some of these disclosures will also apply to registered MVA annuities. 
Table 2 outlines the substantive amendments we are adopting to Form N-
4.\87\
---------------------------------------------------------------------------

    \87\ Some of the final amendments entail a non-substantive 
change such as a change to a defined term or specifying that the 
provision would continue to be applicable only to a registered 
separate account or variable option. These are not discussed in the 
following table but are instead discussed in Sections II.C.8 and 
II.C.9 infra.

                                          Table 2--Overview of Form N-4
----------------------------------------------------------------------------------------------------------------
                                                               Substantive changes from
                Item                       Description             the current form             Discussion
----------------------------------------------------------------------------------------------------------------
                                               Prospectus (Part A)
----------------------------------------------------------------------------------------------------------------
1..................................  Front and Back Cover    Adding new legends and       Section II.C.1.
                                      Pages.                  other standardized
                                                              disclosures.
2..................................  Overview of the         New non-variable annuity-    Section II.C.2.
                                      Contract.               specific disclosures;
                                                              moving order of appearance
                                                              up.
3..................................  Key Information.......  New non-variable annuity-    Section II.C.3.
                                                              specific disclosures;
                                                              changing to a question-and-
                                                              answer format; moving
                                                              order of appearance down;
                                                              change discussion of
                                                              restrictions on optional
                                                              benefits to cover all
                                                              benefits.
4..................................  Fee Table.............  New contract adjustment      Section II.C.6(a).
                                                              disclosure.
5..................................  Principal Risks of      Providing more detailed      Section II.C.5.
                                      Investing in the        disclosures applicable to
                                      Contract.               all issuers.
6..................................  Description of the      New non-variable annuity-    Section II.C.4(a).
                                      Insurance Company,      specific disclosures and
                                      Registered Separate     one new item regarding
                                      Account, and            variable options.
                                      Investment Options.
7..................................  Charges and             New disclosures related to   Section II.C.6(b).
                                      Adjustments.            contract adjustments;
                                                              renamed item.
8..................................  General Description of  No substantive change......  Section II.C.9(b).
                                      Contracts.
9..................................  Annuity Period........  No substantive change......  Section II.C.9(b).
10.................................  Benefits Available      No substantive change......  Section II.C.9(b).
                                      Under the Contract.
11.................................  Purchases and Contract  No substantive change......  Section II.C.9(b).
                                      Value.
12.................................  Surrenders and          No substantive change......  Section II.C.9(b).
                                      Withdrawals.
13.................................  Loans.................  No substantive change......  Section II.C.9(b).
14.................................  Taxes.................  No substantive change......  Section II.C.9(b).
15.................................  Legal Proceedings.....  No substantive change......  Section II.C.9(c).
16.................................  Financial Statements..  No substantive change (but   Section II.E.
                                                              see Item 26).
17.................................  Investment Options      New non-variable annuity-    Section II.C.4(b).
                                      Available Under the     specific disclosures.
                                      Contract.
----------------------------------------------------------------------------------------------------------------
                                  Statement of Additional Information (Part B)
----------------------------------------------------------------------------------------------------------------
18.................................  Cover Page and Table    No substantive change......  Section II.C.9(b).
                                      of Contents.
19.................................  General Information     No substantive change......  Section II.C.9(c).
                                      and History.
20.................................  Non-Principal Risks of  No substantive change......  Section II.C.9(b).
                                      Investing in the
                                      Contract.
21.................................  Services..............  No substantive change......  Section II.C.9(b).
22.................................  Purchase of Securities  New disclosure of specific   Section II.C.6(c).
                                      Being Offered.          contract adjustment
                                                              information.

[[Page 59989]]

 
23.................................  Underwriters..........  No substantive change......  Section II.C.8(c).
24.................................  Calculation of          Clarifying only applies to   Section II.C.8.
                                      Performance Data.       variable options.
25.................................  Annuity Payments......  No substantive change......  Section II.C.9(b).
26.................................  Financial Statements..  Providing that insurance     Section II.E.
                                                              companies can use the
                                                              relevant instructions
                                                              relating to financial
                                                              statements and adding
                                                              requirements relating to
                                                              changes in and
                                                              disagreements with
                                                              accountants for non-
                                                              variable annuities.
----------------------------------------------------------------------------------------------------------------
                                           Other Information (Part C)
----------------------------------------------------------------------------------------------------------------
27.................................  Exhibits..............  Adding power of attorney     Section II.C.8(d).
                                                              for all issuers and
                                                              accountant letters for non-
                                                              variable annuity issuers
                                                              as exhibits.
28.................................  Directors and Officers  No substantive change......  Section II.C.9(c).
                                      of the Insurance
                                      Company.
29.................................  Persons Controlled or   No substantive change......  Section II.C.9(c).
                                      Under Common Control
                                      with the Insurance
                                      Company or the
                                      Registrant.
30.................................  Indemnification.......  No substantive change......  Section II.C.9(c).
31.................................  Principal Underwriters  No substantive change......  Section II.C.9(c).
31A................................  Information about       New disclosure of non-       Section II.C.7.
                                      contracts with Index-   variable annuity specific
                                      Linked Options and      information.
                                      Fixed Options Subject
                                      to a Contract
                                      Adjustment.
32.................................  Location of Accounts    No substantive change......  Section II.C.8.
                                      and Records.
33.................................  Management Services...  No substantive change......  Section II.C.9(b).
34.................................  Fee Representation and  Adding new non-variable      Section II.C.8(d).
                                      Undertakings.           annuity undertakings.
----------------------------------------------------------------------------------------------------------------

1. Front and Back Cover Pages (Item 1)
    Currently, issuers using Form N-4 are required to include on the 
front and back cover pages basic identifying information about the 
issuer and the contract, information on how to review the document 
(e.g., what the SAI is and where to find it), as well as certain 
legends, for example, one relating to the ability for an investor to 
cancel the contract within 10 days.\88\ We are adopting amendments to 
require insurance companies registering offerings of non-variable 
annuities to include this general information on the front and back 
cover pages of the prospectus, as well as non-variable annuity--
specific disclosures on the front cover page. We are adopting these 
amendments substantially as proposed, with modifications in response to 
comments. The following table summarizes the cover page requirements, 
as amended:
---------------------------------------------------------------------------

    \88\ See current Form N-4, Item 1.

                         Table 3--Information Required by Item 1 of Form N-4 As Amended
----------------------------------------------------------------------------------------------------------------
            Item No.                      Disclosure                     Cover            Changed from proposal?
----------------------------------------------------------------------------------------------------------------
                                             Identifying Information
----------------------------------------------------------------------------------------------------------------
Item 1(a)(1)...................  Registered separate           Front....................  No.
                                  account's name.
Item 1(a)(2)...................  Insurance company's name....  Front....................  No.
Item 1(a)(3)...................  Types of contracts offered    Front....................  No.
                                  (e.g., group, individual,
                                  etc.).
Item 1(a)(4)...................  Name and class of contract..  Front....................  No.
Item 1(a)(5)...................  List of types of investment   Front....................  No.
                                  options offered under the
                                  contract with cross
                                  references to the appendix
                                  with further information
                                  about those options.
Item 1(a)(9)...................  Date of prospectus..........  Front....................  No.
Item 1(b)(4)...................  EDGAR identifier number.....  Back.....................  No.
----------------------------------------------------------------------------------------------------------------
                                                     Legends
----------------------------------------------------------------------------------------------------------------
Item 1(a)(6)...................  Statement that the contract   Front....................  Yes. Revised
                                  is a complex investment and                              statements about
                                  involves risks, including                                potential for
                                  potential loss of principal.                             investment loss,
                                 For contracts that include                                manner in which the
                                  an index-linked option:.                                 insurance company
                                 A prominent statement, as a                               determines the
                                  percentage, of the maximum                               maximum loss due to
                                  amount of loss that an                                   negative index
                                  investor could experience                                performance, and
                                  from negative index                                      minimum limits on
                                  performance after taking                                 index gains and
                                  into account the current                                 losses.
                                  limits on index loss, which
                                  may include a range of the
                                  maximum amount of loss if
                                  the contract offers
                                  different limits on index
                                  loss.

[[Page 59990]]

 
                                 Prominent disclosure of any
                                  minimum limits on index
                                  losses that will always be
                                  available under the
                                  contract or, alternatively,
                                  a prominent statement that
                                  the insurance company does
                                  not guarantee that the
                                  contract will always offer
                                  index-linked options that
                                  limit index losses, which
                                  would mean risk of loss of
                                  the entire amount invested.
                                 A prominent statement that
                                  the insurance company
                                  limits the amount an
                                  investor can earn on an
                                  index-linked option. A
                                  prominent statement, for
                                  each type of limit offered
                                  (e.g., cap, participation
                                  rate, etc.), of the lowest
                                  limit on index gains that
                                  may be established under
                                  the contract.
Item 1(a)(7)...................  Statement that the contract   Front....................  No.
                                  is not a short-term
                                  investment and is not
                                  appropriate for an investor
                                  who needs ready access to
                                  cash. Statement that
                                  withdrawals could result
                                  in, among other things,
                                  surrender charges and
                                  negative contract
                                  adjustments, including a
                                  prominent disclosure
                                  stating, as a percentage,
                                  the maximum potential loss
                                  resulting from a negative
                                  contract adjustment, if
                                  applicable.
Item 1(a)(8)...................  Statement that the insurance  Front....................  No.
                                  company's obligations under
                                  the contract are subject to
                                  its financial strength and
                                  claims-paying ability.
Item 1(a)(10)..................  Statement that the            Front....................  No.
                                  Commission has not approved
                                  or disapproved of the
                                  securities or passed upon
                                  the accuracy or adequacy of
                                  the disclosure in the
                                  prospectus and that any
                                  contrary representation is
                                  a criminal offense (as
                                  required in 17 CFR
                                  230.481(b)(1)).
Item 1(a)(11)..................  Statement that additional     Front....................  No.
                                  information about the
                                  contract is available on
                                  Investor.gov.
Item 1(a)(12)..................  A legend that states that if  Front....................  No.
                                  you are a new investor, you
                                  may cancel your contract
                                  within 10 days of receiving
                                  it without paying fees or
                                  penalties with some details
                                  about the operation of this
                                  process including whether a
                                  contract adjustment will be
                                  applied to the returned
                                  amount.
----------------------------------------------------------------------------------------------------------------
                                                Other Information
----------------------------------------------------------------------------------------------------------------
Item 1(b)(1)...................  Statement that the SAI        Back.....................  No.
                                  contains additional
                                  information, that it is
                                  available to investors, and
                                  how investors may obtain
                                  the SAI or make inquiries
                                  about their contracts.
Item 1(b)(2)...................  Statement about whether and   Back.....................  No.
                                  from where information is
                                  incorporated by reference.
Item 1(b)(3)...................  Statement that reports and    Back.....................  Yes. Applied this
                                  other information about the                              requirement to
                                  registered separate                                      insurance companies
                                  accounts and, if                                         in addition to
                                  applicable, the insurance                                separate accounts.
                                  company, are available on
                                  the Commission's website
                                  and that copies of this
                                  information may be obtained.
----------------------------------------------------------------------------------------------------------------

    We proposed to make several changes to the front cover page, 
including four additional disclosures in Item 1(a).\89\ Certain 
proposed changes received no comments and we are adopting them as 
proposed:
---------------------------------------------------------------------------

    \89\ See Proposing Release at Section II.B.1.
---------------------------------------------------------------------------

    (1) Changes to Item 1(a)(1) to require disclosure of ``the 
registered separate account's name'' whereas this item previously asked 
for ``the registrant's name.''
    (2) Changes to Item 1(a)(2) to require disclosure of ``the 
insurance company's name'' instead of the current requirement for ``the 
depositor's name.''
    (3) Changes to Item 1(a)(3) to require disclosure of the types of 
contracts offered by the prospectus (e.g., group, individual, single 
premium immediate, flexible premium deferred), as opposed to the 
current form, which requires disclosure of the types of variable 
annuity contracts offered by the prospectus.
    (4) New Item 1(a)(5), which requires disclosure of the types of 
investment options under the contract and a cross reference to the 
prospectus appendix providing additional information about each option.
    (5) We also are moving certain items to different locations on the 
front cover page without changing the content of the required 
disclosure.\90\
---------------------------------------------------------------------------

    \90\ Specifically, on Form N-4, current Item 1(a)(5), which 
requires disclosure of the date of the prospectus, is moving to 
final Item 1(a)(9); current Item 1(a)(6), which requires a statement 
required by rule 481(b)(1) under the Securities Act, is moving to 
final Item 1(a)(10); current Item 1(a)(7), which requires a 
statement that additional information about certain investment 
products, including variable and non-variable annuities, has been 
prepared by Commission staff and is available at investor.gov, is 
moving to final Item 1(a)(11); and current Item 1(a)(8), which 
requires a legend stating that new investors to the contract may be 
able to cancel the contract within 10 days without paying fees or 
penalties, is moving to final Item 1(a)(12).
---------------------------------------------------------------------------

    We are adding new Items 1(a)(6) and (7) to the front cover page of 
final Form N-4, which we are adopting with modifications from the 
proposal, as discussed below. The four items on the back cover page--
Item 1(b)--are largely unchanged with the exception of extending the 
disclosure requirements (suggested by a commenter) of Item 1(b)(3) to 
include the insurance company, if applicable.\91\
---------------------------------------------------------------------------

    \91\ See CAI Comment Letter. The modification to Item 1(b)(3) is 
discussed in further detail below. Current Item 1(b)(3) indicates 
that reports and information about the registered separate account 
are available on the Commission's website. That language has been 
retained in final Form N-4. The statement would address available 
reports about the insurance company only if applicable.
---------------------------------------------------------------------------

    In addition, and as proposed, the additional disclosures on the 
front cover page also will be required for

[[Page 59991]]

registration statements relating to offerings of variable annuities 
filed on that form to the extent relevant.\92\ Specifically, these are 
disclosures relating to the complexity of the investment and potential 
loss of principal, that the contract is not a short-term investment and 
the appropriateness of that investment, and that an insurance company's 
obligations under the contract are subject to its financial strength 
and claims paying abilities.\93\ While these disclosures are important 
for investors in non-variable annuities, they also are relevant in many 
cases to investors in variable annuities.
---------------------------------------------------------------------------

    \92\ See Proposing Release at Section II.B.1. Commenters did not 
specifically address the inclusion of these disclosures for variable 
annuity offerings.
    \93\ See final Form N-4, Item 1(a)(6), (7), and (8).
---------------------------------------------------------------------------

    The comments that we received on the proposed cover page 
requirements were mixed. One commenter generally supported these 
disclosures, stating that the proposal ensured that the most important 
disclosures about RILAs appear on the cover page.\94\ Another commenter 
suggested that, other than the disclosures related to maximum loss, the 
proposed cover page disclosures were, for the most part, designed to 
result in short, concise, and sensible cover page disclosures.\95\ 
Other commenters, however, raised concerns.\96\
---------------------------------------------------------------------------

    \94\ See Better Markets Comment Letter.
    \95\ See CAI Comment Letter.
    \96\ Commenters suggested that, should the Commission extend the 
use of Form N-4 to registered MVA annuities, their comments would 
also apply to disclosures related to those securities. See, e.g., 
CAI Comment Letter (supporting some aspects of the proposal but 
criticizing the maximum loss disclosure on the cover page); VIP 
Working Group Comment Letter.
---------------------------------------------------------------------------

    First, some commenters raised concerns about the volume of 
disclosures proposed to be included on the cover pages, particularly 
those related to the maximum losses.\97\ One such commenter suggested 
that the inclusion of all of these disclosures could cut against the 
form's layered disclosure approach.\98\ These cover page disclosures 
are generalized statements designed to put an investor on notice of key 
considerations to help an investor make informed decisions. In 
particular, they are designed to highlight the complexities and certain 
associated risks of non-variable annuities for investors, and including 
this key information on the cover page helps ensure that an investor 
has information about these key aspects of a non-variable annuity at 
the outset. The number of specific features and risks highlighted on 
the cover page is driven by the complex nature of the non-variable 
annuity being registered. Further, because these points are generalized 
on the cover page but discussed in more detail later in the prospectus, 
they are consistent with the concept of layered disclosure. These 
disclosures also should help investors better understand the nature of 
the various investment options available under the contract.
---------------------------------------------------------------------------

    \97\ See CAI Commenter Letter; VIP Working Group Comment Letter.
    \98\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Second, commenters addressed certain specific items the Commission 
proposed to include on the front cover page. Commenters raised 
particular concerns with the proposed requirement to disclose as a 
percentage the maximum amount of loss from negative index performance 
that an investor could experience after taking into account the minimum 
guaranteed limit on index loss provided under the contract.\99\ 
Commenters objected to this disclosure because, in their view: (1) 
requiring RILA issuers to disclose this percentage was unnecessary 
because the chance of investors experiencing this maximum loss was 
extremely remote,\100\ (2) the cover page lacks appropriate context for 
this percentage and instead RILA issuers should include a narrative 
(not numeric) disclosure stating that an investor could lose a 
significant amount of money by investing in an index-linked 
option,\101\ and (3) such maximum potential loss disclosure was 
unwarranted because other issuers of securities are not required to 
include this information on the cover pages of their prospectuses.\102\ 
Separately, some commenters similarly opposed the proposed requirement 
to disclose, as a percentage, the maximum potential loss resulting from 
a negative contract adjustment as such a maximum loss would also be 
unlikely.\103\
---------------------------------------------------------------------------

    \99\ Proposed Form N-4, Item 1(a)(6).
    \100\ VIP Working Group Comment Letter (stating that the 
analysis done by OIAD in the OIAD Investor Testing Report suggested 
that losses on these products over the long term have historically 
been remote); Comment Letter of Benji Johnson (Oct. 31, 2023) 
(``Johnson Comment Letter''); CAI Comment Letter; Datop Comment 
Letter; see also ACLI Comment Letter.
    \101\ CAI Comment Letter.
    \102\ VIP Working Group Comment Letter; Johnson Comment Letter; 
Datop Comment Letter.
    \103\ Proposed Form N-4, Item 1(a)(7). See CAI Comment Letter; 
VIP Working Group Comment Letter. Several commenters also suggested 
that these two maximum potential loss disclosures, one from index 
performance and the other from contract adjustments, could cause 
investors to mistakenly believe that such losses are likely. CAI 
Comment Letter; VIP Working Group Comment Letter; Johnson Comment 
Letter.
---------------------------------------------------------------------------

    In response to comments opposing the proposed requirement to 
disclose as a percentage the maximum amount of loss from negative index 
performance or from a contract adjustment that an investor could 
experience, the final disclosure requirements are designed to reflect 
that the risk that an investor could lose a substantial amount of money 
due to negative index performance is a key risk of a RILA.\104\ 
Similarly, loss related to negative contract adjustments is a key risk 
of all non-variable annuities. Providing the maximum possible loss in 
these circumstances on the front cover page will alert investors to 
these risks in concrete terms. Moreover, disclosure of a maximum 
``potential'' loss is not intended to suggest the maximum loss is 
likely to occur. The form does not prevent the insurance company from 
providing additional appropriate context.
---------------------------------------------------------------------------

    \104\ VIP Working Group Comment Letter; Johnson Comment Letter; 
CAI Comment Letter; Datop Comment Letter; see also ACLI Commenter 
Letter.
---------------------------------------------------------------------------

    Although issuers of other securities like mutual funds and ETFs do 
not disclose the maximum potential loss associated with those 
securities, such products also are not generally structured to provide 
loss protection. For RILAs, in contrast, loss protection is a central 
feature of the product and an emphasis in RILA marketing.\105\ Numeric 
disclosure of the potential maximum loss helps an investor understand 
the extent to which a given RILA provides loss protection in simple 
terms. This is particularly important because investor testing has 
shown that investors struggled with the mechanics of loss protection 
and the consequences of withdrawals.\106\ Placing this disclosure on 
the front cover page is designed to put investors on notice that those 
loss protections can, in the context of RILAs, have limitations and 
highlight, in the context of all non-variable annuities, a potential 
consequence of withdrawals. A numeric example is well suited for the 
cover page because it communicates the extent of loss protection 
briefly and

[[Page 59992]]

concretely, and additional context will be available elsewhere in the 
prospectus.
---------------------------------------------------------------------------

    \105\ One commenter raising concern with this disclosure's 
placement in the cover page ``acknowledge[d] that the risk of loss 
associated with RILAs is an important concept to convey [and that] 
[u]nlike most other investments, RILAs provide a level of downside 
protection, and an investor should therefore understand the limits 
of that protection.'' CAI Comment Letter.
    \106\ OIAD Investor Testing Report at Section 5, Qualitative 
Testing, Results from Round 1. See Proposing Release at n.75 and 
accompanying text (investor testing participants struggled to 
understand loss limiting features, such as buffers), and at n.33 and 
accompanying text (investor testing participants often did not 
understand that there are multiple aspects of a typical RILA 
contract that could negatively affect an investor's contract value 
or the amount that the investor could withdraw from the contract 
(e.g., surrender charges, interim value adjustments, and tax 
penalties)).
---------------------------------------------------------------------------

    Commenters also raised concerns with various proposed disclosure 
requirements' reference to ``minimum guaranteed'' limits on index loss 
(or gain), including raising this concern with respect to the cover 
page.\107\ Another commenter sought clarification regarding whether a 
similar disclosure requirement referring to guaranteed minimums for the 
life of the contract was intended to require insurance companies to 
establish such minimums.\108\
---------------------------------------------------------------------------

    \107\ See VIP Working Group Comment Letter (stating that 
contracts do not include a minimum guaranteed limit on losses); CAI 
Comment Letter.
    \108\ CAI Comment Letter. See Proposing Release at Section 
II.B.1. for a discussion of the proposed disclosure requirement.
---------------------------------------------------------------------------

    We understand that not all RILAs provide minimum guaranteed limits 
on index loss for the life of the contract that could be used to 
calculate the proposed maximum possible loss due to negative index 
performance. After considering comments, we are modifying the language 
of this disclosure requirement to reflect this fact. Under the final 
amendments, the insurance company must prominently state as a 
percentage the maximum amount of loss from negative index performance 
that an investor could experience after taking into account the current 
limits on index loss provided by the index-linked options under the 
contract.\109\ The insurance company may provide a range of the maximum 
amount of loss if the contract offers different limits on index loss. 
Basing this disclosure on the contract's actual current limits on index 
losses is designed to address commenters' concerns about RILAs without 
guaranteed limits, and permitting the insurance company to provide a 
range of losses allows the insurance company to reflect the range of 
loss protection offered under the contract.
---------------------------------------------------------------------------

    \109\ We understand that, unlike the current limits on index 
gain, current limits on index loss do not change often, if at all, 
during the life of the contract. See infra Sections II.C.2 and 
II.C.3.a (discussing concerns raised by commenters relating to the 
disclosure of current limits on index gain).
---------------------------------------------------------------------------

    We are modifying the proposed language of this disclosure 
requirement to specify that an insurance company that does not disclose 
a minimum limit on index loss that will always be available under the 
contract must prominently state that it does not guarantee that the 
contract will always offer index-linked options that limit index loss, 
which would mean risk of loss of the entire amount invested. We are 
requiring this disclosure because RILAs are long-term investments, with 
an investor's returns determined by the economic terms available both 
at the time of investment and during future crediting periods. The 
guaranteed minimum limits on index losses that always will be 
available--or the fact that the insurance company makes no guarantee at 
all--are key considerations for an investor considering a RILA that 
should be disclosed on the cover page. The final amendments' approach 
therefore incorporates the proposed requirement to disclose on the 
front cover page the maximum loss from negative index performance 
taking into account guaranteed minimum limits on index losses but, in 
response to comments, provides information on any guaranteed minimum 
limits without assuming that each RILA offers them.\110\
---------------------------------------------------------------------------

    \110\ These changes, which are contained in Item 1(a)(6)(a), are 
mirrored in Instruction 3(a) to Item 3 and Item 5(a). See, e.g., 
infra at footnote 386.
---------------------------------------------------------------------------

    One commenter stated that it found confusing the proposed 
requirement to state that the potential for investment loss could be 
significantly greater than the potential for investment gain.\111\ 
After considering comments we have determined not to require the 
proposed disclosure because an investor's potential inability to recoup 
prior losses due to limits on gains is a nuanced concept that is 
challenging to articulate in concise cover page disclosure. We are 
instead requiring the insurance company to disclose information about 
the contract's limits on participation in positive index performance, 
not only because these limits are central features of a RILA, but also 
because they can limit an investor's ability to recoup losses (which 
the proposed disclosure item was designed to convey). We therefore are 
requiring the insurance company to prominently state, for each type of 
limit offered (e.g., cap, participation rate, etc.), the lowest limit 
on index gains that may be established under the contract.\112\ This 
information is particularly important for an investor considering a 
RILA because RILAs are long-term investments and the investor's returns 
are driven not just by the economic terms available at the time of 
investment, but also in future crediting periods. In another change 
from the proposal, we are not adopting the proposed Item 1(a)(6) 
requirement to state that an investor could lose a significant amount 
of money if the index declines in value. We are doing so because the 
required disclosure in this item, and elsewhere on the form, of the 
maximum possible loss due to declines in index performance make clear 
that investors face the potential for losses in these 
circumstances.\113\
---------------------------------------------------------------------------

    \111\ See Johnson Comment Letter; see also proposed Form N-4, 
Item 1(a)(6).
    \112\ See final Form N-4, Item 1(a)(6)(b).
    \113\ See also, e.g., final Form N-4, Instruction 3(a) to Item 
3.
---------------------------------------------------------------------------

    Finally, one commenter suggested that we amend a current back cover 
page disclosure requirement regarding the availability of additional 
information to apply to RILAs.\114\ This sub-item currently requires 
variable annuity prospectuses to state that reports and other 
information about a registered separate account may be found on the 
Commission's website.\115\ The commenter suggested applying this 
requirement to insurance companies that issue RILAs to the extent that 
they provide reports and other information to the Commission through 
their regular reporting under the Exchange Act. We agree that some 
investors might find the information and reports about the insurance 
companies useful when making investment decisions and have adjusted 
this requirement in the final form accordingly.\116\
---------------------------------------------------------------------------

    \114\ CAI Comment Letter.
    \115\ Current Form N-4, Item 1(b)(3).
    \116\ See final Form N-4, Item 1(b)(3). Because registered MVA 
annuities are also issued by an insurance company, not a registered 
separate account, this change will also apply to registration 
statements relating to offerings of those securities.
---------------------------------------------------------------------------

2. Overview of the Contract (Item 2)
    We are, largely as proposed, amending the requirements for the 
Overview of the Contract (``Overview'') to include RILAs generally, 
require disclosure about certain key elements of any index-linked 
option offered under the contract, and highlight any contract 
adjustments. Consistent with the inclusion of registered MVA annuities 
on Form N-4, the Overview also will discuss these annuities, as 
applicable. As discussed below, this section will precede the KIT.\117\
---------------------------------------------------------------------------

    \117\ Because we are requiring the Overview to appear before the 
KIT, current Item 3 (Overview of the Contract) will be renumbered as 
Item 2. See infra Section II.C.3.
---------------------------------------------------------------------------

    Under the final amendments, insurance companies that are 
registering non-variable annuities must provide the same Overview 
disclosures that are currently required for variable annuities, 
modified to include certain RILA-specific disclosures. All contracts 
registered on the form must provide an Overview with a concise 
description of the contract, including information about: (1) the 
contract's purpose; (2) the phases of the contract, including a 
discussion of the available investment options; (3) the primary 
features of the contract; and (4) contract

[[Page 59993]]

adjustments.\118\ We are adopting these amendments as proposed. Because 
offerings of registered MVA annuities will be registered on Form N-4, 
these requirements also will apply to offerings of registered MVA 
annuities, as applicable. No substantive changes from the proposed 
approach, however, were necessary to address registered MVA annuities.
---------------------------------------------------------------------------

    \118\ Final Form N-4, Item 2(a)-(d).
---------------------------------------------------------------------------

    In addition to information about the purpose of the contract, under 
the final amendments, a prospectus that offers index-linked options 
must include in the Overview (as part of the discussion of the phases 
of the contract): (1) a statement that the insurance company will 
credit positive or negative interest at the end of a crediting period 
to amounts allocated to an index-linked option based, in part, on the 
performance of the index; (2) a statement that an investor could lose a 
significant amount of money if the index declines in value; (3) an 
explanation that the insurance company limits the negative or positive 
index returns used in calculating interest credited to an index-linked 
option at the end of its crediting period, accompanied by a brief 
description and an example of the manner in which such returns may be 
limited; and (4) disclosure of guaranteed minimum limits on index 
losses or gains.\119\ We are adopting the amendments described in (1)-
(3) generally as proposed. We are adopting changes to the language of 
the proposed disclosure requirements addressing minimum limits on index 
losses and gains, which will be parallel to changes we are adopting to 
this language throughout Form N-4, as discussed in more detail 
below.\120\ Specifically, we are changing the language of the proposed 
disclosure requirement addressing minimum limits on index losses to 
specify that an insurer that does not offer a minimum guaranteed limit 
on index losses must disclose that fact. We are adopting changes to the 
proposed language of the requirement for disclosing minimum limits on 
index gains to specify that insurers must prominently state, for each 
type of limit offered (e.g., cap, participation rate, etc.), the lowest 
limit on index gains that may be established under the contract.\121\
---------------------------------------------------------------------------

    \119\ Final Form N-4, Items 2(b)(2)(i)-(iv).
    \120\ Final Form N-4, Item 2(b)(2)(iii).
    \121\ Final Form N-4, Items 2(b)(2)(iii) and (iv).
---------------------------------------------------------------------------

    As proposed, the Overview also will provide, if applicable, a 
discussion of contract adjustments that must include a statement that 
an investor could lose a significant amount of money due to the 
contract adjustment if amounts are removed from an investment option or 
from the contract prior to the end of a specified period, accompanied 
by a brief description of the transactions subject to a contract 
adjustment.\122\ In a change from the proposal, we are not adopting the 
proposed requirement to include in the Overview numeric risk of loss 
disclosures associated with negative index performance or contract 
adjustments, as discussed further below.
---------------------------------------------------------------------------

    \122\ Final Form N-4, Item 2(d). Although one commenter 
suggested that we relocate the proposed disclosure item for contract 
adjustments under the sub-item for index-linked option disclosures, 
we are not making this change because contract adjustments are not 
specific to index-linked options; they apply to MVA annuity options 
as well. In a change from the proposal, we are replacing ``index-
linked option'' with ``investment option'' to convey contract 
adjustments are associated with other types of investment options in 
addition to index-linked options.
---------------------------------------------------------------------------

    As proposed, the Overview will precede the KIT. We are reordering 
these sections based on investor testing results indicating that 
investors reviewing sample KIT disclosure had difficulty understanding 
the basic features and concepts of RILA contracts, for example, 
``index,'' ``investment term,'' ``interim value adjustment,'' and 
``buffer.'' \123\ The Overview provides general information about the 
contract and important context about the information summarized in the 
KIT. In particular, the Overview will, as discussed below, require 
descriptions and examples to help investors understand these RILA 
features, including contract adjustments, which we anticipate will 
provide a basis for better understanding the issues that the KIT 
disclosures address. Based on our observations of investor testing, 
investors may generally benefit from having more context in order to 
understand the KIT disclosures. Placing the Overview first may 
similarly provide context for the issues flagged in variable annuity 
KITs.
---------------------------------------------------------------------------

    \123\ See, e.g., OIAD Investor Testing Report at Section 5, 
Qualitative Testing, Results from Round 1, Summary of Qualitative 
Testing, Section 6, Quantitative Testing, Summary of Quantitative 
Testing.
---------------------------------------------------------------------------

    We received one comment on this proposed reordering in Form N-4. 
The commenter stated that the repetition of certain information in both 
the Overview and the KIT undermines our rationale for proposing to 
reorder the two sections.\124\ We disagree that covering some of the 
same topics in the Overview and the KIT is inconsistent with changing 
the order of these disclosures. The KIT is designed to identify, in a 
consolidated location, key risks and features of the contract it 
describes.\125\ Certain of this information is also included in the 
high-level contract summary provided in the Overview. The disclosure is 
included in both locations to allow the reader to understand the 
contract at a high level (in the Overview of the Contract), as well as 
key features and risks of the annuity whose offering is being 
registered (in the KIT). Further, KIT requirements that address the 
same topic in different contexts may aid investor understanding of 
complex disclosure, and this approach is consistent with a layered 
disclosure approach.
---------------------------------------------------------------------------

    \124\ See CAI Comment Letter.
    \125\ See VASP Adopting Release at paragraph following n.106.
---------------------------------------------------------------------------

    In terms of the proposed content requirements for the Overview 
section, one commenter generally supported the proposed 
amendments.\126\ This commenter not only stated that the proposed 
amendments to the Overview were generally appropriate (including 
requirements applicable to RILAs and variable annuities), but also that 
the proposed disclosure requirements regarding the index-linked options 
``cover most of the key aspects that investors should be aware of to 
understand the cyclical nature of the index-linked options,'' and 
``strike the right balance by providing investors with the proper level 
of summary disclosure, with additional information appearing later in 
the prospectus.'' While no commenter generally opposed our proposed 
changes, several requested modifications to some of the specific 
proposed disclosures.
---------------------------------------------------------------------------

    \126\ CAI Comment Letter.
---------------------------------------------------------------------------

    As discussed above, some commenters raised general concerns about 
disclosure that appears in both the Overview and the KIT and suggested 
that we reduce or eliminate perceived duplicative disclosure in those 
two sections to simplify and streamline the prospectus.\127\ Such 
comments largely concerned the proposed narrative and numeric risk of 
loss disclosures for index-linked options and contract adjustments. One 
commenter stated it did not oppose the inclusion of narrative and 
numeric risk of loss disclosure in the Overview for end-of-term index 
declines and negative contract adjustments because ``the generally 
free-writing nature of the Overview allows the registrant to provide 
appropriate context for the reader.'' \128\ Conversely, two commenters 
generally opposed the proposed risk of loss disclosures for negative 
index performance and

[[Page 59994]]

contract adjustments on the grounds that RILA issuers should not be 
required to make disclosures that are not required of variable 
annuities, and cited concerns that such disclosures incorrectly portray 
such products as high-risk investments.\129\
---------------------------------------------------------------------------

    \127\ CAI Comment Letter; ACLI Comment Letter.
    \128\ CAI Comment Letter.
    \129\ ACLI Comment Letter; Gainbridge Comment Letter.
---------------------------------------------------------------------------

    One of these commenters stated that the proposal to require RILA 
issuers to disclose that an investor could lose a ``significant amount 
of money'' is inconsistent with existing disclosure for variable 
annuity products, which requires a statement that ``an investor can 
lose money by investing in the Contract.'' \130\ This commenter stated 
that a RILA investor is at no greater risk of losing a more substantial 
amount of money than a variable annuity investor, and that if all 
performance variables were equal, a RILA investor has reduced risk of 
loss compared to a variable annuity investor because RILAs have the 
added benefit of downside protection. This commenter also objected to 
the proposed requirement to disclose in the Overview that an investor 
could lose a ``significant'' amount of money due to an index decline or 
a contract adjustment, viewing that term as subjective. Another 
commenter asked that we modify the proposed narrative risk of loss 
disclosure for negative contract adjustments to state that losses could 
be significant under ``extreme market conditions.'' \131\ This 
commenter also opposed requiring numeric risk of loss disclosure 
associated with a negative contract adjustment on the grounds that the 
narrative disclosure ``is sufficient without including a numeric 
figure.'' One commenter asked that we clarify that the proposed numeric 
risk of loss disclosure for contract adjustments could be modified to 
avoid any implication that the risk of loss is greater than 100%.\132\
---------------------------------------------------------------------------

    \130\ ACLI Comment Letter.
    \131\ VIP Working Group Comment Letter.
    \132\ CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting the Overview's narrative risk of loss disclosures 
largely as proposed.\133\ These disclosures, each of which is a single 
sentence, are appropriate in light of the fact that RILAs, unlike 
variable annuities and other investment companies, are structured 
products that have unique features and risks despite contract 
similarities to variable annuities. Unlike variable annuities, index-
linked options offer downside protection from market declines--and are 
marketed on that basis. The disclosures we are adopting will alert RILA 
investors that there are limits to those protections. Moreover, we are 
retaining the proposed requirement to state that an investor could lose 
money, with the ``significant'' descriptor designed to put investors on 
notice of losses they might not anticipate, given that investor testing 
revealed that investors tend to overestimate loss protection.\134\ 
Significant losses associated with index-linked options may be 
infrequent, but they can and do happen, and investors should be aware 
of the possibility. We also are not modifying the proposed disclosure 
requirement to state that significant losses associated with contract 
adjustments may only occur under ``extreme market conditions'' because 
an investor who withdraws from a contract before the end of the 
crediting period may suffer significant losses relative to the value of 
the initial investment, regardless of market conditions. Nevertheless, 
the form does not prohibit an insurer from accompanying the required 
statement with contextual disclosure that explains when significant 
losses associated with contract adjustments might occur.
---------------------------------------------------------------------------

    \133\ Final Form N-4, Items 2(b)(2)(ii) and 2(d). The only 
change we are adopting to the narrative risk of loss disclosure 
requirements is a revision to Item 2(d), replacing ``Index-Linked 
Option'' with ``Investment Option,'' to clarify that contract 
adjustments may apply to options other than index-linked options.
    \134\ See OIAD Investor Testing Report at Section 5, Qualitative 
Testing (qualitative interviews suggested confusion with RILA terms 
and concepts relating to, for example, loss limiting features such 
as buffers).
---------------------------------------------------------------------------

    While we are adopting the narrative risk of loss disclosures as 
proposed, in a change from the proposal and in response to comments 
raising concerns about duplicative disclosure, we are not adopting the 
proposed numeric risk of loss disclosures associated with index 
declines or contract adjustments in the Overview. This change 
recognizes that the proposed numeric disclosures appear on the cover 
page, as well as the KIT, and, as one commenter observed, the Overview 
and the KIT are designed to be read together.\135\ Requiring narrative-
only risk of loss disclosure in the Overview is sufficient to flag this 
potential risk for investors because it will be immediately followed by 
the KIT, which will require the numeric risk of loss disclosure.\136\ 
Although one commenter suggested we require numeric disclosure in the 
Overview rather than the KIT, as discussed further below, the brevity 
of the numeric disclosure is well suited to the KIT.\137\
---------------------------------------------------------------------------

    \135\ CAI Comment Letter.
    \136\ Final Form N-4, Instructions 2(a) and 3(a) to Item 3.
    \137\ CAI Comment Letter. See also infra footnote 174 and 
accompanying paragraph for related discussion.
---------------------------------------------------------------------------

    Some commenters sought clarification regarding whether our proposal 
to require insurers to disclose guaranteed minimum limits on index 
losses or gains effectively seeks to impose a substantive requirement 
for insurance companies to offer minimum limits.\138\ One commenter 
asked whether a prospectus for a contract that does not offer minimum 
limits may omit the proposed disclosure.\139\ The proposal--and the 
final amendments we are adopting--are designed to result in clear 
disclosure of minimum limits that are an inherent feature of the 
contract, not to dictate contract terms or prescribe specific minimum 
limits.
---------------------------------------------------------------------------

    \138\ CAI Comment Letter; VIP Working Group Comment Letter; 
Gainbridge Comment Letter.
    \139\ VIP Working Group Comment Letter; Gainbridge Comment 
Letter.
---------------------------------------------------------------------------

    For downside protection, we understand some RILA issuers may not 
offer index-linked options with minimum limits on index losses that 
will always be available under the contract. Because downside 
protection is one of the chief selling points for index-linked options, 
a particular RILA not offering minimums on index losses that will 
always be available under the contract is material information that 
must be prominently disclosed in the prospectus. Without downside 
protection, investors are at risk of losing their entire investment due 
to poor index performance. And without a minimum rate of downside 
protection that will always be available under the contract, an 
investor is considering making a long-term investment without certainty 
as to the amount of downside protection that will apply to future 
crediting periods. Likewise, without disclosing a minimum limit on 
index gains that will always be available under the contract, an 
investor would not know the extent to which investments in future 
index-linked options would result in credited interest when there is 
positive index return. To help ensure that investors have this 
information while also responding to comments requesting clarification, 
we are modifying the proposed requirement to disclose guaranteed 
minimums on index losses. Instead, the final amendments require the 
insurer to prominently disclose any minimum limits on index losses that 
will always be available under the contract, or, alternatively, 
prominently state that the insurer does not guarantee that the contract 
will always offer index-linked

[[Page 59995]]

options that limit index losses.\140\ In addition, largely as proposed, 
we are adopting a requirement for insurers to disclose the minimum 
limits on index gains guaranteed for the life of the contract, with 
some changes to the proposed language to address commenters' requests 
for clarification.\141\
---------------------------------------------------------------------------

    \140\ Final Form N-4, Item 2(b)(2)(iii).
    \141\ Proposed Form N-4, Item 2(b)(2)(iv) would have required 
insurers to ``[d]isclose the minimum limit on Index gains guaranteed 
for the life of the Contract for any Index-Linked Option,'' whereas 
final Form N-4, Item 2(b)(2)(iv) will require insurers to 
``[p]rominently state, for each type of limit offered (e.g., cap, 
participation rate, etc.), the lowest limit on Index gains that may 
be established under the Contract.''
---------------------------------------------------------------------------

    These changes from the proposal are intended to clarify that this 
requirement is designed to seek disclosure on the minimum limit on 
index gains that will always be available under the contract for each 
type of limit offered. The final amendments also conform this 
disclosure requirement with our understanding of current practices and 
the nature of RILA investments--that is, while an insurance company may 
not offer loss protection, a RILA inherently involves some degree of 
participation in index gains. The insurance company therefore must 
disclose the minimum extent to which investors can participate in index 
gains under the contract. Specifically, the final rule will require the 
insurer to prominently state, for each type of upside limit being 
offered (e.g., cap, participation rate, etc.), the lowest limit on 
index gains that may be established under the contract.\142\
---------------------------------------------------------------------------

    \142\ Final Form N-4, Item 2(B)(2)(iv). We are requiring 
parallel disclosure in other Items of final Form N-4 relating to 
disclosure of minimum limits on index losses and/or gains that will 
always be available under the contract. See also final Form N-4, 
Item 1(a)(6); Item 5(a); Item 6(d)(2)(i)(B); and Item 17(b).
---------------------------------------------------------------------------

3. Key Information Table (Item 3)
    The KIT requirements in Form N-4 currently require a brief 
description of key facts about a variable annuity to appear in the 
prospectus, in a specific sequence and in a standardized 
presentation.\143\ The KIT functions as an integral part of the layered 
disclosure in Form N-4 by identifying key considerations upfront, with 
more detail to follow later in the prospectus. We are adopting the 
final amendments generally as proposed with modifications to address 
comments we received. As proposed, we are requiring that insurance 
companies provide a KIT in registration statements relating to RILA 
offerings, as is currently done with variable annuities, and in a 
modification from the proposal are extending this requirement to 
offerings of registered MVA annuities.\144\ We are adopting amendments 
to the current KIT requirements to highlight key features of non-
variable annuities, with some modifications from the proposal in 
response to comments. These amendments are informed by investor testing 
and are designed to build on the existing KIT disclosure framework and 
highlight important considerations related to non-variable annuities, 
including certain aspects of RILAs that our investor testing observed 
are difficult for investors to understand and thus require clear 
disclosure in order to help investors make informed investment 
decisions.\145\ In addition, as proposed, we are adopting amendments to 
the KIT that will apply to both non-variable and variable annuities 
that are designed to provide investors with a better understanding of 
these products.
---------------------------------------------------------------------------

    \143\ For variable annuity issuers who rely on rule 498A to 
provide summary prospectuses to investors, the KIT currently appears 
as a disclosure item in the summary prospectus.
    \144\ See final Form N-4, General Instruction B.1 and 
Instruction 1(a)-1(c) to Item 3.
    \145\ See, e.g., OIAD Investor Testing Report at Section 5, 
Qualitative Testing (following two rounds of in-depth interviews to 
assess potential RILA KIT disclosure for areas of confusion or 
misunderstanding, qualitative interviews suggested confusion with 
RILA terms and concepts relating to, for example, contract 
adjustments such as interim value adjustments and loss limiting 
features such as buffers); OIAD Investor Testing Report at Section 
6, Quantitative Testing, Results, Subgroup Analysis (noting 5.7 
percentage point effect of the Q&A KIT structure on overall 
comprehension for ``non-investors'' during quantitative testing).
---------------------------------------------------------------------------

    Commenters generally supported the proposed requirement that 
insurance companies provide a KIT in RILA registration statements.\146\ 
Comments on the proposed amendments affecting the KIT's specific format 
and disclosure requirements, however, were mixed.\147\ One commenter 
supported the proposed amendments to the KIT.\148\ This commenter 
stated that the disclosure required to appear in the KIT provides 
investors with a complete picture of RILA risks in a prominent place. 
In contrast, other commenters supported a portion of the proposed 
amendments to the KIT but also opposed certain of the proposed 
amendments, as discussed further below.\149\ Commenters suggested that, 
should the Commission extend the use of Form N-4 to registered MVA 
annuities, their comments would also apply to disclosures related to 
those securities, to the extent applicable.\150\
---------------------------------------------------------------------------

    \146\ See, e.g., Gainbridge Comment Letter (stating that the KIT 
requirement for RILA issuers will allow investors to readily compare 
RILAs to each other and to variable annuities); Better Markets 
Comment Letter (stating that a RILA-tailored KIT is key to helping 
investors understand the RILA-specific risks presented to them).
    \147\ See, e.g., Better Markets Comment Letter; CAI Comment 
Letter.
    \148\ See Better Markets Comment Letter.
    \149\ See CAI Comment Letter (stating that the SEC has generally 
struck the correct balance in the KIT, with some exceptions); ACLI 
Comment Letter (stating that it supports CAI's comments and opposing 
the KIT amendments requiring a Q&A format and repetition of Overview 
disclosure).
    \150\ See, e.g., CAI Comment Letter.
---------------------------------------------------------------------------

    The overall format of the final KIT is depicted below:

                Table 4--Key Information Table as Adopted
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Fees, Expenses, and Adjustments:
------------------------------------------------------------------------
Are There Charges or Adjustments for
 Early Withdrawals?
Are There Transaction Charges?
Are There Ongoing Fees and Expenses?
------------------------------------------------------------------------
Risks:
------------------------------------------------------------------------
Is There a Risk of Loss from Poor
 Performance?
Is this a Short-Term Investment?
What Are the Risks Associated with the
 Investment Options?
What are the Risks Related to the
 Insurance Company?
------------------------------------------------------------------------
Restrictions:
------------------------------------------------------------------------
Are There Restrictions on the
 Investment Options?

[[Page 59996]]

 
Are There any Restrictions on Contract
 Benefits?
------------------------------------------------------------------------
Taxes:
------------------------------------------------------------------------
What Are the Contract's Tax
 Implications?
------------------------------------------------------------------------
Conflicts of Interest:
------------------------------------------------------------------------
How Are Investment Professionals
 Compensated?
Should I Exchange My Contract?
------------------------------------------------------------------------

a. Formatting of the KIT
    Form N-4 currently prescribes format requirements for the KIT to 
enhance the readability and comparability of the disclosure.\151\ As 
proposed, we are adopting amendments to Form N-4 to require these 
current format requirements to apply to all offerings registered on 
Form N-4, including non-variable annuity offerings.\152\ Specifically, 
the final amendments will require insurance companies to disclose 
required KIT information in the tabular presentation reflected in the 
instructions, in the order specified, without any modification or 
substitution with alternate terminology of the title, headings, and 
sub-headings for the tabular presentation, unless the instructions 
otherwise provide. Insurance companies will be permitted to exclude any 
disclosures (other than the title, headings, and sub-headings for this 
tabular presentation) in the KIT that are not applicable or modify any 
of the statements required to be included, so long as the modified 
statement contains comparable information. Insurance companies also 
will be required to provide cross-references to the location in the 
statutory prospectus where the subject matter is described in greater 
detail, and in the case of electronic versions of the prospectus, to 
make those references accessible either by direct electronic link or 
through equivalent methods or technologies, as required for variable 
annuity KIT disclosure. Insurance companies will include these cross-
references adjacent to the relevant disclosure, either within the table 
row, or presented in an additional table column. All disclosures in the 
KIT should be short and succinct, consistent with the limitations of a 
tabular presentation.
---------------------------------------------------------------------------

    \151\ See current Form N-4, Instruction 1 to Item 2.
    \152\ See final Form N-4, Instruction 1(a)-(c) to Item 3.
---------------------------------------------------------------------------

    Commenters generally supported the application of the current KIT 
format requirements to RILA offerings.\153\ In response to one of the 
Proposing Release's requests for comment, one commenter stated that the 
KIT should continue to permit insurance companies to cross-reference 
relevant sections of the prospectus either within the applicable row of 
the KIT or as an additional column rather than requiring issuers to add 
a new column in the KIT labeled ``Location in the Prospectus.'' \154\ 
We agree and are maintaining the current requirements for cross-
reference location because staff, investors, and RILA issuers are 
familiar with these requirements, and investor testing did not identify 
any concerns with this aspect of the KIT.\155\
---------------------------------------------------------------------------

    \153\ See Better Markets Comment Letter (expressing that the 
proposed KIT requirements present RILA risks in a format that 
investors will easily understand); CAI Comment Letter (stating that 
the proposed KIT presentation is similar to the presentation 
currently used by insurance companies for combination RILA/variable 
annuity offerings and that this presentation will work equally well 
for combination and standalone RILAs registered on Form N-4).
    \154\ See CAI Comment Letter.
    \155\ See generally Proposing Release at Section 1.C.
---------------------------------------------------------------------------

    We are adopting, as proposed, three amendments to the KIT 
formatting and presentation requirements in Form N-4 that will apply to 
registration statements both for non-variable and variable annuities. 
These changes are designed to provide investors with a better 
understanding of these products and are informed in part by the results 
of investor testing. First, we are adopting, generally as proposed, a 
requirement that issuers present information in the KIT in a question-
and-answer (``Q&A'') format.\156\ As a result of this change, the 
various line items of the KIT will be rephrased as questions (e.g., 
``Are There Charges or Adjustments for Early Withdrawals?'' instead of 
``Charges for Early Withdrawals or Adjustments''). The instructions 
will further require that, unless the context otherwise requires, 
issuers must begin the response with a ``Yes'' or ``No'' in bold text 
when answering a question presented in a given row of the KIT.
---------------------------------------------------------------------------

    \156\ See final Form N-4, Instruction 1(d) to Item 3.
---------------------------------------------------------------------------

    Comments on the Q&A format were mixed.\157\ One commenter expressed 
that the Q&A format may be helpful and more accessible to some 
investors but may also result in a less concise and simple KIT.\158\ 
Another commenter opposed the Q&A format on the grounds that it would 
result in more narrative responses, which would make comparisons 
between products more difficult for investors.\159\ This commenter 
favored retaining the current wording.
---------------------------------------------------------------------------

    \157\ See ACLI Comment Letter; CAI Comment Letter.
    \158\ See CAI Comment Letter.
    \159\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    After considering comments received, we are adopting the Q&A format 
generally as proposed, except for the Charges or Adjustments for Early 
Withdrawals and the Risks Related to the Insurance Company line items, 
each of which we discuss in further detail below. Rephrasing the 
current line items in a Q&A format should more effectively convey the 
KIT information to investors and will therefore help non-variable and 
variable annuity investors make informed investment decisions. As 
stated in the Proposing Release, the Q&A format should improve investor 
comprehension of non-variable annuity-specific topics based on the 
results of our quantitative investor testing.\160\ Because our investor 
testing showed that the Q&A format impacted overall comprehension more 
for non-investors than independent investors, the Q&A format should 
particularly improve comprehension for less-experienced investors.\161\ 
Because the KIT disclosures as amended continue to be brief by their 
nature, we anticipate that any negative impact the Q&A format

[[Page 59997]]

may have on comparability or conciseness will be justified by the 
benefit that investors will gain from understanding complex non-
variable annuity-specific information.
---------------------------------------------------------------------------

    \160\ See Proposing Release at Section II.B.2.
    \161\ See Proposing Release at n.78 and accompanying text. For 
purposes of investor testing, participants were classified into 
three groups: those with no investments in stocks, bonds, mutual 
funds, or other securities (non-investors); those with investments 
exclusively in retirement savings accounts (retirement only); and 
those with investments outside of retirement accounts (independent 
investors). See OIAD Investor Testing Report at Section 6, 
Quantitative Testing, Subgroup Analysis, Investor Status.
---------------------------------------------------------------------------

    Second, we are adopting, as proposed, amendments changing the order 
in which the KIT (Item 2 of current Form N-4) appears relative to the 
Overview of the Contract (Item 3 of current Form N-4), as discussed 
above.\162\
---------------------------------------------------------------------------

    \162\ See supra Section II.C.2. The current instructions to Form 
N-4 require that, notwithstanding 17 CFR 230.421(a), the KIT, 
Overview of the Contract, and Fee Table must be disclosed in the 
numerical order in which they appear in Form N-4. The final form 
changes this instruction to reflect the change in order. See final 
Form N-4, General Instruction C.3(a). The change in order will also 
apply to summary prospectus disclosure location under the final 
amendments to rule 498A.
---------------------------------------------------------------------------

    Third, as proposed, we are deleting Form N-4's general instruction 
stating that where the discussion of information required by the 
Overview of the Contract or KIT also responds to the disclosure 
requirements in other items of the prospectus, registrants need not 
include additional disclosure in the prospectus that repeats the 
information disclosed in the Overview of the Contract or the KIT.\163\ 
Comments on the deletion were mixed.\164\ One commenter stated that 
there is value in ``strategically locating certain disclosures in 
multiple places to help investors.'' \165\ Another commenter opposed 
this deletion because it would lead to certain information appearing 
more than once in the prospectus.\166\
---------------------------------------------------------------------------

    \163\ See final Form N-4, General Instruction C.3(a).
    \164\ See ACLI Comment Letter; CAI Comment Letter.
    \165\ See CAI Comment Letter.
    \166\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    In administering Form N-4, we have observed that this instruction 
has led to confusion on the part of registrants. Moreover, as discussed 
above, the layered disclosure framework requires certain disclosure 
topics to be discussed in multiple locations.\167\ This framework is 
designed to help ensure both that the KIT contains key disclosures and 
that the more-detailed sections to which investors are directed contain 
all of the key information about the given topic.\168\ This approach is 
particularly important for RILAs in light of the challenges our 
investor testing showed investors have in understanding these products, 
in that investors will see key disclosures in one place--the KIT--
regardless of whether they review targeted sections of the prospectus.
---------------------------------------------------------------------------

    \167\ See supra Section I.D.2.
    \168\ For example, while both the KIT and Item 5 require 
disclosures about principal risks, the KIT currently expressly 
contemplates that more detailed information will be repeated later 
in the prospectus, specifically requiring registrants to provide 
cross-references to the more detailed prospectus discussion. See 
current Form N-4, Instruction 1(b) to Item 2. This instruction 
remains unchanged in the KIT of the final Form N-4. See final Form 
N-4, Instruction 1(b) to Item 3. Item 5 requires registrants to 
summarize the principal risks of the contract in one place, and was 
not intended to permit an insurance company to omit principal risks 
from that section if those risks were also disclosed in the KIT. See 
Proposing Release at n.86 and accompanying text (``The principal 
risks section is designed to provide a consolidated presentation of 
principal risks which can be cross-referenced by registrants to 
reduce repetition that might otherwise occur if the same principal 
risks are repeated in different sections of the prospectus.'').
---------------------------------------------------------------------------

b. Fees, Expenses, and Adjustments
    Non-variable annuities typically have implicit fees, expenses, 
charges, and adjustments for early or mid-term withdrawals that can be 
confusing or surprising to investors. This was observed in our investor 
testing regarding RILAs.\169\ We anticipate that investors will benefit 
from tailored disclosure about certain unique features of a non-
variable annuity's fee and expense structure as described below to help 
them make informed decisions.
---------------------------------------------------------------------------

    \169\ See supra Section I.D.1.
---------------------------------------------------------------------------

    Early Withdrawal Charges and Adjustments. The first line item in 
the ``Fees, Expenses, and Adjustments'' section of the amended KIT, 
``Are There Charges or Adjustments for Early Withdrawals?,'' addresses 
surrender charges and contract adjustments. Because non-variable 
annuities may have surrender charges, we are adopting, as proposed, a 
requirement that insurance companies provide the existing KIT surrender 
charge disclosure in this first line item so that investors understand 
how surrender charges are assessed (e.g., that if they make a 
withdrawal within a specified period after their last premium payment, 
they may pay a significant surrender charge that will reduce the value 
of their investment).\170\ This disclosure must include the maximum 
surrender charge, the maximum number of years that a surrender charge 
may be assessed, and an example of the maximum surrender charge an 
investor could pay in dollars based on a $100,000 investment. In a 
change to the current form requirements, we also are requiring, as 
proposed, that insurance companies disclose that this loss will be 
greater if there is a negative contract adjustment, taxes, or tax 
penalties, to make clear that an investor may lose more than just the 
surrender charge upon an early withdrawal.
---------------------------------------------------------------------------

    \170\ Final Form N-4, Instruction 2(a) to Item 3.
---------------------------------------------------------------------------

    We also are requiring specific disclosure on contract adjustments, 
which can result in investor losses if the investor withdraws money 
from an investment option, or withdraws money from the non-variable 
annuity entirely, before the end of a specified period.\171\ We are 
adopting these requirements as proposed except that they will apply to 
contract adjustments applicable to registered MVA annuities as well as 
RILAs. Specifically, if the contract includes contract adjustments, the 
insurance company will be required to include a statement that if all 
or a portion of contract value is removed from an investment option or 
from the contract before the expiration of a specified period, the 
insurance company will apply a contract adjustment, which may be 
negative. This statement will include the maximum potential loss (as a 
percentage of the investment) resulting from a negative adjustment. The 
insurance company also will be required to provide an example of the 
maximum negative adjustment that could be applied (in dollars) assuming 
a $100,000 investment. We are also adopting, as proposed, a requirement 
that the insurance company provide a brief narrative description of the 
contract transactions subject to a contract adjustment (e.g., 
withdrawals, surrender, annuitization, etc.) as part of the response to 
this item to make clear to investors the range of transactions that 
could result in a contract adjustment.
---------------------------------------------------------------------------

    \171\ Contract adjustments include adjustments made when amounts 
are removed prematurely from an index-linked option, often referred 
to as interim value adjustments, as well as adjustments made when 
amounts are removed prematurely from the contract, often referred to 
as market value adjustments. Thus, a specified period would include 
index-linked option crediting periods (which again, are typically 
referred to by insurance companies as ``investment terms'' or 
``terms''), as well as any specified period relating to a market 
value adjustment.
---------------------------------------------------------------------------

    Commenters generally opposed one or more of the amendments to the 
early withdrawal charges line. One commenter specifically opposed the 
inclusion in the KIT of numeric maximum potential loss disclosure (as a 
percentage of an investment) due to a negative contract adjustment on 
the grounds that the KIT's design would not provide adequate context 
for the disclosure and could therefore lead investors to believe that 
such losses are likely, even when the risk of loss is remote.\172\ This 
commenter suggested instead that the KIT should contain only narrative 
statements regarding the risk of loss. The commenter also opposed the 
inclusion in the KIT of this numeric loss disclosure because it is 
included in other parts of the prospectus. While we

[[Page 59998]]

are adopting changes to this proposed disclosure elsewhere in the 
prospectus, we are adopting amendments to this first line item of the 
KIT as proposed.\173\ While we appreciate that this disclosure appears 
elsewhere in the prospectus, including the numeric maximum potential 
loss disclosure in the KIT in particular is appropriate because the 
brevity of numeric disclosure and its effectiveness in communicating 
this key risk of loss is well suited for the KIT. In this regard, the 
KIT was designed to ``provide a brief description of key facts'' and be 
``easy to read and navigate.'' \174\ Further, additional context for 
the numeric disclosure will be provided by cross-references to other 
parts of the prospectus.\175\ As discussed above,\176\ the inclusion of 
numeric loss disclosure in both the KIT and elsewhere in the prospectus 
is consistent with a layered disclosure approach and is designed to 
help investors make more informed investment decisions. Also, as 
discussed above, the form does not prevent the insurance company from 
providing additional appropriate context.\177\
---------------------------------------------------------------------------

    \172\ See CAI Comment Letter.
    \173\ See supra Section II.C.2.
    \174\ See VASP Adopting Release at paragraph following n.106.
    \175\ See final Form N-4, Instruction 1(b) to Item 3.
    \176\ See supra Sections III.A.2, II.C.1, and II.C.2 (discussing 
numeric loss disclosure in the context of the prospectus's layered 
disclosure approach, cover page, and Overview, respectively).
    \177\ See supra Sections II.C.1, and II.C.2.
---------------------------------------------------------------------------

    One commenter suggested that the example of the maximum negative 
adjustment that could be applied (in dollars) assuming a $100,000 
investment should not be required if the maximum potential loss (as a 
percentage of an investment) due to a negative adjustment is 
retained.\178\ This commenter expressed that, where the percentage 
maximum potential loss is 100% under a RILA, a typical investor would 
understand the dollar amount associated with that loss and would not 
need the example. We are retaining this example because it illustrates 
how an investment can be impacted by a negative contract adjustment in 
dollar figures, which may be more salient to some investors than a 
percentage.
---------------------------------------------------------------------------

    \178\ See CAI Comment Letter. The instructions to this line item 
provide an example of this disclosure that includes the statement 
that the loss ``will be greater if you also have to pay a surrender 
charge, taxes, and penalties.'' One commenter recommended that, if 
the Commission does require an example of maximum negative 
adjustments, the Commission should ensure that the form instructions 
do not require insurance companies to state or imply that the loss 
could be greater than 100% due to other factors, such as surrender 
charges. See CAI Comment Letter. The language in the form relating 
to greater losses due to these other factors is an example provided 
in a specific context, and insurance companies will not be required 
to make this disclosure where it is not correct.
---------------------------------------------------------------------------

    One commenter stated that requiring disclosure relating to interim 
value adjustments under the ``Fees and Expenses'' heading is 
inappropriate because interim value adjustments are not fees but are 
instead the approximate fair market value of the investments 
underpinning the RILA.\179\ We are retaining negative contract 
adjustment disclosure under the heading of the KIT that addresses fees 
and expenses. Interim value adjustments operate like an implicit fee in 
that they have a similar impact on an investor as an explicit fee or 
expense by decreasing the amount of an investor's investment. Further, 
including information about interim value adjustments under this 
heading may aid investors' understanding of their potential effects 
since investor testing showed that investors struggled to understand 
the concept of interim value adjustments in general.\180\ To address 
the commenter's concern that the disclosure could imply that a contract 
adjustment is a conventional fee or expense, we have renamed this 
section of the KIT ``Fees, Expenses, and Adjustments'' and changed the 
question in the left-hand column of the early withdrawal charges and 
adjustments line item to read ``Are There Charges or Adjustments for 
Early Withdrawals?'' (italics indicating text in final Form N-4 that 
has been added to the proposed text).\181\
---------------------------------------------------------------------------

    \179\ See VIP Working Group Comment Letter.
    \180\ See OIAD Investor Testing Report at Section 5, Qualitative 
Testing.
    \181\ See also infra Section II.C.6.a (regarding similar changes 
relating to the transaction expense table).
---------------------------------------------------------------------------

    Transaction Charges. The second line item in the ``Fees, Expenses, 
and Adjustments'' section of the amended KIT, ``Are There Transaction 
Charges?,'' will require registrants to disclose that the investor may 
also be charged for other transactions in addition to surrender charges 
(and now contract adjustments), along with a brief narrative 
description of the types of such charges (e.g., front-end loads, 
charges for transferring cash value between investment options, 
etc.).\182\ This line item is designed to provide a simple narrative 
description to alert investors that surrender charges and contract 
adjustments are not the only charges they could pay when they engage in 
certain contract transactions. We did not receive comments on this line 
item, and we are adopting these requirements as proposed.
---------------------------------------------------------------------------

    \182\ Final Form N-4, Instruction 2(b) to Item 3.
---------------------------------------------------------------------------

    Ongoing Fees and Expenses. The third line item in the ``Fees, 
Expenses, and Adjustments'' section, ``Are There Ongoing Fees and 
Expenses?,'' is designed to alert investors that they will bear 
recurring fees on an annual basis. This item currently requires the 
insurance company to disclose (1) a minimum and maximum annual fee 
table and (2) a lowest and highest annual cost table, both along with 
applicable legends.\183\ We are adopting amendments requiring insurance 
companies to provide this disclosure with respect to RILAs, as 
proposed, and registered MVA annuities, in a change from the 
proposal.\184\
---------------------------------------------------------------------------

    \183\ See current Form N-4, Instruction 2(c) to Item 2. The 
minimum and maximum annual fee table requires a tabular description 
of the fees and expenses that an investor may pay each year, 
depending on the investment options chosen. This includes minimum 
and maximum percentages for: base contract fees; portfolio company 
fees and expenses; and optional benefits available for an additional 
charge. The lowest and highest annual cost table requires a tabular 
description of the lowest and highest cost an investor could pay 
each year, based on current charges and a set of standardized 
assumptions (e.g., $100,000 investment and 5% annual appreciation).
    \184\ See final Form N-4, Instruction 2(c) to Item 3.
---------------------------------------------------------------------------

    We also are adopting, largely as proposed, amendments requiring 
that, where a contract imposes limits on gains on the amount an 
investor can earn on an index-linked option, insurance companies must 
disclose that they impose these limits on gains and that they can act 
as an implicit ongoing fee.\185\
---------------------------------------------------------------------------

    \185\ See final Form N-4, Instruction 2(c)(i)(G) to Item 3.
---------------------------------------------------------------------------

    Specifically, insurance companies must disclose that: (1) there is 
an implicit ongoing fee on index-linked options to the extent that an 
investor's participation in index gains is limited by the insurance 
company through the use of a cap, participation rate, or some other 
rate or measure; (2) this means that the investor's returns may be 
lower than the index's returns; (3) in return for accepting this limit 
on index gains, an investor will receive some protection from index 
losses; and (4) this implicit ongoing fee is not reflected in the 
tables below. In a change from the proposal, we are modifying the first 
statement to provide that there is an implicit ongoing fee on index-
linked options to the extent that an investor's participation in index 
gains is limited by the insurance company through the use of a cap, 
participation rate, or some other rate or measure.\186\ In another 
change from the proposal, insurance companies will be required to 
provide both a statement to the effect that this implicit fee means 
that the investor's returns may be lower

[[Page 59999]]

than the index's returns and also a statement that the implicit fee is 
not reflected in the fee and cost tables. This disclosure replaces the 
proposed statement that the limit on index gains helps the insurance 
company generate a profit on the index-linked option, as we discuss in 
more detail later in this section of the release. As proposed, the 
disclosure will be required to precede the minimum and maximum fee 
table if the contract offers index-linked options and imposes ongoing 
fees and expenses.
---------------------------------------------------------------------------

    \186\ See final Form N-4, Instruction 2(c)(i)(G) to Item 3 
(emphasis added); see proposed Form N-4, Instruction 2(c)(i)(G) to 
Item 3.
---------------------------------------------------------------------------

    Also as proposed, in the case of a contract that offers an index-
linked option subject to limits on gains but does not impose any 
explicit ongoing fees or expenses under the contract, the insurance 
company will include the disclosure in lieu of such tables.\187\ That 
is, the disclosure will take the place of the fee and cost tables 
rather than precede them. Where there are no explicit ongoing fees, 
minimum and maximum annual fee and cost tables showing zero fees would 
tend to mislead investors because an index-linked option imposing 
limits on gains has implicit fees inherent in limiting upside index 
participation. The substance of the required disclosure will be largely 
the same as the disclosure discussed above but will not include the 
statement that the ``implicit ongoing fee is not reflected in the 
tables below'' since no tables will follow this disclosure.\188\
---------------------------------------------------------------------------

    \187\ See final Form N-4, Instruction 2(c)(iii) to Item 3; see 
proposed Form N-4, Instruction 2(c)(iii) to Item 3.
    \188\ See final Form N-4, Instruction 2(c)(iii) to Item 3. The 
proposed disclosure in lieu of the tables was identical to the 
proposed disclosure preceding the tables. See proposed Form N-4, 
Instruction 2(c)(iii) to Item 3.
---------------------------------------------------------------------------

    Lastly in this line item, we are adopting, as proposed, amendments 
revising the last sentence in the required legend in the lowest and 
highest annual cost table to include the italicized language: ``This 
estimate assumes that you do not take withdrawals from the Contract, 
which could add surrender charges and negative Contract Adjustments 
that substantially increase costs.'' \189\ This will further alert 
investors to the cost impact of a contract adjustment if they withdraw 
money early.
---------------------------------------------------------------------------

    \189\ See final Form N-4, Instruction 2(c)(ii)(A) to Item 3. 
Currently, this legend only refers to surrender charges, not 
negative contract adjustments.
---------------------------------------------------------------------------

    Commenters generally opposed one or more of the amendments to the 
Ongoing Fees and Expenses line item. One commenter expressed concerns 
that excluding disclosures of any ongoing fees that may be implicit to 
index-linked options in the KIT, but requiring variable options to 
disclose ongoing fees, could result in disparate treatment of these two 
types of annuities. Specifically, the commenter stated that this will 
produce unequal disclosure between the two products, which would not be 
appropriate in light of the similar profit margins to insurance 
companies generated by the fees.\190\ The commenter did not suggest a 
specific alternative approach to quantify and disclose these implicit 
costs. We requested comment on whether it would be appropriate to 
develop a standardized methodology or calculation for accurately 
determining these costs.\191\ Two commenters raised challenges with 
accurately determining these types of costs.\192\ After considering 
comments regarding the challenges, we are not requiring numeric 
disclosure of implicit ongoing index-linked fees, but continue to 
welcome feedback from market participants and others on the feasibility 
of establishing a standardized approach to disclose these implicit 
fees.
---------------------------------------------------------------------------

    \190\ See VIP Working Group Comment Letter.
    \191\ See, e.g., Proposing Release at request for comment number 
48.
    \192\ See ACLI Comment Letter; CAI Comment Letter.
---------------------------------------------------------------------------

    One commenter assumed the Commission intended that the lowest and 
highest annual cost table would only be disclosed in registration 
statements relating to variable options because the table's 
instructions reference ``portfolio company fees and expenses,'' which 
are relevant only to variable options.\193\ The commenter therefore 
suggested that we amend the instructions to clarify that the table 
should be omitted if a prospectus is not offering variable options, and 
suggested that we not include references to ``negative Contract 
Adjustments'' in the legend preceding the table because variable 
options are not subject to contract adjustments. This table is not 
intended to be limited to variable options but rather applies to all 
investment options where ongoing fees are charged. While non-variable 
options sometimes do not have explicit ongoing fees, where ongoing fees 
are charged in connection with a non-variable option, they must be 
disclosed in this table. In addition, if the contract does not have a 
contract adjustment, insurance companies should revise the legend 
accordingly. Similarly, insurance companies would not include 
references to portfolio company fees and expenses in the minimum and 
maximum annual fee table and the assumptions in the lowest and highest 
annual cost table if the contract does not offer variable options.
---------------------------------------------------------------------------

    \193\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Some commenters opposed one or more of the required statements 
describing implicit fees.\194\ Some of these commenters believed 
describing insurance company limits on the amount an investor can earn 
in a RILA as an ``implicit ongoing fee'' is inaccurate.\195\ One 
commenter viewed such limits as factors that contribute to the pricing 
of RILA contracts.\196\ Other commenters stated that these limits may 
not be triggered to actually limit an investor's credited 
interest.\197\ These commenters expressed that, for index-linked 
options with caps, if index returns are positive and less than the cap, 
there is no limitation on an investor's credited interest, and for 
index-linked options with participation rates, there is often no upper 
limit on the credited interest even though the investor may receive 
only a percentage of the index return as credited interest.
---------------------------------------------------------------------------

    \194\ See ACLI Comment Letter; CAI Comment Letter; Gainbridge 
Comment Letter.
    \195\ See ACLI Comment Letter; CAI Comment Letter.
    \196\ See Gainbridge Comment Letter.
    \197\ See ACLI Comment Letter; CAI Comment Letter.
---------------------------------------------------------------------------

    We also received comments that characterizing limits on credited 
interest as fees could confuse investors about how RILAs operate 
because investors understand fees as money collected from them, but a 
limit on credited interest is not money collected from investors.\198\ 
One commenter stated that these limits are not like fees as they are 
not applied in all circumstances, such as when an index's returns are 
below these limits, and thus act more like an opportunity cost rather 
than like a fee.\199\
---------------------------------------------------------------------------

    \198\ See ACLI Comment Letter; Gainbridge Comment Letter.
    \199\ See CAI Comment Letter.
---------------------------------------------------------------------------

    While contractual limits placed on an investor's gains, such as a 
cap rate or participation rate, are not fees or charges in a 
conventional sense, these limits can have the effect of reducing 
investment returns (e.g., where the index outperforms a cap or a 
participation rate is less than 100%).\200\ As a result, it is 
appropriate to characterize these contractual limits as ongoing 
implicit fees given they have the same impact on investors. We 
recognize, however, that these contractual limits may not act to reduce 
an investor's credited interest in any given case. Accordingly, after 
considering comments, we are modifying the proposed statement that the 
imposition of limits on gains will act as an implicit ongoing fee. 
Instead, we

[[Page 60000]]

are requiring disclosure that there is an implicit ongoing fee on 
index-linked options to the extent that an investor's participation in 
index gains is limited by the insurance company through the use of a 
cap, participation rate, or some other rate or measure. The addition of 
the qualifying language ``to the extent'' is designed to communicate to 
investors that a contractual limit acts as an implicit fee once it is 
triggered, but not before. After considering comments, we have 
determined that describing these limits as involving an implicit 
``fee'' communicates the concept of reducing an investor's credited 
interest more effectively than ``potential opportunity cost,'' as 
suggested by a commenter, which is a less concrete concept and 
therefore potentially more confusing for investors. Moreover, the 
modification discussed above regarding when these limits on gains will 
reduce an investor's credited interest, together with the 
characterization of the effect of these limits on gains as acting as an 
``implicit'' ongoing fee, also will make clear these limits can have an 
effect akin to that of a fee.
---------------------------------------------------------------------------

    \200\ Dodie C. Kent and Ronal Coenen, Jr., Variable Annuities 
and Other Insurance Investment Products (Third Edition), Registered 
Index-Linked Annuity Contracts (``Kent and Coenen'') at sec. 29:2.2.
---------------------------------------------------------------------------

    Some commenters opposed requiring insurance companies to disclose 
that limiting the amount an investor can earn on an index-linked option 
helps the insurance company make a profit on the option.\201\ These 
commenters stated that they believe the statement is misleading because 
insurance companies generate profit in other ways (or in other ways in 
addition to the limits), including through the use of derivative 
instruments. One commenter indicated that, even though other registered 
securities products generate revenue, not every form requires 
information about how revenue and profit is generated.\202\ After 
further consideration, we are not adopting the profit statement because 
the two replacement statements discussed above in this section more 
clearly explain to investors how limits on index gains may decrease the 
amount earned on a contract. Specifically, the final disclosure alerts 
investors to opportunity costs associated with a contract by 
illustrating that limits can result in lower returns for investors as 
compared to the contract's underlying index. Further, alerting 
investors that the implicit fee is not reflected in the cost and fee 
tables is designed to help investors understand that the explicit 
ongoing fees that are reflected in these tables do not fully capture 
the complete costs that investors may incur under the contract.
---------------------------------------------------------------------------

    \201\ See ACLI Comment Letter; CAI Comment Letter; Gainbridge 
Comment Letter.
    \202\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    One commenter opposed the amendments requiring insurance companies 
to disclose that in return for accepting a limit on index gains, an 
investor will receive some protection from index losses.\203\ This 
commenter expressed that limits on gains sometimes do not actually 
limit an investor's credited interest, but an investor nevertheless 
receives protection from losses and, in such scenarios, characterizing 
the protection from index loss as received in exchange for accepting a 
limit on gains is inaccurate. We are including the ``in return for'' 
statement in the disclosure as proposed. An investor that accepts a 
limit on index gains in the form of a crediting rate (e.g., a cap) and 
also receives some downside protection from index losses (e.g., a 
buffer) is receiving the protection in exchange for accepting the 
limit, even if the limit is never triggered and therefore does not 
decrease the investor's credited interest. RILA industry experts have 
made similar statements.\204\
---------------------------------------------------------------------------

    \203\ See id.
    \204\ See Dodie C. Kent and Ronald Coenen Jr., The Design and 
Regulatory Framework of Registered Index-Linked Annuities, ALI CLE 
Conference on Life Insurance Products 2022 (stating that the 
potential limit on upside performance is the trade-off that 
investors make for potential downside protection).
---------------------------------------------------------------------------

c. Risks
    Risk of Loss. We are adopting amendments to the instructions to the 
line item entitled ``Is There a Risk of Loss from Poor Performance?'' 
with some modifications from the proposal. Form N-4 currently requires 
disclosure on risk of loss in connection with variable options, and we 
proposed to extend this risk of loss requirement to index-linked 
options. As proposed, insurance companies will be required to state, in 
the context of both index-linked or variable options, that an investor 
can lose money by investing in the contract. Index-linked options, like 
variable options, are subject to the risk of investment loss from poor 
performance.\205\ In a change from the proposal, we are adopting 
amendments to provide that, if an annuity contract offers an index-
linked option, the insurance company must disclose, as a percentage, 
the maximum amount of loss an investor could experience from negative 
index performance after taking into account the current limits on index 
loss provided under the contract.\206\ The proposal required disclosure 
of maximum loss from negative index performance after taking into 
account the minimum guaranteed limit on index loss. In another change 
from the proposal, the instructions will specify that an insurance 
company may give a range of the maximum amount of loss if the contract 
offers different limits on index loss. Also in a change from the 
proposal, an insurance company will be required to either prominently 
disclose the minimum limit on index loss that will always be available 
under the contract or, alternatively, prominently state that the 
insurance company does not guarantee that the contract will always 
offer index-linked options that limit index loss, which would mean risk 
of loss of the entire amount invested. These amendments are designed to 
make clear to investors that they can still lose money even though 
index-linked options typically include features designed to limit 
investment loss, and that the level of downside protections currently 
offered may change in the future.
---------------------------------------------------------------------------

    \205\ MVA options, which provide a fixed rate of interest 
(subject to an MVA), are not subject to the risk of loss from poor 
performance, and therefore would not be required to provide this 
disclosure.
    \206\ See final Form N-4, Instruction 3(a) to Item 3.
---------------------------------------------------------------------------

    One commenter raised concerns about the inclusion of the numeric 
maximum amount of loss an investor could experience from negative index 
performance as part of this line item.\207\ Our views on the utility 
and efficacy of including numeric risk of loss disclosure in the 
prospectus generally are discussed above.\208\ We continue to believe 
that this disclosure is appropriate for the KIT and are specifically 
retaining the numeric maximum amount of loss an investor could 
experience from negative index performance under the Risks heading 
because the maximum loss that an investor may experience due to 
negative index performance is a key risk associated with index-linked 
options. Flagging this risk in the KIT under this heading is consistent 
with the KIT's mandate to ``provide a brief description of key facts'' 
to investors in a way that is ``easy to read and navigate.'' \209\
---------------------------------------------------------------------------

    \207\ See CAI Comment Letter.
    \208\ See supra footnotes 105-106 and accompanying paragraph.
    \209\ See VASP Adopting Release at paragraph following n.106.
---------------------------------------------------------------------------

    We are adopting amendments to the instruction to this line item to 
specify that an insurance company may provide a range of the maximum 
amount of loss.\210\ Permitting the insurance company to provide a 
range of losses allows the insurance company to reflect the range of 
loss protection offered

[[Page 60001]]

under the contract.\211\ We also are adopting amendments requiring that 
an insurance company either disclose the minimum limit on index loss 
that will always be available under the contract or state that the 
insurance company does not guarantee that the contract will always 
offer index-linked options that limit index loss. As discussed above, 
this disclosure is designed to inform investors as to how the downside 
protections that are currently offered may change in the future, 
including disclosure of any minimum guaranteed limits that will always 
be available under the contract. Permitting the insurance company to 
provide a range of losses allows the insurance company to reflect the 
range of loss protection offered under the contract, and basing the 
disclosure on current limits address commenter concerns that not all 
RILAs guarantee a particular level of downside protection that will 
always be available under the contract, as discussed above.\212\
---------------------------------------------------------------------------

    \210\ See final Form N-4, Instruction 3(a) to Item 3.
    \211\ See supra Section II.C.1.
    \212\ See supra Section II.C.1; see also CAI Comment Letter; VIP 
Comment Letter (discussing proposed minimum guaranteed rate 
disclosure in Items 6 and 1, respectively).
---------------------------------------------------------------------------

    Short-Term Investment. The second line item under the Risks 
heading, which under the final amendments to Form N-4 will be titled 
``Is this a Short-Term Investment?,'' currently requires a statement 
that the contract is not a short-term investment and is not appropriate 
for an investor who needs ready access to cash, along with a brief 
explanation. This statement and an accompanying brief explanation is 
equally applicable to non-variable annuities. We therefore are 
requiring insurance companies to provide this disclosure as proposed 
for RILAs and, in a change from the proposal, for registered MVA 
annuities.\213\ We also are amending this item, as proposed, to require 
insurance companies to state that (1) amounts withdrawn from the 
contract may result in surrender charges, taxes, and tax penalties; and 
(2) if applicable, that amounts removed from an investment option or 
the contract before a specified period may also result in a negative 
contract adjustment and loss of positive index performance.\214\ These 
disclosures are designed to make clear to investors some of the key 
reasons why these investments are not short-term investments. They are 
particularly important for an investor considering an annuity in light 
of the potential negative consequences if the investor withdraws money 
early from a particular investment option or the contract. We are not 
limiting these disclosures to contracts with index-linked options, 
because these disclosures may be equally material for other investment 
options. We also are adopting, as proposed, new risk disclosure for 
investment options that mature at the end of a specific period that 
will require issuers offering such options to state that contract value 
will be reallocated at the end of the crediting period according to the 
investor's instructions, and to disclose the default reallocation in 
the absence of such instructions.\215\
---------------------------------------------------------------------------

    \213\ See final Form N-4, Instruction 3(b) to Item 3.
    \214\ In a change from the proposal, we are replacing ``index-
linked option'' with ``investment option'' to convey contract 
adjustments are associated with other types of investment options in 
addition to index-linked options.
    \215\ In a change from the proposal, the form now states that 
the risk disclosure is required for ``investment options that mature 
at the end of a specified period. We proposed risk disclosure for 
``index-linked'' options. We made this change to ensure that this 
requirement is applicable to MVA options in addition to index-linked 
options, in light of the addition of offerings of registered MVA 
annuities to the form.
---------------------------------------------------------------------------

    We received one comment on this portion of the proposal. The 
commenter opposed the amendments requiring issuers to state that the 
contract value will be reallocated at the end of the crediting period 
according to the investor's instructions, and to disclose the default 
reallocation in the absence of such instructions.\216\ This commenter 
expressed that the required disclosure is not related to the risks of 
short-term investing. The commenter suggested that this disclosure be 
moved to the Overview of the Contract and that any restrictions on 
transfers not covered by the Overview of the Contract be moved to the 
KIT line item ``Are There Restrictions on the Investment Options?''. 
After considering comments on this amendment, we are adopting this 
amendment as proposed. This disclosure illustrates that even though 
investment options under the contract may mature at the expiration of a 
specified period, the annuity contract itself is not a short-term 
investment and amounts invested in such short-term options will be 
automatically reallocated to new investment options under the contract. 
The disclosure also illustrates liquidity risk by making the investor 
aware that the contract value in an index-linked option (or fixed 
investment option that matures at the expiration of a specified period) 
is not automatically disbursed to the investor or ``liquid'' at the end 
of a crediting period. This disclosure is particularly important in 
illustrating that RILAs are not short-term investments in light of the 
difficulty investors participating in investor testing had in 
understanding crediting periods.\217\
---------------------------------------------------------------------------

    \216\ See CAI Comment Letter.
    \217\ See OIAD Investor Testing Report at Section 5, Qualitative 
Testing, Results from Round 1.
---------------------------------------------------------------------------

    Risks Associated with Investment Options. The third line item under 
the Risk heading, ``What are the Risks Associated with the Investment 
Options?'', is intended to focus on the general risk of poor investment 
performance. Currently, the KIT requires the insurance company to state 
that: (1) an investment in the contract is subject to the risk of poor 
investment performance and can vary depending on the performance of the 
investment options available under the contract; (2) each investment 
option will have unique risks; and (3) the investor should review these 
investment options before making an investment decision. We are 
adopting, as proposed, conforming changes to the required statement to 
refer to index-linked options now that RILAs are included on Form N-
4.\218\
---------------------------------------------------------------------------

    \218\ See proposed Form N-4, Instruction 3(c) to Item 3.
---------------------------------------------------------------------------

    Largely as proposed, but with some modifications in response to 
comments, we are adopting amendments requiring insurance companies to 
provide additional information about any index-linked options offered 
under the contract to highlight how the insurance company limits the 
investor's participation in gains and losses of the index.\219\ For the 
risk of limited upside, as proposed, the insurance company will be 
required to (1) state that the cap, participation rate, or some other 
rate or measure, as applicable, will limit positive index returns 
(e.g., limited upside), (2) provide an example for each type of limit 
imposed under the contract (e.g., ``if the Index return is 12% and the 
cap rate is 4%, we will credit 4% in interest at the end of the 
Crediting Period''), and (3) prominently state that this may result in 
the investor earning less than the index's return. For the risk of 
limited protection in the case of market decline, largely as proposed, 
the insurance company will be required to: (1) state that the floor, 
buffer, or some other rate or measure, as applicable, will limit 
negative index returns (e.g., limited protection in the case of market 
decline); and (2) provide an example for each type of limit imposed 
under the contract (e.g., ``if the Index return is -25% and the buffer 
rate is -10%, we will credit -15% (the amount that exceeds the buffer 
rate) at the end of the crediting period''). In a change from the 
proposal, and in response to comments as discussed below, we are not 
requiring

[[Page 60002]]

the inclusion of a statement that, even after limiting a negative index 
return, investors could still lose up to XX% of their investment. 
However, in a change from the proposal and in response to comments as 
discussed below, we are adding a requirement that insurance companies 
disclose, if applicable, that an index is a ``price index,'' not a 
``total return index,'' and therefore does not reflect dividends paid 
on the securities composing the index, or the index deducts fees and 
costs when calculating index performance, either of which will reduce 
the index return and will cause the index to underperform direct 
investment in the securities composing the index.
---------------------------------------------------------------------------

    \219\ See generally final Form N-4, Instruction 3(c) to Item 3.
---------------------------------------------------------------------------

    Comments on the proposed amendments to this line item were mixed. 
One commenter opposed the requirement that insurance companies disclose 
examples of each type of limit imposed on an investor's participation 
in gains and losses of the index.\220\ This commenter stated that this 
information unnecessarily repeated similar disclosure required in the 
Overview of the Contract. We are retaining these numeric examples 
because, regardless of this disclosure's appearance elsewhere in the 
prospectus, the KIT is designed to flag key considerations for the 
investor in one location in a concise and succinct manner. In this 
regard, numeric disclosure is particularly effective at conveying risks 
in a concise and succinct manner and thus is particularly effective in 
the KIT. The numeric examples are designed to highlight that each 
index-linked option will have unique risks. The examples highlight one 
of the central economic tradeoffs of index-linked options: that an 
investor will sacrifice the potential for returns if the index goes up 
in exchange for some protection from loss if the index goes down. 
Illustrating economic consequences of limits in a numeric example is a 
concrete and thus effective way of communicating certain key 
considerations about index-linked options that investor testing 
specifically showed were difficult for investors to understand.\221\ 
However, in consideration of comments received, we are adopting a 
change from the proposal to reduce the discussion of the same or 
similar topics in multiple locations, where this reduction could be 
made appropriately while continuing to promote the goal of highlighting 
key information about RILAs and enhancing understanding of RILA 
features and risks. Specifically, we are not including the proposed 
requirement that a RILA issuer would have to prominently state that 
``even after limiting a negative index return, the investor could still 
lose up to XX% of their investment,'' as this disclosure is already 
required under the Risks heading in the context of the ``Is There a 
Risk of Loss from Poor Performance?'' line item.\222\
---------------------------------------------------------------------------

    \220\ See CAI Comment Letter.
    \221\ Investors had difficulty understanding buffers, among 
other things. See supra paragraph accompanying footnote 38.
    \222\ See proposed Form N-4, Instruction 3(a) to Item 3 and 
final Form N-4, Instruction 3(c)(B) to Item 3.
---------------------------------------------------------------------------

    We received comments suggesting that the difference between a 
``price return index'' and a ``total return index'' is not currently 
adequately disclosed to RILA investors.\223\ The performance of a RILA 
is based on the performance of an index (such as the S&P 500) or 
another benchmark. The performance of a ``price return index'' is 
typically lower than that of a ``total return'' index because a price 
return index does not reflect dividends.\224\ Two commenters expressed 
that RILA investors may be misled by index-linked options that use a 
``price return index'' instead of a ``total return index.'' 
Specifically, one commenter stated that the ``biggest drag'' on the 
performance of RILAs and all indexed annuities is the use of a price 
return index rather than a total return index and that current 
disclosures do not adequately explain the differences between the index 
types.\225\ This commenter expressed that disclosure explaining the 
differences between the two types of indexes is particularly important 
for index-linked options without upside or downside limits since 
investors may believe their upside potential is unlimited when, in 
fact, there is a limit in the form of a lower price return. The 
commenter also noted that with no apparent fees, index-linked options 
may appear to be a better choice than an index fund, which has fees, 
without the investor understanding that an index fund will provide 
better upside potential in the form of a total return rather than a 
price return. Another commenter indicated that disclosure indicating 
that there are no ongoing fees associated with an index-linked option 
that uses a price return index inaccurately suggests that the option is 
free except for surrender charges.\226\
---------------------------------------------------------------------------

    \223\ See Comment Letter of Jason Lee (Oct. 30, 2023) (``Lee 
Comment Letter''); Johnson Comment Letter.
    \224\ An index-linked option's index is used to measure the 
amount the insurance company increases or decreases the value of the 
investment, but contract value allocated to an index-linked option 
is not invested directly in the index components. The indices 
associated with index-linked options are often ``price return'' 
indices, and their performance is the difference in index value from 
the beginning of the term and the end of the term. For example, if 
the index had a price of $1,200 on the first day of the term and a 
price of $1,260 on the last day of the term, the price return would 
be 5% ((1,260-1,200)/1,200). Price return indices do not reflect 
dividends. This contrasts with an investor investing in an index 
through an index fund (or investing directly in the components of an 
index), where such an investment's return would include dividends. 
Thus, the ``price return'' of an index is typically lower than the 
``total return'' of an index and the performance of a ``price return 
index'' is typically lower than that of a ``total return index.''
    \225\ See Johnson Comment Letter.
    \226\ See Lee Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we agree that this disclosure is 
appropriate. Investors should be alerted to the fact that a price 
return index does not assume the reinvestment of dividends and thus 
will underperform a total return index and direct investment in 
securities underlying the index. Accordingly, in a change from the 
proposal, we are adding a requirement in the KIT that insurance 
companies disclose, if applicable, that an index is a ``price return 
index,'' not a ``total return index,'' and therefore does not reflect 
dividends paid on the securities composing the index, or the index 
deducts fees and costs when calculating index performance, either of 
which will reduce the index return and will cause the index to 
underperform direct investment in the securities composing the 
index.\227\
---------------------------------------------------------------------------

    \227\ See final Form N-4, Instruction 3(c)(C) to Item 3.
---------------------------------------------------------------------------

    Insurance Company Risks. We are adopting the fourth line item under 
the Risk heading largely as proposed, with modifications to allow 
insurance companies to provide a narrative description of insurance-
company related risks. Under the proposal, this line item would have 
been required to be preceded by the question, ``Is There any Chance the 
Insurance Company Won't Pay Amounts Due to Me Under the Contract?'' The 
proposal would have required the insurance company to answer this 
question with a ``yes'' or ``no'' answer. As under current Form N-4, 
the proposed disclosure also would have required a statement to the 
effect that any obligations, guarantees, or benefits under the contract 
that may be subject to the claims-paying ability of the insurance 
company will depend on the financial solvency of the insurance company. 
In a change from the proposal, we are modifying the line item to state 
``What Are the Risks Related to the Insurance Company?'' so that 
insurance companies may provide a narrative description of insurance-
company related risks. As proposed, and under current Form N-4, 
insurance companies will be required to include a

[[Page 60003]]

statement to the effect that any obligations, guarantees, or benefits 
under the contract that may be subject to the claims-paying ability of 
the insurance company will depend on the financial solvency of the 
insurance company.\228\ Further, as proposed and under current Form N-
4, the insurance company will also be required either to provide its 
financial strength ratings or state, if applicable, that they are 
available upon request, and indicate how such requests can be made.
---------------------------------------------------------------------------

    \228\ This disclosure requirement included conforming changes to 
current Form N-4 to address RILAs. See Proposing Release at n.105 
and accompanying text.
---------------------------------------------------------------------------

    We received one comment on this portion of the proposal.\229\ The 
commenter opposed the wording, ``Is There any Chance the Insurance 
Company Won't Pay Amounts Due to Me Under the Contract?,'' expressing 
concerns that it will inflate the risks related to insolvency when 
paired with the required bolded ``yes'' response as compared to the 
actual risk of insolvency. This commenter expressed that it is rare for 
an insurer to fail to fulfill its contractual guarantees due to 
financial insolvency. Instead, the commenter suggested that the row 
question be changed to ``What are the Risks Related to the Insurance 
Company?'' to avoid the implication of high credit or counterparty 
risk.
---------------------------------------------------------------------------

    \229\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering this comment, we are retitling this line item in 
the KIT as described above and permitting a narrative response. 
Specifically, insurance companies will be directed, consistent with the 
current form and the proposal,\230\ to state in response to this line 
item that an investment in the contract is subject to the risks related 
to the insurance company, including that any obligations (including 
under any fixed options and index-linked options), guarantees, or 
benefits are subject to the claims-paying ability of the insurance 
company and that more information about the insurance company, 
including if applicable its financial strength ratings, is available 
upon request with an indication of how such requests can be made.\231\ 
In a modification from the proposal, we are changing the title of this 
line item so that the disclosure is not required to begin with a 
``yes'' or ``no'' to avoid investors misunderstanding the possibility 
that amounts due will not be paid to investors due to insurance company 
insolvency. A narrative response that need not begin with a simple 
``yes'' addresses the actual risk of insolvency of a given insurance 
company, while avoiding investors misunderstanding the likelihood of an 
insurer becoming insolvent.
---------------------------------------------------------------------------

    \230\ While the current form refers to depositor, the substance 
of the required disclosure is the same as what is being adopted.
    \231\ See Final Form N-4, Instruction 3(d) to Item 3.
---------------------------------------------------------------------------

d. Restrictions
    Investments. We are adopting, substantially as proposed, amendments 
requiring insurance companies to include the disclosure required by the 
first line item under the heading ``Restrictions,'' ``Are There Limits 
on the Investment Options?'' We are modifying the current item to 
require the insurance company to state whether there are any 
restrictions that may limit the investment options that an investor may 
choose, as well as any limitations on the transfer of contract value 
among investment options.\232\ As these limitations can exist for non-
variable annuities as well as variable annuities, we are adopting this 
requirement as proposed. The disclosure requirement, which addresses 
restrictions relating to investment options generally, will apply to 
variable annuities, RILAs and registered MVA annuities (each of which 
will provide disclosure relevant to applicable investment options).
---------------------------------------------------------------------------

    \232\ See final Form N-4, Instruction 4(a) to Item 3. The 
current item requires the insurance company to state whether there 
are any restrictions that may limit the investments that an investor 
may choose, as well as any limitations on the transfer of contract 
value among portfolio companies. Consistent with the corresponding 
changes made to defined terms, we are also specifying that this item 
applies to any investment option, not just the portfolio companies 
available as investment options under a variable option. See infra 
Section II.B.8.b.
---------------------------------------------------------------------------

    Currently, the form also generally requires the insurance company 
to state that it reserves the right to remove or substitute portfolio 
companies as investment options, if applicable. Insurance companies 
typically reserve the right to change the index-linked options that are 
available under a contract as well as key features of available index-
linked options. To alert investors that the available index-linked 
options and key terms of those index-linked options may change in the 
future, we are adopting, as proposed, amendments to require the 
insurance company to state any reservation of its rights under the 
contract, including, if applicable, the right to (1) add or remove 
index-linked options; (2) change the features of an index-linked option 
from one crediting period to the next, including the changes to the 
index and the current limits on gains and limits on index losses 
(subject to any contractual minimum guarantees); and (3) substitute the 
index of an index-linked option during its crediting period. We are 
also adopting, as proposed, amendments to require that insurance 
companies disclose any right to stop accepting additional purchase 
payments, which may be significant to investors given the impact this 
reservation can have on investors' ability to accumulate contract value 
for retirement, grow the death benefit, and increase optional benefit 
values. We did not receive comments on any of these amendments.
    Contract Benefits. The second line item under ``Restrictions,'' 
``Are There any Restrictions on Contract Benefits?'' requires a 
statement about whether there are any restrictions or limitations 
relating to benefits offered under the contract, and/or whether a 
benefit may be modified or terminated by the insurance company. It also 
requires a statement that withdrawals that exceed limits specified by 
the terms of a contract benefit may affect the availability of the 
benefit by reducing the benefit by an amount greater than the value 
withdrawn and/or could terminate the benefit. As proposed, we are 
broadening this item to include disclosure on restrictions or 
limitations relating to any benefit under the contract, not just 
optional benefits (as currently required). While a benefit under the 
contract might be characterized as standard (i.e., not ``optional''), 
it could have restrictions that should be disclosed in the KIT because 
of the benefit's importance to the investor's rights under the 
contract, such as a proportionate withdrawal calculation under a 
standard death benefit.\233\ We are requiring insurance companies to 
include this disclosure for RILAs, as proposed, and also registered MVA 
annuities in a modification from the proposal, because the disclosure 
is equally applicable to those annuities as it is to variable 
annuities. We did not receive comments on proposed amendments to this 
line item.
---------------------------------------------------------------------------

    \233\ See final Form N-4, Instruction 4(b) to Item 3. Similarly, 
we are adopting, as proposed, a change to the discussion in the 
Overview about contract features that will broaden that discussion 
to cover both optional and standard contract benefits. See final 
Form N-4, Item 2(c).
---------------------------------------------------------------------------

e. Taxes
    We also are adopting, as proposed, amendments requiring insurance 
companies to include the line item under the heading ``Taxes,'' ``What 
are the Contract's Tax Implications?'' \234\ This line item is designed 
to alert investors to the tax implications of variable contracts and as 
amended, of non-variable annuities. This line item currently requires a 
statement that an

[[Page 60004]]

investor should consult with a tax professional to determine the tax 
implications of an investment in, and purchase payments received under, 
the contract. The insurance company must also state that there is no 
additional tax benefit to the investor if the contract is purchased 
through a tax-qualified plan or individual retirement account 
(``IRA''), and that withdrawals will be subject to ordinary income tax 
and may be subject to tax penalties. We are applying this requirement 
to non-variable annuities because the same tax considerations apply. We 
did not receive comments on the proposed amendments to this line item.
---------------------------------------------------------------------------

    \234\ See final Form N-4, Instruction 5 to Item 3.
---------------------------------------------------------------------------

f. Conflicts of Interest
    Investment Professional Compensation. We are requiring, as 
proposed, insurance companies to include the first line item under the 
heading ``Conflicts of Interest,'' ``How are Investment Professionals 
Compensated?'' \235\ This current line item for variable contracts is 
designed to alert investors to the existence of compensation 
arrangements for investment professionals and the potential conflicts 
of interest arising from these arrangements. It requires issuers to 
disclose that an investment professional may be paid for selling the 
contract to investors. An issuer must describe the basis upon which 
such compensation is typically paid (e.g., commissions, revenue 
sharing, compensation from affiliates and third parties). An issuer 
also must state that investment professionals may have a financial 
incentive to offer or recommend the contract over another investment. 
The same compensation arrangements and potential conflicts are relevant 
for non-variable annuities, and we therefore are requiring an insurance 
company registering a non-variable annuity to provide the same 
disclosure. We did not receive comments on these amendments.
---------------------------------------------------------------------------

    \235\ See final Form N-4, Instruction 6(a) to Item 3.
---------------------------------------------------------------------------

    Exchanges. We are requiring, as proposed, insurance companies to 
include the second line item under the heading ``Conflicts of 
Interest,'' ``Should I Exchange My Contract?'' \236\ This current line 
item for variable contracts is designed to alert investors to potential 
conflicts of interest that may arise from contract sales that stem from 
exchanges. It requires issuers to state that some investment 
professionals may have a financial incentive to offer a new contract in 
place of the one owned by the investor. An issuer must further state 
that investors should only exchange their contract if they determine, 
after comparing the features, fees, and risks of both contracts, that 
it is preferable to purchase the new contract rather than continue to 
own the existing contract. These same considerations apply to an 
investor considering an exchange involving a non-variable annuity. In a 
change that will apply to variable and non-variable annuities, and to 
put investors on notice that there may also be costs or charges 
associated with terminating an existing contract, we are also 
requiring, as proposed, that issuers disclose in this legend that 
investors should consider any fees or penalties to terminate the 
existing contract in considering whether to exchange a contract. We did 
not receive comments on these amendments.
---------------------------------------------------------------------------

    \236\ See final Form N-4, Instruction 6(b) to Item 3.
---------------------------------------------------------------------------

4. Principal Disclosure Regarding Index-Linked Options and MVA Options 
(Items 6 and 17)
    We are adopting amendments to Form N-4 to provide investors with 
the principal disclosures regarding index-linked options, largely as 
proposed, and MVA options, in a modification from the proposal, 
available under the contract, as required in two items of the form. 
First, investors will be provided with detailed information about the 
index-linked options and MVA options available under the contract in 
Item 6 (Description of the Insurance Company, Registered Separate 
Account, and Investment Options). In addition, investors will be 
provided with a summary information table, with legends highlighting 
risks, that outlines the available index-linked options and MVA options 
in Item 17 (Investment Options Available Under the Contract). These 
amendments build on the existing disclosure requirements in each form 
item to help ensure that investors have key information about the 
annuity contract and available investment options, regardless of 
whether the contract is a variable annuity, a RILA, a registered MVA 
annuity, or combination contract offering a variety of these options.
a. Description of Insurance Company, Registered Separate Account, and 
Investment Options (Item 6)
    We are adopting amendments to Item 6 of Form N-4 that will, largely 
as proposed, modify certain existing disclosure requirements concerning 
the insurance company, registered separate account, and variable 
options, and expand the item to include new disclosures for any index-
linked and fixed options offered under the contract. To address the 
inclusion of registered MVA annuities on Form N-4, we are adopting 
changes to the proposed requirements to address fixed options subject 
to a contract adjustment. Items 6(a)-(c) will continue to require a 
concise discussion about the insurance company, registered separate 
account, and variable options. The amendments in Item 6(d) will require 
new disclosures about key aspects of any index-linked option offered 
under the contract, while Item 6(e) will add disclosures for fixed 
options generally, including MVA options.
Insurance Company, Registered Separate Account, and Variable Options
    We are adopting the amendments to Items 6(a)-(c) as proposed. As 
discussed in the Proposing Release, these provisions largely retain the 
current requirement to provide a concise discussion about the insurance 
company, registered separate account, and variable options, slightly 
modified to implement certain definitional changes and minor 
restructuring to accommodate the addition of RILAs to the form.\237\
---------------------------------------------------------------------------

    \237\ See final Form N-4, Item 6(a)-(c). For example, because 
the insurance company is obligated to pay all amounts promised to 
investors under the contracts subject to its financial strength and 
claims-paying ability, disclosure about this topic must be framed in 
terms of the insurance company, not the registered separate account, 
as the requirement is currently worded.
---------------------------------------------------------------------------

    One commenter addressed proposed Item 6(a), which would, if 
applicable, require a filer to indicate that the insurance company is 
relying on the exemption provided by rule 12h-7 under the Exchange 
Act.\238\ This commenter asked that these rule 12h-7 representation 
requirements be revised to make clear that they only apply to an 
insurance company registrant (not a separate account) and only to an 
insurance company as an issuer of a RILA (not an insurance company in 
its role as depositor of a registered separate account).\239\ The 
instruction to Item 6(a), however, serves as a reminder to registrants 
that rely on a rule 12h-7 exemption to include the prospectus 
disclosure that the rule requires.\240\ If a registrant is relying on 
rule 12h-7, it must provide the disclosure required by

[[Page 60005]]

that rule--independent of any form requirement--and in providing the 
disclosure can provide the additional details the commenter identified 
in its comment letter. We therefore are not making the suggested 
change.\241\ This commenter similarly asked that we revise the proposed 
instruction to allow insurers to add clarifying disclosure that 
identifies generally the types of securities that support an insurer's 
reliance on rule 12h-7 (for example, a general statement that the 
insurer relies on rule 12h-7 with respect to registered stand-alone 
RILA contracts, registered index-linked options, or other registered 
non-variable insurance contracts the insurer issues).\242\ The proposed 
instruction does not preclude a registrant from disclosing this 
information.
---------------------------------------------------------------------------

    \238\ CAI Comment Letter.
    \239\ CAI Comment Letter.
    \240\ See rule 12h-7(f) under the Exchange Act (requiring that 
the prospectus for the securities contain a statement indicating 
that the issuer is relying on the exemption provided by the rule). 
Pursuant to section 30(d) of the Investment Company Act, a separate 
account must comply with the Investment Company Act's reporting 
requirements in lieu of the Exchange Act's reporting requirements 
that apply to other kinds of issuers and therefore does not need to 
rely on rule 12h-7.
    \241\ In addition to requiring rule 12h-7 prospectus disclosure 
in Item 6, we are adding a related check box on the facing page. See 
infra Section II.C.8.a.
    \242\ CAI Comment Letter.
---------------------------------------------------------------------------

    We received no comments on the proposed amendments to Item 6(b) 
(Registered Separate Account) or 6(c) (Variable Options), and we are 
adopting those sub-items as proposed.
Index-Linked Options
    We are adopting amendments to Item 6(d) that will require an 
insurance company to disclose information about the key features of the 
index-linked options currently offered under the contract.\243\ These 
amendments are substantially as proposed, but with some modifications 
in response to comments. Under the final amendments, the prospectus 
must include a description of each index-linked option currently 
offered under the contract, including information about: (1) limits on 
index losses; (2) limits on index gains; (3) crediting period; (4) 
crediting methodology and examples; (5) relevant indexes; (6) maturity; 
and (7) other material features of the index-linked option. As 
discussed in the Proposing Release, these disclosures are designed to 
complement more general disclosures about index-linked options located 
elsewhere in the prospectus by providing investors specific information 
about each index-linked option's features and risks.\244\ In 
particular, the new disclosures are designed to address points that 
investor testing participants suggested might be confusing and/or for 
which they indicated that they would prefer more information.\245\
---------------------------------------------------------------------------

    \243\ Final Form N-4, Item 6(d).
    \244\ In the context of variable annuities, this type of detail 
about variable options is not required by Item 6 because each 
portfolio company issues its own prospectus that contains more 
detailed information about the portfolio company. See current and 
final Form N-4, Item 6(c); see also infra footnote 245.
    \245\ Proposing Release at nn.125-126 and accompanying text.
---------------------------------------------------------------------------

    One commenter expressly supported our proposal to require detailed 
disclosure about index-linked options in the prospectus, stating that 
``the disclosure items and instructions under proposed new Item 6(d) 
are helpful and appropriate,'' and ``would generally provide investors 
with the information they need to understand how the index-linked 
options operate, while also providing enough flexibility in the 
instructions to describe RILAs in the market today and to allow for 
future innovation.'' \246\ No commenters opposed the proposed inclusion 
of disclosure about index-linked options in the prospectus as a general 
topic. Accordingly, we are requiring detailed disclosure about index-
linked options in the prospectus, subject to modifications to certain 
of the proposed aspects of this disclosure, as discussed below.
---------------------------------------------------------------------------

    \246\ CAI Comment Letter.
---------------------------------------------------------------------------

Description of the Index-Linked Options Currently Offered
    Under the final amendments, the prospectus must describe the index-
linked options currently offered under the contract. As proposed, the 
description must state that the insurance company will credit positive 
or negative interest at the end of a crediting period to amounts 
allocated to an index-linked option based, in part, on the performance 
of the index and--to dispel potential investor confusion relating to 
the reference to an index--that an investment in an index-linked option 
is not an investment in the index or in any index fund.\247\
---------------------------------------------------------------------------

    \247\ Final Form N-4, Item 6(d)(1)(i).
---------------------------------------------------------------------------

    We are adopting, as proposed, the requirement to state that an 
investor could lose a significant amount of money if the index declines 
in value.\248\ In a change from the proposal, we are not requiring the 
prospectus to state that the potential for investment loss could be 
significantly greater over time than the potential for investment 
gain.\249\ As discussed above, we are not adopting a parallel cover 
page disclosure because a separate requirement that addresses limits on 
index losses covers this risk in a more direct way than the proposed 
statements.\250\ We are not adopting this aspect of the proposed Item 6 
requirement for the same reasons.
---------------------------------------------------------------------------

    \248\ Final Form N-4, Item 6(d)(1)(ii). This disclosure mirrors 
a parallel requirement in Item 2(b)(2)(ii). See supra section 
II.C.2.
    \249\ Proposed Form N-4, Item 6(d)(1)(ii).
    \250\ Proposed Form N-4, Item 1(a)(6); see supra Section II.C.1.
---------------------------------------------------------------------------

    As proposed, to emphasize the risks associated with an early 
withdrawal from an index-linked option, the prospectus must state that 
an investor could lose a significant amount of money due to the 
contract adjustment if amounts are removed from an index-linked option 
prior to the end of its crediting period.\251\ In a change from the 
proposal, and as discussed below, we are not adopting the proposed 
requirement to accompany either this risk of loss statement or the risk 
of loss statement regarding negative index performance with numeric 
disclosure of the maximum amount of loss an investor could experience 
from contract adjustments or negative index performance.\252\
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    \251\ Final Form N-4, Item 6(d)(1)(iii).
    \252\ See proposed Form N-4, Instructions to Item 6(d)(1)(ii) 
and (iii); see also supra Section II.C.2.
---------------------------------------------------------------------------

    Substantially as proposed, to inform investors of the possibility 
that their investment options could be unilaterally changed without 
action on their part, the insurance company will be required to state, 
if applicable, that it can add or remove index-linked options and 
change the features of an index-linked option from one crediting period 
to the next, including the index and current limits on gains and limits 
on index losses, subject to any contractual minimum guarantees.\253\
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    \253\ Final Form N-4, Item 6(d)(1)(iv).
---------------------------------------------------------------------------

    Lastly, similar to the current requirement for variable options, 
and substantially as proposed, a prospectus that offers index-linked 
options must state that certain information regarding the features of 
each currently offered index-linked option is available in an appendix 
to the prospectus, with a cross-reference to that appendix.\254\
---------------------------------------------------------------------------

    \254\ Final Form N-4, Item 6(d)(1)(v); see also final Form N-4, 
Item 17(b) (Appendix). In a change from the proposal, we are adding 
``current'' before ``limit on index loss'' and removing 
``guaranteed'' before ``minimum limit on index gain'' to conform to 
the revised headings in the Item 17(b) table for index-linked 
options. See infra Section II.C.4.b.
---------------------------------------------------------------------------

    One commenter addressed the proposed description of index-linked 
options currently offered under the contract with concerns regarding 
the narrative and numeric risk of loss disclosures.\255\ This commenter 
opposed including any disclosures addressing the maximum loss an 
investor could experience--narrative or numerical--in the description 
of index-linked options. This commenter asserted that disclosure on 
index-linked options in this section of the prospectus should focus on 
describing the mechanics of the index-linked options and contract

[[Page 60006]]

adjustments, not investment risks, and suggested that investors likely 
will have already read the maximum risk of loss disclosures in earlier 
sections of the prospectus, so including similar disclosure along with 
descriptions of index-linked options would not be helpful.
---------------------------------------------------------------------------

    \255\ CAI Comment Letter.
---------------------------------------------------------------------------

    Including risk of loss statements along with descriptions of the 
index-linked options that are offered under the contract (in the 
location in the prospectus that requires the greatest amount of detail 
about index-linked options) will result in a more complete 
understanding of the options the contract offers. The potential risk of 
loss associated with an index option is a key piece of information for 
investors to consider alongside other index-option-specific details 
disclosed in response to this item of Form N-4. Accordingly, the final 
amendments will require statements regarding the risk of loss 
associated with index declines, subject to conforming modifications as 
discussed above in the context of similar cover page disclosure. We are 
also adopting the requirement to include a statement about risk of loss 
associated with negative contract adjustments, as proposed, for the 
same reasons.\256\ In a change from the proposal, however, we are not 
adopting the proposed instructions that would have required numeric 
disclosure of the potential scope of loss due to negative index 
performance or a negative contract adjustment in Item 6. After 
considering comments, we agree that numeric examples are appropriately 
located in other parts of the prospectus, namely the KIT and the Item 5 
principal risk disclosure (for the reasons discussed in the release 
sections describing those disclosures), and need not be repeated 
here.\257\ For this reason, we are adopting an approach that does not 
require numeric disclosure showing risk of loss in the discussion of 
index-linked options, but that retains related narrative statements 
about risk of loss, to ensure that all material aspects of each index-
linked option are disclosed in one place.\258\
---------------------------------------------------------------------------

    \256\ Final Form N-4, Item 6(d)(1)(ii).
    \257\ See supra Section II.C.3 and infra Section II.C.5.
    \258\ See proposed Form N-4, Instructions to Item 6(d)(1)(ii) 
and (iii).
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Limits on Index Losses and Gains
    Description of limits on index losses and gains: Under the final 
amendments, the insurance company must describe the limits on index 
losses and gains for each index-linked option.\259\ In each case, and 
as applicable, the insurance company will be required to state that 
such limits apply and describe how index losses and gains would be 
limited (for example, through the use of a floor or buffer to limit 
losses, or a cap or participation rate to limit gains).\260\ We are 
also requiring the insurance company to provide examples to help 
investors understand how these limits work in practice. To illustrate 
the limits on index losses, the prospectus must include an example 
showing how the limit on index losses could operate to limit a negative 
return (e.g., if the index return is -25% and the buffer is -10%, the 
insurance company will credit -15% (the amount that exceeds the buffer) 
at the end of the term, meaning the investor's contract value will 
decrease by 15%).\261\ The prospectus similarly must include an example 
of how the limit on gains could operate to limit a positive return 
(e.g., if the index return is 12% and the cap rate is 4%, the insurance 
company will credit 4% at the end of the term, meaning the investor's 
contract value will increase by 4%).\262\ We received no comments on 
this aspect of the release, and are adopting as proposed.
---------------------------------------------------------------------------

    \259\ Final Form N-4, Items 6(d)(2)(i) and (ii).
    \260\ Final Form N-4, Items 6(d)(2)(i)(A) and 6(d)(2)(ii)(A).
    \261\ Final Form N-4, Item 6(d)(2)(i)(A).
    \262\ Final Form N-4, Item 6(d)(2)(ii)(A).
---------------------------------------------------------------------------

    Current limits on index losses and gains: The final amendments to 
Item 6 also will require insurers to disclose, for each index-linked 
option, current limits on index losses and gains (along with a 
statement that the current limit will not change during an index-linked 
option's crediting period).\263\ In a change from the proposal and in 
response to comments, insurers will be permitted to comply with the 
requirement to provide current limits on index gains by posting the 
information to a website that is publicly accessible, free of charge, 
and specifically incorporating this information by reference into the 
prospectus.\264\ An insurer relying on this incorporation by reference 
approach must: (1) state in the prospectus at the place where current 
upside rates would normally appear that the information about current 
limits on index gains is incorporated by reference; and (2) provide the 
website address where such rates can be found, with an active hyperlink 
to the website for electronic versions of the prospectus.\265\ In 
addition, the website must: (1) be specific enough to lead investors 
directly to the current limits on index gains, rather than to the home 
page or other section of the website on which the limits are posted; 
(2) reflect current limits that are available for all contract 
investors, including variations in limits (e.g., due to distribution 
channel, State requirements, optional benefits, date of contract 
purchase, etc.); and (3) only include limits on index gains that are 
currently available for the index-linked options offered under the 
contract.\266\ These requirements are meant to provide the same 
information the investor would have received through the proposed 
approach where current upside rates would appear directly in the 
prospectus.
---------------------------------------------------------------------------

    \263\ Final Form N-4, Items 6(d)(2)(i)(B) and 6(d)(2)(ii)(B).
    \264\ Final Form N-4, Instruction 1 to Item 6(d)(2)(ii)(B); see 
also final Form N-4, General Instruction D and Item 17(b). The 
website address required by Item 6 is the same website that is 
required to be included in the Item 17(b) legend, and must conform 
to Item 17(b)'s website posting requirements.
    \265\ Final Form N-4, Instruction 1 to Item 6(d)(2)(ii)(B); 
Final Form N-4, General Instruction C.3.(i).
    \266\ Final Form N-4, Instruction 2 to Item 6(d)(2)(ii)(B).
---------------------------------------------------------------------------

    We received mixed comments about the proposed requirement to 
disclose current limits on index gains (or ``current [upside] rates'') 
in the prospectus.\267\ One commenter supported disclosing current 
rates, observing that the current rate is one of the most important 
terms of the offering.\268\ Conversely, several commenters opposed our 
proposal to require current upside rates in the prospectus.\269\ These 
commenters asserted that because current upside rates for new crediting 
periods change so frequently--daily, or in most cases, weekly or 
monthly--a prospectus that includes these current rates would quickly 
become stale, necessitating frequent updates to the prospectus. One of 
the commenters stated that RILA issuers routinely change current upside 
rates for new crediting periods in response to market conditions to 
help them manage their risks and provide competitive upside exposure to 
investors on an ongoing basis.\270\ The other commenter observed that 
not only do current upside rates for RILAs change frequently, but rates 
can also differ depending on when the contract was purchased, the 
distribution channel

[[Page 60007]]

through which the contract was sold, the contract class, and the 
optional benefits available.\271\ This commenter also raised questions 
regarding the timing of when current upside rates must be 
provided.\272\
---------------------------------------------------------------------------

    \267\ See, e.g., CAI Comment Letter; VIP Working Group Comment 
Letter. We did not receive comments opposing the proposed 
requirement to disclose current limits on index losses in the 
prospectus. We understand that current limits on index losses do not 
change as frequently as current limits on index gains. See infra 
footnote 754 and accompanying text.
    \268\ Johnson Comment Letter.
    \269\ CAI Comment Letter; VIP Working Group Comment Letter; 
Comment Letter of Ronald Coenen, Jr. (Apr. 5, 2024) (``Coenen 
Comment Letter'').
    \270\ CAI Comment Letter.
    \271\ VIP Working Group Comment Letter.
    \272\ Id. (asking how far in advance must the rates be filed, 
whether investors get the rates at the time the application is 
signed or the date the insurance company received the money or 
transfer request; also noting that today, some products do not 
disclose current rates in advance and instead use thresholds or 
bail-out features, and asking if this approach would no longer be 
permissible, and can existing products continue to operate with 
these features).
---------------------------------------------------------------------------

    The proposal was designed to address concerns about frequently 
changing upside rates by contemplating that insurance companies could 
update upside rate information using a prospectus supplement filed 
pursuant to rule 497 under the Securities Act, rather than being 
required to update the registration statement to reflect each 
change.\273\ The two commenters opposing the proposed requirement to 
disclose current upside rates in the prospectus raised concerns about 
this approach, however, stating that it would be a significant change 
to current practice, and would require RILA issuers to file rule 497 
prospectus supplements frequently to update current rate 
information.\274\ They also stated that disclosing new rates by filing 
a rule 497 prospectus supplement frequently (e.g., every few days) 
would be confusing to investors. One of the commenters observed that 
insurance companies could change current rates less frequently to avoid 
the need for frequent prospectus supplements, but this would mean that 
to offset the risks associated with more constant rates, insurance 
companies would offer less favorable rates to investors.\275\
---------------------------------------------------------------------------

    \273\ Proposing Release at nn.134.
    \274\ CAI Comment Letter (stating that ``one member estimated 
that if they change each upside rate at the start of each crediting 
period for each share class of each RILA contract they offer . . . 
it would need to file 432 supplements each year, covering 25,680 
rates''); VIP Working Group Comment Letter.
    \275\ VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    Commenters urged the Commission to permit insurance companies to 
follow their current practice of disclosing current upside rates on a 
dedicated web page on the insurer's website.\276\ One of these 
commenters asserted that the current approach provides the investor 
with the same information in the same timeframe as the proposed rule 
497 process ``without any of the significant costs, human resource 
burdens, and investor confusion'' that would arise from an 
``overwhelming'' number of rule 497 filings.\277\ The commenter stated 
that RILAs have been offered for more than a decade absent the 
inclusion of current rates in the prospectus, and the RILA rate-setting 
and communication process is well-established and functions without any 
apparent investor confusion or complaint. This commenter also noted 
that we proposed to require a website address with current upside rates 
in the index-linked option appendix and asked that rather than having 
to file numerous rule 497 prospectus supplements and post those 
supplements online pursuant to rule 498A, RILA issuers be allowed to 
incorporate by reference the web page that would already include the 
same information.\278\
---------------------------------------------------------------------------

    \276\ CAI Comment Letter; VIP Working Group Comment Letter.
    \277\ CAI Comment Letter.
    \278\ Id. (citing to proposed Form N-4, Item 17(b)).
---------------------------------------------------------------------------

    Commenters who suggested that current upside rates should be posted 
online instead of included directly in the prospectus recommended 
additional measures to effectuate the suggested approach. One commenter 
suggested that as a condition to allowing insurers to post current 
upside rates to the insurer's website, we could impose a recordkeeping 
requirement and require the issuer to consent to subjecting the posted 
rate information to prospectus or registration statement 
liability.\279\ Another commenter similarly asked that we permit RILA 
issuers to include the current upside rates in the prospectus by 
expressly incorporating by reference into the prospectus the website 
page where current rates would be posted, asserting this would have the 
same legal significance as a rule 497 prospectus supplement with 
respect to disclosure liability.\280\ This commenter further stated 
that allowing information to be incorporated by reference into the 
prospectus would be consistent with the Commission's prior approach to 
the treatment of websites that are identified or incorporated by 
reference into the registration statement.\281\ The commenter also 
suggested that if we were to adopt the website approach for posting 
current upside rates as an alternative to the rule 497 approach, it 
would be willing either to support a requirement to include historical 
upside rates as part of the website that is incorporated by reference 
into the prospectus, or to file an annual report disclosing the upside 
rates offered during the previous one-year period.\282\
---------------------------------------------------------------------------

    \279\ VIP Working Group Comment Letter.
    \280\ CAI Comment Letter.
    \281\ Id. (citing to proposed Form N-4, Item 17(b); also stating 
that by expressly incorporating by reference the web page with the 
current upside rates, the information on that web page would be 
legally part of the prospectus, and prospectus disclosure liability 
would attach).
    \282\ Coenen Comment Letter.
---------------------------------------------------------------------------

    After considering comments, we have determined to permit insurance 
companies to disclose current upside rates in the prospectus either by 
disclosing the information directly in the prospectus, as proposed, or 
by including a website address where the current rates can be found and 
incorporating by reference the information on the website into the 
prospectus.\283\ Investors likely will find it more efficient to obtain 
current upside rates on the insurer's website identified in the 
prospectus than to review a potentially high number of prospectus 
supplements. It also will be familiar to many investors because this is 
the approach that many RILA investors currently use to obtain 
information about current upside rates. Moreover, allowing insurance 
companies to disclose current upside rates on a website and to 
incorporate this information by reference into the prospectus also will 
retain prospectus and registration statement liability, and ready 
accessibility of information that is a core aspect of the RILA 
offering. It will also accommodate RILA issuers' practice of changing 
current upside rates in response to market conditions. Because the 
approach we are adopting is consistent with current practice, we 
anticipate that the vast majority of RILA issuers will choose to use 
the website posting approach to disclose current upside rates instead 
of disclosing them directly in the prospectus.
---------------------------------------------------------------------------

    \283\ Final Form N-4, Instruction 1 to Item 6(d)(2)(ii)(B). With 
respect to the timing questions raised by one commenter, see supra 
footnote 272, we understand that it is common practice for insurance 
companies to disclose current rates in advance of the start of the 
crediting period of an index-linked option (with the specific timing 
for disclosing these current rates ahead of the start of the 
crediting period varying by product), although in limited historical 
cases insurance companies have not disclosed current rates in 
advance and instead used thresholds or bail-out features. The 
amended form requirements do not prescribe how far in advance of the 
start of the crediting period of an index-linked options current 
rates must be set. We understand that there are variations in 
practice within the industry on when rates are set before the start 
of the crediting period, based on market conditions and other 
factors, and our disclosure approach does not necessitate 
standardizing these practices.
---------------------------------------------------------------------------

    In addition, in response to comments and to provide a longer and 
lasting historical record of recent upside rate information, which 
investors may wish to consider, and which Commission staff, third-party 
market participants, and others could use to analyze RILA offerings 
individually and the RILA market as a whole, all upside rate 
information for the prior calendar year

[[Page 60008]]

must be filed annually with the Commission in a structured data format 
in response to Item 31A of Form N-4, as described below in Section 
II.C.7.\284\ Including this information together with the other census-
type information RILAs will be required to provide in response to Item 
31A is preferable to the recordkeeping requirement one commenter 
suggested because it avoids the need for the Commission to access 
insurance company records in order to obtain the historical information 
while also relieving insurers of an additional recordkeeping 
obligation. Moreover, requiring an annual filing on EDGAR not only 
creates a historical record of the information, as would have been the 
case if insurers filed a rule 497 prospectus supplement to disclose 
each upside rate change, but also has the benefit of being a single 
filing, instead of the potentially overwhelming number of rule 497 
filings to which commenters objected. This requirement also supports 
commenters' recommendation to allow insurance companies to incorporate 
by reference current upside rates from a website because, absent some 
filing with the Commission, it would be difficult to determine what 
information had been incorporated. We are adopting the annual filing 
approach instead of the alternative approach of requiring historical 
rate information to be posted on insurers' websites, as one commenter 
suggested, because a single annual filing (1) would create a permanent 
historical record of past rates, unlike website disclosure that is 
continually updated, and (2) would be more efficient for interested 
parties to review and analyze than continually-updated website 
information.
---------------------------------------------------------------------------

    \284\ Final Form N-4, Item 31A; see also Coenen Comment Letter.
---------------------------------------------------------------------------

    Minimum limits on index losses and gains: In addition, insurers 
will have to include prominent statements regarding minimum limits on 
index losses and gains that will always be available under the 
contract, subject to certain modifications from the proposal.\285\ As 
discussed above, we have modified the wording of the requirement on 
minimum limits on losses to require an insurer to prominently disclose 
any minimum limits on index losses that will always be available under 
the contract, or alternatively, to prominently state that it does not 
guarantee that the contract will always offer index-linked options that 
limit index losses.\286\ Similarly, we have modified the wording of the 
proposal, as discussed above, to require an insurer to prominently 
state, for each type of upside limit offered (e.g., cap, participation 
rate, etc.), the lowest limit on index gains that may be established 
under the contract.\287\ We are requiring similar disclosure on the 
cover page, in the Overview, and in the KIT, and we discuss the 
comments received concerning the proposed requirement to disclose 
information about guaranteed minimums, and our corresponding 
modifications, above.\288\ We are also retaining this disclosure 
requirement in Item 6, in the context of other disclosure regarding 
index-linked options, because it should be included in the section of 
the prospectus that provides the greatest amount of detail about such 
options. An investor reviewing the detailed disclosure about each 
index-linked option required by Item 6 will therefore have information 
about the key terms of each index-linked option and information about 
limits on gains and losses that may be available in future crediting 
periods.
---------------------------------------------------------------------------

    \285\ Final Form N-4, Items 6(d)(2)(i)(B) and 6(d)(2)(ii)(B).
    \286\ Final Form N-4, Item 6(d)(2)(i)(B); see supra Section 
II.C.1.
    \287\ Final Form N-4, Item 6(d)(2)(ii)(B).
    \288\ See supra Sections II.C.1, 2, and 3.
---------------------------------------------------------------------------

    Factors considered in determining current limits on index losses 
and gains: Substantially as proposed, we are requiring the insurance 
company to describe the factors it considers in determining the current 
limits on losses and gains for an index-linked option and how that 
choice may impact other features of the option set by the insurance 
company, along with an explanation of the factors an investor should 
consider regarding limits on index losses or gains before selecting an 
index-linked option for investment.\289\
---------------------------------------------------------------------------

    \289\ Final Form N-4, Items 6(d)(2)(i)(C) and 6(d)(2)(ii)(C). 
Such factors could include, for example, long-term interest rates, 
market volatility, or the cost of option contracts supporting the 
index-linked option guarantees. Similar disclosure is required in 
other contexts. See, e.g., final Form N-4, Item 9(a) (requiring 
disclosure of material factors that determine the level of annuity 
benefits); see also Form N-6, Instruction 2 to Item 7(a) (requiring 
the identification of factors that determine the applicable cost of 
insurance rate).
---------------------------------------------------------------------------

    As discussed in the Proposing Release, we are requiring the 
insurance company to explain how it selects rates for limiting index 
losses and gains to help investors understand how the features of a 
particular index-linked option will impact that option's risk/return 
profile. Giving investors information about the factors the insurance 
company considers in determining current limits--which are key features 
of an index-linked option--may help manage their expectations regarding 
how the product operates.\290\ The disclosure about how the current 
limits on index gains or losses may impact other aspects of the index-
linked option is designed to explain the inverse relationship between 
various features of the index-linked option.\291\ The requirement to 
provide an explanation of the factors an investor should consider 
regarding limits on index losses or gains before selecting an index-
linked option is designed to assist an investor in choosing among the 
index-linked options available under the contract, such as by 
explaining the difference between a floor and a buffer, or by 
highlighting index-linked options with features that assume more risk 
in return for higher potential return, or vice versa. We received no 
comments on this aspect of the proposal and are adopting as proposed.
---------------------------------------------------------------------------

    \290\ For example, an insurer might disclose that caps and 
participation rates may vary depending on factors such as market 
volatility, hedging strategies and investment performance, the 
investor's index effective date, or interest rates, among others. If 
an insurer discloses that it takes various specified factors into 
consideration, but ultimately sets rates at its own discretion, the 
investor should know that as well.
    \291\ For example, the insurance company could include an 
explanation regarding how the limit on index losses for an index-
linked option could impact the current limit on index gains. This 
could help an investor understand, for example, that if the 
insurance company determines to increase the extent to which the 
index-linked option will protect against loss, the insurance company 
may then reduce the amount of upside index participation the 
investor could receive.
---------------------------------------------------------------------------

Crediting Period
    As proposed, we are requiring insurers to generally describe the 
crediting periods of the index-linked options available under the 
contract (e.g., 1, 3, and 6 years), along with the factors an investor 
should consider regarding different crediting period lengths before 
selecting an index-linked option.\292\ The final amendments, 
substantially as proposed, will require the insurance company to 
prominently state that amounts must remain in an index-linked option 
until the end of its crediting period to be credited with all

[[Page 60009]]

or partial interest, as applicable, and to avoid a possible contract 
adjustment in addition to potential surrender charges and tax 
consequences.\293\ This discussion must also include a description of 
the transactions subject to a contract adjustment (e.g., partial 
withdrawals), with appropriate cross-references to related disclosures 
in the prospectus.\294\ These disclosures collectively are designed to 
help an investor make an informed investment decision when selecting an 
index-linked option, taking into account that withdrawing money before 
the end of the applicable crediting period can have adverse 
consequences. We received no comments on this aspect of the proposal 
and are adopting it as proposed.
---------------------------------------------------------------------------

    \292\ See final Form N-4, Item 6(d)(2)(iii)(A). An example of 
one such factor could be that crediting periods introduce timing 
risk that forces investors to take losses at the end of a crediting 
period, and shorter crediting periods might increase this risk. See 
OIAD Investor Testing Report at Section 2, RILAs: Structure of 
Contracts and Investment Options, Investment Terms (``The role of 
[crediting periods] also creates a situation that may be unique for 
RILA purchasers relative to other investments they hold. In 
particular, RILA investors periodically realize gains or losses at 
the end of each [crediting period]. In contrast, a mutual fund 
investor (for example) could wait to sell the fund during down 
markets, avoiding realizing those losses. Thus, the [crediting 
period] feature adds a `timing risk' for RILA investors relative to 
certain other investments.'').
    \293\ Final Form N-4, Item 6(d)(2)(iii)(B).
    \294\ Final Form N-4, Item 6(d)(2)(iii)(B).
---------------------------------------------------------------------------

Methodology and Examples
    Each index-linked option has an ``index crediting methodology'' 
that explains how interest is calculated and credited to the contract. 
The final amendments will, as proposed, require insurance companies to 
explain the index crediting methodologies used for index-linked options 
and provide numeric examples reflecting how these methodologies 
work.\295\ The final amendments also will require insurance companies 
to provide a bar chart that illustrates the annual return of each index 
along with hypothetical examples of index return after applying 
standardized limitations on index gains and losses, subject to minor 
modifications from the proposal, discussed below.\296\
---------------------------------------------------------------------------

    \295\ Final Form N-4, Item 6(d)(2)(iv)(A) and (C).
    \296\ Final Form N-4, Item 6(d)(2)(iv)(B).
---------------------------------------------------------------------------

    Specifically, we are requiring insurance companies to describe, for 
each index crediting methodology, how interest is calculated and 
credited at the end of a crediting period based on the interest 
crediting formula or performance measure (e.g., point-to-point, step-up 
calculations, and enhanced performance).\297\ We received no comments 
on this aspect of the proposal and are adopting it as proposed.
---------------------------------------------------------------------------

    \297\ Final Form N-4, Item 6(d)(2)(iv)(A). We understand that 
many index-linked options use the same crediting methodology. If all 
index-linked options offered by a RILA contract use the same 
crediting methodology, the prospectus will only include one example 
of that crediting methodology. If, however, the index-linked options 
in a RILA contract offer more than one crediting method, or if 
different index-linked options in a RILA contract offer different 
crediting methods, this would affect the number of examples to be 
provided. The number of examples to be provided depends on the 
number of crediting methodologies, not the number of index-linked 
options. A point-to-point crediting methodology compares the index's 
performance at two points in time (such as at the beginning and end 
of the crediting period). Step-up calculations guarantee a given 
rate if the index's returns are positive, regardless of the index's 
actual performance, subject to certain conditions. ``Enhanced 
performance'' increases a positive index return, such as by offering 
a participation rate of more than 100%.
---------------------------------------------------------------------------

    We are also requiring, as proposed, the prospectus for contracts 
that offer index-linked options to include a bar chart for each index 
showing the index's annual return for each of the last 10 calendar 
years (or for the life of the index, if less than 10 years), with the 
corresponding numeric performance adjacent to each bar.\298\ 
Specifically, insurance companies must provide a hypothetical example 
alongside each index return that reflects the return after applying a 
5% cap and a -10% buffer. If there are no caps or buffers offered under 
the contract (if, for example, the contract includes a floor rather 
than a buffer), insurance companies may reflect a rate or measure used 
to limit index gains or losses under the contract that is 
comparable.\299\ Insurance companies will not be permitted to include 
additional index performance presentations, or historical index 
performance that precedes the inception of the index.\300\ Further, 
similar to the proposal but with modifications to address comments as 
discussed below, insurance companies will be required to provide two 
footnotes to this table, if applicable, that disclose (1) that the 
index is a price return index, not a total return index, and therefore 
does not reflect dividends paid on the assets in the index, which will 
reduce the index return and cause the index to underperform a direct 
investment in the securities composing the index, and (2) that the 
index provider deducts fees and costs when calculating index return, 
which will reduce the index return and will cause the index to 
underperform a direct investment in the securities composing the 
index.\301\
---------------------------------------------------------------------------

    \298\ Final Form N-4, Item 6(d)(2)(iv)(B).
    \299\ Final Form N-4, Instruction 3 to Item 6(d)(2)(iv)(B).
    \300\ Final Form N-4, Instruction 6 to Item 6(d)(2)(iv)(B).
    \301\ Final Form N-4, Instructions 4-5 to Item 6(d)(2)(iv)(B). 
We are making conforming changes in final Form N-4, Instruction 1(d) 
to Item 17(b).
---------------------------------------------------------------------------

    As proposed, these bar charts must also be accompanied by the 
following legend in the format specified in the form:

    The bar chart shown below provides the Index's annual returns 
for the last 10 calendar years (or for the life of the Index if less 
than 10 years), as well as the Index returns after applying a 
hypothetical 5% cap and a hypothetical -10% buffer. The chart 
illustrates the variability of the returns from year to year and 
shows how hypothetical limits on Index gains and losses may affect 
these returns. Past performance is not necessarily an indication of 
future performance.
    The performance below is NOT the performance of any Index-Linked 
Option. Your performance under the Contract will differ, perhaps 
significantly. The performance below may reflect a different return 
calculation, time period, and limit on Index gains and losses than 
the Index-Linked Options, and does not reflect Contract fees and 
charges, including surrender charges and the Contract Adjustment, 
which reduce performance.

    This requirement is designed to provide context for the index-
linked options that the RILA contract offers to help inform an investor 
deciding whether to invest in a RILA.\302\ As discussed in the 
Proposing Release, presenting historical index information alone, 
without the addition of hypothetical caps and buffers, could mislead 
investors into thinking that these historical rates of index 
performance are what they would have received under the contract had 
they invested in a particular index-linked option.\303\ Providing 
historical index information with an overlay of hypothetical caps and 
buffers will help investors understand better how those limits can 
cause RILA performance to differ from that of the index, while the 
legends will put investors on notice that the presented performance is 
not the RILA's performance.
---------------------------------------------------------------------------

    \302\ For example, if an index-linked option provides that the 
investor will experience at least 5% of the upside performance of an 
index, investors may view the tradeoffs of this investment 
differently if the index historically has returned, for example, 10% 
per year (thus capping gains at 5% during those past periods) or 1% 
per year. Similarly, if an index-linked option offers a -10% buffer, 
the investor could compare that against the index performance in the 
bar chart and assess the extent to which the buffer would have 
provided downside protection against market losses in negative 
return years.
    \303\ See Proposing Release at n.144 and accompanying paragraph.
---------------------------------------------------------------------------

    Commenters generally supported, or did not oppose, the proposed 
inclusion of bar charts showing annual index returns. One commenter 
stated that the proposed bar chart ``is a helpful disclosure that will 
provide information about historical index performance, while also 
providing another tool to help investors understand bounded return 
structures.'' \304\ Several other commenters, though not opposed to the 
inclusion of a bar chart showing index returns, objected to the 
proposed 5% cap rate on the grounds that ``caps have never been that 
low,'' with one commenter suggesting that using these

[[Page 60010]]

rates would be ``misleading.'' \305\ One of these commenters suggested 
that instead of using the proposed standardized cap and buffer rates, 
we should require bar charts with an overlay of actual rates.\306\ 
Another commenter suggested that Commission staff be authorized to 
consider requests on a case-by-case basis to use a different overlay 
than would be generally prescribed, offering as an example a case where 
an insurance company only offers -20% buffers and suggesting the 
company should be permitted to use a -20% buffer overlay.\307\
---------------------------------------------------------------------------

    \304\ CAI Comment Letter.
    \305\ VIP Working Group Comment Letter (suggesting that, based 
upon OIAD's analysis in the OIAD Investor Testing Report, an 18% cap 
rate with a one-year crediting period and 10% buffer was more 
common); Datop Comment Letter; Johnson Comment Letter.
    \306\ VIP Working Group Comment Letter.
    \307\ CAI Comment Letter.
---------------------------------------------------------------------------

    We are not modifying the standardized rates as commenters suggest. 
As discussed in the Proposing Release, we proposed the hypothetical 5% 
cap rate and -10% buffer rate, which are higher than typical minimum 
levels of caps and floors that will always be available under a 
contract, but lower than typical currently-offered levels, to help 
investors understand how caps and buffers affect the index return. The 
bar chart with the overlay of standardized rates is merely an example 
designed to convey to investors that by selecting a product with caps 
and buffers, their returns will differ from that of the index. As 
emphasized in the accompanying legend, the performance reflected in the 
bar chart is not the performance of any index-linked option, and an 
investor's returns will differ from that of the index, perhaps 
significantly. Its purpose is to help investors understand how the 
product's limit features operate; it is not designed to convey an 
index-linked option's actual returns.
    In addition, while a standardized 5% cap may be lower than many 
current caps, on balance it is better to select a standardized cap that 
is too low than too high, as an illustration with a standardized cap 
that is higher than the cap that the index-linked option actually 
offers (or may offer in the future) could suggest that the index-linked 
option may credit more interest than the option actually does. Based on 
staff experience, the standardized 5% cap also is higher than most 
guaranteed minimum caps insurance companies currently disclosed in RILA 
prospectuses. Moreover, using current upside rates, which change 
frequently, or considering requests on a case-by-case basis to use a 
different overlay, would undermine comparability across products and 
require insurers to frequently update the prospectus. The same concerns 
about frequent updates to the registration statements that commenters 
identified in connection with the proposal to include current upside 
rates in the prospectus also would apply to the bar chart presentation 
if it were based on current upside rates. Accordingly, we are adopting, 
as proposed, the hypothetical 5% cap rate and -10% buffer rate to 
provide for a consistent presentation across products designed to help 
investors understand a RILA's bounded return structure.\308\ For the 
same reason, the amendments we are adopting do not permit the inclusion 
of additional bar charts in addition to the required examples, as one 
commenter suggested.
---------------------------------------------------------------------------

    \308\ In contrast to the bar chart, which requires fixed 
hypothetical cap and buffer rates, the index methodology examples 
required by Item 6(d)(2)(iv)(C) allow insurers to use rates that are 
based on current and anticipated market conditions. See infra 
footnote 315 and accompanying text.
---------------------------------------------------------------------------

    Two commenters suggested that the proposed bar chart disclosures 
should more clearly convey to investors that a RILA tracks a price 
return index and not a total return index, and the resulting effects on 
performance.\309\ We agree, for the reasons described in conjunction 
with a parallel disclosure requirement in the KIT, that disclosure 
should alert investors to the fact that a price return index does not 
assume the reinvestment of dividends and thus will underperform a total 
return index and direct investment in securities underlying the 
index.\310\ Accordingly, and in a conforming change, we are modifying 
the footnotes to provide, if applicable, that the index in the bar 
chart is a ``price return index,'' not a ``total return index'' and 
therefore does not reflect the dividends paid on the assets composing 
the index, which will reduce the index return and cause the index to 
underperform a direct investment in the securities composing the 
index.\311\
---------------------------------------------------------------------------

    \309\ Johnson Comment Letter; Lee Comment Letter; see supra 
discussion at Section II.C.5.(b) (stating that the performance of a 
RILA is based on the performance of an index (such as the S&P 500) 
or another benchmark, in contrast to the performance of a ``price 
return index,'' which is typically lower than that of a ``total 
return'' index because a price return index does not reflect 
dividends).
    \310\ See supra footnote 227 and accompanying paragraph; see 
final Form N-4, Instruction 3(c)(C) to Item 3.
    \311\ Final Form N-4, Instruction 4 to Item 6(d)(2)(iv)(B). For 
consistency, we are making a similar change in final Form N-4, 
Instruction 5 to Item 6(d)(2)(iv)(B) and Instruction 1(d) to Item 
17(b).
---------------------------------------------------------------------------

    To help investors understand how these crediting methods work, we 
are also requiring, as proposed, an insurance company to include a 
numeric example to illustrate the mechanics of each index crediting 
methodology.\312\ The examples will be required to show, in a clear, 
concise, and understandable manner, how each crediting method functions 
when the index has positive as well as negative returns. Specifically, 
we will require for each index methodology numeric examples that 
reflect a positive return above the limit on index gains, and a 
negative return below the limit on index losses.\313\ The examples also 
will be required to assume hypothetical returns and limits that are 
reasonable based on current and anticipated market conditions and sales 
of the contract, and to reflect any charges subtracted from interest 
credited to or deducted from contract value in the index-linked option 
to allow investors to understand the impact of these charges on their 
return.\314\ Additional examples, charts, graphs, or other 
presentations will be permitted if they are clear, concise, and 
understandable.\315\ We are also requiring insurance companies to 
include a legend stating that: (1) these examples illustrate how the 
insurance company calculates and credits interest under each index 
crediting methodology assuming hypothetical index returns and 
hypothetical limits on index gains and losses; and (2) the examples 
assume no withdrawals.
---------------------------------------------------------------------------

    \312\ Final Form N-4, Item 6(d)(2)(iv)(C).
    \313\ Final Form N-4, Instruction 2 to Item 6(d)(2)(iv)(C).
    \314\ Final Form N-4, Instructions 1 and 3 to Item 
6(d)(2)(iv)(C).
    \315\ Final Form N-4, Instruction 4 to Item 6(d)(2)(iv)(C). As 
with the required numeric examples, any additional presentations 
that assume hypothetical returns and limits also should assume 
hypothetical returns and limits that are reasonable based on current 
and anticipated market conditions and sales of the contract.
---------------------------------------------------------------------------

    We received one comment on this aspect of the proposal that sought 
clarification regarding what assumptions, such as fees, product 
features elected, the age of the contract, and/or interim value 
adjustments should be made when calculating the examples.\316\ The 
instructions state that any charges that are subtracted from interest 
credited or that are deducted from contract value in an index option 
should be reflected in the example.\317\ Because the legend states that 
the example assumes no withdrawals, insurers need not take into account 
the age of the contract, surrender charges, or any interim value 
adjustments. The instructions provide flexibility in terms of other 
assumptions that form the basis

[[Page 60011]]

of the examples. Like all other registration statement disclosure, the 
examples may not be inaccurate or misleading, and we anticipate that 
insurers offering index-linked options (and that also offer variable 
options) will draw on prior experience developing performance examples 
for variable options in developing appropriate examples for index-
linked options. We received no comments on our proposal to require a 
numeric example for each index crediting methodology and are adopting 
it as proposed.
---------------------------------------------------------------------------

    \316\ VIP Working Group Comment Letter.
    \317\ Final Form N-4, Instruction 3 to Item 6(d)(2)(iv)(C).
---------------------------------------------------------------------------

Indexes
    The index underlying an index-linked option is a central feature of 
the investment, as the investor's return will be based on the index's 
performance, subject to applicable limits on gains and losses. We 
therefore are requiring the insurance company to provide for each index 
a brief description of the types of investments that compose the index 
and where the investor can find additional information about the 
index.\318\ We received no comments on these aspects of the proposal 
and are adopting them as proposed, subject to a conforming change to 
one of the proposed instructions related to differences between a price 
return index and a total return index.\319\
---------------------------------------------------------------------------

    \318\ Final Form N-4, Item 6(d)(2)(v)(A).
    \319\ Final Form N-4, Instruction 3 to Item 6(d)(2)(v)(A) 
(modified to clarify differences between a price return index and a 
total return index, similar to clarifying changes to Instruction 5 
to Item 6(d)(2)(iv)(B), discussed above).
---------------------------------------------------------------------------

    The form includes three instructions to this general requirement 
under the final amendments.\320\ First, where there is more than one 
version of an index (for example a total return version and a price 
return version), the disclosure must clearly state which version of the 
index relates to the index-linked option.
---------------------------------------------------------------------------

    \320\ Final Form N-4, Instructions 1-3 to Item 6(d)(v)(A).
---------------------------------------------------------------------------

    Second, if the index is an exchange-traded fund (``ETF''), the 
disclosure must clarify whether the index's performance (for purposes 
of determining the amounts credited in the index-linked option) is 
based on the ETF's net asset value or closing value. If the performance 
is based on the ETF's share price, the disclosure must clarify the 
impact of using the share price as opposed to total return.
    Third, the disclosure must also state, if applicable, that the 
index is a price return index, not a total return index, and therefore 
does not reflect dividends paid on the index's underlying securities. 
The disclosure also must state, if applicable, that the index deducts 
fees and costs when calculating index performance. In these cases, the 
disclosure must explain that this will reduce index return and cause 
the index to underperform a direct investment in the securities 
composing the index. This is important disclosure because an index that 
does not reflect dividends paid on underlying securities, or that 
deducts fees and costs, will have a lower return, all else equal, than 
an index that includes dividends and does not deduct fees and costs.
    The insurance company also must state that it reserves the right to 
substitute an index prior to the end of the crediting period.\321\ This 
will put investors on notice that the index associated with a 
particular index-linked option--which is a key driver of the investor's 
return--could change in the middle of a crediting period. In addition, 
the insurance company will be required to disclose: all circumstances 
that could necessitate a substitution; how the insurance company would 
choose a replacement index; when and how investors would be notified of 
any such change; how index return will be calculated at the end of the 
crediting period; and what would happen if a suitable replacement index 
were not found, including whether the index-linked option will be 
discontinued prior to the end of the crediting period. This information 
will allow an investor to better understand the likelihood of the 
insurance company making a substitution and its potential effects.
---------------------------------------------------------------------------

    \321\ Final Form N-4, Item 6(d)(2)(v)(B). Insurers generally 
reserve the right to change the index in the middle of the crediting 
period if the index is discontinued or there is a substantial change 
in the calculation of the index. Based on staff experience, such 
changes are exceedingly rare.
---------------------------------------------------------------------------

Maturity and Other Material Features
    To help investors anticipate what may happen at the end of an 
index-linked option's crediting period, the final amendments will 
require the insurance company to state whether an investor will receive 
advanced notice of a maturing index-linked option, how an investor may 
provide instructions on reallocating contract value at the end of the 
crediting period, and any automatic default allocation in the absence 
of such instructions.\322\ In describing these matters, the prospectus 
must also explain how investors will be informed of the index-linked 
option available for allocation at the end of a crediting period, 
including any changes to the currently-offered index-linked options and 
the discontinuance or addition of index-linked options.\323\ We 
received no comments on this aspect of the proposal and are adopting it 
as proposed.
---------------------------------------------------------------------------

    \322\ Final Form N-4, Item 6(d)(2)(vi).
    \323\ Final Form N-4, Instruction 3 to Item 6(d)(2)(vi).
---------------------------------------------------------------------------

    Finally, we are requiring the insurance company to describe any 
other material aspects of the index-linked option to ensure that any 
other item not discussed above that could inform an investment decision 
is disclosed.\324\ This will include disclosure related to limitations 
on transfers to or from index-linked options, rate holds, ``bail-out'' 
provisions, start dates, and holding accounts.\325\ We are also 
requiring a brief description of how charges may impact the index-
linked option's value, if applicable, as part of this discussion. We 
received no comments regarding the proposed disclosures regarding other 
material features and are adopting it as proposed.
---------------------------------------------------------------------------

    \324\ Final Form N-4, Item 6(d)(2)(vii).
    \325\ A ``rate hold'' locks in interest at the current cap (or 
other rate limiting index gains) for the period between which the 
insurance company receives the investor's annuity application and 
the time the investor's premium payment is allocated to the index-
linked option. A bail-out provision is a contract provision that 
provides if a current cap (or other rate limiting index gains) is 
set below a specified value, the investor may withdraw value from 
that index-linked option or RILA without a contract adjustment (and 
in some cases without a surrender charge) during a specified period 
after the start of the crediting period. See additional discussion 
of bail-out provisions at supra footnote 283. A holding account is 
typically a conservative investment option (typically a money market 
fund or a fixed option) where amounts allocated to the index-linked 
option are held until the next index-linked option start date. This 
is used for index-linked options that start on a particular day each 
month (e.g., the 15th of the month).
---------------------------------------------------------------------------

Fixed Options, Including MVA Options
    In addition to variable options and index-linked options, annuity 
contracts commonly include fixed investment options, such as 
traditional, unregistered fixed options, unregistered index options, 
and MVA options.\326\ In the variable annuity context, a fixed option 
provides an alternative for investors who wish to avoid the market risk 
of investing in a variable option. A fixed option can also serve as the 
holding account for amounts that are pending allocation to a particular 
investment option. In addition, a fixed option may be the default 
allocation vehicle at the end of an index-linked option's crediting 
period. As discussed above, annuity contracts also may offer fixed 
options standing alone (without also including variable options or 
index-

[[Page 60012]]

linked options), including MVA options.
---------------------------------------------------------------------------

    \326\ See Final Form N-4, Item 6(e). Interests in fixed account 
options that are not subject to a contract adjustment are generally 
exempt securities under section 3(a)(8) of the Securities Act and 
rule 151 under the Securities Act.
---------------------------------------------------------------------------

    Form N-4 generally requires registrants to describe the fundamental 
features and risks of an annuity contract, including those, like fixed 
options, that are distinct from the variable options offered through 
the registered separate account.\327\ The current form also requires 
specific disclosure about fixed options in the KIT and the 
Overview.\328\ Because we are requiring insurers to include disclosures 
relating to index-linked options in Item 6, we are also, as proposed, 
requiring disclosures about fixed options so annuity contract investors 
have a complete understanding of all the investment options in which 
they may invest through that contract, either actively, or by default. 
This approach is designed to increase investor comprehension by 
ensuring that substantive information about all available investment 
options is presented in the same location in the prospectus and 
reflects the inclusion of registered MVA annuities on Form N-4.
---------------------------------------------------------------------------

    \327\ Current Form N-4, General Instruction C.1.(a) (stating 
that ``[a] Registrant's prospectus should clearly disclose the 
fundamental features and risks of the [Contracts], using concise, 
straightforward, and easy to understand language.'').
    \328\ Current Form N-4, Items 2 and 3.
---------------------------------------------------------------------------

    The final amendments will, with modifications from the proposal, 
require insurance companies to disclose basic information about fixed 
options, generally covering the same areas as for index-linked options 
but tailored for the specifics of a fixed option. Specifically, as 
proposed, registrants will be required to describe the fixed options 
currently offered under the contract and state that information 
regarding the features of each currently-offered fixed option, 
including its name, term, and minimum guaranteed interest rate is 
available in an appendix with cross-references.\329\ Further, as 
proposed, registrants will be required to describe how interest is 
calculated and when it is credited for each fixed option as well as the 
length of the term and minimum guaranteed interest rate (stated as a 
numeric rate, rather than referring to any minimums permitted under 
State law).
---------------------------------------------------------------------------

    \329\ As discussed below, we are also requiring disclosure 
relating to any fixed options currently offered under the contract 
in the Item 17 (Appendix).
---------------------------------------------------------------------------

    In a change from the proposal and to address the inclusion of 
registered MVA annuities on Form N-4, under the final amendments the 
prospectus must state, if applicable, that an investor could lose a 
significant amount of money due to a contract adjustment if amounts are 
removed from a fixed option prior to the end of its term, describe the 
transactions subject to a contract adjustment, and provide cross 
references to related disclosure in the prospectus.\330\ The investment 
risk created by an MVA is a material consideration for an investor 
considering a registered MVA annuity. As with index-linked options and 
as proposed, the registrant also will be required to state whether an 
investor will receive advance notice of a maturing fixed option, 
including what steps an investor may take to provide instructions 
regarding the reallocation of contract value at the end of the term, 
and any automatic default allocation in the absence of such 
instructions. In describing these matters, as proposed, the registrant 
must also explain how investors will be informed of the fixed options 
available for allocation at the end of a term, including any changes to 
the currently-offered fixed options and the discontinuance or addition 
of fixed options.\331\ In a modification from the proposal, this 
disclosure must also include an explanation of how current fixed rates 
may be obtained. This could include, for example, a phone number, 
website address, and/or instruction to contact the investor's financial 
professional to obtain current fixed rates. This aspect of the required 
explanation represents an addition to the proposed requirements to 
explain how investors will be informed of available fixed options and 
disclose changes to currently offered fixed options to provide 
additional context so that investors can better understand those 
disclosures.\332\ Also as with index-linked options, we are requiring 
disclosure of any other material aspect of the fixed options, including 
limitations on transfers to or from the fixed options, rate holds, 
start dates and holding accounts.
---------------------------------------------------------------------------

    \330\ Final Form N-4, Item 6(e)(2)(i); see also Proposing 
Release at Section II.H (discussing changes to Form N-4 that would 
be necessary to accommodate MVAs).
    \331\ Final Form N-4, Instruction to Item 6(e)(2)(ii).
    \332\ Id.
---------------------------------------------------------------------------

    One commenter opposed requiring insurers to provide specific 
disclosures about fixed options in the prospectus on the grounds that 
the Commission lacks the authority pursuant to section 10(a) of the 
Securities Act to prescribe the specific content, format, and location 
of any prospectus disclosures about unregistered fixed options.\333\ 
Although the commenter acknowledged that most issuers choose to provide 
information about fixed options in the prospectus--and that any 
statements made in a prospectus about unregistered fixed options are 
subject to the Securities Act's provisions concerning liability for the 
accuracy and completeness of statements made in a prospectus--it 
asserted that such disclosures should not be required by the 
Commission. Instead, the commenter stated that a variable annuity or 
RILA issuer should be able to choose whether to provide information 
about fixed options in the prospectus or instead in a separate document 
used with the prospectus and/or in marketing material or on its 
website. The commenter also stated that, to the extent it does include 
such information in the prospectus, the issuer should have the 
flexibility to determine the location, format, and specific content of 
any fixed option disclosures in the prospectus, so long as the 
disclosures are accurate in all material respects and do not obscure or 
impede the disclosures about the security being registered. 
Accordingly, the commenter recommended that the Commission make 
optional the proposed disclosures about fixed options and clarify that 
issuers can instead make disclosures about unregistered fixed options 
or accounts in any location and manner that does not obscure the 
disclosures about the registered options. No other commenter addressed 
the proposed disclosures for fixed options.
---------------------------------------------------------------------------

    \333\ CAI Comment Letter.
---------------------------------------------------------------------------

    All material aspects of the contract should be described in the 
prospectus, and a fixed option is a material aspect of a RILA or 
variable contract. Therefore including this information in a 
registration statement for the offering of these contract securities is 
necessary and appropriate in the public interest or for the protection 
of investors.\334\ Consistent with this view, Form N-4 currently 
requires insurance companies to disclose certain basic information 
about fixed options when they are investment options in a variable 
contract.\335\ We are therefore adopting the disclosure requirements 
for fixed options, to be provided in the broader context of detailed 
disclosure regarding the investment options available under the 
contract, largely as proposed with modifications to reflect the 
inclusion of registered MVA annuities on Form N-4.\336\ The required 
disclosure about fixed options includes substantively the same 
information that insurers currently disclose about other investment 
options, such as variable annuities, and encompasses core information 
about fixed options. This basic information

[[Page 60013]]

about fixed options available under a RILA or variable annuity is 
necessary to provide investors material information about the 
securities offering registered on Form N-4.
---------------------------------------------------------------------------

    \334\ See, e.g., Investment Company Act section 8; Securities 
Act section 10(c).
    \335\ See current Form N-4, Item 3(b)(1) and Instruction 3(c)-
(d) to Item 2.
    \336\ We are likewise requiring fixed option disclosures in the 
appendix. See infra footnote 374 and accompanying text.
---------------------------------------------------------------------------

    We therefore do not agree, as a commenter suggests, that the 
provision of such information should be voluntary. This approach would 
deprive investors of material information regarding an investment 
decision in an annuity contract. In addition, requiring this basic 
information about fixed options will provide increased efficiencies now 
that we also are requiring registered MVA annuities to register on Form 
N-4 (since this information is a necessary component of registered MVA 
annuity disclosure).\337\ Under Form N-4 as amended, an insurance 
company will provide the same information about all fixed options in 
this part of the prospectus, with additional disclosure about contract 
adjustments in connection with registered MVA annuities.
---------------------------------------------------------------------------

    \337\ The commenter that opposed requiring insurers to provide 
specific disclosures about fixed options in the prospectus supported 
the inclusion of registered MVA annuities on Form N-4. See CAI 
Comment Letter.
---------------------------------------------------------------------------

    We received one comment regarding the proposed instruction that 
would require insurers to disclose the minimum guaranteed interest rate 
as a numeric rate, rather than referring to any minimums permitted 
under State law.\338\ This commenter objected, stating that minimum 
rates for contracts are determined by the standard nonforfeiture laws 
of each State in which the contract is offered, which are not uniform 
across all jurisdictions, and can change, sometimes frequently, due to 
changes in prevailing interest rates. This commenter suggested that 
instead of requiring insurers to provide numeric rates, they should be 
allowed to state, if applicable, that the minimum guaranteed rate is a 
rate required to comply with standard nonforfeiture law in the State in 
which the contract is issued, with a reference in the prospectus 
directing investors to the policy form, website, or other material 
where the specific minimum guaranteed rate applicable at the time the 
contract is issued may be found.
---------------------------------------------------------------------------

    \338\ CAI Comment Letter; see also proposed Form N-4, 
Instruction to Item 6(e)(2).
---------------------------------------------------------------------------

    After considering this comment, we are adopting the proposed 
approach--requiring disclosure of the minimum guaranteed interest rate 
as a numeric rate--in the final amendments.\339\ We are not departing 
from the proposed approach given that the standard nonforfeiture laws 
of most states follow the National Association of Insurance 
(``NAIC'')'s model Nonforfeiture Law for Individual Deferred Annuities, 
which specifies the range of numeric minimum interest rates from which 
insurers may choose for inclusion in the contract.\340\ As a result, 
insurers have the flexibility to select a numeric minimum interest rate 
that will comply with minimum requirements in most states. Further, it 
is our understanding that while current interest rates may frequently 
change, that is not the case with minimum interest rates, which must be 
within NAIC's specified range of numeric interest rates. Accordingly, 
including the guaranteed minimum interest rate in the prospectus should 
not necessitate frequent updates to the prospectus. In addition, based 
on staff experience, we understand that some insurers already disclose 
the minimum guaranteed interest rate as a numeric rate in their 
prospectuses. Because providing such information in the prospectus is 
consistent with industry practice (at least for some insurers) and 
avoids the need for the investor to refer to another source for 
information about a material term of the offering, we are requiring 
minimum guaranteed interest rates to be stated as numeric rates, as 
proposed.
---------------------------------------------------------------------------

    \339\ Final Form N-4, Instruction to Item 6(e)(2); Instruction 3 
to Item 17(c).
    \340\ See NAIC Standard Nonforfeiture Law for Individual 
Deferred Annuities (Model 805-4) at Sec. 4.B (describing requirement 
to disclose minimum rate under nonforfeiture law), available at 
https://content.naic.org/sites/default/files/model-law-805.pdf.
---------------------------------------------------------------------------

b. Appendix: Investment Options Available Under the Contract (Item 17)
    We are amending the requirements for the required appendix of 
investment options available under the contract, largely as proposed, 
to include a discussion of the index-linked options and fixed options 
available under the contract. This item currently requires a variable 
annuity issuer to include in an appendix to the prospectus a table that 
consolidates certain summary information about each portfolio company 
offered under the contract. The current appendix is designed to provide 
investors with an overview of variable options available under the 
contract in a uniform, tabular presentation that promotes comparison, 
because the investment experience of an investor in a variable annuity 
will largely depend on the underlying investments available under the 
contract.\341\ Similarly, we anticipate that an overview of available 
index-linked options, as well as available fixed options, will help 
investors in all annuities whose offerings will be registered on Form 
N-4 to understand and compare the various investment options offered 
under the contract. Consolidating this summary information about the 
contract's investment options--equivalent to what is currently provided 
for variable options--into a concise, easy to read tabular presentation 
will enhance the ability of investors to understand, evaluate, and 
compare all the investment options available under the contract.
---------------------------------------------------------------------------

    \341\ VASP Adopting Release at n.267 and accompanying text.
---------------------------------------------------------------------------

    To reflect the expanded scope of the appendix, and as proposed, we 
are amending the current heading to ``Investment Options Available 
Under the Contract.'' \342\ We are adopting a new instruction that 
explains that issuers may modify this new heading as appropriate under 
the contract. For example, if there are only variable options offered 
under the contract, an issuer could change the heading to ``Portfolio 
Companies Available Under the Contract,'' consistent with the current 
requirements of the form.
---------------------------------------------------------------------------

    \342\ ``Investment options'' are defined as any variable option, 
index-linked option, or fixed option available under the contract. 
See infra Section II.C.8.b.
---------------------------------------------------------------------------

    The current appendix requires a separate table indicating what 
portfolio companies are available or restricted under the benefits 
offered under a variable contract. Because fixed options and index-
linked options--like variable options--can vary by benefit offered 
under the contract, we are adopting amendments, as proposed, that would 
require this table for all investment options (not only variable 
options), with no other changes.\343\ We received no comments regarding 
these aspects of the proposal and are adopting as proposed.
---------------------------------------------------------------------------

    \343\ Final Form N-4, Item 17(d).
---------------------------------------------------------------------------

    We received one comment regarding the disclosures for variable 
options in the required appendix.\344\ This commenter stated that the 
instructions to the table for variable options should permit variable 
annuity issuers to include additional rows that visually separate and 
group underlying funds belonging to the same fund complex, provided 
that the presentation does not obscure or impede understanding of the 
information that is required to be included, or substantially otherwise 
alter the required format of the table. The commenter asserted this 
approach would improve the organization and readability of the 
appendix, while also maintaining standardization and comparability. We 
agree. In a change from the proposal, we are therefore adding a new 
instruction that will provide flexibility to permit the

[[Page 60014]]

presentation of information the commenter suggested, subject to 
existing requirements (by virtue of the table template in the form) to 
provide a standardized tabular presentation.\345\ The current tabular 
presentation was designed to promote ease of comparison between 
products, and we do not anticipate that the new instruction we are 
adopting will detract from this goal.\346\
---------------------------------------------------------------------------

    \344\ CAI Comment Letter.
    \345\ Final Form N-4, Instruction 1(f) to Item 17(a).
    \346\ See Proposing Release at n.156 and accompanying text.
---------------------------------------------------------------------------

Index-Linked Options
    To accommodate the inclusion of index-linked options in the 
appendix, we are adding a new table titled ``Index-Linked Options,'' as 
proposed.\347\ As part of our layered disclosure approach, the 
information to be supplied in the table for index-linked options will 
summarize certain prospectus disclosures required elsewhere in the 
prospectus.\348\ The one commenter to address this aspect of the 
proposal broadly supported the proposed expansion of the required 
appendix to include a table for index-linked options, as well as the 
table's general design, stating that the proposed Index-Linked Options 
Table ``will aggregate all index-linked options currently available 
under the contract in one location to facilitate investor understanding 
and comparison of investment options and contracts.'' \349\ We are 
adopting the table for index-linked options largely as proposed, with 
certain additions and modifications as discussed below.
---------------------------------------------------------------------------

    \347\ Final Form N-4, Item 17(b).
    \348\ See, e.g., final Form N-4, Item 6(d).
    \349\ CAI Comment Letter.
---------------------------------------------------------------------------

Legends
    Similar to the requirements for variable annuities, the table for 
index-linked options will be prefaced with a legend, largely as 
proposed. Specifically, the legend will state that the table lists 
index-linked options currently available under the contract. Further, 
because insurance companies typically change the index-linked options 
available over time, the legend will specify that the insurance company 
may change the features of the index-linked options listed in the 
table, offer new index-linked options, or terminate existing index-
linked options, and that the insurance company will provide the 
investor with written notice before making any changes, other than 
changes to current limits on index gains.\350\ We received no comments 
on the legend, and are adopting it largely as proposed, with conforming 
changes corresponding to other changes we are adopting to the index-
linked options table and other modifications designed to clarify the 
legend language.\351\
---------------------------------------------------------------------------

    \350\ Final Form N-4, Item 17(b)(1).
    \351\ In a change from the proposal, we are revising the legend 
to clarify that written notice will not be provided before changes 
to current limits on index gains.
---------------------------------------------------------------------------

    In addition, to help ensure that investors have convenient access 
to current upside rates, the legend will require insurance companies to 
state that information about current limits on index gains are 
available at a specified website address, if such information is 
incorporated by reference into the prospectus from a website, as 
described above.\352\ We are adopting this requirement substantially as 
proposed, with a change to the related instructions to specify that the 
website address must be provided only if the current upside rates do 
not appear directly in the prospectus.\353\ This is a conforming change 
to address the final amendments' permissible incorporation by reference 
of current rates on index gains into the prospectus, under Item 6 of 
final Form N-4.\354\
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    \352\ See final Form N-4, Item 17(b)(1), and final Form N-4, 
Instruction 1(e) to Item 17(b). Consistent with the current 
instructions to the form, any website address, including this one, 
that is included in an electronic version of the statutory 
prospectus will be required to include an active hyperlink or other 
means of facilitating access that leads directly to the relevant 
website address. However, this requirement will not apply to an 
electronic summary prospectus that is filed on EDGAR. See final Form 
N-4, General Instruction C.3.i.
    \353\ Final Form N-4, Instruction 1(e) to Item 17(b).
    \354\ See supra Section II.C.4.a.
---------------------------------------------------------------------------

    We are also adopting, in a modification from the proposal, 
instructions to specify that the website included in the legend must be 
the same website that includes information about current rates on index 
gains that an insurance company may choose to incorporate by reference 
into the prospectus under Item 6.\355\ This ensures that where an 
insurance company provides this information via a website, investors 
receive the same information and in the same format, whether they are 
directed to a website in disclosure required by Item 6 or this legend. 
As proposed, this website address must be specific enough to lead 
investors directly to current upside rates, rather than to the home 
page or other section of the website on which such rates are 
posted.\356\ Requiring RILA issuers to include information about 
current limits on index gains on their websites will benefit investors 
by making this information easier to find and understand. Furthermore, 
because websites may be updated quickly, website disclosure will be 
efficient for compiling index-linked options' current limits on gains, 
given our understanding that current upside rates can change often and 
that insurance companies currently disclose this information on their 
websites.
---------------------------------------------------------------------------

    \355\ See final Form N-4, Instruction 1(e) to Item 17(b).
    \356\ Final Form N-4, Instruction 2 to Item 6(d)(2)(ii)(B). We 
originally proposed this requirement as proposed Form N-4, 
Instruction 1(e) to Item 17(b), but in final Form N-4 this 
requirement will be included with the other requirements for current 
rates that are incorporated by reference from a website, 
collectively set forth in Item 6.
---------------------------------------------------------------------------

    We anticipate that insurance companies generally will rely on the 
incorporation by reference approach because insurers generally disclose 
current limits on index gains on their websites today and based on 
commenter feedback about the challenges in providing this information 
directly in the prospectus. We therefore assume that all insurance 
companies will include a website address with current limits on index 
gains in this legend. However, to accommodate the possibility that an 
insurance company may not choose to incorporate by reference current 
upside rate information from a website, we are, in a change from the 
proposal, adding an instruction directing such an insurer to provide in 
(in lieu of the website address) a cross-reference to the current 
limits on index gains disclosed elsewhere in the prospectus.\357\
---------------------------------------------------------------------------

    \357\ Final Form N-4, Instruction 1(f) to Item 17(b).
---------------------------------------------------------------------------

    Lastly, set off from the rest of the legend and with emphasis, we 
are, largely as proposed, adopting the requirement to include a 
statement that if amounts are removed from an index-linked option 
before the end of its crediting period, the insurance company may apply 
a contract adjustment (or will apply a contract adjustment, as 
appropriate).\358\ The required legend also includes a statement that 
this may result in a significant reduction in the investor's contract 
value that could exceed any protection from the index's loss that would 
be in place if an investor held the option until the end of the term. 
This statement is designed to highlight the potential impact on an 
investor's returns if amounts are removed prior to the end of a 
crediting period. The one comment we received concerning the proposed 
statement addressed the use of the term

[[Page 60015]]

``withdrawn'' and suggested adding the phrase ``or deducted'' to 
reflect that deductions other than withdrawals may result in a contract 
adjustment.\359\ We agree that referring solely to amounts being 
``withdrawn'' from an index-linked option may not be understood to 
cover all of the circumstances in which a contract adjustment may 
apply. Accordingly, and consistent with wording used elsewhere in the 
form, we are modifying the first sentence of the required statement to 
state that ``if amounts are removed from an Index-Linked Option before 
the end of its Crediting Period, we [may/will] apply a Contract 
Adjustment.'' \360\ As proposed, we are also requiring the statement to 
include appropriate cross-references to the section(s) of the 
prospectus that describe the features of the index-linked options as 
well as contract adjustments.\361\ This approach is designed to help 
investors that are interested in more detail about key aspects of the 
index-linked options to locate that information quickly.
---------------------------------------------------------------------------

    \358\ The proposed legend required a statement that included the 
phrase ``we may apply a Contract Adjustment.'' The final amendments 
instead include the phrase ``we [may/will] apply a Contract 
Adjustment'' in the legend. This provides flexibility to make a 
definitive statement to the extent that removing amounts from the 
index-linked option before the end of the crediting period will 
always result in the application of a contract adjustment.
    \359\ CAI Comment Letter (discussing the proposed statement ``If 
amounts are withdrawn from an Index-Linked Option before the end of 
its Crediting Period, we may apply a Contract Adjustment.'').
    \360\ Final Form N-4, Item 17(b)(1).
    \361\ Final Form N-4, Instruction 1(a) to Item 17(b).
---------------------------------------------------------------------------

Table
    As proposed, the legend will be followed by a table that lists and 
highlights key elements of each index-linked option available under the 
contract. Specifically, the table will, largely as proposed, require, 
in sequential columns, the identification of (1) each index by name; 
(2) type of index; (3) crediting period, indicating the duration of the 
index-linked option in years; (4) index crediting methodology; (5) 
current limits on index loss if held to the end of the crediting 
period; and (6) minimum limit on index gain for each index-linked 
option.\362\ In a change from the proposal, we are modifying the last 
two column headings in the table to more clearly specify the 
information required. Specifically, we are adding to the fifth column 
heading the word ``Current'' so it now reads ``Current Limits on Index 
Loss (if held until end of Crediting Period),'' and removing from the 
sixth column heading the word ``Guaranteed'' and adding the 
parenthetical ``(for the life of the Index-Linked Option)'' to clarify 
that the minimum limits to be disclosed are for the life of the index 
option (not for the life of the contract).\363\ These column heading 
changes are not intended to change the substance of the information 
that will be provided under each of these headings.
---------------------------------------------------------------------------

    \362\ Final Form N-4, Item 17(b)(1).
    \363\ See also infra footnote 372 and accompanying text 
(discussing separate disclosure describing guaranteed minimum limits 
for the life of the contract).
---------------------------------------------------------------------------

    As proposed, the description of the type of index will be a brief 
statement of the type of index (e.g., market index, exchange-traded 
fund, etc.), or a brief statement describing the assets that the index 
seeks to track (e.g., U.S. large-cap equities).\364\ The column 
indicating the type of index crediting methodology used for each index-
linked option will only be required if the RILA utilizes multiple index 
crediting methodologies under the contract (e.g., point-to-point, step-
up, enhanced upside, etc.), as proposed.\365\ The disclosures regarding 
current limits on index loss will require an issuer to: (1) state the 
current percentage used in the insurance company's interest crediting 
methodology to limit the amount of negative index return credited to 
the index-linked option; and (2) identify in the table whether this 
limit is a buffer, floor, or some other rate or measure.\366\ In the 
last column, issuers will be required to state the minimum percentage 
that may be used to limit the amount of positive index return credited 
to an index-linked option (for the life of the index-linked option) and 
to identify in the table whether this limit is a cap, participation 
rate, or some other rate or measure.\367\ The additional parenthetical 
is designed to distinguish the disclosure that will be provided in this 
column (minimum limits guaranteed for the life of the index-linked 
option) from the new disclosure item that we are adding in a change 
from the proposal discussed in more detail below, providing information 
about guaranteed minimum limits that will always be available under the 
contract.\368\ We understand that it is common for a RILA to offer 
guaranteed minimums on index gains associated with specific index-
linked options, as well as guaranteed minimums for the life of the 
contract. The proposed approach, which only included a column heading 
for ``guaranteed minimum limit on index gain,'' therefore could be 
confusing, and the final amendments' approach will specify separate 
disclosure for each type of guaranteed minimum limit.
---------------------------------------------------------------------------

    \364\ Final Form N-4, Instruction 3 to Item 17(b)(1).
    \365\ Final Form N-4, Instruction 5 to Item 17(b)(1). If all 
index-linked options offered by a RILA contract use the same 
crediting methodology, the table will not include the column. See, 
e.g., supra footnote 297.
    \366\ Final Form N-4, Instruction 6 to Item 17(b)(1). In 
contrast to current limits on index gain, we understand that the 
current limits on index loss typically do not change frequently. In 
a change from the proposal, we added ``Current'' to the column 
heading ``Current Limits on Index Loss (if held until end of 
Crediting Period)'' to clarify the limits to be disclosed in that 
column.
    \367\ Final Form N-4, Instruction 7 to Item 17(b)(1).
    \368\ See infra paragraph accompanying footnotes 372-373.
---------------------------------------------------------------------------

    As proposed, to ensure investors only receive disclosure relevant 
to them, RILAs will only be permitted to include in the table those 
index-linked options that are available under the contract, and must 
indicate if any of the options are restricted (e.g., because of a 
``hard'' or ``soft'' close), consistent with the current disclosure 
requirements for variable options.\369\ Further, to promote disclosure 
in a consistent format to facilitate comparisons, issuers will be 
allowed to add, modify, or exclude table headings only as necessary to 
describe the material features of an index-linked option.\370\
---------------------------------------------------------------------------

    \369\ Final Form N-4, Instruction 1(b) to Item 17(b)(1).
    \370\ Final Form N-4, Instruction 1(c) to Item 17(b)(1).
---------------------------------------------------------------------------

    We are also adopting instructions, largely as proposed, stating 
that if the index's return does not reflect the full investment 
performance of the assets tracked by the index, the table must include 
a footnote that states the index is a price return index, not a total 
return index, and does not reflect dividends paid on the securities 
composing the index, and/or that the index deducts fees and costs when 
calculating index performance, as applicable. In these cases, the 
footnote must state that this will reduce the index's return and cause 
the index to underperform a direct investment in the securities 
composing the index.\371\ Investors evaluating index-linked options may 
be more familiar with a version of a given index that reflects the full 
performance of the index constituents, and this disclosure will alert 
investors that the index associated with a particular index-linked 
option will have relatively lower returns.
---------------------------------------------------------------------------

    \371\ Final Form N-4, Instruction 1(d) to Item 17(b). We are 
making conforming changes to the proposed instruction to mirror 
parallel instructions in other sections of Form N-4. See, e.g., 
supra footnote 311.
---------------------------------------------------------------------------

    In a change from the proposal, we are requiring a new disclosure 
item immediately below the index-linked options table to provide 
investors information about minimum limits on index losses and gains 
that will always be available under the contract.\372\ Although we did 
not propose to require this disclosure in the appendix, this 
requirement reflects the approach taken elsewhere in Form N-4, where 
information about current rates for

[[Page 60016]]

index-linked options is accompanied by information about minimum 
guaranteed limits on downside protection and current upside rates, so 
an investor evaluating information about the terms of an index-linked 
option can consider both the terms currently being offered as well as 
information about terms that may be available in future crediting 
periods.\373\
---------------------------------------------------------------------------

    \372\ Final Form N-4, Item 17(b)(2).
    \373\ See, e.g., final Form N-4, Item 6(d)(2)(i)(B) and (ii)(B).
---------------------------------------------------------------------------

Fixed Options
    Consistent with the approach we are adopting with respect to the 
Item 6 disclosure requirements (Description of the Insurance Company, 
Registered Separate Account, and Investment Options), we are requiring 
in the appendix summary information about fixed options currently 
available under the contract.\374\ These disclosure requirements are 
similar to the legend and table we are adopting for index-linked 
options, adjusted to reflect fixed option details. Under the final 
amendments, the fixed option legend, in addition to identifying that 
what follows is a list of fixed options currently available under the 
contract, will indicate that the insurance company (1) may change the 
features of the fixed options identified, offer new ones, and terminate 
existing ones; and (2) will provide the investor written notice before 
doing so.
---------------------------------------------------------------------------

    \374\ Final Form N-4, Item 17(c).
---------------------------------------------------------------------------

    In a change from the proposal to accommodate the inclusion of 
registered MVA annuities on Form N-4, we are requiring a legend stating 
that if amounts are withdrawn from a fixed option before the end of its 
term, the insurer may (or, as appropriate, will) apply a contract 
adjustment, which may result in a significant reduction in contract 
value.\375\ The other requirements for the fixed option table, which 
will apply to registered MVA annuities as applicable without the need 
for any further changes, are being adopted as proposed. As proposed, 
the fixed option table will include columns identifying (1) the name of 
the fixed option, (2) the term, and (3) the minimum guaranteed interest 
rate.\376\ Insurance companies will be instructed to include 
appropriate cross-references in the legend to the sections of the 
prospectus that describe the features of fixed options as well as the 
contract adjustment.\377\ As with index-linked options, insurance 
companies may add, modify, or exclude table headings only as necessary 
to describe material features of a fixed option.
---------------------------------------------------------------------------

    \375\ Final Form N-4, Item 17(c); see also, e.g., Proposing 
Release at n.362 (describing potential changes to the appendix to 
accommodate registered MVA annuities).
    \376\ Consistent with the approach in Item 6, the minimum 
guaranteed interest rate will be required to be stated as a numeric 
rate rather than referring to any minimums permitted under State 
law.
    \377\ The requirement to cross-reference the sections of the 
prospectus that describe the contract adjustment is a conforming 
change to the proposed requirements to reflect the inclusion of 
registered MVA annuities on Form N-4.
---------------------------------------------------------------------------

    One commenter opposed our proposal to include specific information 
about fixed options in the appendix altogether, consistent with its 
objections regarding our proposal to include fixed option disclosures 
in Item 6, and instead suggested that any disclosure regarding fixed 
options be voluntary and not subject to a specified disclosure 
format.\378\ For the reasons discussed above in connection with fixed 
option disclosure requirements in Item 6, we are requiring insurers to 
provide summary information about fixed options in the appendix, as 
proposed and with conforming modifications to reflect the inclusion of 
registered MVA annuities.
---------------------------------------------------------------------------

    \378\ CAI Comment Letter.
---------------------------------------------------------------------------

5. Principal Risks of Investing in the Contract (Item 5)
    An investment in a contract offering index-linked options exposes 
investors to unique risks that may be different from those that are 
common to other investment products, including contracts that solely 
offer variable options. We are amending Item 5 to address certain 
principal risks that are particularly relevant to investors in RILAs. 
We are adopting these requirements largely as proposed, with conforming 
changes to ensure consistency with other prospectus disclosure 
requirements as discussed below. It is not necessary to include any 
changes from the proposal to address the inclusion of registered MVA 
annuities on Form N-4, because the proposed risk disclosure 
requirements addressed risks associated with negative contract 
adjustments.
    In addition to restructuring the current item to incorporate the 
proposed risk disclosure requirements addressing index-linked options, 
we are adopting certain structural changes that are designed to clarify 
existing requirements but are not anticipated to result in 
substantively different disclosure requirements for contracts offering 
variable options. These changes also will consolidate certain risk 
disclosures insurance companies currently provide for variable 
annuities in other sections of the prospectus. We are requiring these 
risk disclosures in a single location to communicate risks more 
consistently and effectively to investors. As the Commission has 
previously explained, the requirements for principal risk disclosure in 
the prospectus are designed to provide a consolidated presentation of 
principal risks.\379\
---------------------------------------------------------------------------

    \379\ See VASP Adopting Release at n.690 and accompanying text.
---------------------------------------------------------------------------

    One commenter addressed the proposed amendments to Item 5. This 
commenter stated that it did not oppose our proposal to require 
registrants to provide index-linked option risk of loss disclosures in 
Item 5, stating that this section of the prospectus is intended for 
readers who want more detailed information about risks, and the Item 5 
disclosure requirements provide registrants with the ability to give 
appropriate context that an investor may need to better understand 
those risks.\380\ No commenter specifically addressed risk disclosure 
for registered MVA annuities, although as discussed above commenters 
generally supported registering offerings of registered MVA annuities 
on Form N-4 and did not distinguish whether these offerings should be 
subject to different risk disclosure requirements than those that were 
proposed.\381\ We received no other comments on this aspect of the 
proposal.
---------------------------------------------------------------------------

    \380\ CAI Comment Letter.
    \381\ See supra Section II.B.
---------------------------------------------------------------------------

    As proposed, the principal risk disclosure item of Form N-4 will be 
restructured into separate sub-items while also making certain changes 
from the current version designed to clarify existing disclosure 
obligations.\382\ The new sub-items are designed to be non-exclusive 
examples of the principal risks of investing in the contract being 
registered. In addition to existing disclosure requirements, these sub-
items will also include new risk disclosures specific to index-linked 
options, as applicable. We are adopting parallel changes to the risk 
disclosures most applicable to variable annuities to avoid any 
implication that risk disclosure addressing variable annuities should 
be provided at a different level of detail than the disclosures for 
RILAs.
---------------------------------------------------------------------------

    \382\ Final Form N-4, Item 5(a)-(b), (d)-(f).
---------------------------------------------------------------------------

    The approach we are adopting will retain the current requirement 
for registrants to explain the principal risks of purchasing a contract 
but will also require, largely as proposed, an explanation of the 
principal risks associated with market risk, including the risks of 
negative investment performance.\383\ Additionally, for index-

[[Page 60017]]

linked options, we are requiring prominent disclosure of the maximum 
amount of loss an investor could experience from negative index 
performance, as a percentage, after taking into account the current 
limits on index loss provided under the contract.\384\ We are adopting 
this requirement largely as proposed, with conforming changes to 
reflect parallel disclosure we are requiring in other locations in the 
form.\385\ Moreover, in a change from the proposal, the insurer may 
provide a range of the maximum amount of loss if the contract offers 
different limits on index loss. In addition, in a change from the 
proposal, an insurer must prominently disclose any minimum limits on 
index losses that will always be available under the contract, or, 
alternatively prominently state that it does not guarantee that the 
contract will always offer index-linked options that limit index loss 
(which would mean risk of loss of the entire amount invested). These 
changes from the proposal mirror parallel disclosure requirements for 
index-linked options that we are adopting in other parts of the 
form.\386\
---------------------------------------------------------------------------

    \383\ Final Form N-4, Item 5(a). In a change from the proposal, 
the heading for this disclosure item in final Form N-4 is ``Market 
Risk'' (instead of ``Investment Option Risk,'' as proposed) to 
clarify the focus of this disclosure item and distinguish it from 
Item 5(c), which specifically addresses Index-Linked Option Risk.
    \384\ Id.
    \385\ See, e.g., final Form N-4, Item 1(a)(6) (for example, in 
the first sentence of Item 5(a), we are replacing ``poor'' 
investment performance, as proposed, with ``negative'' investment 
performance to conform with similar cover page disclosure 
requirements).
    \386\ The changes to Item 5(a) parallel changes to risk 
disclosures in final Form N-4, Item 1(a)(6) and Instruction 3(a) to 
Item 3. See supra discussion at Section II.C.3 and II.C.4.(b).
---------------------------------------------------------------------------

    Although disclosures that address certain risks of index-linked 
options will be required in other locations in the prospectus, we are 
requiring that RILA issuers include certain risk factors, such as 
disclosures related to maximum potential loss from index performance, 
in the consolidated summary of principal risks associated with the 
contract. Including this statement and others in Item 5 will help 
investors assess the particular risks associated with RILAs in the 
context of the other required principal risk disclosures, a premise to 
which a commenter agreed.\387\ This approach also will help ensure that 
an investor who reviews principal risk disclosure will be able to 
review all principal risks in one place in the prospectus, as the 
Commission stated as a goal when redesigning Form N-4 in connection 
with updating disclosure for variable contracts and implementing a 
summary prospectus framework.\388\
---------------------------------------------------------------------------

    \387\ See supra footnote 380 and accompanying text. As discussed 
above, we are changing our calculation method for maximum risk of 
loss from index performance throughout the form to account for 
changes being adopted to minimum contract guarantees. See supra 
Section II.C.1.
    \388\ VASP Adopting Release at text following n.689 (``The 
principal risks section is designed to provide a consolidated 
presentation of principal risks which can be cross-referenced by 
registrants to reduce repetition that might otherwise occur if the 
same principal risks are repeated in different sections of the 
prospectus.'').
---------------------------------------------------------------------------

    Under the final amendments, the next sub-item, which concerns the 
risks of early withdrawal, will require the prospectus to disclose that 
contracts are unsuitable as short-term savings vehicles and explain the 
limitations on access to cash value through withdrawals, including 
surrender charges, negative contract adjustments, and loss of 
interest.\389\ The disclosure must also explain the possibility of 
adverse tax consequences. We are adopting this sub-item as proposed. 
These are features of annuity contracts that implicate why they are not 
short-term saving vehicles. In addition, insurance companies that offer 
contracts with contract adjustments will be required to state the 
maximum potential loss resulting from a negative contract adjustment, 
as a percentage. Although this last statement will be required to be 
provided in other locations in the prospectus, we are including this 
risk disclosure in the consolidated summary of principal risks because 
contract adjustments can significantly affect contract value.
---------------------------------------------------------------------------

    \389\ Final Form N-4, Item 5(b).
---------------------------------------------------------------------------

    The next sub-item, which concerns the principal risks associated 
with index-linked options, will, substantially as proposed, include new 
risk disclosure requirements tailored to address unique risks 
associated with these investment options.\390\ Under these 
requirements, a registrant will (in addition to the risks of potential 
loss from negative index performance, as discussed above) describe the 
principal risks of investing in any index-linked options offered under 
the contract. The sub-item will, as proposed, require the prospectus to 
include a statement that an investor in an index-linked options is not 
invested in the index or in the securities tracked by the index. This 
reflects our concern, based on the results of qualitative investor 
interviews, that investors may be confused about whether an investment 
in an index-linked option is a direct investment in the index.
---------------------------------------------------------------------------

    \390\ Final Form N-4, Item 5(c). In a change from the proposal, 
we are relocating ``as applicable'' from the text of Instructions 1 
and 2 to Item 5(c) to the Instruction preamble to streamline.
---------------------------------------------------------------------------

    To help ensure that RILA prospectuses address certain key risks, 
the instructions to this disclosure requirement will, as proposed, 
specify that discussion of the principal risks related to index-linked 
options must include the principal risks relating to: (1) limiting 
positive index returns; (2) the possibility of losses despite limits on 
negative index returns; (3) interest crediting methodologies; (4) the 
impact of contract fees on the amount of interest credited; and (5) the 
reallocation of contract value at the end of an index-linked option's 
crediting period.\391\ We are also adopting, as proposed, instructions 
specifying that this discussion will be required to include principal 
index risks relating to: (1) the type of index (e.g., market risk, 
small-cap risk, foreign securities risk, emerging market risk, etc.); 
(2) the exclusion of dividends from index return; and (3) market 
volatility.\392\ These instructions require RILA issuers to specify 
which risks relate to each index offered under the contract, and to 
describe the principal risks related to the possible substitution of 
the index before the end of an index-linked option's crediting period.
---------------------------------------------------------------------------

    \391\ Final Form N-4, Instruction 1 to Item 5(c).
    \392\ Final Form N-4, Instruction 2 to Item 5(c).
---------------------------------------------------------------------------

    An additional new sub-item will require, as proposed, a description 
of the principal risks associated with any contract benefits (e.g., 
death benefits, living benefits), including the impact of excess 
withdrawals, if applicable.\393\ These risks include, for example, 
investment restrictions associated with a living benefit, which may 
limit investment performance. Because these risks could impact the 
expected performance of the annuity, or in some cases could even 
terminate the annuity, we are requiring issuers to disclose them in the 
prospectus. These risks could be applicable to variable annuities, 
RILAs, or registered MVA annuities.
---------------------------------------------------------------------------

    \393\ Final Form N-4, Item 5(d).
---------------------------------------------------------------------------

    Another new sub-item will require, as proposed, an explanation of 
the principal risks associated with the insurance company's ability to 
meet its guarantees under the contract, including risks relating to its 
financial strength and claims-paying ability, which as described below 
may be of particular concern for investors who allocate contract value 
to index-linked options.\394\ We are requiring this disclosure to be 
included in the consolidated principal risks section of the prospectus 
for completeness, and to help ensure that a prospectus discloses

[[Page 60018]]

the insurance company's claims-paying ability with regard to its 
contractual guarantees.
---------------------------------------------------------------------------

    \394\ Final Form N-4, Item 5(e).
---------------------------------------------------------------------------

    Lastly, we are adopting as proposed a final new sub-item, which 
will require a description of the principal risks relating to any 
material reservation of rights under the contract, including if 
applicable the right to: (1) remove or substitute portfolio companies; 
(2) add or remove index-linked options and change the features of an 
index-linked option from one crediting period to the next; (3) stop 
accepting additional purchase payments; and (4) impose investment 
restrictions or limitations on transfers.\395\ We are requiring this 
disclosure because the ability to discontinue contract features, alter 
an investor's ability to participate in an index's upside performance, 
and otherwise change features is important information for investors 
when making an investment decision.
---------------------------------------------------------------------------

    \395\ Final Form N-4, Item 5(f).
---------------------------------------------------------------------------

6. Addition of Contract Adjustments and Other Amendments to Fee and 
Expense Disclosures (Items 4, 7, and 22)
    We are adopting amendments to Form N-4, largely as proposed, to 
require specific disclosures regarding contract adjustments and other 
implicit RILA-specific costs that can result in a significant erosion 
of investment principal. The required disclosures, set forth in Items 
4, 7, and 22(d) of Form N-4, are designed to provide investors with a 
better understanding of the mechanics of these costs and the associated 
potential for loss. We are also adopting revisions to the existing 
provisions of these items, applicable to all issuers registering 
offerings on Form N-4, to clarify certain terminology.
a. Amendments to Fee Table Disclosure Requirements (Item 4)
    The fee table of Form N-4 provides detailed information on the fees 
and expenses investors will pay when buying, owning, and surrendering 
or making withdrawals from the contract, as well as those paid each 
year during the time the investor owns the contract. We are amending 
the fee table to require specific disclosures regarding contract 
adjustments and other costs to investors specific to RILAs, including a 
detailed description of contract adjustments in the prospectus that 
will be proximate and similar to other disclosures regarding fees and 
expenses. We are adopting amendments to the fee table largely as 
proposed, with certain modifications after considering comments 
discussed below.\396\
---------------------------------------------------------------------------

    \396\ In order to eliminate unnecessary information in the 
prospectus, we are amending instruction 1 to Item 4 to specify that 
registrants may omit a narrative explanation that is not applicable 
under the contract. See final Form N-4, Instruction 1 to Item 4. We 
are also amending instruction 5 to Item 4 regarding the preparation 
of the transaction expenses and adjustments and annual contract 
expenses tables, specifying that the instruction to disclose the 
maximum guaranteed charge as a single number where a fee is 
calculated based on a benchmark does not apply to a contract 
adjustment. See final Form N-4, Instruction 5 to Item 4. We received 
no comments on these changes and are adopting them as proposed.
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Transaction Expenses and Adjustments Tables
    Insurance companies currently must include a transaction expenses 
table in their prospectuses, describing fees and expenses investors 
must pay when buying, owning, and surrendering or making withdrawals in 
connection with a contract. To provide proximate and similar disclosure 
for non-variable annuity-specific costs, we are adopting, with some 
changes to the proposal, a requirement that insurance companies 
additionally include the maximum negative contract adjustment that may 
be imposed, to be expressed as a percentage of contract value at the 
start of the crediting period or the amount withdrawn, as applicable. 
The proposal would have required this disclosure to appear in the 
transaction expenses table that Form N-4 issuers currently include in 
their prospectuses. In response to comments questioning the disclosure 
of contract adjustments in the transaction expenses table, and in a 
change from the proposal, we are adding a separate adjustments table, 
which will follow the transaction expenses table. Finally, to provide 
investors notice of the circumstances where they might be subject to 
this cost, we are also adopting, as proposed, a requirement that 
insurance companies include a footnote describing all transactions 
potentially subject to a contract adjustment.\397\
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    \397\ See final Form N-4, Instruction 12 to Item 4.
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    The commenters who addressed the proposed amendments to the 
transaction expenses table opposed including the maximum negative 
contract adjustment, asserting that contract adjustments are a product 
feature based on market risk rather than a type of fee or expense.\398\ 
One commenter further stated that characterizing contract adjustments 
as fees penalizes insurance companies for allowing investors to make 
early withdrawals.\399\ Another commenter opposed disclosing the 
maximum negative contract adjustment here because, although contract 
adjustments may result in losses to investors, the commenter believed 
this maximum potential loss disclosure ultimately is risk disclosure, 
and not an explicit fee or charge, and because contract adjustments can 
result in a gain as well as a loss.\400\ The commenter also asserted 
that it grossly mischaracterizes the risk of loss because the risk of 
suffering such a maximum loss is remote.
---------------------------------------------------------------------------

    \398\ VIP Working Group Comment Letter; CAI Comment Letter.
    \399\ VIP Working Group Comment Letter.
    \400\ CAI Comment Letter.
---------------------------------------------------------------------------

    The transaction expenses table discloses all transaction expenses 
paid directly by the investor, such as sales loads or surrender 
charges, including when those transaction expenses are fees or expenses 
paid due to an investor withdrawal.\401\ A negative contract 
adjustment, although not an explicit fee or expense, could have a 
similar impact on an investor as an explicit fee or expense because a 
negative contract adjustment can reduce an investor's investment just 
like a surrender charge, for example, and has the potential to reduce 
it significantly. By disclosing the maximum negative contract 
adjustment, in addition to any transaction expenses, investors are 
alerted to the potential costs they will bear when amounts are 
withdrawn prematurely. These costs could result in the loss of a 
significant amount of money. This is true even if, in the context of a 
RILA, the index has experienced a positive gain at the time of 
withdrawal or the RILA includes a loss protection feature.
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    \401\ See current and final Form N-4, Item 4.
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    For these reasons, the maximum negative contract adjustment should 
be disclosed proximate to the transaction expenses currently disclosed 
in the transaction expenses table, including sales loads imposed on 
purchases, deferred sales loads, surrender charges, and transfer fees. 
Including the maximum negative contract adjustment disclosure proximate 
to the transaction expense disclosure helps ensure that investors have 
access, in one place, to full disclosure regarding the economic 
consequences of withdrawing money from an index option or the contract. 
Nonetheless, we appreciate that maximum negative contract adjustments 
may not be as clearly identified by investors as transaction 
``expenses'' per se as other items in this table. To address this 
concern, we have added a separate adjustments table, which will follow 
the transaction expenses table. The table will be preceded by an

[[Page 60019]]

``Adjustments'' heading and describe the adjustments, in addition to 
any transaction expenses, that apply if all or a portion of the 
contract value is removed from an investment option or from the 
contract before the expiration of a specified period. This new table is 
designed to highlight the effect of contract adjustments for investors, 
consistent with the proposal, while conveying that the contract 
adjustment is not itself an explicit fee.
    The transaction expenses table also currently requires registrants 
to describe the maximum exchange fee that investors could incur for any 
exchange or transfer of contract value from the registrant to another 
investment company, or between sub-accounts or to the insurance 
company's general account. In a change relevant to all Form N-4 
issuers, we are adopting, as proposed, a terminology change, replacing 
the term ``exchange fee'' with ``transfer fee,'' as this term better 
reflects that, in the staff's experience, the vast majority of such 
fees are imposed on transfers of contract value among investment 
options under the contract.\402\ We received no comments on this aspect 
of the proposal.
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    \402\ See final Form N-4, Instruction 10 to Item 4. As defined, 
``transfer fee'' will encompass both the maximum fee charged for any 
exchange or transfer of contract value between investment options as 
well as the maximum fee charged for any exchange or transfer of 
contract value from the registered separate account to another 
investment company or from the registered separate account to the 
insurance company's general account. Thus, the amended definition 
and terminology regarding transfer fees will not result in any 
substantive change for existing Form N-4 issuers.
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Annual Contract Expenses
    Form N-4 issuers currently must include an annual contract expenses 
table in their prospectuses, detailing the fees and expenses that 
investors pay each year in administrative expenses, base contract 
expenses, and optional benefit expenses. Currently, base contract 
expenses must be expressed as a percentage of average account value. In 
a change relevant to all Form N-4 issuers, we are adopting, as 
proposed, an amendment that will also allow base contract expenses to 
be expressed as a percentage of average account value or contract 
value. Index-linked and fixed MVA options do not generally use the 
concept of average account values (as variable annuities do), but they 
do have a concept of contract value. Making this change will therefore 
facilitate including those investment options on the form as it allows 
them to accurately express base contract expenses. We do not anticipate 
that this change will substantively affect variable annuities' existing 
disclosure and we received no comments on this aspect of the 
proposal.\403\
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    \403\ We are adopting, as proposed, two related, non-substantive 
amendments to the instructions relating to annual contract expenses 
relevant to all issuers. These changes will broaden terminology 
given the expanded scope of securities offerings registered on Form 
N-4 as amended. Currently, the instruction for describing 
administrative expenses references ``any Contract, account, or 
similar fee on all Investor Accounts;'' however, as noted below, we 
are removing the term ``Investor Account,'' and amending this 
instruction to conform to that change. See final Form N-4, 
Instruction 13 to Item 4. Relatedly, we are amending the instruction 
regarding base contract expenses to remove a reference to fees and 
expenses deducted ``from separate account assets or charged to all 
Investor Accounts,'' and replacing it with an instruction to 
consider fees and expenses ``charged to any Investment Option.'' See 
final Form N-4, Instruction 14 to Item 4. We received no comments on 
this aspect of the proposal.
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    Additionally, to place investors on notice of the unique and 
ongoing trade-off costs associated with RILAs that may not be captured 
by this table, we are requiring, in part as proposed, insurance 
companies to include the following statement in the table with respect 
to index-linked options:

    In addition to the fees described above, we limit the amount you 
can earn on [certain of] the Index-Linked Options. This means your 
returns may be lower than the Index's returns. In return for 
accepting this limit on Index gains, you will receive some 
protection from Index losses.

    As proposed, the disclosure included a sentence stating that 
``Imposing this limit helps us make a profit on the Index-Linked 
Option.'' Some commenters were opposed to including the statement that 
an insurance company limits gains on an index-linked option in order to 
help the insurer make a profit.\404\ These commenters stated that the 
disclosure is an oversimplification of an insurance company's business 
model and that it would provide investors with a false understanding 
about RILA profitability for the issuers. In particular, commenters 
stated that the disclosure suggested that an insurance company applies 
cap rates and participation rates as a means of capturing for itself 
any increases in index value above the cap rate.\405\ Some commenters 
explained that cap rates and participation rates are among the 
investment parameters that a RILA issuer can use to design index linked 
options and that the effectiveness of the options in hedging the 
performance of the reference index is only one of the factors that 
determines the profitability for a RILA issuer.\406\ One commenter 
stated that an explanation of an insurance company's business model or 
the profitability of issuing RILAs would not be helpful to 
investors.\407\
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    \404\ See ACLI Comment Letter; Gainbridge Comment Letter; CAI 
Comment Letter.
    \405\ Gainbridge Comment Letter; CAI Comment Letter.
    \406\ ACLI Comment Letter; Gainbridge Comment Letter.
    \407\ ACLI Comment Letter.
---------------------------------------------------------------------------

    In a change from the proposal, after considering the comments 
discussed above, insurance companies will not be required to state that 
limits on index earnings help insurance companies make a profit on 
index-linked options. Instead, insurance companies will be required to 
include a sentence stating that ``This means your returns may be lower 
than the Index's returns.'' \408\ The purpose of this disclosure is to 
put investors on notice that although there are typically not explicit 
fees charged for these products, and in exchange for that lack of a 
fee, investors generally will accept some limit on their ability to 
participate in index gains. This disclosure is appropriate to address 
the results of our investor testing, which demonstrated that 
participants may not understand that limits on index earnings reduce an 
investor's potential gains from the market.\409\ This disclosure is 
also necessary to alert investors to the implicit fees inherent in 
limiting upside index participation. Without the disclosure, which will 
follow the other expenses relevant to investors, including 
administrative expenses, base contract expenses, and optional benefit 
expenses in the annual contract expenses table, an annual contract 
expenses table showing no explicit ongoing fees could itself mislead 
investors.
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    \408\ Final Form N-4, Item 4. Specifically, this disclosure at 
proposal read: ``In addition to the fees described above, we limit 
the amount you can earn on an Index-Linked Option. Imposing this 
limit helps us make a profit on the Index-Linked Option. In return 
for accepting this limit on Index gains, you will receive some 
protection from Index losses.'' See Proposing Release at Section 
II.B.5.a).
    \409\ See OIAD Investor Testing Report at 39 and 59.
---------------------------------------------------------------------------

    In another change from the proposal, the disclosure referring to 
limits on ``an Index-Linked Option'' was revised to ``[certain of] the 
Index-Linked Options.'' Because the disclosure related to the entire 
contract whose offering is being registered, this phrasing did not 
account for variances between index-linked options offered in that 
contract where, for example, some index-linked options have limits on 
upside participation but others do not. One commenter stated that cap 
rates and participation rates do not limit the amount an investor can 
earn in all scenarios, such as when an issuer does not impose a limit 
on an

[[Page 60020]]

index-linked option or an investor earns the full index performance 
because the actual index gain is less than the index limit.\410\ We 
appreciate that a RILA may offer both index-linked options with and 
without limits on the amounts investors can earn.\411\ To account for 
this, we have changed the language of the final disclosure to refer to 
``[certain of]'' the index-linked options in these limited 
circumstances. We are not amending the form to address cases where 
there are limits but the actual index performance is below those limits 
because that cannot be known at the time of the disclosure.
---------------------------------------------------------------------------

    \410\ See ACLI Comment Letter.
    \411\ An insurance company would not include this disclosure if 
none of the index-linked options offered in the prospectus limit the 
amount of an investor's gains. See, e.g., final Form N-4, General 
Instruction C.1(d).
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Annual Portfolio Company Expenses
    Form N-4 currently requires issuers to include in the prospectus an 
annual portfolio company expenses table, disclosing the minimum and 
maximum total operating expenses charged by the portfolio companies 
offered by variable annuity contracts that may be periodically charged 
to investors during the time they own the contract. This includes costs 
incurred by portfolio companies directly and, if the portfolio company 
invests in other mutual funds, the fees and expenses the portfolio 
company indirectly incurs from these investments. In a change that will 
apply to variable annuity prospectuses, we are adopting, as proposed, a 
requirement that registrants disclose that expenses shown in this table 
may change over time and may be higher or lower in the future. This 
modification will help to ensure that investors understand that these 
charges may increase over time, notwithstanding that these charges are 
described as maximum expenses. Additionally, this disclosure is similar 
to disclosures we are requiring of non-variable annuities that are also 
subject to change, specifically disclosures related to changing upside 
and downside limits.\412\ We received no comments on this aspect of the 
proposal.
---------------------------------------------------------------------------

    \412\ See, e.g., final Form N-4, Item 17(b)(1).
---------------------------------------------------------------------------

Example
    Form N-4 issuers currently must provide an example in their 
prospectuses that is designed to allow variable annuity investors to 
compare the cost of investing in the contract with the cost of 
investing in other variable annuity contracts. We are amending, as 
proposed, the example requirements to clarify, in relation to variable 
annuities and combination contracts that have variable options, that 
the example is designed to permit investors to compare costs of 
investing solely in variable options under the contract with costs 
associated with variable options offered under other annuity contracts. 
The example will be preceded with a legend specifically stating that: 
the example assumes that all contract value is allocated to variable 
options, the example does not reflect contract adjustments, and costs 
would likely differ if an investor selects index-linked options or 
fixed options. The one commenter that spoke to this aspect of the 
proposal supported it and agreed that it served the intended 
purpose.\413\
---------------------------------------------------------------------------

    \413\ CAI Comment Letter.
---------------------------------------------------------------------------

b. Charges and Adjustments (Item 7)
    Item 7 currently requires registrants to provide a brief 
description in their prospectuses of all current charges deducted from 
purchase payments, investor accounts, assets of the registrant, or any 
other source.\414\ For the reasons described above and given the 
potentially significant economic consequences contract adjustments can 
have on investors in non-variable annuities, we are also adopting 
additional specific requirements to incorporate contract adjustments 
into the prospectus's disclosure of charges, which will consist of a 
description in simple terms of any contract adjustments under the 
contract. These disclosures are designed to be comparable and proximate 
to existing disclosures about contract charges applicable to variable 
annuities.\415\ These disclosures are adopted as proposed, except that 
we are changing the title of Item 7 from ``Charges'' to ``Charges and 
Adjustments'' in response to comments, as discussed in more detail 
below.\416\
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    \414\ In addition to the changes discussed below, we are 
adopting as proposed a few clarifying changes to Item 7. 
Specifically, consistent with the adopted changes to the fee table, 
we are adopting proposed changes in terminology that will affect all 
Form N-4 issuers, replacing references in Item 7 to ``investor 
accounts'' and the assets of ``registrants'' with the terms 
``contract value'' and ``investment option'' assets, respectively. 
Therefore, in responding to Item 7, issuers will describe charges 
deducted from purchase payments, contract value, investment option 
assets, or any other source. Additionally, we are adopting as 
proposed two non-substantive terminology changes in Instruction 3 to 
Item 7(a) regarding how registrants must describe the sources that 
will be used to cover shortfalls where proceeds from sales loads 
will not cover expected costs. First, we are replacing the term 
``depositor'' with the term ``insurance company.'' Second, where 
shortfalls are to be made from an insurance company's general 
account, this instruction currently requires a disclosure that 
amounts paid by the insurance company may consist of proceeds 
derived from base contract expenses deducted from the registered 
separate account. We are striking the italicized language referring 
to assets of the registered separate account because it is 
superfluous given the definition of ``base contract expenses'' in 
amended Instruction 14 to Item 4, discussed above. We received no 
comments on these aspects of the proposal.
    \415\ See final Form N-4, Item 7(a)-(d).
    \416\ We proposed to amend Instruction 6 to Item 7 to require a 
description of the relationship between the contract adjustment and 
any other charges or fees applied under the contract, including, for 
example, the sequences in which charges and adjustments are applied. 
In a modification from the proposal, we are amending Instruction 6 
to Item 7 to require a description of the relationship between the 
contract adjustment and any other charges, fees, or adjustments 
applied under the contract, including, for example, the sequences in 
which charges, fees, and adjustments are applied. Fees and 
adjustments were added in respective places in the instruction for 
clarity and completeness compared to the proposal. See final Form N-
4, Instruction 6 to Item 7. These disclosures apply to both RILAs 
and registered MVA annuities.
---------------------------------------------------------------------------

    Specifically, we are adopting a requirement that insurance 
companies must: (1) disclose (as a percentage) the maximum potential 
loss that could result from a negative contract adjustment; (2) define 
the period during which any contract adjustment would apply; and (3) 
describe all transactions subject to a contract adjustment.\417\ 
Insurance companies will also be required to include a description of 
how the contract adjustment will affect the contract value, surrender 
value, death benefit, and any living benefits, and disclose that a 
negative adjustment could reduce the values under the contract in an 
amount greater than the value withdrawn.\418\ They will also need to 
describe, in simple terms, how the contract adjustment is determined 
under the contract, and the relationship between the contract 
adjustment and any other charges, fees, or adjustments applied under 
the contract, including, for example, the sequence in which charges, 
fees, and adjustments are applied.\419\ The required disclosure will

[[Page 60021]]

also require the issuer to briefly describe the purpose of the contract 
adjustment, including, for example, that the contract adjustment 
transfers risk from the insurance company to the investor to protect 
the insurance company from losses on its own investments supporting 
contract guarantees if amounts are withdrawn prematurely.\420\ Finally, 
issuers will be required to disclose how an investor can obtain 
information about the current value of the contract adjustment, while 
stating that this value can fluctuate daily, and that the quoted value 
may differ from the actual value at the time of adjustment.\421\
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    \417\ See final Form N-4, Instructions 1 through 3 to Item 7(e). 
In describing the transactions subject to a contract adjustment, the 
insurance company will need to describe, for example, whether 
adjustments apply if amounts are transferred or withdrawn from an 
index-linked or MVA option, or from the contract, due to a partial 
withdrawal, surrender, election of an annuity option, or payment of 
death benefit proceeds, or where a particular optional benefit 
(e.g., a withdrawal under a guaranteed living benefit) is utilized, 
and to describe any circumstances under which the adjustment will be 
waived.
    \418\ See final Form N-4, Instruction 5 to Item 7(e). If 
applicable, the insurance company will also be required to state the 
impact of the contract adjustment on interest to be credited to an 
index-linked option at the end of its crediting period.
    \419\ See final Form N-4, Instructions 4 and 6 to Item 7(e). The 
description of how the contract adjustment is determined will have 
to provide a meaningful explanation of all the material features of 
the contract adjustment's application, including: (1) information 
about any formula applied (e.g., a change in value of hypothetical 
derivative instruments); (2) the factors that may cause a positive 
or negative adjustment (e.g., timing of withdrawal, index 
volatility, increase in external interest rates); (3) a description 
of any proportionate withdrawal calculations; and (4) how 
adjustments are applied (e.g., allocated among the investment 
options, applied to a withdrawal amount).
    \420\ See final Form N-4, Instruction 7 to Item 7(e).
    \421\ See final Form N-4, Instruction 8 to Item 7(e).
---------------------------------------------------------------------------

    The detailed disclosure on the method of calculating the contract 
adjustment will, as proposed, appear in the SAI, as opposed to the 
prospectus.\422\ Item 7(e) will include a cross-reference to Item 22(d) 
of Form N-4, which will require more detailed disclosure on the 
contract adjustment's calculation (including illustrative examples as 
to adjustment's operation) to appear in the SAI. The more detailed SAI 
discussion will not be, however, a substitute for the Item 7 
requirements. Thus, for example, an insurance company will not be 
permitted to include the formula underlying the contract adjustment 
calculation in the SAI in lieu of the required discussion of the 
contract adjustment in the prospectus. Rather, in addition to stating 
the formula in the SAI, the insurance company will need to include in 
the prospectus a brief description, in simple terms, of how the 
contract adjustment is determined.
---------------------------------------------------------------------------

    \422\ See final Form N-4, Instruction 4 to Item 7(e).
---------------------------------------------------------------------------

    Some commenters stated that the proposal generally mischaracterizes 
contract adjustments as charges.\423\ One of these commenters stated 
that, as a result, Item 7 should not include any contract adjustment 
disclosures.\424\ The other of these commenters instead recommended 
that Item 7 be renamed from ``Charges'' to ``Charges and Adjustments.'' 
\425\ This commenter stated that ``Charges and Adjustments'' would more 
accurately describe the disclosures in amended Item 7, which would 
include disclosures related to contract adjustments.\426\ This 
commenter also stated that this disclosure should focus on describing 
the mechanics of contract adjustments and exclude any maximum potential 
loss disclosures, which are already included elsewhere in the 
prospectus.
---------------------------------------------------------------------------

    \423\ VIP Working Group Comment Letter; CAI Comment Letter.
    \424\ VIP Working Group Comment Letter.
    \425\ CAI Comment Letter.
    \426\ The commenter also suggested that we delete the word 
``other'' from the following proposed instruction: ``Describe the 
relationship between the Contract Adjustment and any other charges 
or fees applied under the Contract . . .'' because it suggests that 
contract adjustments are charges or fees. See Proposed Form N-4, 
Instruction 6 to Item 7(e). We decline to make this change for the 
reasons stated in the next paragraph.
---------------------------------------------------------------------------

    Given that Item 7, as amended, includes significant disclosure 
related to contract adjustments, we agree, as one commenter 
recommended, that changing Item 7 from ``Charges'' to ``Charges and 
Adjustments'' is appropriate and provides a clear and accurate 
description of the specific disclosure that investors will find in 
disclosure provided in response to Item 7. However, similar to the 
inclusion of limits on upside gains as a ``fee'' or ``expense,'' as 
discussed above,\427\ a contract adjustment could potentially affect an 
investor the same way as other charges currently disclosed in Item 7, 
such as sales loads, administrative and transaction charges, risk 
charges, contract loan charges, and optional benefit charges. By 
including contract adjustment disclosure in the disclosure required by 
Item 7, including the maximum potential loss that could result from a 
negative contract adjustment, investors are provided with the necessary 
scope and level of detail about contract adjustments, together with 
information about charges that may apply upon a withdrawal, that could 
negatively affect an investor's contract value or the amounts an 
investor could withdraw from the contract. These disclosures 
specifically address areas of confusion identified by investor testing, 
which showed that participants were confused about contract 
adjustments, their purpose, the situations in which they could arise, 
their potential magnitude, and their relationship to other fees and 
charges (e.g., surrender fees).\428\
---------------------------------------------------------------------------

    \427\ See supra Section II.C.6.a (discussing a similar change 
made to the proposed transaction expenses table).
    \428\ See, e.g., OIAD Investor Testing Report at Section 5, 
Qualitative Testing, Results From Round 2 and Section 7, 
Conclusions.
---------------------------------------------------------------------------

c. Purchase of Securities Being Offered (Item 22)
    We are adopting, as proposed, amendments to Item 22, which 
addresses the purchase of securities being offered, to require 
specific, detailed contract adjustment disclosures to appear in 
insurance companies' SAIs. As discussed above, insurance companies will 
be required to provide in simple terms an explanation of the manner in 
which contract adjustments are determined in their prospectuses, while 
noting that further detail is available in the SAI and providing a 
cross reference to that information. To complement the discussion 
required in the prospectus by Item 7, Item 22(d) will require issuers 
to explain fully the operation of any contract adjustment that can be 
applied under the contract. This more detailed explanation will not 
take the place of the prospectus discussion, but will describe the 
technical, detailed aspects of the operation of the adjustment, 
including any formulas and an explanation of such formulas used to 
calculate the adjustment, and at least one numeric example to 
illustrate the application of the contract adjustment. This numeric 
example will be required to include a negative adjustment, reflect 
surrender charges (if applicable), and disclose the percentage change 
in contract value as a result of the adjustment.
    The one commenter who addressed these amendments supported them as 
an effective use of layered disclosure.\429\ Specifically, the 
commenter stated that the detailed disclosure on the method of 
calculating the contract adjustment, including examples, should be 
included in the SAI and a cross-reference to the detailed disclosure 
should be included in Item 7(e).
---------------------------------------------------------------------------

    \429\ CAI Comment Letter.
---------------------------------------------------------------------------

    The mechanics of contract adjustments under a non-variable annuity 
are typically complex, and often involve factors or formulas that can 
be difficult for many investors to understand.\430\ Because the 
application of a negative contract adjustment can substantially affect 
an investor's contract value, it is important that information on 
negative contract adjustments is available in the SAI for investors who 
want to learn more about the calculation. In addition to promoting 
transparency generally, the required disclosure will also ensure that 
liability attaches under section 11 of the Securities Act for any 
material misrepresentations regarding the application of a contract 
adjustment.\431\
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    \430\ Proposing Release at Section II.B.5.c.
    \431\ See also VASP Adopting Release at n.700 (stating that 
summary prospectus disclosure requirements are designed to 
substantively track parallel disclosure requirements in the 
statutory prospectuses to ensure that the summary prospectus 
disclosures are subject to liability under Section 11 of the 
Securities Act).

---------------------------------------------------------------------------

[[Page 60022]]

    We are also, as proposed, applying certain existing SAI disclosure 
requirements to insurance companies about the purchase of non-variable 
annuity securities being offered. Specifically, we are requiring 
insurance companies to describe the manner in which the securities are 
offered to the public by addressing any exchange privileges between 
investment options not described in the prospectus.\432\ Additionally, 
we are requiring RILA and registered MVA annuity issuers to describe 
the method used to determine the sales load.\433\ We are not applying 
the existing disclosure requirement dealing with frequent transfer 
arrangements to non-variable annuity issuers, as its provisions are 
relevant only to variable options.\434\ We received no comments on this 
aspect of the proposal.
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    \432\ See final Form N-4, Item 22(a).
    \433\ See final Form N-4, Item 22(b).
    \434\ See final Form N-4, Item 22(c).
---------------------------------------------------------------------------

7. Information About Contracts With Index-Linked and/or MVA Options 
(Item 31A)
    We are adopting new Item 31A to Form N-4 to require census-type 
information regarding non-variable annuities offered in connection with 
the registration statement. Item 31A will require an insurance company 
to provide the following information regarding any non-variable annuity 
offered through the registration statement, as of the most recent 
calendar year-end in a tabular format: (1) the name of each contract; 
(2) the number of contracts outstanding; (3) the total value of 
investor allocations attributable to index-linked and/or MVA options; 
(4) the number of contracts sold during the prior calendar year; (5) 
the gross premiums received during the prior calendar year; (6) the 
amount of contract value redeemed during the prior calendar year; and 
(7) whether the contract is a ``combination contract,'' that is, a 
contract that offers variable options in addition to index-linked or 
MVA options.\435\ We are adopting Item 31A largely are as proposed, 
with certain changes designed to include registered MVA annuities in 
this item.\436\ In a change from the proposal, we also are requiring 
insurance companies that incorporate current limits on index gains into 
the prospectus by reference to a website to provide in response to Item 
31A all of the then-current limits on index gains that were in effect 
during the twelve months ending on December 31 of the prior year for 
each index-linked option. One commenter supported a similar 
approach.\437\ Because this information will be required as of the most 
recent calendar year-end, insurance companies generally will need to 
update this information through a post-effective amendment to a 
registration statement on Form N-4.\438\ Accordingly, under the final 
amendments, insurance companies will file with the Commission 
information on current upside rates either via prospectus supplements 
(if the insurance company discloses these rates directly in the 
prospectus) or annually in response to Item 31A (if the insurance 
company incorporates current upside rates into the prospectus by 
reference to a website). We anticipate most insurance companies will 
incorporate this information by reference to a website and therefore 
file it in response to Item 31A.\439\ One commenter opposed the 
proposed census-type disclosures in Item 31A, asserting that they would 
require insurance companies to publicly reveal private and confidential 
information that could be used by competitors and that would not be 
useful to investors in making investment decisions.\440\ The commenter 
stated that the Commission could obtain the census-type information 
from insurance companies individually, if needed, upon request.
---------------------------------------------------------------------------

    \435\ See final Form N-4, Item 31A.
    \436\ See supra Section II.B.
    \437\ Coenen Comment Letter (supporting an approach in which 
insurance companies would file annual reports disclosing the upside 
rates offered during the previous one-year period or a range of such 
rates).
    \438\ See final Form N-4, Item 31A(a). The information required 
for Item 31A will need to be updated as part of an issuer's annual 
update to its registration statement for such contracts. See 15 
U.S.C. 77j(a)(3). An issuer transitioning from an existing 
registration statement on Form S-1 or S-3 to Form N-4 through a 
post-effective amendment will be required to report this information 
as of the most recently completed calendar year in its first post-
effective amendment transitioning onto final Form N-4.
    \439\ See supra paragraph accompanying footnote 284.
    \440\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting the proposed requirements for census-type 
information to provide improved transparency to investors and others by 
supplementing the information available in the marketplace for the non-
variable annuity contracts registered on Form N-4. The information will 
help us carry out regulatory responsibilities, including monitoring 
risk and trends, formulating policy and guidance, and reviewing 
registration statements. Moreover, third parties, including data 
aggregators, academics, and the press, as well as financial 
professionals who recommend or provide advice on non-variable 
annuities, are also likely users of this data which may ultimately help 
inform investor decisions. Requiring this high-level reporting will 
permit the Commission to identify trends occurring in this market 
segment over time and assist with allocating the Commission's resources 
in administering Form N-4. Also, because providing this information on 
Form N-4 will result in having information provided to the Commission 
as of a uniform date for all offerings of non-variable annuities 
registered on this form, regardless of the date the annual amendment is 
filed, this information will provide for increased comparability across 
issuers and contracts and give data points over time with which to 
compare.\441\
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    \441\ We understand that insurance companies offering RILAs have 
a December 31 fiscal year end which, in practice, means a 
distinction between calendar year and fiscal year will result in 
limited effect on the reporting.
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    We disagree with the comment suggesting that requiring this 
information to be disclosed will result in private and confidential 
information being disclosed that will aid competitors. The information 
that will be reported will complement the parallel census-type 
information that is currently required to be reported annually on Form 
N-CEN by registered unit investment trusts offering variable 
annuities.\442\ Moreover, information that insurance companies will 
report in response to Item 31A will be aggregated at the contract 
level, which reduces the possibility that any confidential or private 
information would be disclosed. Requiring individual insurance 
companies to produce the census-type information to the Commission upon 
request, as suggested by the commenter who opposed the proposed 
approach, would not facilitate the ability of the Commission and staff 
to observe and study relevant trends in the market for these products 
in the same manner as an annual filing requirement for all insurance 
companies. The information also would not be available to investors or 
analysts and others who analyze data for the benefit of investors.
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    \442\ Issuers registering combination contracts on Form N-4 will 
be required to exclude amounts allocated to a variable option when 
providing information in response to Item 31A as these allocations 
will be separately reported by registered separate accounts on Form 
N-CEN. See final Form N-4, Instruction 2 to Item 31A(a).
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    In addition to the information discussed above, and in a change 
from the proposal, Item 31A of final Form N-4 also requires that 
insurance companies provide, for any contract with index-linked options 
offered through the registration statement, the current limits on index 
gains in effect for each index-linked option during the

[[Page 60023]]

twelve months ending on December 31 of the prior year as provided on a 
website in accordance with the requirements of Item 6. As discussed 
above, we proposed to require that the current limits on index gains be 
provided in the statutory prospectus, but after considering comments, 
are permitting insurance companies to disclose these current upside 
rates by posting them to a website and incorporating this website 
disclosure by reference into the prospectus.\443\ Requiring insurance 
companies to disclose the current limits on index gains that were in 
effect over the course of the prior year preserves one of the benefits 
of the proposal, which would have ensured that all rates used over time 
remained available on EDGAR, while addressing concerns insurance 
companies raised by otherwise allowing them to supply the information 
on a website. This historical record will allow investors and analysts 
and others analyzing the data on investors' behalf to consider the 
frequency and magnitude of changes in upside rates. This is an 
important consideration because RILAs are long-term investments, and an 
investor's ultimate returns therefore depend on future upside rates set 
by the insurance company and not just the current rates at the time of 
investment. Two commenters recognized the value in maintaining 
historical rates used by an insurance company in suggesting that the 
Commission permit insurance companies to disclose the rates on a 
website, subject to a recordkeeping requirement.\444\
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    \443\ See supra Section II.C.4.a.
    \444\ See VIP Working Group Comment Letter; Coenen Comment 
Letter.
---------------------------------------------------------------------------

    Given the potentially large volume of this information, insurance 
companies will be permitted to file this information as an exhibit to, 
rather than directly in, the registration statement itself.\445\ As 
with the other information required by this item, insurance companies 
must structure this information regardless of whether it is filed as an 
exhibit to, or provided directly in, the registration statement.
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    \445\ In a modification from the proposal, we have added this 
exhibit to the exhibit list in Item 27 of the final form. This will 
standardize the location of this exhibit and make it easier to find 
in EDGAR.
---------------------------------------------------------------------------

    We are adopting a disclosure requirement, rather than a 
recordkeeping requirement as one commenter suggested, because 
disclosing this information in the registration statement will 
integrate this information more seamlessly into the existing methods of 
data collection required by the form. Furthermore, requiring filers to 
submit this information on EDGAR also will make it more accessible to 
the Commission and the public than a recordkeeping requirement. Under 
the final rule, historical current rate information filed on EDGAR will 
also be structured, consistent with the requirement to tag current rate 
information disclosed directly in the prospectus.\446\ As discussed in 
more detail below, there is value in having this information available 
in a structured data format.\447\
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    \446\ See final Form N-4, Instruction C.3(h)(i).
    \447\ See infra Section II.C.10. As discussed below, the final 
amendments incorporate structured data requirements for certain of 
the disclosures that insurance companies will include in their Form 
N-4 registration statements.
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8. Other Amendments and Provisions
    We are adopting, largely as proposed, amendments to include certain 
other modifications to Form N-4 and related rules designed to 
accommodate the inclusion of offerings of non-variable annuities on the 
form. These include amendments to Form N-4's facing sheet, definitions, 
exhibit list, and required representations, as well as amendments to 
certain Securities Act rules that help to implement the registration of 
non-variable annuities on Form N-4. These amendments are discussed 
below.
a. Facing Sheet
    We are adopting, largely as proposed, amendments to include a new 
check box section on the facing sheet. Specifically, an issuer will be 
required to identify in this new section: (1) if it is a new 
registrant, defined, as applicable, as a registered separate account or 
insurance company that has not filed a Securities Act registration 
statement or amendment thereto within 3 years preceding this filing; 
\448\ (2) if it is an emerging growth company (``EGC''), as defined by 
Rule 12b-2 under the Exchange Act; \449\ (3) if it is an EGC, whether 
it has elected not to use the extended transition period for complying 
with any new or revised financial accounting standards provided 
pursuant to Section 7(a)(2)(B) of the Securities Act; (4) if it is an 
insurance company relying on an exemption from Exchange Act reporting 
requirements in reliance on rule 12h-7 (``12h-7 check box''); and (5) 
if it is a smaller reporting company as defined by rule 12b-2 under the 
Exchange Act.\450\ These check boxes will help the Commission better 
understand the types of registration statements being filed on Form N-4 
and, in the case of the EGC information, mirror similar facing sheet 
requirements found in Form S-1. In addition, we are amending the 
descriptions of the types of entities that use Form N-4 to include 
insurance companies that offer index-linked or MVA options, either as 
stand-alone or combination products.\451\
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    \448\ For example, a variable annuity separate account that has 
not previously filed a Securities Act registration statement will 
identify itself as a new registrant, regardless of whether the 
sponsoring insurance company filed a recent Securities Act 
registration statement or amendment thereto as the amended 
requirements request information on the registrant. In the same 
manner, an insurance company filing on Form N-4 will determine 
whether it is a new registrant solely with respect to its own 
Securities Act registration statement filings.
    \449\ The term ``EGC'' is defined as an issuer that had total 
annual gross revenues of less than $1,235,000,000 during its most 
recently completed fiscal year. 17 CFR 240.12b-2.
    \450\ These five check boxes will be new to final Form N-4 as 
they are not on the current form.
    \451\ See supra Sections II.A and II.B. The final form updates 
the language on the facing sheet that explains what Form N-4 is to 
be used for by, among other things, adding references to RILAs and 
registered MVA annuities.
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    One commenter provided several specific suggestions on the proposed 
amendments to the facing sheet.\452\ The commenter stated that the rule 
12h-7 check box could create confusion without clarification because 
that check box is directed towards the status of the registrant. In the 
case of variable options, there are two ``registrants,'' the registered 
separate account and the insurance company, and it was unclear which 
entity the check box was intended to apply. The rule 12h-7 check box 
was intended to refer to an insurance company's reliance on that rule 
because registered separate accounts satisfy their Exchange Act 
reporting requirements with the filing of Form N-CEN and therefore do 
not rely on rule 12h-7.\453\ Thus, in a change from the proposal, the 
final form has been updated accordingly to specify that the box should 
be checked if the insurance company is relying on rule 12h-7.\454\
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    \452\ CAI Comment Letter.
    \453\ See, e.g., 12h-7 Adopting Release at n.146.
    \454\ The commenter further stated their view that the 
registration of variable contracts without registered non-variable 
options generally has not triggered a requirement to file Exchange 
Act reports for either the registered separate account or the 
depositor, and thus neither entity needs to rely on rule 12h-7. CAI 
Comment Letter. As a result, this commenter suggested that the check 
box be clarified to not be applicable to those entities. The overall 
application of rule 12h-7 is beyond the scope of this rulemaking. 
However, this requirement mirrors a similar disclosure requirement 
in Item 6(a) where, as noted above, insurance companies can add 
additional details as to which securities they are relying upon rule 
12h-7 for if they so choose in response to that item. See supra 
footnotes 238-242 and accompanying text; see also final Form N-4, 
Item 6(a).
---------------------------------------------------------------------------

    The commenter also suggested that the new check-the-box section 
include a box for smaller reporting companies, as is the case with Form 
S-1 and Form S-

[[Page 60024]]

3. The commenter stated that a box for smaller reporting companies 
would be helpful because there could be RILA registrants that are 
smaller reporting companies that qualify for scaled financial statement 
requirements under Article 8 of Regulation S-X.\455\ Insurance 
companies offering non-variable annuities could, where applicable, 
qualify for smaller reporting company status, and we agree that a check 
box would help provide specificity to insurance companies while 
assisting Commission staff in tracking the extent to which insurance 
companies offering non-variable annuities are smaller reporting 
companies. Therefore, in a change from the proposal, we are adding a 
check box on the facing sheet for smaller reporting company status.
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    \455\ Regardless of whether an issuer's financial statements are 
prepared in accordance with GAAP or SAP, the number of periods shown 
in the financial statements must follow the requirements of 
Regulation S-X. See Articles 3 and 8 of Regulation S-X, 17 CFR part 
210.
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b. Definitions (General Instruction A)
    We are adopting, largely as proposed, amendments to General 
Instruction A to update the existing definitions in Form N-4 and to add 
new definitions to accommodate the inclusion of non-variable annuities 
on Form N-4. We are implementing these proposed definitions throughout 
the form. However, unless otherwise stated, the proposed amendments to 
the definitions in General Instruction A do not alter the existing 
obligations under Form N-4 for offerings of variable annuities. These 
changes provide a standard set of definitions to convey form provisions 
in a consistent and efficient manner without the need for lengthy 
descriptions in each instance and clarify which form provisions apply 
to which categories of issuers and investment products.\456\
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    \456\ We also are amending Form N-4 throughout to use the 
gender-neutral reference of ``investor'' where appropriate. See, 
e.g., final Form N-4, Instruction 6 to Item 2.
---------------------------------------------------------------------------

    For a number of these definitions, we did not receive any comments 
and are adopting them as proposed. These are the definitions of the 
terms contract, crediting period, index, insurance company, investment 
option, portfolio company, registrant, and registered separate 
account.\457\ These definitions are designed to help refine which 
provisions of the form apply to the different types of annuities. We 
also proposed to eliminate the previously defined term ``investor 
account'' from General Instruction A and to make related amendments 
throughout Form N-4 to help implement the proposed new 
definitions.\458\ We did not receive comments on these points either 
and are adopting them as proposed.\459\ We retained the definition of 
``fixed option,'' but, in a change from the proposal to accommodate the 
requirement that registered MVA annuities also use Form N-4, added a 
sentence explaining that the term includes fixed options that are 
subject to contract adjustments.
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    \457\ Proposing Release at Section II.B.7.b.
    \458\ See id.
    \459\ See, e.g., final Form N-4, Items 3, 7, 8, 11, 24, 32, and 
34(a); see also definitions for ``class'' (clarifying applies to all 
contracts) and ``platform charge'' (clarifying only applies if there 
is a variable option). For example, on the latter point, we refined 
the applicability of certain variable annuity or Investment Company 
Act-specific disclosure to limit those requirements to ``registered 
separate accounts'' or ``variable options'' when appropriate.
---------------------------------------------------------------------------

    We did, however, receive comments on other definitions. 
Specifically, we proposed a new definition for ``index-linked option'' 
to General Instruction A. The definition was proposed to cover RILAs 
and index-linked options offered in combination contracts, as an 
investment option offered under any contract, pursuant to which the 
value of the contract, either during an accumulation period or after 
annuitization, or both, will earn positive or negative interest based, 
in part, on the performance of a specified index.\460\ This is a 
functional definition focused on the key features of a RILA and covers 
RILAs as defined in the RILA Act. Some commenters asked that we clarify 
that the definition of ``index-linked option'' is only intended to 
address RILAs or otherwise clarify that RILA disclosures are not 
required in connection with unregistered indexed options.\461\ The 
definition is limited to RILAs as it expressly refers to the potential 
to earn negative interest which is limited to RILAs. The definition for 
index-linked option would not include MVA or unregistered indexed 
options, which, because they earn interest at a rate specified by the 
insurance company, fall under the definition of ``fixed option'' under 
the form.
---------------------------------------------------------------------------

    \460\ Because RILA returns may not be one for one with the 
index, we indicate that positive or negative interest is only based 
``in part'' on the index's performance.
    \461\ CAI Comment Letter; Comment Letter of Holly J. (Nov. 22, 
2023) (``Holly J. Comment Letter'').
---------------------------------------------------------------------------

    We proposed definitions of ``contract adjustment'' and ``crediting 
period'' to refer to these non-variable annuity-centric concepts in the 
form and to help clarify when the relevant disclosures would be 
required.\462\ One commenter stated that our proposed definition of 
``contract adjustment'' is ambiguous and could be construed as covering 
types of transactions that we do not intend, such as a change in 
investment base for an index-linked option that occurs upon withdrawal, 
surrender charges deducted from remaining contract value, or reset 
features under guaranteed living benefits. This commenter suggested 
that we specify that the term only refers to (1) interim value 
adjustments applied when withdrawals and other deductions are made from 
an index-linked option before the end of a crediting period; (2) market 
value adjustments applied to amounts withdrawn or otherwise deducted 
from a contract; and (3) similar adjustments that may be imposed under 
a contract.\463\
---------------------------------------------------------------------------

    \462\ Proposing Release at Section II.B.7.
    \463\ CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting these definitions, including that of the term 
``contract adjustment,'' as proposed. The definition is sufficiently 
specific to adjustments ``to the value of the Contract'' that are 
``positive or negative'' and applied to withdrawals ``before the end of 
a specified period,'' which would not cover the examples that concerned 
the commenter. For example, while the investment base for an index-
linked option reflects a positive or negative contract adjustment 
resulting from that option's daily interim valuation, any change in the 
investment base as a result of a withdrawal is a reduction in the 
investment base, not an adjustment, and would be described separately 
from, although perhaps in conjunction with, the contract adjustment. 
Moreover, we do not anticipate there would be any misunderstanding by 
insurance companies preparing the disclosure that a surrender charge or 
a living benefit reset feature is a contract adjustment under the form. 
Although a surrender charge, like a contract adjustment, is imposed if 
a withdrawal is taken before the end of a specified period, a surrender 
charge always results in a decrease rather than a positive or negative 
adjustment. More importantly, Form N-4 as amended is clear throughout 
in distinguishing between surrender charges and contract adjustments. 
For example, the fee table provides for disclosure of deferred sales 
loads separate from disclosure of the maximum potential loss from a 
contract adjustment.\464\ Indeed, many of the form items and 
instructions that require disclosure of contract adjustments separately 
require disclosure of surrender charges. Lastly, while a contract 
adjustment is a positive or negative adjustment to the contract's

[[Page 60025]]

value if amounts are withdrawn before the end of a specified period, a 
reset feature under a guaranteed living benefit rider results in an 
increase in the rider's benefit base on a recurring basis, such as on 
each contract anniversary, and without regard to whether a withdrawal 
is occurring.
---------------------------------------------------------------------------

    \464\ See, e.g., final Form N-4, Item 1(a)(7), Instructions 
2(a), 2(b), 2(c)(ii)(A), 3(b) to Item 3, Item 4, Item 5(b), Item 
6(d)(2)(ii)(B), Item 6(d)(2)(iii)(B), Items 7(a) and (e), and 
Instruction to Item 22(d).
---------------------------------------------------------------------------

    One commenter suggested the Commission provide guidance that 
registrants would generally not be required to use the defined terms in 
the form so long as the terminology used by the insurance company 
clearly conveys the meaning of, or provides comparable information to, 
the terminology included in the form.\465\ Both currently and as 
amended, Form N-4 permits the use of alternative terminology so long as 
that alternative conveys the same meaning of, or provides comparable 
information as, the terminology called for in the form.\466\ Given the 
results of investor testing, which found that investors were confused 
by some of the terminology used in RILAs, we encourage insurance 
companies to consider if their prospectuses are using terminology that 
investors will be able to understand.\467\
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    \465\ CAI Comment Letter.
    \466\ See final Form N-4, General Instruction C.3.(d)(ii); see 
also final Form N-4, General Instruction C.1(d) (stating that the 
requirements for prospectuses filed on Form N-4 will be administered 
by the Commission in a way that will allow variances in disclosure 
or presentation if appropriate for the circumstances involved while 
remaining consistent with the objectives of the form).
    \467\ See OIAD Investor Testing Report at Section 5, Qualitative 
Testing, Results from Round 2. For example, investor testing 
suggested that the use of the phrase ``term'' in conjunction with 
the concept of crediting periods could cause some confusion to the 
extent it is not clear from the disclosure that ``term'' refers to 
the length of the index-linked option rather than to the length of 
the contract.
---------------------------------------------------------------------------

c. Rules 405, 480, 481, 483, and 484
    We are amending, as proposed, rule 405 under the Securities Act to 
add the new defined terms ``form available solely to investment 
companies registered under the Investment Company Act of 1940'' and 
``registered index-linked annuity'' for purposes of Securities Act 
rules. We did not receive any comments on this part of our proposal. We 
are also, as discussed above, adding a defined term ``registered market 
value adjustment annuity'' to rule 405 in order to apply the 
appropriate Securities Act rules to registered MVA annuities.\468\ 
Finally, because the final amendments extend the Form N-4 offering 
framework to both RILAs and registered MVA annuities, we are adopting 
the new defined term in rule 405 ``registered non-variable annuity,'' 
which means a ``registered index-linked annuity'' or ``registered 
market value adjustment annuity.''
---------------------------------------------------------------------------

    \468\ See supra footnote 85 and accompanying text; see also 
Proposing Release at Section II.H. (discussing a similar change).
---------------------------------------------------------------------------

    The amendments to rule 405 are designed to apply specific 
Securities Act rules to insurance companies issuing non-variable 
annuities to ensure consistency across Form N-4 filers. Certain 
Securities Act rules apply only to registration statements that are 
prepared on a form available solely to a registered investment company 
or a business development company. These rules are 17 CFR 230.480 
(``rule 480''), 17 CFR 230.481 (``rule 481''), 17 CFR 230.483 (``rule 
483''), and 17 CFR 230.484 (``rule 484'') under the Securities Act, and 
include forms such as Forms N-1A, N-2, N-3, N-4, N-5, and N-6. These 
rules prescribe requirements relating to: information given with the 
title of securities; information contained in registration statements; 
exhibits filed as part of the registration statement; and undertakings 
required with respect to requests for acceleration.
    By virtue of moving non-variable annuities, which are not issued by 
a registered investment company, onto Form N-4, Form N-4 would be 
outside the scope of this description absent these amendments that we 
are adopting. As such, the new defined term ``form available solely to 
investment companies registered under the Investment Company Act of 
1940'' specifies that these rules apply to registration statements 
filed on Form N-4. Specifically, we are amending rule 405 to state that 
``a form available solely to investment companies registered under the 
Investment Company Act of 1940'' includes the form used to register the 
offering of securities of a registered non-variable annuity for 
purposes of the Securities Act of 1933. By operation of this amendment, 
registration statements relating to the offering of non-variable 
annuities on Form N-4 are subject to rules 480, 481, 483, and 484.\469\
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    \469\ These rules apply to registration statements on Form N-4. 
Rule 480 prescribes requirements relating to information given with 
the title of securities. Rule 481 prescribes certain information to 
be required in the registration statement (e.g., certain legends to 
appear on the front and back cover pages of prospectuses). Rule 483 
prescribes certain requirements relating to exhibits filed as part 
of the registration statement. Rule 484 prescribes certain required 
undertakings with respect to requests for acceleration under 17 CFR 
230.461 when certain arrangements exist with respect to 
indemnification of specified persons against liability under the 
Securities Act.
---------------------------------------------------------------------------

    We also are adding a definition of ``registered index-linked 
annuity'' to rule 405, which provides consistent definitions for select 
terms used throughout the Securities Act rules, to simplify references 
to RILAs in the proposed Securities Act rule amendments.\470\ 
Specifically, as proposed, we are defining ``registered index-linked 
annuity'' as an annuity or an option available under an annuity (1) 
that is deemed a security; (2) that is offered or sold in a registered 
offering; (3) that is issued by an insurance company that is the 
subject to the supervision of either the insurance commissioner or bank 
commissioner of any state or any agency or officer performing like 
functions as such commissioner; (4) that is not issued by an investment 
company; and (5) whose contract value, either during the accumulation 
period or after annuitization or both, will earn positive or negative 
interest based, in part, on the performance of any index, rate, or 
benchmark. As discussed in the Proposing Release, this definition is 
designed to cover all of the offerings addressed by the RILA Act.\471\
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    \470\ See also supra footnote 85 and accompanying text 
(discussing other changes to rule 405 to accommodate the addition of 
offerings of registered MVA annuities to the form).
    \471\ Proposing Release at Section II.B.7.c.
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d. Exhibits and Undertakings (Items 27 and 34)
    As discussed in the Proposing Release,\472\ the exhibits required 
in a registration statement differ between filers using Forms S-1 or S-
3 on one hand and Form N-4 on the other. As a function of moving non-
variable annuities onto Form N-4, we are requiring insurance companies 
to continue filing various exhibits as part of registration statements 
relating to offerings of non-variable annuities.\473\ These 
requirements are similar to those to which currently apply to insurance 
companies offering non-variable annuities on Forms S-1 and S-3. We are 
also standardizing the location in Form N-4 of exhibits containing any 
power of attorney included pursuant to rule 483(b) to assist the public 
in comparing these exhibits.\474\
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    \472\ See Proposing Release at Section II.B.7.
    \473\ See final Form N-4, Item 27 (adding sub-items (p) Power of 
Attorney and (q) Letter Regarding Change in Certifying Accountant); 
see also Form S-1, Item 16; Form S-3, Item 16; Regulation S-K, Item 
601.
    \474\ Non-variable annuity registration statements on Forms S-1 
and S-3 similarly include a power of attorney, when applicable, to 
be filed as part of the registration statement. See 17 CFR 
229.601(b)(24); see also infra Section II.E (discussing the addition 
of a new exhibit relating to changes in accountants).
---------------------------------------------------------------------------

    Further, in addition to the requirements of rule 484, we are 
amending Form N-4 to include certain

[[Page 60026]]

undertakings that were required of insurance companies as part of their 
non-variable annuity Form S-1 and S-3 registration statements.\475\ 
Specifically, we proposed to require insurance companies to furnish, in 
connection with offerings of RILAs, undertakings (1) to file, during 
any period in which offers or sales are being made, through a post-
effective amendment to their registration statement, any prospectus 
required by section 10(a)(3) of the Securities Act and (2) that, for 
the purposes of determining liability under the Securities Act, each 
post-effective amendment shall be deemed to be a new registration 
statement relating to the securities offered therein, and the offering 
of such securities at that time shall be deemed to be the initial bona 
fide offering thereof. These undertakings are the same as two 
undertakings insurance companies are required to provide in 
registration statements when they register offerings of non-variable 
annuities on Forms S-1 or S-3,\476\ and mirror the effect of similar 
provisions of section 24(e) of the Investment Company Act, which 
applies to amendments to Form N-4 registration statements by registered 
separate accounts.\477\ We did not receive any comments on the proposed 
amendments and are adopting them as proposed, except that we also are 
extending them to MVA annuities and including in the exhibit list any 
exhibit that contains the information called for in Item 31A(b) as 
discussed above.\478\
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    \475\ See final Form N-4, Item 34. The disclosure currently 
required in Item 34, the fee representation mandated of registered 
separate accounts under the Investment Company Act, will be retained 
as paragraph (a) of this item, limited in application to variable 
options, and the new undertakings added as new paragraph (b) and 
limited to index-linked options and/or MVA options. See also 15 
U.S.C. 80a-26(f)(2)(A). We have renamed this item ``Fee 
Representation and Undertakings.''
    \476\ See rule 415(a)(3) and 17 CFR 229.512(a). Under the final 
amendments, non-variable annuities are exempt from the conditions of 
rule 415, including furnishing the required undertakings pursuant to 
Item 512(a) of Regulation S-K. See infra footnote 625. For example, 
non-variable annuity registration statements no longer need to 
include a statement that the issuer undertakes to file a post-
effective amendment to reflect in the prospectus any facts or events 
arising after the effective date of the registration statement (or 
the most recent post-effective amendment thereof) which, 
individually or in the aggregate, represent a fundamental change in 
the information set forth in the registration statement. This 
requirement is not necessary for non-variable annuity registration 
statements on Form N-4 in light of the other amendments we are 
making to the prospectus and registration statement filing process 
for non-variable annuities. See infra Section II.F.2. (discussing 
amendments to rules 485 and 497 under the Securities Act).
    \477\ See Section 24(e) of the Investment Company Act [15 U.S.C. 
80a-24(e)]. Section 24(e) generally requires a registered separate 
account to amend its registration statement annually to update its 
prospectus for the purposes of section 10(a)(3). Section 24(e) also 
provides that, for the purposes of liability under Securities Act, 
the effective date of the latest amendment is deemed to be the 
effective date of the registration statement with respect to 
securities sold after the effectiveness of amendment.
    \478\ See supra footnote 445.
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9. Remaining Form N-4 Items
    We are adopting amendments, largely as proposed, to make the 
remaining requirements and disclosure items on the existing Form N-4 
applicable to non-variable annuities without substantive changes to the 
current requirements and disclosure items.\479\ These are: (1) general 
instructions to the final form including both organizational 
requirements along with substantive requirements for the preparation of 
the registration statement; (2) information about the annuity contract 
and how it operates; and (3) items that provide basic information about 
the insurance company or the securities offering itself, consistent 
with some of the disclosures provided currently in Forms S-1 or S-3.
---------------------------------------------------------------------------

    \479\ As noted above, some of these items have been amended to 
account for changes in defined terms and to use gender-neutral 
terminology. See supra Section II.C.8.b. Also as discussed above, in 
a modification from the proposal these items extend to registered 
MVA annuities, as applicable.
---------------------------------------------------------------------------

a. General Instructions
    Largely as proposed, non-variable annuity offerings registered on 
Form N-4 will need to comply with the general instructions of that 
form. These general instructions are structured to include four parts: 
(A) Definitions; (B) Filing and Use of Form; (C) Preparation of the 
Registration Statement; and (D) Incorporation by Reference.\480\ As 
discussed in more detail in the Proposing Release, these instructions 
relate to the use of plain English; organization of the registration 
statement; information not otherwise required; terminology; offering 
multiple contracts in a prospectus and including multiple prospectuses 
in a registration statement; timing; websites included in electronic 
versions of the prospectus; and incorporation by reference (e.g., 
addressing when information may be incorporated by reference into the 
prospectus).\481\
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    \480\ See supra Section II.C.8.b (discussing amendments to the 
definitions used in the form).
    \481\ See Proposing Release at Section II.B.2.b. We are also, as 
proposed, correcting a typographical error in General Instruction 
B.2(b) regarding items that can be omitted for registration 
statements or amendments filed only under the Investment Company 
Act. Currently, the instructions state that issuers can omit from 
Part C Items 26(c), (k), (l), and (m), but those items do not exist 
in the form and Item 26 (Financial Statements) is in the SAI, not 
Part C. This will now refer to Item 27 (Exhibits), which does exist, 
and is in Part C. We received no comments on this aspect of the 
proposal.
---------------------------------------------------------------------------

    Collectively, the general instructions, as they existed prior to 
the amendments to Form N-4, are designed to require clear disclosure to 
investors about the variable annuity contracts currently registered on 
the form and to make clear how issuers must prepare and file their 
registration statements. Requiring insurance companies to prepare 
registration statements relating to the offering of non-variable 
annuities in accordance with these instructions will likewise 
facilitate the provision of clear disclosure to investors and provide 
clear direction to these issuers on how to prepare and file their 
registration statements. Further, applying these requirements to non-
variable annuities will help ensure the comparability of different 
annuity offerings, for example, by ensuring that the filings are held 
to the same plain English, multiple contract disclosure, timing, 
website, and incorporation by reference standards.
    We received one comment on the proposed general instructions.\482\ 
The commenter requested clarification regarding the ability of 
insurance companies to file required financial statements using the N-
VPFS EDGAR submission type for incorporation by reference into the 
SAI.\483\ This commenter stated that this or a similar EDGAR submission 
type would streamline preparing and filing registration statements on 
Form N-4 and would be consistent with the manner in which registered 
separate accounts are permitted to incorporate financial statements of 
the insurance company and the separate account into the SAI for 
variable annuity contracts and variable life insurance policies. All 
Form N-4 filers currently can use N-VPFS instead of refiling their 
financial statements in every registration statement and many active 
variable contracts use N-VPFS for their financial statements.\484\ For 
example, if a separate account funds 20 variable contracts with 20 
Securities Act registration statements, instead of filing the identical 
information 20 times, the separate account can file it just once. Based 
on staff experience, we understand that doing so may reduce the costs 
of auditor consents as well because the auditor can focus its review

[[Page 60027]]

on the one N-VPFS instead of the 20 registration statements. Similarly, 
the availability of N-VPFS may facilitate the registration of RILAs and 
registered MVA annuities. We confirm that insurance companies can use 
N-VPFS for all offerings registered on Form N-4, including with respect 
to non-variable annuities on Form N-4, as amended. However, the 
insurance company should file its own N-VPFS and not reference the N-
VPFS of a separate account, which might also include lengthy and 
irrelevant separate account financials.\485\
---------------------------------------------------------------------------

    \482\ See CAI Comment Letter.
    \483\ See VASP Adopting Release at n.954 and accompanying text 
(discussing the submission via EDGAR of financial statements with 
respect to certain variable annuities).
    \484\ See Chapter 3 (Index to Forms) of the EDGAR Filer Manual, 
Volume II: ``EDGAR Filing,'' (March 2024), available at https://www.sec.gov/files/edgar/filermanual/efmvol2.pdf.
    \485\ Conversely, a separate account can reference the insurance 
company's financial statements in the insurance company's N-VPFS 
because the insurance company's N-VPFS would not contain information 
that is irrelevant to the separate account.
---------------------------------------------------------------------------

b. Contract Disclosures
    The table below summarizes disclosures in the existing Form N-4 
about the annuity contract, how it operates, and how it is serviced by 
the insurance company. We are amending Form N-4 to apply these 
requirements to the registration statements of offerings of non-
variable annuities with a minor change to the existing form--insurance 
companies will be required to indicate in Item 12 whether charges or 
contract adjustments will apply in the event of a contract surrender or 
withdrawal.\486\ Currently, Item 12 refers only to charges. We received 
no comments on this part of the proposal and are adopting these changes 
largely as proposed. Because offerings of registered MVA annuities will 
be registered on Form N-4, as amended, these amendments also apply to 
disclosure regarding registered MVA annuities, as applicable, in a 
modification from the proposal.
---------------------------------------------------------------------------

    \486\ See final Form N-4, Item 12(c).

                      Table 5--Contract Disclosures
------------------------------------------------------------------------
             Item                             Description
------------------------------------------------------------------------
                           Prospectus (Part A)
------------------------------------------------------------------------
General Description of the     A general description of the contract,
 Contracts (Item 8).            including disclosure of the parties'
                                material rights under the contract;
                                relevant contract provisions and
                                limitations; contract obligations funded
                                by the insurance company's general
                                account; class of purchasers, and
                                material changes that can be made to the
                                contract by the insurance company.
Annuity Period (Item 9)......  A brief description of the annuity
                                options available, including a
                                discussion of material factors that
                                determine the benefits; annuity
                                commencement date; frequency and
                                duration of annuity payments, and the
                                effect of these on the level of payment;
                                the effect of assumed investment return;
                                any minimum amount necessary for an
                                annuity option and the consequences of
                                an insufficient amount; rights to change
                                annuity options; and, if applicable, a
                                disclosure that the investor will be
                                unable to withdraw any contract value
                                amounts after the annuity commencement
                                date.
Benefits Available Under the   A tabular summary overview of the
 Contract (Item 10).            benefits available under the contract
                                (e.g., standard or optional death
                                benefits, standard or optional living
                                benefits, etc.), briefly discussing,
                                among other things: whether the benefit
                                is optional; current and maximum fees
                                associated with the benefit; how the
                                benefit amount is calculated; and any
                                associated restrictions or limitations.
Purchases and Contract Value   A brief description of the procedures for
 (Item 11).                     purchasing a contract, including concise
                                explanations of minimum initial and
                                subsequent purchase payment required,
                                when these payments are credited, and
                                how they are allocated to investment
                                options. Issuers should also identify
                                each principal underwriter (other than
                                the insurance company) of the contracts
                                and other information about that
                                underwriter such as any affiliations.
Surrenders and Withdrawals     A brief description of how surrenders and
 (Item 12).                     withdrawals can be made from a contract,
                                including limits on the ability to
                                surrender, how proceeds are calculated,
                                and when surrenders and withdrawals are
                                payable. Issuers must also describe
                                potential effect of surrenders and
                                withdrawals, including how they could
                                affect a contract's value or benefits,
                                and whether any charges will apply.\1\
                                Issuers should also describe any
                                involuntary redemption provisions and
                                any revocation rights, disclosing the
                                calculation methodology and any
                                associated limitations to investment
                                options.
Loans (Item 13)..............  A brief description of the loan
                                provisions of the contract, including,
                                for example, loan availability and
                                related restrictions, interest
                                mechanics, the effect of a loan on the
                                contract's value and death benefit,
                                other effects that a loan could have on
                                a contract; and loan procedures.
Taxes (Item 14)..............  A description of the material tax
                                consequences to the investor and
                                beneficiary of buying, holding,
                                exchanging, or exercising rights under
                                the contract. The description should
                                include a discussion of the taxation of
                                annuity payments, death benefit
                                proceeds, periodic and non-periodic
                                withdrawals, loans, and any other
                                distribution that may be received under
                                the contact, as well as the tax benefits
                                accorded the contract and other material
                                tax consequences. Issuers must identify
                                the types of qualified plans for which
                                the contracts are intended to be used
                                and describe any effect of taxation on
                                the determination of contract values.
------------------------------------------------------------------------
              Statement of Additional Information (Part B)
------------------------------------------------------------------------
Cover Page and Table of        A statement of the name of the insurance
 Contents (Item 18).            company, the contract, and related class
                                or classes. This item also requires a
                                table of contents, a statement that the
                                SAI is not a prospectus, information
                                about how to obtain the prospectus, and
                                a discussion of information the SAI
                                incorporates by reference.
Non-principal Risks of         A summary of the non-principal risks of
 Investing in the Contract      purchasing a contract to the extent not
 (Item 20).                     disclosed in the prospectus.

[[Page 60028]]

 
Services (Item 21)...........  Information on certain services provided
                                to the registrant in connection with the
                                contract. If not disclosed elsewhere,
                                this requires a summary of the
                                substantive provisions of certain
                                significant administrative or management-
                                related service contracts. The
                                registrant must also provide the name
                                and address of its independent public
                                accountant. Where affiliates of the
                                insurance company act as agents for the
                                registrant in connection with the
                                contract, issuers are required to
                                provide specific information about the
                                services performed and remuneration paid
                                for the services. Issuers must also
                                disclose if the insurance company is the
                                principal underwriter of the contract.
Annuity Payments (Item 25)...  A description of the method for
                                determining the amount of annuity
                                payments if not described in the
                                prospectus and how any change in the
                                amount of a payment after the first
                                payment is determined.
------------------------------------------------------------------------
                       Other Information (Part C)
------------------------------------------------------------------------
Management Services (Item 33)  A summary of the substantive provisions
                                of any management-related service
                                contract not discussed in Parts A or B,
                                including the parties to the contract,
                                and the total paid and by whom for the
                                registrant's last three year fiscal
                                years.
------------------------------------------------------------------------
Note to Table 5
\1\ In addition to charges, the final amendments will require issuers to
  describe any contract adjustments that will apply.

    These requirements apply to existing Form N-4 issuers because these 
disclosures provide investors in these products with a concise 
presentation of material information about the annuity contract they 
would be purchasing, as well as other information that provides 
necessary context about the contracts such as management service 
disclosures.\487\ We are applying these requirements to non-variable 
annuities because this information is equally fundamental to the 
ability of investors to make informed investment decisions about non-
variable annuities. For example, existing Form N-4 issuers are required 
to summarize standard and optional benefits available to the investor 
under the contract because these benefits are primary features of 
variable contracts and are also often key differentiators between 
competing products.\488\ Insurance companies also offer these benefits 
in connection with non-variable annuities.
---------------------------------------------------------------------------

    \487\ See Forms N-3 and N-4 Adopting Release.
    \488\ See VASP Adopting Release at n.26 and accompanying text.
---------------------------------------------------------------------------

c. Issuer and Offering Disclosures
    In addition to disclosures about the contract, we are adopting 
amendments to Form N-4 that will require that insurance companies make 
certain disclosures relating to the issuer and offering consistent with 
the form's current requirements. The table below summarizes these 
items, omitting items in Form N-4 that, by their terms, will not apply 
to non-variable annuities. We received no comments on these proposed 
amendments and are adopting them as proposed. However, in a 
modification from the proposal, because offerings of registered MVA 
annuities will be registered on Form N-4, as amended, these amendments 
also apply to disclosure regarding registered MVA annuities, as 
applicable.

                Table 6--Issuer and Offering Disclosures
------------------------------------------------------------------------
                                                        Similar Form S-1
             Item                     Description           disclosure
------------------------------------------------------------------------
                           Prospectus (Part A)
------------------------------------------------------------------------
Legal Proceedings (Item 15)...  A description of        Item 11(c)
                                 material pending        (legal
                                 legal proceedings to    proceedings).
                                 which the registered
                                 separate account, the
                                 principal
                                 underwriter, or the
                                 insurance company is
                                 a party, including
                                 similar information
                                 regarding any
                                 proceedings
                                 instituted or known
                                 to be contemplated by
                                 a governmental
                                 authority.
------------------------------------------------------------------------
              Statement of Additional Information (Part B)
------------------------------------------------------------------------
General Information and         Basic information       Item 11(a)
 History (Item 19).              regarding the           (description of
                                 background and          business).
                                 organization of the
                                 insurance company,
                                 including the
                                 jurisdiction in which
                                 it is organized and a
                                 short description of
                                 its business.
Underwriters (Item 23)........  Identification of the   Item 8 (plan of
                                 principal               distribution).
                                 underwriters (other
                                 than the insurance
                                 company), and for
                                 affiliated
                                 underwriters, a
                                 description of the
                                 nature of the
                                 affiliation. For each
                                 principal underwriter
                                 distributing the
                                 registrants'
                                 contracts, the
                                 insurance company
                                 must provide
                                 information about the
                                 offering and related
                                 commissions. If the
                                 registrant made
                                 payments to an
                                 underwriter of or
                                 dealer in the
                                 contracts during its
                                 last fiscal year over
                                 a threshold amount,
                                 the registrant must
                                 disclose certain
                                 information about
                                 those payments.
------------------------------------------------------------------------

[[Page 60029]]

 
                       Other Information (Part C)
------------------------------------------------------------------------
Directors and Officers of the   A statement of the      Item 11(k)
 Insurance Company (Item 28).    name, principal         (directors and
                                 business address,       executive
                                 position, and office    officers).
                                 held for each
                                 director or officer
                                 of the insurance
                                 company.
Persons Controlled by or Under  Disclosure of persons   Item 11(k)
 Common Control with the         directly or             (directors and
 Insurance Company or the        indirectly controlled   executive
 Registrant (Item 29).           by or under common      officers).
                                 control with the
                                 registrant or the
                                 insurance company.
Indemnification (Item 30).....  Information about the   Item 14
                                 general effect of       (indemnificatio
                                 relevant                n of directors
                                 indemnification         and officers).
                                 agreements,
                                 arrangements, or
                                 statutory provisions
                                 through which
                                 underwriters or
                                 affiliates are
                                 insured or
                                 indemnified against
                                 any liability
                                 incurred in their
                                 official capacity.
Principal Underwriters (Item    A statement of          Item 8 (plan of
 31).                            investment companies,   distribution).
                                 other than any
                                 registered separate
                                 account related to
                                 the filing, for which
                                 each principal
                                 underwriter is also
                                 acting as a principal
                                 underwriter. More
                                 detailed information
                                 about principal
                                 underwriters
                                 identified in Item
                                 23, such as recent
                                 information about
                                 commissions and other
                                 compensation received
                                 from the registrant
                                 by each principal
                                 underwriter.
------------------------------------------------------------------------

    Information about the issuer and the offering process are relevant 
when purchasing an annuity contract, including in the context of a non-
variable annuity.\489\ These items, which largely correspond to items 
currently required to be disclosed by insurance companies on Forms S-1 
and S-3 when registering the offering of non-variable annuities as 
detailed in the table above, provide the appropriate amount of 
information about the issuing insurance company and the offering of 
securities in a way tailored to annuity contract investors. For 
example, because an investor's rights under non-variable annuities are 
dependent on the insurance company's claim-paying ability, purchasers 
of those securities also share an interest in disclosures of material 
pending legal proceedings involving the insurance company or related 
parties. On the other hand, where Form S-1 disclosures have less 
relevance to non-variable annuities, we have not included those 
disclosures in the final Form N-4.
---------------------------------------------------------------------------

    \489\ See Forms N-3 and N-4 Adopting Release.
---------------------------------------------------------------------------

10. Inline XBRL
    Under the final amendments, Form N-4 filers will be required to tag 
in Inline XBRL certain specified disclosures.\490\ Specifically, these 
issuers will be required to tag selected information in Inline XBRL in 
accordance with Rule 405 of Regulation S-T and the EDGAR Filer 
Manual.\491\
---------------------------------------------------------------------------

    \490\ See final Form N-4, Items 2(b)(2), 2(d), 3, 4, 5, 6(a) 
(instruction), 6(d), 6(e), 7(e), 10, 17, 26(c) and 31A.
    \491\ We are amending General Instruction C.3(h) of Form N-4 and 
making conforming changes to rule 405(b) of Regulation S-T to 
implement the non-variable annuity specific disclosure tagging 
requirements. Pursuant to rule 301 of Regulation S-T, the EDGAR 
Filer Manual is incorporated by reference into the Commission's 
rules. In conjunction with the EDGAR Filer Manual, Regulation S-T 
governs the electronic submission of documents filed with the 
Commission. Rule 405 of Regulation S-T specifically governs the 
scope and manner of disclosure tagging requirements for operating 
companies and investment companies, including the requirement in 
rule 405(a)(3) to use Inline XBRL as the specific structured data 
language to use for tagging the disclosures.
---------------------------------------------------------------------------

    Certain of the final amendments' new structured data requirements 
will apply, as proposed, to issuers of non-variable annuities that 
register on Form N-4. Specifically, these include, as applicable, 
requirements to tag specified portions of the overview and the more in-
depth descriptions of index-linked options and contract adjustments 
that issuers include in their prospectuses, the disclosure of census-
type information regarding contracts with index-linked options and MVA 
options, and information disclosed about changes in and disagreements 
with accountants.\492\
---------------------------------------------------------------------------

    \492\ See final Form N-4, General Instruction C.3(h); see also 
final Form N-4, Items 2(b)(2), 2(d), 6(d), 7(e), 26(c), and 31A.
---------------------------------------------------------------------------

    Certain of the final amendments' new tagging requirements will 
apply to all Form N-4 filers as applicable. All Form N-4 filers must 
tag the descriptions of fixed options available under the contract, 
including any fixed options subject to contract adjustments.\493\ All 
Form N-4 filers also must tag the new disclosures indicating that the 
insurance company is relying on the exemption provided by rule 12h-
7.\494\ This approach is generally as proposed, with conforming changes 
to reflect the registration of the offerings of registered MVA 
annuities on Form N-4. In response to comments, we are not adopting the 
proposed requirement to structure the statement regarding the risk of 
loss of the entire amount invested associated with an investment in a 
variable option, as discussed below.\495\
---------------------------------------------------------------------------

    \493\ See final Form N-4, General Instruction C.3(h); see also 
final Form N-4, Item 6(e).
    \494\ See final Form N-4, General Instruction C.3(h); see also 
final Form N-4, Instruction to Item 6(a).
    \495\ See infra footnotes 506-508 and accompanying text.
---------------------------------------------------------------------------

    Comments regarding our proposal to require RILA registration 
statements to be tagged using Inline XBRL were mixed. One commenter 
supported extending Inline XBRL requirements to RILAs, suggesting that 
all investors would benefit from tagging as it would facilitate access 
to data about RILAs through a structured, machine-readable format.\496\ 
Two commenters supported tagging some but not all of the proposed new 
disclosures, suggesting that only disclosures that would aid the 
investor in comparing products should be tagged.\497\ One commenter 
suggested that XBRL has little value as it relates to investment 
companies and insurance products.\498\ No commenter specifically 
addressed the tagging of registered MVA annuity specific disclosures, 
although as discussed above, commenters generally supported registering 
offerings of registered MVA annuities on Form N-4

[[Page 60030]]

and did not distinguish whether these annuities should be subject to 
different tagging requirements than RILAs and variable annuities.\499\
---------------------------------------------------------------------------

    \496\ Comment Letter of XBRL US (Nov. 28, 2023) (``XBRL US 
Comment Letter'').
    \497\ See XBRL US Comment Letter (suggesting that disclosures 
that are boilerplate in nature not be tagged as they would not help 
an investor differentiate between products); see also CAI Comment 
Letter (generally not objecting to extending Inline XBRL 
requirements to RILAs, but suggesting a new disclosure regarding the 
risks of investing in variable options not be tagged as the 
disclosure would call for generally standardized statements 
applicable to all variable annuities).
    \498\ Johnson Comment Letter.
    \499\ See supra Section II.B.
---------------------------------------------------------------------------

    After considering these comments, we are adopting these 
requirements largely as proposed, with certain conforming and other 
changes described below. As a result, non-variable annuity issuers must 
tag those prospectus disclosures that Form N-4 currently requires to be 
tagged in Inline XBRL.\500\ These include the following disclosure 
items: the Key Information Table, Fee Table, Principal Risks of 
Investing in the Contract, Benefits Available Under the Contract, and 
Investment Options Available Under the Contract in the statutory 
prospectus. In addition to these existing items, we are requiring 
Inline XBRL tagging of selected new, non-variable annuity-specific 
disclosures to benefit investors, other market participants, and the 
Commission by making the disclosures more readily available and easily 
accessible for aggregation, comparison, filtering, and other 
analysis.\501\ We chose these items to be structured--including those 
that issuers of variable annuities will newly have to structure--
because they are well-suited to being tagged in a structured format and 
are of significant utility for investors and other data users that seek 
structured data to analyze and compare contracts. For example, this 
tagging enables automated extraction and analysis of descriptions of 
index-linked options available under a contract, information regarding 
the features of each currently offered index-linked option, and 
information regarding contract adjustments. This allows investors and 
other market participants more efficiently to perform large-scale 
analysis and comparison across non-variable annuities (including the 
index-linked options that different RILAs offer) and time periods. 
Similarly, the requirement to tag information about fixed options, 
including fixed options subject to contract adjustments, permits the 
same type of analysis with respect to these investment options offered 
under RILA and variable contracts, as well as with respect to 
registered MVA annuities. This analysis could include comparing fixed 
options across contracts, as well as index-linked options, variable 
options, and fixed options offered under the same contract.
---------------------------------------------------------------------------

    \500\ See final Form N-4, General Instruction C.3(h), and Items 
3, 4, 5, 10, and 17; see also final rule 405(b)(2)(iii) of 
Regulation S-T.
    \501\ See infra footnotes 511-512. These primarily include the 
new disclosure items that are specific to non-variable annuities, as 
opposed to extant Form N-4 disclosure items to which we are adopting 
incremental amendments to address non-variable annuities along with 
variable annuities.
---------------------------------------------------------------------------

    Census-type information about variable annuity contracts, which 
parallels the SAI disclosure we are adopting to require for contracts 
with index-linked options and/or MVA options, is currently reported in 
structured data format.\502\ Requiring census-type information about 
contracts with index-linked options and/or MVA options to be tagged in 
Inline XBRL will help the Commission and staff identify trends in 
insurance companies' offerings of the contracts, similar to the tools 
the Commission and staff currently have to identify trends in the 
offering of variable annuity contracts. An Inline XBRL tagging 
requirement will also provide other benefits, such as the ability to 
more easily analyze disclosures about annuity contracts with index-
linked options and/or MVA options, and automatically compare these 
disclosures against prior periods.
---------------------------------------------------------------------------

    \502\ See supra Section II.C.7; see also Form N-CEN, Item F.14.
---------------------------------------------------------------------------

    The benefits of structured data as a general matter are supported 
by empirical data of public usage of similar structured data.\503\ In 
addition, Inline XBRL tagging requirements within the context of public 
operating company financial statement disclosures have been observed to 
improve investor understanding of the disclosed information.\504\ 
Inline XBRL tagging requirements for Form N-4 non-variable annuity 
disclosures could similarly provide investors with increased 
understanding or insight into key features of contracts with index-
linked options and/or MVA options. This could provide value to 
investors by, for example, facilitating the ease with which investors 
could compare contract features of different products, and thereby 
helping investors to determine which non-variable annuities may be 
appropriate for their particular investment goals.\505\
---------------------------------------------------------------------------

    \503\ There is some empirical evidence of public usage of this 
data. See Semi-Annual Report to Congress Regarding Public and 
Internal Use of Machine-Readable Data for Corporate Disclosures, 
U.S. Securities and Exchange Commission (Dec. 2023), at n.63, 
available at https://www.sec.gov/files/fdta-report-12-2023.pdf 
(providing that, for example, the Commission's quarterly XBRL 
datasets for mutual fund summary prospectus risk/return summaries 
garnered over 13,000 page views from September 2022 to September 
2023, according to a Google Analytics query of the Commission's XBRL 
dataset web page).
    \504\ Proposing Release at n.452 and accompanying paragraph.
    \505\ See infra Section IV.C.1.b. (discussing how improved 
investor understanding of non-variable annuity disclosures could 
benefit Form N-4 filers directly or indirectly).
---------------------------------------------------------------------------

    In a change from the proposal and in response to comments, the 
Inline XBRL requirements we are adopting will not require insurance 
companies to tag the new statement regarding the risk of loss of the 
entire amount invested associated with an investment in a variable 
option.\506\ Even a commenter that supported the proposed structuring 
requirements generally suggested that the Commission not require 
tagging of ``boilerplate'' disclosures and disclosures that would be 
the same across entities.\507\ Another commenter suggested that this 
disclosure item in particular would not differ substantively on a 
contract-by-contract basis and therefore should not be structured.\508\ 
In response to those comments, the Commission reviewed each of the 
proposed new disclosure items to be tagged and determined that only one 
of those proposed new disclosure items--the new statement regarding the 
risk of loss of the entire amount invested associated with an 
investment in a variable option--generally would not differ 
substantively on a contract-by contract basis. We are not requiring 
structuring for this disclosure item.
---------------------------------------------------------------------------

    \506\ See final Form N-4, Item 6(c)(1).
    \507\ See XBRL US Comment Letter.
    \508\ See CAI Comment Letter; see also IRI Comment Letter 
(expressing agreement with and supporting the CAI Comment Letter).
---------------------------------------------------------------------------

    As proposed, the new Inline XBRL tagging requirements will only 
apply to contracts being sold to new investors. The result of this 
approach is that prospectus disclosure for contracts that are no longer 
being sold to new investors do not need to be tagged, as this 
disclosure has less utility for current investors and other market 
participants. This is consistent with the existing approach for Form N-
4 issuers.\509\ Commenters supported this aspect of the proposal.\510\
---------------------------------------------------------------------------

    \509\ See VASP Adopting Release at paragraph accompanying n.904.
    \510\ See CAI Comment Letter; XBRL US Comment Letter.
---------------------------------------------------------------------------

    We are requiring non-variable annuity issuers to submit Interactive 
Data Files as follows, consistent with the approach for issuers of 
variable annuities registered on Form N-4:
     For most post-effective amendments, Interactive Data Files 
must be filed either concurrently with the filing, or in a subsequent 
amendment that is filed on or before the date that the post-effective 
amendment that contains the related information becomes effective; 
\511\
---------------------------------------------------------------------------

    \511\ See final Form N-4, General Instruction C.3(h)(i)(B). This 
instruction relates to post-effective amendments filed pursuant to 
paragraph (b)(1)(i), (ii), (v), (vi), or (vii) of rule 485.
---------------------------------------------------------------------------

     For initial registration statements (and post-effective 
amendments other than as described in the bullet

[[Page 60031]]

immediately above), Interactive Data Files must be filed in a 
subsequent amendment on or before the date the registration statement 
or post-effective amendment that contains the related information 
becomes effective; \512\ and
---------------------------------------------------------------------------

    \512\ See final Form N-4, General Instruction C.3(h)(i)(A). This 
instruction relates to initial registration statements and post-
effective amendments other than those filed pursuant to paragraph 
(b)(1)(i), (ii), (v), (vi), or (vii) of rule 485.
---------------------------------------------------------------------------

     For any form of prospectus filed pursuant to rule 497(c) 
or (e), Interactive Data Files must be submitted concurrently with the 
filing.\513\
---------------------------------------------------------------------------

    \513\ See final Form N-4, General Instruction C.3(h)(ii).
---------------------------------------------------------------------------

    This approach facilitates the timely availability of important 
information in a structured format for investors, investment 
professionals, and other data users yielding substantial benefits. For 
data aggregators responding to investor demand for the data, the 
availability of the required disclosures in the Inline XBRL format 
concurrent with filing or before the date of effectiveness allows them 
to quickly process and share the data and related analysis with 
investors. Like other issuers, non-variable annuity issuers could 
request temporary and continuing hardship exemptions for the inability 
to timely file electronically the Interactive Data File.\514\
---------------------------------------------------------------------------

    \514\ See rule 201 Regulation S-T (temporary hardship exemption) 
and rule 202 of Regulation S-T (continuing hardship exemption).
---------------------------------------------------------------------------

D. Option To Use a Summary Prospectus

    We are adopting, largely as proposed, amendments to rule 498A to 
permit RILA issuers, as well as issuers of ``combination contracts'' 
offering a combination of index-linked options and variable options, to 
use a summary prospectus to satisfy their statutory prospectus delivery 
obligations.\515\ In a modification from the proposal, we also are 
adopting amendments to rule 498A to permit issuers of registered MVA 
annuities or ``combination contracts'' offering MVA options with 
variable options and/or index-linked options to use summary 
prospectuses under the amendments to rule 498A.\516\ As a result, all 
annuities both variable annuities and non-variable annuities--
registered on Form N-4 are permitted to use summary prospectuses under 
the final amendments. Likewise, all investors in those annuities may 
benefit from the layered disclosure approach offered by a summary 
prospectus: an approach, in the context of financial products other 
than non-variable annuities that investors have generally indicated 
that they prefer.\517\
---------------------------------------------------------------------------

    \515\ Section 5(b)(2) of the Securities Act makes it unlawful to 
carry or cause to be carried a security for purposes of sale or for 
delivery after sale ``unless accompanied or preceded'' by a 
prospectus that meets the requirements of section 10(a) of the Act. 
See section 10(a) of the Securities Act (generally requiring a 
prospectus relating to a security to contain the information 
contained in the registration statement). For purposes of this 
Release, a prospectus meeting the requirements of a section 10(a) 
prospectus is referred to as a ``statutory prospectus.'' For 
purposes of this section, we refer to RILA contracts and combination 
contracts together as ``RILA contracts.''
    \516\ See Proposing Release at section II.H (discussing 
registered MVA annuities and requesting comment on whether to 
require insurance companies to register offerings of registered MVA 
annuities on Form N-4; and--to the extent registered MVA annuities 
were required to register on Form N-4--the Commission's anticipation 
that it would extend the same functional changes that it was 
proposing for RILAs to registered MVA annuities, including the 
ability to use a summary prospectus).
    \517\ See Investor Advocate Comment Letter.
---------------------------------------------------------------------------

    Rule 498A uses a layered disclosure approach designed to provide 
investors directly with key information relating to the contract's 
terms, benefits, and risks in a concise and reader-friendly 
presentation, with more detailed information available elsewhere. 
Investors will continue to have access to the statutory prospectus of 
non-variable annuities and other information about these non-variable 
annuities online, with paper or electronic copies of this information 
upon request.\518\ This approach provides parity between non-variable 
annuity issuers and issuers of variable annuities registered on Form N-
4, which are permitted to use summary prospectuses to satisfy their 
prospectus delivery obligations, and builds on the Commission's decades 
of experience with layered disclosure and rules permitting the use of 
summary prospectuses.\519\ The approach also recognizes investors' 
expressed preferences for concise and engaging disclosure of key 
information. Accordingly, the approach is consistent with the RILA 
Act's mandate of designing disclosure requirements with the goal of 
ensuring that key information is conveyed in terms that a purchaser is 
able to understand. We anticipate that the summary prospectus framework 
will improve investor understanding of non-variable annuities, as the 
Commission similarly expressed when it adopted the summary prospectus 
rule for variable contracts.\520\
---------------------------------------------------------------------------

    \518\ To further effectuate the changes we are adopting, we are 
excluding non-variable annuity offerings from the provisions of rule 
172, which provides that a final prospectus will be deemed to 
precede or accompany a security for sale for purposes of Securities 
Act section 5(b)(2) as long as the final prospectus meeting the 
requirements of Securities Act section 10(a) is filed or the issuer 
will make a good faith and reasonable effort to file it with the 
Commission as part of the registration statement within the required 
rule 424 prospectus filing timeframe. Consistent with registered 
investment companies and business development companies, non-
variable offerings are subject to a separate framework governing 
communications with investors. See infra Section II.G; see also 
Securities Offering Reform for Closed-End Investment Companies, 
Investment Company Act Release No. 33836 (Apr. 8, 2020) [85 FR 33290 
(June 1, 2020)] (``Closed-End Fund Offering Reform Adopting 
Release'') at Section VI.B.1.b.
    \519\ See VASP Adopting Release at n.21 and accompanying text; 
see also Enhanced Disclosure and New Prospectus Delivery Option for 
Registered Open-End Management Investment Companies, Investment 
Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4545 (Jan. 26, 
2009)] (``2009 Summary Prospectus Adopting Release''); Tailored 
Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee 
Information in Investment Company Advertisements, Investment Company 
Act Release No. 34731 (Oct. 26, 2022) [87 FR 72758 (Nov. 25, 2022)] 
(``Tailored Shareholder Reports Adopting Release'') (adopting rules 
incorporating a layered disclosure approach to open-end funds' 
annual and semi-annual reports to shareholders).
    \520\ See VASP Adopting Release at n.21 and accompanying text.
---------------------------------------------------------------------------

    Commenters that spoke to this issue largely supported the extension 
of rule 498A to RILAs as proposed, stating that a summary prospectus 
framework for RILAs would be as successful for those products as it has 
been for variable insurance products and that investors and registrants 
alike would benefit from the rule's layered disclosure framework that 
would align RILAs with the treatment of variable annuities.\521\ Other 
commenters addressed the inclusion of minimum guaranteed rates in the 
summary prospectus, and this topic is discussed in detail above.\522\ 
No commenter specifically addressed the use of summary prospectuses for 
registered MVA annuity registration statements, although as discussed 
above, commenters generally supported including offerings of registered 
MVA annuities on Form N-4 and did not address whether these offerings 
should be subject to different summary prospectus requirements than 
RILAs and variable annuities.\523\ Except as discussed below, no 
commenters discussed the contents of summary prospectuses in a manner 
that was distinct from their discussion of the Form N-4 content 
requirements generally, which are discussed above.

[[Page 60032]]

Further, when discussing the proposed amendments to rule 498A, 
commenters generally did not differentiate between initial and updating 
summary prospectuses.
---------------------------------------------------------------------------

    \521\ See, e.g., CAI Comment Letter; Investor Advocate Comment 
Letter (stating that in the context of other financial products, 
investors have generally indicated that they prefer this type of 
layered disclosure approach); IRI Comment Letter. One commenter 
questioned whether there is a need to continue to have a statement 
of additional information section outside of the statutory 
prospectus. See Johnson Comment Letter. Wholesale changes to the 
arrangement of registration statements that would be necessary to 
accommodate this suggestion are outside the scope of this 
rulemaking.
    \522\ See Johnson Comment Letter; Datop Comment Letter; see 
supra Sections II.C.1 and II.C.2.
    \523\ See supra Section II.B.
---------------------------------------------------------------------------

1. Overview--Use of Summary Prospectus for Non-Variable Annuities
    The amendments to rule 498A broaden the scope of the rule to 
address non-variable annuities.\524\ Under the final amendments, the 
rule's conditions for non-variable annuities relying on the rule to 
satisfy prospectus delivery obligations mirror the conditions 
applicable to variable contracts.\525\ These conditions include the 
requirements to send or give a summary prospectus to an investor no 
later than the time of the ``carrying or delivery'' of the contract 
security, as well as: (1) requirements for the contents that must be 
included in a summary prospectus, (2) limitations on binding a summary 
prospectus with other materials, and (3) requirements that the summary 
prospectus, statutory prospectus, and contract statement of additional 
information must be publicly accessible, free of charge, and on a 
website in the manner that the rule specifies.
---------------------------------------------------------------------------

    \524\ To facilitate this change, and to make the terminology 
used in rule 498A more consistent with certain terms used in the 
final amendments to Form N-4, we are also adopting amendments to the 
rule's definitions. Specifically, we are (1) amending the 
definitions to ``Class,'' ``Contract,'' Investment Option,'' 
``Registrant,'' ``Variable Annuity Contract,'' and ``Variable Life 
Insurance Contract'' to address non-variable annuities, and/or to 
make changes to these definitions that correspond with amendments to 
certain definitions in Form N-4 (either definitions of these same 
terms in Form N-4, or definitions of other terms in Form N-4 that 
will otherwise affect the way these terms are defined in rule 498A); 
(2) adding definitions for ``Contract Adjustment,'' ``Fixed 
Option,'' ``Index-Linked Option,'' ``Insurance Company,'' 
``Registered Market Value Adjustment Annuity Contract,'' 
``Registered Separate Account,'' ``RILA Contract,'' and ``Variable 
Option'' consistent with their counterparts in the Form N-4 
amendments; and (3) deleting the definition of ``Depositor.'' These 
changes are necessary to implement the provisions of the rule that 
will be applicable to non-variable annuities and combination 
contracts.
    \525\ See final rule 498A(f). Rule 498A also provides that a 
communication relating to an offering registered on Form N-4 that a 
person sends or gives after the effective date of the registration 
statement (other than a prospectus that Section 10 of the Securities 
Act permits or requires) will not be deemed a prospectus under 
section 2(a)(10) of the Securities Act, under certain conditions. 
Final rule 498A extends this provision to non-variable annuities. 
See final rule 498A(g). Under the final amendments, the rule 498A 
provision addressing information that may be incorporated by 
reference into a summary prospectus also applies the same to non-
variable annuities as it does to other contracts currently within 
the scope of the rule. See final rule 498A(d).
---------------------------------------------------------------------------

    As with variable contracts, final rule 498A involves the use of two 
distinct types of summary prospectuses for non-variable annuity 
contracts. An ``initial summary prospectus,'' covering contracts 
offered to new investors, includes certain key information about the 
contract's most salient features, benefits, and risks, presented in 
plain English in a standardized order. The rule amendments also require 
``updating summary prospectuses'' to be provided to existing investors 
in non-variable annuity contracts as a condition to relying on the 
rule. The updating summary prospectus includes a brief description of 
certain changes to the contract that occurred during the previous year, 
as well as a subset of the information required to appear in the 
initial summary prospectus. Certain key information about the 
investment options that the contract offers (including as applicable 
index-linked options and fixed options) must be provided in both the 
initial summary prospectus and updating summary prospectus.\526\
---------------------------------------------------------------------------

    \526\ This approach is consistent with the approach for 
information about variable options in variable contracts' summary 
prospectuses, in which certain key information about the portfolio 
companies offered as variable options appears in both the initial 
summary prospectus and updating summary prospectus. See final rule 
498A(b)(5)(ix); final rule 498A(c)(6)(iv).
---------------------------------------------------------------------------

    As under rule 498A for variable contracts, the use of summary 
prospectuses for non-variable annuity contracts is voluntary. This is 
appropriate to provide non-variable annuity issuers with sufficient 
time to transition to a summary prospectus regime, as well as to 
recognize that there could be different relative benefits of using a 
summary prospectus for certain non-variable annuity issuers and 
investors in these contracts.\527\ Similar considerations informed the 
Commission's decision to adopt a voluntary summary prospectus regime 
for variable contracts.\528\
---------------------------------------------------------------------------

    \527\ The Commission similarly discussed the relative benefits 
to variable contract issuers of using a summary prospectus, based on 
the types of products that these issuers offer and the length of 
their current prospectuses, as well as the benefit of more concise 
disclosure to investors, in adopting rule 498A. See, e.g., VASP 
Adopting Release at Section IV.E.1 (discussion in the Economic 
Analysis section of the release, addressing the Commission's 
consideration of mandating summary prospectuses for variable 
contracts).
    \528\ See VASP Adopting Release at discussion accompanying 
nn.41-45; see also infra Section IV.C.1.c (discussing that different 
issuers and investors could expect to benefit differently from this 
optional prospectus delivery regime, although we expect a majority 
of non-variable annuity issuers to choose to use summary 
prospectuses and that therefore the majority of non-variable annuity 
investors will have the option to use both summary prospectuses and 
statutory prospectuses in their decision-making, in whatever 
proportion investors think is best for their preferences).
---------------------------------------------------------------------------

2. Initial Summary Prospectus
    As with an initial summary prospectus for a variable annuity, an 
initial summary prospectus for a non-variable annuity contract must 
only describe a single contract that the insurance company currently 
offers for sale.\529\ An initial summary prospectus may describe more 
than one class of a currently offered contract.\530\ Aggregating 
disclosures for multiple contracts can hinder investors from 
distinguishing between contract features and options that apply to them 
and those that do not. As a result, an initial summary prospectus 
limited to a single contract currently offered for sale is designed to 
simplify and consolidate lengthy and complex disclosures. The content 
and ordering of items are designed to highlight aspects of a non-
variable annuity that may not be emphasized in marketing materials and 
other disclosures.
---------------------------------------------------------------------------

    \529\ See final rule 498A(b)(1).
    \530\ The definition of the term ``class'' in the final 
amendments is the same as the definition in the current rule (that 
is, as a class of a contract that varies principally with respect to 
distribution-related fees and expenses). Final rule 498A(a).
---------------------------------------------------------------------------

    Like other summary prospectuses that rule 498A for variable 
contracts addresses, we are adopting as proposed a standardized 
presentation for non-variable annuity initial summary prospectuses to 
require certain disclosure items that would be most relevant to 
investors to appear at the beginning of the initial summary prospectus, 
followed by supplemental information.\531\ The required presentation 
also could facilitate comparisons of different non-variable annuities, 
as well as comparisons between non-variable annuities and variable 
annuities. An initial summary prospectus must contain the information 
required by the rule, and only that information, in the order specified 
by the rule.\532\ The information is required to appear in the same 
order, and under relevant corresponding headings, as the rule 
specifies.
---------------------------------------------------------------------------

    \531\ See VASP Adopting Release at paragraph accompanying nn.58-
59.
    \532\ Final rule 498A(b)(5).
---------------------------------------------------------------------------

    The chart in Table 7 below outlines the information that must 
appear in an initial summary prospectus for a non-variable annuity 
contract. These are the same content requirements for an initial 
summary prospectus for a variable contract, with the exception of the 
ordering of the Overview of the Contract and KIT disclosures. We are 
adopting these content requirements as proposed. The Commission has 
historically viewed these items as providing annuity

[[Page 60033]]

investors with key information relating to a contract's terms, 
benefits, and risks in a concise and reader-friendly presentation, and 
highlighting aspects of the contract that may not be emphasized in 
marketing materials and other disclosures.\533\ This rationale is 
equally true in the context of non-variable annuity disclosure.
---------------------------------------------------------------------------

    \533\ See VASP Adopting Release at nn.47-48 and accompanying 
text. To the extent that these content requirements are unchanged 
from the content requirements for variable annuity summary 
prospectuses, our rationale for these requirements has not changed 
from the rationale that is discussed throughout the sections of the 
VASP Adopting Release that address each of the content items 
discussed in Table 7 below. See VASP Adopting Release at Section 
II.A.1.c. Further, we provide our reasoning as to why these 
particular disclosures are important to investors in the non-
variable annuity context as a general matter in Section II.C supra.
---------------------------------------------------------------------------

    Further, as discussed above, the Overview of the Contract 
disclosures (previously Item 3 of Form N-4, but now re-numbered as Item 
2) must precede the KIT (previously Item 2 of Form N-4, but now re-
numbered as Item 3), due to the context that the Overview section 
provides and based upon our experience with the form and taking into 
account the results of investor testing.\534\ This change is reflected 
in final rule 498A. Otherwise, the same order of disclosures under 
final rule 498A is provided as under the current rule.
---------------------------------------------------------------------------

    \534\ See supra Sections II.C.2 and II.C.3. Prior to the final 
amendments, rule 498A required issuers to place ``Important 
Information You Should Consider About the [Contract]'' disclosures 
before ``Overview of the [Contract] disclosures.''

                               Table 7--Outline of the Initial Summary Prospectus
----------------------------------------------------------------------------------------------------------------
                                                                                                Applicable to
    Heading in initial summary      Relevant paragraph  Item of Form N-  Applicable to non-   variable annuities
            prospectus               in amendments to   4 (as amended)  variable annuities?   registered on Form
                                        rule 498A                                                    N-4?
----------------------------------------------------------------------------------------------------------------
Cover Page:
    Identifying Information        Rule 498A(b)(2)(i)   ..............  [check]............  [check]
     (front cover page) \1\.        through (iv).
    Legends (front cover page)     Rule 498A(b)(2)(v)   ..............  [check]............  [check]
     \2\.                           through (vi).
    EDGAR Contract Identifier      Rule 498A(b)(3)(ii)  ..............  [check]............  [check]
     (back cover page).
    Table of Contents (optional).  Rule 498A(b)(4)....  ..............  [check]............  [check]
Content:
    Overview of the [Contract]...  Rule 498A(b)(5)(ii)               2  [check]............  [check]
                                                                        (each paragraph of   (each paragraph of
                                                                         Item 2, as           Item 2 except
                                                                         applicable).         (b)(2) and (d),
                                                                                              which are
                                                                                              generally only
                                                                                              applicable to non-
                                                                                              variable annuity
                                                                                              contracts).
    Important Information You      Rule 498A(b)(5)(i).               3  [check]............  [check]
     Should Consider About the                                          (with instructions   (with instructions
     [Contract].                                                         appliable to non-    appliable to
                                                                         variable             variable
                                                                         annuities).          annuities).
    Benefits Available Under the   Rule 498A(b)(5)(iv)           10(a)  [check]............  [check]
     [Contract].
    Buying the [Contract]........  Rule 498A(b)(5)(v).           11(a)  [check]............  [check]
    Making Withdrawals: Accessing  Rule                          12(a)  [check]............  [check]
     the Money in Your [Contract].  498A(b)(5)(vii).
    Additional Information About   Rule                              4  [check]............  [check]
     Fees.                          498A(b)(5)(viii).
    Appendix: [Investment Options/ Rule 498A(b)(5)(ix)              17  [check]............  [check]
     Portfolio Companies]                                               (Items 17(b),        (Items 17(a),
     Available Under the Contract.                                       17(c), and 17(d),    17(c), and 17(d),
                                                                         as applicable).      as applicable).
----------------------------------------------------------------------------------------------------------------
Notes
\1\ The beginning or front cover page of a non-variable annuity contract's initial summary prospectus, like the
  initial summary prospectus of a variable annuity registered on Form N-4, must include the following
  information: (1) the insurance company's name; (2) the name of the contract, and the class or classes if any,
  to which the initial summary prospectus relates; (3) a statement identifying the document as a ``Summary
  Prospectus for New Investors''; and (4) the approximate date of the first use of the initial summary
  prospectus.
\2\ The required legends are the same for non-variable annuities and for variable annuities registered on Form N-
  4. These legends address the purpose of the summary prospectus, the availability of the statutory prospectus
  and other information, information regarding the permitted cancellation period for the contract, and a
  statement that additional information about certain investment products, including the type of contract has
  been prepared by Commission staff and is available at investor.gov. They also include, for RILAs and
  combination contracts that offer index-linked options along with other investment options, a legend that the
  Commission has not approved or disapproved of the securities being registered. The initial summary
  prospectuses for non-variable annuities as well as for variable annuities also must include additional
  statements that we require on the cover page of the prospectus for all Form N-4 issuers. See supra Section
  II.C.10; see also Item 1(a)(6) through (8) of final Form N-4. We also have updated the legends in the summary
  prospectus to reflect the final text of these items, including a statement that while an investor can cancel
  the contract within 10 days, contract adjustments may be applied.

    A non-variable annuity initial summary prospectus is permitted to 
include a table of contents. A table of contents must show the page 
number of the various sections or subdivisions of the summary 
prospectus, and immediately follow the cover page in any initial 
summary prospectus delivered electronically.
    The topics of the contents included in an initial summary 
prospectus--as well as the required headings under which these contents 
must appear--are the same for a non-variable annuity summary prospectus 
as they are for a summary prospectus of a variable annuity registered 
on Form N-4.\535\ Nevertheless, certain of these required

[[Page 60034]]

contents vary in substance to reflect the unique aspects of non-
variable annuities as compared to variable annuities. These are 
indicated in Table 7 above and include:
---------------------------------------------------------------------------

    \535\ Final rule 498A(b)(5).
---------------------------------------------------------------------------

     Disclosure provided under the heading ``Overview of the 
Contract'' (Item 2 of Form N-4), where disclosure for RILA contracts 
must include specific information about index-linked options currently 
offered under the contract, and disclosure for RILAs and registered MVA 
annuities must include information about interim value adjustments or 
market value adjustments that could affect an investor's contract 
value;
     Disclosure provided under the heading ``Important 
Information You Should Consider About the Contract'' (Item 3 of Form N-
4), where the instructions vary for non-variable annuities as opposed 
to variable annuities;
     Disclosure provided under the heading ``Additional 
Information About Fees'' (Item 4 of Form N-4), where the instructions 
vary for non-variable annuities as opposed to variable annuities; and
     Disclosure under the heading ``Appendix: Investment 
Options Available Under the Contract'' (Item 17 of Form N-4), where 
RILA contract disclosure includes a different summary table for index-
linked options offered under the contract than the summary table of 
variable options offered under a variable annuity. In addition, the 
disclosure includes a summary table for fixed options offered under the 
contract (which could be applicable for RILAs, registered MVA 
annuities, or variable annuities, depending on the investment options 
the contract offers).
    Each of these disclosure items, which also appears in a non-
variable annuity statutory prospectus, is discussed in more detail in 
Section II.C. above.
    One commenter suggested that because a RILA has the term 
``registered'' in its name, the Commission should require the cover 
pages of both an initial summary prospectus and an updating summary 
prospectus to include the legend that is required to be on the cover 
pages of registration statements--namely, that the Commission has not 
approved or disapproved of the securities or passed upon adequacy of 
the disclosure of in the prospectus.\536\
---------------------------------------------------------------------------

    \536\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    After considering the commenter's suggestion, the Commission has 
determined to amend rule 498A to require the legend required by rule 
481 under the Securities Act on the cover pages of initial and updating 
summary prospectuses for RILAs or combination contracts that offer 
index-linked options along with other investment options. Many RILAs 
whose offerings are registered with the Commission use the term 
``registered'' in their names and, accordingly, clarification about the 
term ``registered'' is important to the extent that this term may cause 
confusion. The legend required by rule 481 on RILAs' and combination 
contracts' summary prospectus cover pages is anticipated to communicate 
important information to an investor about what ``registered'' means in 
this context. Further, the legend required by rule 481 will alert 
investors about the limits of the Commission's registration process. We 
do not anticipate that the disclosure required by the legend would be 
so lengthy as to dissuade an investor from reviewing the summary 
prospectus. We recognize that previously the Commission determined not 
to require the legend required by rule 481 under the Securities Act on 
initial and updating summary prospectus cover pages for variable 
annuities and mutual funds.\537\ Those investment products, however, do 
not typically include the term ``registered'' in their names.\538\
---------------------------------------------------------------------------

    \537\ See VASP Adopting Release at paragraph accompanying n.100; 
see also rule 498 under the Securities Act.
    \538\ Similarly, we are not including registered MVA annuities 
in this instruction because they also typically do not include the 
term ``registered'' in their name.
---------------------------------------------------------------------------

3. Updating Summary Prospectus
    As proposed and as under current rule 498A for variable contracts, 
insurance companies under final rule 498A will not send an updated 
initial summary prospectus to investors each year. Instead, insurance 
companies will send an updating summary prospectus, which will provide 
a brief description of certain changes with respect to the contract 
that occurred within the prior year.\539\ This will allow investors to 
focus their attention on new or updated information relating to the 
contract. Additionally, the updating summary prospectus, as proposed 
and as required by final rule 498A, includes certain of the items 
required in the initial summary prospectus that are most likely to 
entail contract changes and where any such contract changes are most 
likely to be important to investors because they affect how investors 
evaluate non-variable annuity contracts and are relevant to investors 
when considering additional investment decisions or otherwise 
monitoring their contracts. This is consistent with the Commission's 
approach for variable annuity updating summary prospectuses.\540\ All 
comments received about the proposed amendments to rule 498A, including 
updating summary prospectuses, are discussed above.\541\
---------------------------------------------------------------------------

    \539\ A non-variable annuity issuer, like a variable annuity 
issuer, can only use an updating summary prospectus if it uses an 
initial summary prospectus for each currently offered contract 
described under the contract statutory prospectus to which the 
updating summary prospectus relates. Final rule 498A(c)(1). See also 
VASP Adopting Release at n.209 and accompanying text.
    \540\ See VASP Adopting Release at Section II.A.2.a. As 
discussed above, the policy rationale for the content of a non-
variable annuity updating summary prospectus and the location of 
that required content is the same rationale that the Commission 
articulated in adopting rule 498A for a variable annuity updating 
summary prospectus. To the extent that these content requirements 
are unchanged from the content requirements for variable annuity 
summary prospectuses, our rationale for these requirements has not 
changed from the rationale that is discussed throughout the sections 
of the VASP Adopting Release that address each of the content items 
discussed in Table 8 below. See VASP Adopting Release at Section 
II.A.2.c. Further, we provide our reasoning as to why these 
particular disclosures are important to investors in the non-
variable annuity context as a general matter in Section II.C. supra.
    \541\ See supra sections II.D.1. and 2. One commenter, as 
discussed above, specifically addressed an updating summary 
prospectus. That commenter suggested that the Commission include an 
additional legend on the cover pages of initial and updating summary 
prospectuses. See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    Because the Commission designed the initial summary prospectus for 
someone making an initial investment decision, existing non-variable 
annuity investors will benefit more from receiving a shorter-form 
document including a brief summary of the changes to the contract, than 
from receiving the initial summary prospectus year after year.\542\ 
This approach also takes into account the cost to maintain and update 
separate initial summary prospectuses for currently offered contracts 
and those no longer offered.
---------------------------------------------------------------------------

    \542\ The Commission discussed this rationale when it initially 
adopted rule 498A. See VASP Adopting Release at Section II.A.2.a.
---------------------------------------------------------------------------

    Unlike an initial summary prospectus, which only can describe a 
single contract that the insurance company currently offers for sale, 
an updating summary prospectus for a non-variable annuity may describe 
one or more contracts covered in the statutory prospectus to which the 
updating summary prospectus relates, as proposed and as under current 
rule 498A for variable contracts.\543\ Similar to the initial summary 
prospectus, an updating summary prospectus may also describe more than 
one class of a contract.
---------------------------------------------------------------------------

    \543\ Final rule 498A(c)(2); see also VASP Adopting Release at 
nn.342-343 and accompanying paragraph.

---------------------------------------------------------------------------

[[Page 60035]]

    Updating summary prospectuses for non-variable annuities, like 
initial summary prospectuses, must include specific disclosure items 
appearing in a prescribed order, under relevant corresponding 
headings.\544\ An updating summary prospectus for a non-variable 
annuity must contain the information required by the rule, and only 
that information, in the order specified by the rule. We are adopting 
these content requirements generally as proposed.\545\ The chart in 
Table 8 below outlines the information that is required to appear in an 
updating summary prospectus for a non-variable annuity.
---------------------------------------------------------------------------

    \544\ Final rule 498A(c)(6).
    \545\ In a change from the proposal, the cover page of an 
updating summary prospectus for a RILA or combination contract that 
offers index-linked options along with other investment options must 
contain the legend required by rule 481 under the Securities Act. 
See supra paragraph accompanying footnote 537.

                               Table 8--Outline of the Updating Summary Prospectus
----------------------------------------------------------------------------------------------------------------
                                                                                                Applicable to
   Heading in updating summary      Relevant paragraph   Item of final   Applicable to non-   variable annuities
            prospectus               in amendments to      Form N-4     variable annuities?   registered on Form
                                        rule 498A                                                    N-4?
----------------------------------------------------------------------------------------------------------------
Cover Page:
    Identifying Information        Rule 498A(c)(3)(i)   ..............  [check]............  [check]
     (front cover page) \1\.        through (iv).
    Legends (front cover page)     Rule 498A(c)(3)(v)   ..............  [check]............  [check]
     \2\.                           through (vi).
    EDGAR Contract Identifier      Rule 498A(c)(4)....  ..............  [check]............  [check]
     (back cover page).
    Table of Contents (optional)   Rule 498A(c)(5)....  ..............  [check]............  [check]
     \3\.
Content:
    Updated Information About      Rule 498A(c)(6)(i)   ..............  [check]............  [check]
     Your Contract.                 through (ii).
    Important Information You      Rule                              3  [check]............  [check]
     Should Consider About the      498A(c)(6)(iii).                    (with instructions   (with instructions
     [Contract].                                                         appliable to non-    appliable to
                                                                         variable             variable annuities
                                                                         annuities).          )
    Appendix: [Investment Options/ Rule 498A(c)(6)(iv)              17  [check]............  [check]
     Portfolio Companies]                                               (Items 17(b),        (Items 17(a),
     Available Under the Contract.                                       17(c), and 17(d),    17(c), and 17(d),
                                                                         as applicable).      as applicable)
----------------------------------------------------------------------------------------------------------------
Notes
\1\ The beginning or front cover page of a non-variable annuity's updating summary prospectus, like the updating
  summary prospectus of a variable annuity registered on Form N-4, must include the following information: (1)
  the insurance company's name; (2) the name of the contract(s), and the class or classes if any, to which the
  updating summary prospectus relates; (3) a statement identifying the document as an ``Updating Summary
  Prospectus''; and (4) the approximate date of the first use of the updating summary prospectus.
\2\ The required legends are the same for non-variable annuities and for variable annuities registered on Form N-
  4. These legends address the purpose of the summary prospectus, the availability of the statutory prospectus
  and other information, and a statement that additional information about certain products, including the type
  of contract, has been prepared by the SEC staff and is available at investor.gov. They also include, for RILAs
  and combination contracts that offer index-linked options along with other investment options, a legend that
  the Commission has not approved or disapproved of the securities being registered. Updating summary prospectus
  cover pages also must include additional statements that are required on the cover page of the prospectus for
  all Form N-4 issuers. See supra Section II.C.10; see also final Form N-4, Item 1(a)(6) through (8).
\3\ The requirements for this optional table of contents are the same for an updating summary prospectus as for
  an initial summary prospectus. See final rule 498A(b)(4); final rule 498A(c)(5).

    The updating summary prospectus for a non-variable annuity must 
include a concise description of certain changes to the contract made 
after the date of the most recent updating summary prospectus or 
statutory prospectus that was sent or given to investors. These changes 
appear under the heading ``Updated Information About Your Contract,'' 
with a required legend following the heading.\546\ The changes that the 
rule requires a non-variable annuity issuer to describe include those 
that relate to: (1) the availability of investment options under the 
contract; (2) the overview of the contract; (3) the KIT; (4) certain 
information about fees; (5) benefits available under the contract; (6) 
purchases and contract value; and (7) surrenders and withdrawals. The 
updating summary prospectus also could include a concise description of 
any other changes that the non-variable annuity issuer wishes to 
disclose, provided they occurred within the same time period as the 
other changes the rule requires the issuer to describe. In providing a 
concise description of a contract-related change in the updating 
summary prospectus, non-variable annuity issuers must provide enough 
detail to allow investors to understand the change and how it will 
affect them.\547\
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    \546\ The legend is the same for non-variable annuities and 
variable annuities: ``The information in this Updating Summary 
Prospectus is a summary of certain [Contract] features that have 
changed since the Updating Summary Prospectus dated [date]. This may 
not reflect all of the changes that have occurred since you entered 
into your [Contract].'' Final rule 498A(c)(6)(i)(A).
    \547\ Final rule 498A(c)(6)(i)(B); see also VASP Adopting 
Release at paragraph accompanying n.374.
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    The topics for which a change necessitates a description in the 
updating summary prospectus, as proposed, are the same for non-variable 
annuities as for variable annuities registered on Form N-4. We do not 
anticipate that disclosures addressing these topics in a contract 
statutory prospectus will change frequently, and thus providing 
investors with a notice and a brief description of any changes that do 
occur may be more informative than repeating all the disclosures each 
year.\548\ Despite the infrequency of changes, investors should be 
notified of any changes to these items given their importance to the 
investor's experience of investing in a non-variable annuity 
contract.\549\
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    \548\ See VASP Adopting Release at paragraph following n.372.
    \549\ See id. at paragraph accompanying nn.365-369.

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[[Page 60036]]

    Substantially as proposed, we are amending rule 498A to specify 
that, in the context of a RILA contract updating summary prospectus, 
the change of availability of investment options includes a change to 
any of the features of the index-linked options disclosed in the table 
that Item 17(b)(1) of Form N-4 requires (that is, the features that are 
disclosed in the table in the appendix of investment options that will 
appear in a RILA contract summary prospectus).\550\ Similarly, in a 
change from the proposal, we are adopting a conforming change to rule 
498A to specify that, for a contract that offers fixed options, the 
change of availability of investment options includes a change to any 
of the features of the fixed options disclosed in the table that Item 
17(c) of Form N-4 requires.\551\ When the Commission adopted rule 498A, 
it stated that a change that has affected availability of portfolio 
companies (or investment options) includes changes in the portfolio 
companies (or investment options) offered under the contract or 
available in connection with any optional benefit.\552\ In the context 
of index-linked options, any change to the features of the index-linked 
options that the required table will describe--that is, the index, type 
of index, crediting period, index crediting methodology, and/or current 
limit on index loss--as well as the inclusion or exclusion of index 
options will meaningfully change the investor's experience of investing 
in a RILA contract. Similarly, in the context of fixed options, any 
change to the features of the fixed options that the required table 
will describe--that is, the term and the minimum guaranteed interest 
rate--will meaningfully change the investor's experience of investing 
in an annuity contract offering fixed options. For these reasons, under 
the final amendments a change to any of these features represents a 
change in the availability of the investment options that the contract 
offers.
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    \550\ As the Item 17(b) table does not include current limits on 
index gains, changes in current limits on index gains are not 
changes in the features of index-linked options that would require 
discussion in the updating summary prospectus.
    \551\ Final rule 498A(c)(6)(i). The amendments reflect a 
conforming change from the proposal to address the inclusion of 
registered MVA annuities on Form N-4.
    \552\ VASP Adopting Release at n.361.
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    The topics of the additional contents included in an updating 
summary prospectus--as well as the required headings under which these 
contents must appear--are, as proposed, the same for non-variable 
annuities and for variable annuities registered on Form N-4.\553\ 
Certain of these required contents, however, as proposed vary in 
substance to reflect the unique aspects of non-variable annuities as 
compared to variable annuities. These are indicated in Table 8 above 
and include:
---------------------------------------------------------------------------

    \553\ Final rule 498A(c)(6).
---------------------------------------------------------------------------

     Disclosure provided under the heading ``Important 
Information You Should Consider About the Contract'' (Item 3 of Form N-
4), where instructions to the required table are specific to non-
variable annuities as opposed to variable annuities; and
     Disclosure under the heading ``Appendix: Investment 
Options Available Under the Contract'' (Item 17 of Form N-4), where 
RILA contract disclosure will include a different summary table for 
index-linked options offered under the contract than the summary table 
of variable options offered under a variable annuity. In addition, the 
disclosure includes a summary table for fixed options offered under the 
contract (which could be applicable for RILAs, registered MVA 
annuities, or variable annuities, depending on the investment options 
the contract offers).
4. Online Accessibility of Contract Statutory Prospectus and Certain 
Other Documents Relating to the Contract
    Investors who receive a non-variable annuity initial or updating 
summary prospectus will have access to more detailed information about 
the non-variable annuity, either by reviewing the information online, 
or by requesting the information to be sent in paper or electronically. 
In this respect, the final amendments include the same requirements for 
non-variable annuities as for variable contracts. These requirements 
further the layered disclosure framework that rule 498A creates for 
variable contracts and will, under the final amendments, similarly 
create for non-variable annuities. Those insurance companies that issue 
non-variable annuities, to the extent that they also issue variable 
annuity contracts that use summary prospectuses under rule 498A, 
therefore, should be generally familiar with the practice of making 
this information available online and be able to integrate it with 
existing processes for variable annuities. Similar to what the 
Commission expressed in the context of variable annuity summary 
prospectuses, permitting non-variable annuity investors to access the 
contract statutory prospectus in several ways (online and by physical 
or electronic delivery) maximizes the accessibility and usability of 
this information for all investors, including investors who continue to 
prefer to access information through paper resources.\554\
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    \554\ See VASP Adopting Release at n.417 and accompanying text; 
see also Office of Investor Education and Advocacy of the U.S. 
Securities and Exchange Commission, Study Regarding Financial 
Literacy Among Investors (Aug. 2012) at iv, xix, available at 
https://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf. These requirements are unchanged from the requirements 
for variable annuity summary prospectuses, and our rationale for 
these requirements has not changed from the Commission's rationale 
that is discussed throughout the sections of the VASP Adopting 
Release that discuss online accessibility requirements. See VASP 
Adopting Release at Sections II.A.5 and II.A.6.
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    As discussed above, commenters stated that investors and 
registrants will benefit from rule 498A's layered disclosure framework, 
with access to more detailed information available online and 
electronically or in paper format on request.\555\ No other commenters 
specifically addressed online accessibility to the statutory prospectus 
and certain other documents relating to the contract.
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    \555\ See supra footnote 521 and accompanying text.
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    Under the final amendments and as proposed, an insurance company 
relying on rule 498A to satisfy prospectus delivery obligations with 
respect to non-variable annuities (like a variable annuity issuer 
relying on this rule before the final amendments), must make the 
contract's current initial summary prospectus, updating summary 
prospectus, statutory prospectus, and SAI (together, the ``required 
online contract documents'') available online.\556\ These required 
online contract documents are required to be publicly accessible, free 
of charge, at the website address that the cover page of the summary 
prospectus specifies, on or before the time that the person relying on 
the rule provides the summary prospectus to investors.\557\ The website 
address on which the required online contract documents appear must be 
specific enough to lead investors directly to the documents, although 
the website could be a central site with prominent links to each 
document.\558\ The required online contract documents must be presented

[[Page 60037]]

in a manner that is human-readable and capable of being printed on 
paper in human-readable format, and persons accessing the documents 
must be able to permanently retain electronic versions of the 
documents. The final amendments require linking within the electronic 
versions of the contract statutory prospectus and SAI that are 
available online, and also for linking between electronic versions of 
contract summary and statutory prospectuses that are available online.
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    \556\ For requirements relating to the required online contract 
documents, see generally final rule 498A(h).
    \557\ A current version of each of the required online contract 
documents must remain available for at least 90 days following 
either: (1) the time of the ``carrying or delivery'' of the contract 
security if a person is relying on the rule to satisfy its section 
5(b)(2) prospectus delivery obligations; or (2) if a person is 
relying on the rule to send communications that will not be deemed 
to be prospectuses, the time that the person sends or gives the 
communication to investors. Final rule 498A(h)(1).
    \558\ Final rule 498A(b)(2)(v)(B).
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    As proposed, both initial summary prospectuses and updating summary 
prospectuses for non-variable annuities, like variable annuity summary 
prospectuses, must define any ``special terms'' elected by the 
registrant, using any presentation that clearly conveys their meaning 
to investors.\559\ In non-variable annuity summary prospectuses that 
are available online, the final amendments (like the current rule) as 
proposed require that investors be able either to view the definition 
of each special term upon command, or to move directly back and forth 
between each special term and the corresponding entry in any glossary 
or list of definitions the summary prospectus includes.
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    \559\ Final rule 498A(e).
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    Satisfying each of these requirements regarding online 
accessibility of contract statutory prospectuses and certain other 
documents relating to the contract is, as proposed, a condition for an 
insurance company to rely on rule 498A to satisfy prospectus delivery 
obligations with respect to non-variable annuities.\560\ Failure to 
comply with any of these conditions could result in a violation of 
section 5(b)(2) unless the contract statutory prospectus is delivered 
by means other than reliance on the rule. We recognize, however, that 
there may be times when, due to events beyond a person's control, the 
person may temporarily not be in compliance with the rule's conditions 
regarding the availability of the required online contract documents. 
The final amendments, like rule 498A before the amendments that we are 
adopting and as proposed, include a safe harbor provision addressing 
temporary noncompliance.\561\
---------------------------------------------------------------------------

    \560\ Final rule 498A(f)(4); final rule 498A(g)(4).
    \561\ Final rule 498A(h)(4). This provides that the conditions 
regarding the availability of the required online contract documents 
will be deemed to be met, even if the required online contract 
documents are temporarily unavailable, provided that the person has 
reasonable procedures in place to ensure that those materials are 
available in the required manner. A person relying on the rule to 
satisfy prospectus delivery obligations is required to take prompt 
action to ensure that those materials become available in the manner 
required as soon as practicable following the earlier of the time 
when the person knows, or reasonably should have known, that the 
documents were not available in the manner required.
---------------------------------------------------------------------------

5. Other Requirements for Summary Prospectus and Other Contract 
Documents
    Like current rule 498A, final rule 498A as proposed includes 
additional requirements for non-variable annuity summary 
prospectuses.\562\ These include:
---------------------------------------------------------------------------

    \562\ For these additional requirements, see generally final 
rule 498A(i).
---------------------------------------------------------------------------

     Certain requirements regarding the delivery of paper or 
electronic copies of the required online contract documents upon 
request;
     The requirement that a contract summary prospectus must be 
given greater prominence than any materials that accompany the contract 
summary prospectus;
     Requirements that: (1) the required online documents be 
presented in a format that is convenient for reading and printing, and 
(2) a person be able to retain electronic versions of these documents 
in a format that is convenient for reading and printing; and
     The requirement for any website address that is included 
in an electronic version of the summary prospectus to be an active 
hyperlink.
    Failure to comply with these additional requirements will not, 
however, negate a person's ability to rely on the rule to satisfy 
prospectus delivery obligations.\563\ No commenters specifically 
addressed these additional requirements.
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    \563\ Final rule 498A(i)(5).
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E. Accounting (Items 16 and 26)

    We are adopting, as proposed, amendments to permit RILA issuers to 
provide financial statements on Form N-4 in the same way that insurance 
companies currently provide financial statements on Form N-4. We are 
also extending these amendments to registered MVA annuities. As a 
result, the financial statements filed in connection with a 
registration statement that relates to the offering of either of these 
securities may be prepared in accordance with SAP to the same extent as 
currently permitted for insurance companies' financial statements filed 
on that form.
    As discussed in the Proposing Release, Instruction 1 to Item 26(b) 
of Form N-4 currently permits insurance companies that are the 
depositors of variable annuity separate accounts to prepare their 
financial statements for use in a registration statement filed on Form 
N-4 in accordance with SAP if the depositor would not have to prepare 
its financial statements in accordance with GAAP except for use in that 
registration statement or other registration statements filed on Forms 
N-3, N-4, or N-6 (the forms used to register insurance products that 
are issued by investment companies).\564\ The instruction further 
states that the depositor insurance company's financial statements must 
be prepared in accordance with GAAP if it prepares financial 
information in accordance with GAAP for use by its parent (as defined 
in Regulation S-X) in any report under sections 13(a) and 15(d) of the 
Exchange Act or any registration statement filed under the Securities 
Act.\565\ In interpreting this instruction, the Commission has stated 
that SAP financial statements could be used under the insurance product 
forms, in limited circumstances, when: (1) GAAP financial statements 
are not prepared for either the depositor or its parent; or (2) the 
depositor's parent prepares GAAP financial statements, but the 
depositor's accounts are immaterial to its parent's consolidated 
financial statements and, therefore, neither partial GAAP financial 
statements nor a GAAP reporting package is prepared by the 
depositor.\566\
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    \564\ See Proposing Release at Section II.D. Similar to 
insurance products currently filing registration statements on these 
forms, insurance companies registering offerings of non-variable 
annuities will also be required, if all of the required financial 
statements of the insurance company are not in the prospectus, to 
state in the prospectus, under a separate caption, where the 
financial statements may be found and to briefly explain how 
investors may obtain any financial statements not in the SAI. See 
current and final Form N-4, Item 16.
    \565\ Similar instructions are contained in the other forms used 
to register insurance products issued by investment companies. See 
Form N-3, Instruction 1 to Item 31(b), and Form N-6, Instruction 1 
to Item 28(b).
    \566\ See Registration Form for Insurance Company Separate 
Accounts Registered as Unit Investment Trusts that Offer Variable 
Life Insurance Policies, Investment Company Act Release No. 23066 
(Mar. 13, 1998) [63 FR 13988 (Mar. 23, 1998)] (discussing the same 
instruction in Form N-6).
---------------------------------------------------------------------------

    Commenters supported permitting RILA issuers to provide financial 
statements on Form N-4 in the same way that insurance companies 
offering variable annuities currently provide financial statements on 
Form N-4.\567\ Commenters stated that requiring GAAP financial 
statements in cases where the insurance company is not otherwise

[[Page 60038]]

required to prepare financial statements in accordance with GAAP would 
result in significant costs and administrative burdens.\568\ Some 
commenters further stated that permitting the use of SAP financial 
statements would reduce the burdens on many insurance companies 
offering or seeking to offer RILAs, which would lead to an increased 
selection of competitive products available to investors.\569\ Some 
commenters also suggested that SAP financial statements, which focus on 
an issuer's ability to meet its obligations under its insurance 
contracts, provide sufficient material information that is relevant and 
meaningful for investors evaluating RILAs.\570\ Moreover, some 
commenters suggested that permitting the use of SAP financial 
statements would benefit investors by promoting comparability between 
insurance companies, allowing contract holders to compare issuers and 
their solvency.\571\ Commenters also supported extending this treatment 
to registered MVA annuities for the same reasons.\572\
---------------------------------------------------------------------------

    \567\ CAI Comment Letter; IRI Comment Letter; VIP Working Group 
Comment Letter, Gainbridge Comment Letter; Johnson Comment Letter; 
Meeting of American Council of Life Insurers, Committee of Annuity 
Issuers, and Insured Retirement Institute with SEC Staff Regarding 
SAP Financial Statements (Sep. 29, 2023) (``Presentation from 
Insurance Product Trade Groups on SAP Financial Statements'').
    \568\ CAI Comment Letter; IRI Comment Letter; Presentation from 
Insurance Product Trade Groups on SAP Financial Statements.
    \569\ CAI Comment Letter; Gainbridge Comment Letter; IRI Comment 
Letter; Presentation from Insurance Product Trade Groups on SAP 
Financial Statements.
    \570\ CAI Comment Letter; IRI Comment Letter; Presentation from 
Insurance Product Trade Groups on SAP Financial Statements.
    \571\ CAI Comment Letter; Presentation from Insurance Product 
Trade Groups on SAP Financial Statements.
    \572\ See, e.g., CAI Comment Letter (stating that ``we 
completely support extending Form N-4 [to facilitate registering 
offerings of registered MVA annuities on the form]'' and that 
``[o]ur comments here relating to financial statements apply equally 
to MVA contracts'').
---------------------------------------------------------------------------

    One commenter suggested that we eliminate or more clearly explain 
the instruction to Form N-4 that says that an insurance company cannot 
use SAP financial statements if it prepares GAAP financial statements 
for a corporate parent that is a GAAP filer.\573\ This commenter 
questioned the basis for the instruction because insurance companies 
that have publicly-traded parent companies have been provided 
exemptions from the requirement to provide GAAP financial statements in 
connection with the registration of certain annuities based on the 
authority provided in 17 CFR 210.3-13 (``3-13 Exemptions'').\574\ We 
are retaining this instruction without modification. GAAP financial 
statements provide the most useful information for all users of 
financial statements,\575\ and requiring filers to provide GAAP 
financial statements promotes uniformity and consistency in financial 
reporting.\576\ Accordingly, the Commission generally requires that all 
financial statements be presented on a GAAP basis and has permitted the 
use of SAP financial statements only in limited circumstances. In the 
examples cited by the commenter, 3-13 Exemptions from the requirement 
to provide GAAP financial statements were provided to insurance 
companies consistent with the instructions regarding financial 
statements on Forms N-3, N-4, and N-6.\577\ Under the final amendments, 
an insurance company registering a RILA or registered MVA annuity 
offering on Form N-4 will not need a 3-13 Exemption in order to provide 
SAP financial statements provided the insurance company satisfies the 
requirements of the instruction in Form N-4.\578\
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    \573\ VIP Working Group Comment Letter.
    \574\ Rule 3-13 provides, in part, that the ``Commission may, 
upon the informal written request of the registrant, and where 
consistent with the protection of investors, permit the omission of 
one or more of the financial statements herein required or the 
filing in substitution therefor of appropriate statements of 
comparable character.''
    \575\ See generally Commission Statement of Policy Reaffirming 
the Status of the FASB as a Designated Private-Sector Standard 
Setter, Investment Company Act Release No. 26028 (Apr. 23, 2003) [68 
FR 23333 (May 1, 2003)].
    \576\ See VASP Adopting Release at text following n.813.
    \577\ See Form N-3, Instruction 1 to Item 31(b); current Form N-
4, Instruction 1 to Item 26(b); and Form N-6, Instruction 1 to Item 
28(b).
    \578\ See final Form N-4, Instruction 1 to Item 26(b).
---------------------------------------------------------------------------

    Amendments permitting insurance companies registering offerings of 
RILAs and registered MVA annuities to rely on Instruction 1 to Item 26 
to provide SAP financial statements to the same extent as they do when 
registering offerings of variable annuities on Form N-4 alleviate the 
cost burdens that would be imposed by requiring GAAP financial 
statements in cases where the insurance company is not otherwise 
required to prepare financial statements in accordance with GAAP and 
provide for the consistent treatment of financial statements for all 
insurance companies that meet the circumstances permitted by Form N-
4.\579\ Additionally, permitting RILA and registered MVA annuity 
issuers to provide SAP financial statements to the same extent as 
variable annuity issuers registering offerings on Form N-4 is 
consistent with maintaining investor protection. At the same time, SAP 
financial statements, which focus on an issuer's ability to meet its 
obligations under its insurance contracts, as regulated by State law, 
provide material information for investors evaluating RILAs and 
registered MVA annuities.
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    \579\ These amendments are consistent with the Commission's 
current approach to non-variable annuities registered on Form S-1. 
Because Forms S-1 and S-3 do not include an instruction similar to 
Form N-4, Instruction 1 of Item 26(b), non-variable annuities 
currently registered on these forms are required to provide their 
financial statements in accordance with GAAP. However, the 
Commission, acting through authority delegated to the staff, has 
permitted insurance companies registering on Form S-1 to include SAP 
financial statements in non-variable annuity registration statements 
in the limited circumstances permitted by Form N-4. See, e.g., 
Letter from Jenson Wayne, Chief Accountant, Division of Investment 
Management, to Stephen E. Roth, Eversheds Sutherland (US) LLP, 
regarding Fidelity & Guaranty Life Insurance Company and Fidelity & 
Guaranty Life Insurance Company of New York (Mar. 17, 2023), 
available at https://www.sec.gov/files/fidelity-guaranty-031723.pdf. 
The Commission has stated that this approach appropriately 
recognizes the cost burdens that would be imposed if the Commission 
were to require GAAP financial statements in cases where the 
depositor is not otherwise required to prepare financial information 
in accordance with GAAP. See Registration Form for Insurance Company 
Separate Accounts Registered as Unit Investment Trusts That Offer 
Variable Life Insurance Policies, Investment Company Act Release No. 
25522 (Apr. 12, 2002) [67 FR 19848 (Apr. 23, 2002)]; see also VASP 
Adopting Release at n.813 and accompanying text.
---------------------------------------------------------------------------

    Requiring insurance companies to register offerings of non-variable 
annuities on Form N-4 will also provide those companies greater 
flexibility to update their registration statements without the need to 
update certain financial statements. Under section 10(a)(3) of the 
Securities Act, insurance companies currently are generally required to 
file a post-effective amendment annually to update their audited fiscal 
year-end financial statements as they relate to offerings of non-
variable annuities.\580\ In addition, Regulation S-X currently requires 
Form S-1 filers to include unaudited interim financial statements in 
any new registration statement or post-effective amendment that goes 
effective later than 134 days after the end of the insurer's fiscal 
year.\581\ However, Form N-4 filers are not subject to this 
requirement.\582\ Moreover, after the end of an insurer's fiscal year, 
insurance companies are currently required to include year-end audited 
financial statements in any new registration statement or post-
effective amendment relating to non-variable annuities filed 45 days 
after the fiscal year-end.\583\ However, Form N-4 filers

[[Page 60039]]

instead have a 90-day grace period.\584\ Consequently, under the final 
amendments, insurance companies will be able to file and amend their 
non-variable annuity registration statements during certain times of 
year without the need to update their financial statements.\585\ The 
final amendments, similar to permitting insurance companies to rely on 
Instruction 1 to Item 26 for non-variable annuities, as discussed 
above, provide for the consistent treatment of financial statements for 
all insurance companies registering offerings on Form N-4 that meet the 
circumstances permitted by Form N-4. The commenter that addressed this 
aspect of the proposal suggested that relief from these requirements to 
prepare interim financial statements on a quarterly basis is 
appropriate because investors in non-variable annuities, like investors 
in variable annuities, are less interested in the insurance company's 
operating results from period to period.\586\
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    \580\ See Proposing Release at Section II.D.
    \581\ 17 CFR 210.3-12(a). Insurance companies that rely on rule 
12h-7 are not required to provide periodic Exchange Act reports, 
including quarterly reports that include interim financial 
statements. Therefore, they must prepare interim financial 
statements for Securities Act registration statements, like Form S-1 
and Form S-3, even though they do not prepare interim financial 
statements for other purposes.
    \582\ See final Form N-4, Instruction 3 to Item 26(b).
    \583\ See 17 CFR 210.3-01(c).
    \584\ Consistent with the proposal, insurance companies filing 
on Form N-4 will have a 90-day grace period to file audited 
financial statements after fiscal year-end. See final Form N-4, 
Instruction 3 to Item 26(b). One commenter suggested amending Form 
N-4 to provide separate accounts filing on the form the same 90-day 
grace period provided to insurance companies filing on the form. See 
VIP Working Group Comment Letter. In a change from the proposal, 
Item 26(a) has been amended to provide separate accounts a 90-day 
grace period for financial statements similar to the 90-day grace 
period provided to insurance companies for similar reasons. The 
exceptions to rule 3-12 of Regulation S-X contained in instruction 5 
to Item 26(a) do not apply if the financial statements of the 
registered separate account have never been included in an effective 
registration statement for annuity contracts or life insurance 
contracts under the Securities Act. See final Form N-4, Instruction 
5 to Item 26(a). The exceptions to rule 3-12 of Regulation S-X 
contained in instruction 3(a) to Item 26(b) have been modified from 
the proposal so that the exceptions do not apply if the financial 
statements of the insurance company have never been included in an 
effective registration statement for annuity contracts or life 
insurance contracts under the Securities Act. See final Form N-4, 
Instruction 3 to Item 26(b). As proposed, the exceptions would not 
have applied if the financial statements of the insurance company 
had never been included in an effective registration statement for 
annuity contract or variable life insurance contracts.
    \585\ A further consequence of the changes will be that 
insurance companies will generally be making available their non-
variable annuity-related financial statements to investors on an 
annual basis, consistent with the timing of financial statements for 
variable annuities. Currently, insurance companies relying upon rule 
12h-7 provide their non-variable annuity-related financials 
annually, whereas insurance companies not relying on that rule 
provide financial statements quarterly. Insurance companies not 
relying on rule 12h-7 will file financial statements more frequently 
than annually if there are any post-effective amendments to the 
registration statement that require updated financial statements. 
See Form 10-Q.
    \586\ CAI Comment Letter.
---------------------------------------------------------------------------

    We are also adopting, as proposed, a requirement for RILA issuers 
to provide information relating to changes in and disagreements with 
accountants on accounting and financial disclosure as detailed in 17 
CFR 229.304 (``Item 304 of Regulation S-K'') in the SAI. We are also 
extending this requirement to registered MVA annuity issuers. 
Additionally, non-variable annuities will be required to provide as an 
exhibit any letter from the insurance company's former independent 
accountant regarding its concurrence or disagreement with the 
statements made by the insurance company in the registration statement 
concerning the resignation or dismissal as the insurance company's 
principal accountant. Prior to these amendments, non-variable annuities 
provided these items on Forms S-1, 8-K, and 10-K, as applicable. These 
items are designed to address the practice of ``opinion shopping'' for 
an auditor willing to support a proposed accounting treatment designed 
to help a company achieve its reporting objectives even though that 
treatment might frustrate reliable reporting.\587\ The commenter that 
addressed this issue stated that it did not oppose this requirement as 
it applied to RILA issuers only and agreed with the placement of the 
disclosures modeled on Item 304 of Regulation S-K in the SAI.\588\
---------------------------------------------------------------------------

    \587\ See Disclosure Amendments to Regulation S-K, Form 8-K and 
Schedule 14A Regarding Changes in Accountants and Potential Opinion 
Shopping Situations, Investment Company Act Release No. 16358 (Apr. 
12, 1988) [53 FR 12924 (Apr. 20, 1988)] (``Disclosure Amendments to 
Regulation S-K, Form 8-K and Schedule 14A''); see also Form S-1, 
Item 11(i).
    \588\ See CAI Comment Letter. As registered MVA annuities 
similarly provide this disclosure currently and it will also be in 
the SAI, we are applying this requirement to registered MVA 
annuities for the same reason we are applying it to RILAs.
---------------------------------------------------------------------------

    Some insurance companies issue index-linked life insurance products 
that have a similar payment structure to RILAs, resulting in similar 
regulatory treatment as RILAs currently. Some commenters stated that 
these life insurance policies should be permitted to register on Form 
N-6,\589\ which, among other things, would allow insurance companies 
registering those policies to provide SAP financial statements in the 
same way that other insurance companies are currently permitted to on 
Form N-6.\590\ The Commission did not propose to amend Form N-6 to 
permit insurance companies to register offerings of index-linked life 
insurance on the form, and any such amendments are beyond the scope of 
this rulemaking.
---------------------------------------------------------------------------

    \589\ Similar to Form N-4 and variable annuities, Form N-6 is 
used to register offerings of variable life insurance policies.
    \590\ See, e.g., CAI Comment Letter; ACLI Comment Letter; IRI 
Comment Letter.
---------------------------------------------------------------------------

F. Filing and Prospectus Delivery Rules

1. Fee Payment Method and Amendments to Form 24F-2
    We are adopting, largely as proposed, amendments to require 
insurance companies to pay securities registration fees relating to 
RILA offerings using the same method used for variable annuities.\591\ 
In a modification from the proposal, we are also adopting this 
framework for registered MVA annuities. Under the final amendments, 
issuers registering the offerings of non-variable annuities on final 
Form N-4 will be deemed to be registering an indeterminate amount of 
securities upon effectiveness of the registration statement.\592\ These 
issuers will be required to pay registration fees annually based on 
their net sales of these securities, no later than 90 days after the 
issuer's fiscal year ends, on Form 24F-2, the form that is used by 
registered separate accounts to pay securities registration fees 
relating to variable annuities.\593\ We are further

[[Page 60040]]

specifying the calculation method for paying securities registration 
fees for non-variable annuity offerings, consistent with the fee 
calculation methodology that applies to variable annuities.\594\ We 
also are amending, as proposed, Form 24F-2 to specify when issuers can 
take credits for non-variable annuity redemptions that pre-date their 
use of that form and when expiring annuity contracts are rolled over 
into a new crediting period, as well as other non-substantive and 
conforming amendments.\595\ Commenters were supportive of our proposal 
to allow RILA issuers to pay fees in arrears on Form 24F-2, though they 
did have comments on specific elements of this part of the proposal as 
discussed below.\596\ Commenters also supported extending this 
treatment to registered MVA annuities, subject to those comments.\597\
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    \591\ To accommodate the changes, EDGAR will be modified to 
require insurance companies registering non-variable annuities to 
use a different CIK than that used for their other offerings. One 
CIK will be utilized to register the offerings of non-variable 
annuities on Form N-4 and pay registration fees for securities 
relating to non-variable annuity offerings on Form 24F-2. The other 
CIK will be utilized to register the insurance company's other 
offerings of securities as they do currently. As a result, insurance 
companies will need to utilize separate CIKs for their non-variable 
annuity-related filings. If the issuer only offers non-variable 
annuities, the issuer will only use one CIK. Further, we are 
amending rule 313 of Regulation S-T to permit filings relating to 
non-variable annuities offerings to have both an investment company 
type and contract identifier to facilitate insurance companies 
filing these forms and for ease in identification of particular 
contracts.
    \592\ The rule amendments apply the same registration fee 
payment approach to non-variable annuities that is provided by rule 
24f-2 to other Form N-4 issuers. See final rules 456(e) (providing 
that where the registration statement relates to an offering of non-
variable annuities, insurance companies will be deemed to have 
registered an indeterminate amount of securities for purposes of 
sections 5 and 6(a) of the Securities Act upon the effective date of 
its registration statement); and 457(u) (providing for insurance 
companies to pay registration fees for offerings of non-variable 
annuity securities on the same annual net basis as other Form N-4 
issuers); see also final Form 24F-2. See 15 U.S.C. 78d(e) and 77z-3. 
We believe that these actions are necessary and appropriate in the 
public interest and consistent with the protection of investors.
    \593\ As a general matter, the final amendments provide the same 
process for registering an indeterminate amount of securities 
relating to non-variable annuity offerings as is currently provided 
for exchange-traded vehicle securities under rule 456(d) (which, in 
turn, mirrors the process for current Form N-4 issuers to register 
securities) except that: (1) this process will be mandatory for 
insurance companies that register non-variable annuities on Form N-
4; and (2) such insurance companies will pay fees on Form 24F-2 
instead of filing a prospectus supplement in accordance with rule 
424. See also Closed-End Fund Offering Reform Adopting Release. For 
example, the final amendments will provide the same mechanics as 
other Form 24F-2 issuers when addressing interest calculations for 
late payments.
    \594\ All payments of filing fees for non-variable annuities 
registration statements will continue to be made by wire transfer, 
debit card, or credit card or via an ACH and there will be no 
refunds. See 17 CFR 230.111; Final Form 24F-2, Instruction A.5.
    \595\ In addition to conforming changes in final Form 24F-2 to 
effectuate the changes discussed below, to improve the form we are: 
(1) removing reporting relating to shares paid for prior to Oct. 11, 
1997; (2) removing the statement in current Instruction A.3 to 
consult the EDGAR Filer Manual because the instructions referenced 
in Instruction A.3 are intended to be removed from the EDGAR Filer 
Manual; (3) removing current Instruction C.4, which includes EDGAR 
header tags for Item 5 of the form, as this information is no longer 
sufficient for filing purposes and current technical specifications 
are provided through the technical specifications page on the 
Commission's web page; (4) revising current Instruction C.9 for Item 
5(vii) to correspond to the current instructions for fee filing 
rates on the Commission's website; (5) correcting the website linked 
in current Instruction D.1; and (6) removing the estimated Paperwork 
Reduction Act burden cited in current Instruction F as extraneous in 
light of the OMB approval box that contains information on this 
topic.
    \596\ See CAI Comment Letter; IRI Comment Letter; Gainbridge 
Comment Letter.
    \597\ See, e.g., CAI Comment Letter.
---------------------------------------------------------------------------

    Without the adoption of these final amendments, insurance 
companies, like most issuers, would need to register a specific amount 
of securities when registering non-variable annuities. Indeed, until 
now, issuers of non-variable annuities were required to pay a 
registration fee for such securities to the Commission at the time of 
filing a registration statement on Form S-1 or S-3.\598\ As a result, 
under Forms S-1 and S-3, insurance companies had to ensure that they 
did not inadvertently sell more non-variable annuities than were 
registered, even though this was not (and is not) a concern in relation 
to variable annuities. Further, insurance companies were required to 
pay fees at effectiveness on Forms S-1 or S-3 for the non-variable 
annuities being registered, in contrast with registered separate 
accounts, which do not have to pay a fee at effectiveness on Form N-4 
but rather pay fees annually on Form 24F-2 on the net sales of 
securities that year. Now, under the final amendments, insurance 
companies will be required to pay fees under the framework outlined by 
the Investment Company Act, which provides that certain registered 
investment companies, including the variable annuity separate accounts 
that file on Form N-4, are deemed to have registered an indefinite 
amount of securities upon the effective date of their registration 
statement.\599\ Instead of having to pay registration fees at the time 
of filing a registration statement, the final amendments will require 
insurance companies to pay registration fees in arrears based on their 
net issuance of non-variable annuities, no later than 90 days after the 
issuer's fiscal year end, on Form 24F-2.\600\
---------------------------------------------------------------------------

    \598\ In general, issuers today--including insurance companies 
issuing non-variable annuities--are required under the Securities 
Act to pay a registration fee to the Commission at the time of 
filing a registration statement. See sections 6(b)(1) (requiring 
applicants to pay a fee to the Commission at the time of filing a 
registration statement) and (c) (providing that a registration 
statement shall not be deemed to have taken place without payment of 
a registration fee) of the Securities Act [15 U.S.C. 77f(b)(1) and 
(c)]. This means they pay registration fees at the time they 
register the offering of securities, regardless of when (or if) they 
sell them. In addition, although well-known seasoned issuers 
(``WKSIs'') have additional flexibility in paying filing fees, none 
of the insurance companies that issue non-variable annuities 
currently claim status as a WKSI. See Proposing Release at n.21 and 
accompanying text (citing, inter alia, section 6(b)(1) of the 
Securities Act [15 U.S.C. 77f(b)(1)]).
    \599\ See 15 U.S.C. 80a-24(f).
    \600\ See id.; final Form 24F-2.
---------------------------------------------------------------------------

    The final amendments are designed to require insurance companies to 
use the same framework to pay securities registration fees for non-
variable annuities that they do for variable annuities. Insurance 
companies offer non-variable annuities in a manner substantially 
similar to variable annuities and similarly will benefit from paying 
registration fees on an annual net basis and from registering offerings 
of an indeterminate number of securities. The final amendments provide 
registration fee payment parity for an insurance company that may offer 
one or more related insurance products, including index-linked options 
offered as part of combination annuity contracts.\601\ The final 
amendments' requirement that insurance companies pay registration fees 
for non-variable annuities on Form 24F-2 therefore should be efficient 
for insurance companies. This approach eliminates the risk that an 
insurance company will inadvertently oversell non-variable annuities 
with respect to a registration statement on Form N-4, and the payment 
of fees on an annual net basis furthermore should lead to a reduction 
in overall filing fees relating to these securities.\602\ Further, by 
requiring insurance companies to use the same form and payment method 
under the final amendments for both variable and non-variable 
annuities, this process also will be efficient for the Commission.
---------------------------------------------------------------------------

    \601\ For combination products, each issuer of securities under 
the product (e.g., the separate account for the variable option and 
the insurance company for the index-linked or MVA option) will file 
a separate Form 24F-2 relating to the payment of registration fees 
for its respective securities offered under the product.
    \602\ As part of the amendments to Form 24F-2, insurance 
companies will be required to include the value of any expiring non-
variable annuities contract or index-linked or MVA option that is 
rolled over into a new crediting period in its calculation of the 
aggregate sale price of securities sold during the fiscal year. 
Insurance companies further will be required to report such 
contracts or options as redemptions. This will result in zero net 
sales being reported in this situation. See final Form 24F-2, 
Instruction C.4.
---------------------------------------------------------------------------

    The fee calculation method is consistent with the continuous 
offering of non-variable annuities to investors. These investors may 
make additional allocations or other investment decisions over time 
with respect to an investment in non-variable annuities. One effect of 
this was that, prior to these rule amendments, insurance companies, 
unlike other Form S-1 or S-3 issuers, could have increased difficulty 
in using the filing fees associated with unsold non-variable annuities 
of a particular offering to offset the filing fees due for a subsequent 
registration statement. This was because many insurance companies could 
not easily terminate an offering of non-variable annuities, a necessary 
step to recoup fees paid on unsold securities for use in a separate 
offering.\603\
---------------------------------------------------------------------------

    \603\ See 17 CFR 230.457(p). To facilitate the transition to 
calculating fees on an annual net basis and filing Form 24F-2, a 
filer will reduce the number reported in Item 5(i) in connection 
with non-variable annuities by any excess securities that were 
registered under its last registration statement that remain unsold 
prior to the effectiveness of the final rule. See final Form 24F-2, 
Instruction C.5. This will be so that a filing fee is not charged 
twice for the same securities being registered.
---------------------------------------------------------------------------

    We also are amending Form 24F-2 to indicate when insurance 
companies can take credits for redemptions of non-variable annuity 
securities not claimed

[[Page 60041]]

during a prior fiscal year (``non-claimed prior redemptions''). 
Typically, issuers that file Form 24F-2 are eligible for a credit for 
fees paid on prior redemptions, which may be used to offset 
registration fees due for securities sold during the current fiscal 
year. This credit will only be available for non-claimed prior 
redemptions that occurred during any prior fiscal year that ended no 
earlier than the date the issuer became eligible to use Form 24F-
2.\604\ The current form, however, includes a legacy instruction that 
permits a credit for any non-claimed redemptions in a prior fiscal year 
that ends no earlier than October 11, 1995. This specific date is 
related to the timing of open-end funds' and unit investment trusts' 
transition to Form 24F-2.\605\ With the addition of non-variable 
annuities to this form, we are removing the reference to October 11, 
1995 in Item 5(iii) of Form 24F-2 and amending the related instructions 
so that Form 24F-2 is clear that issuers only will be able to take 
credit for non-claimed prior redemptions for a fiscal year prior to the 
date the issuer became eligible to use the form, which for insurance 
companies issuing non-variable annuities would be the date on which we 
adopt these amendments.\606\
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    \604\ See Form 24F-2, Item 5(iii); see also generally Closed-End 
Fund Offering Reform Adopting Release at n.348.
    \605\ See Registration Under the Securities Act of 1933 of 
Certain Investment Company Securities, Investment Company Act 
Release No. 22815 (Sep. 10, 1997) [62 FR 47934 (Sep. 12, 1997)] at 
n.9.
    \606\ In addition to insurance companies, interval funds have 
been able to use Form 24F-2 since Aug. 1, 2021 (the effective date 
of rule 24f-2 as applied to interval funds), so these funds likewise 
would only be able to take credit for non-claimed prior redemptions 
since that date.
---------------------------------------------------------------------------

    While generally supportive of the proposal, commenters had some 
specific recommendations on how we could modify Form 24F-2. One 
commenter recommended that a separate line item be added to Form 24F-2 
for unsold interests that were registered using Forms S-1 and S-3 
registration statements.\607\ This commenter suggested that, to provide 
greater transparency in the calculation of registration fees and to 
ensure RILA issuers receive credit for the amount of registration fees 
previously paid for unsold securities registered on the Forms S-1 and 
S-3 registrations statements, we provide a separate line item (e.g., a 
``redemption credit line'') on Form 24F-2 to explicitly treat such 
unsold securities as redemption credits. We have not added such a line 
item to Form 24F-2 because final Form 24F-2 will allow insurance 
companies to exclude non-variable annuities previously registered on 
Forms S-1 or S-3 from the registration fee payment calculation in the 
first Form 24F-2 filed following the conversion to Form N-4. 
Specifically, the form, both as proposed and as adopted, instructs 
filers to reduce the calculation of the amount of securities sold (and, 
thus, for which registration fees are to be paid) by the amount of 
securities registered under the Securities Act for which the issuer 
paid registration fees on a form other than Form 24F-2.\608\ Thus, 
because those securities identified by the commenter were not 
registered pursuant to the final amendments (or section 24(f) of the 
Investment Company Act), insurance companies will be able to deduct 
those securities from the calculation without the need for a specific 
line item in that calculation that eventually would become obsolete. If 
additional clarity is desired, insurance companies may optionally use 
the explanatory notes section of the form to provide it.
---------------------------------------------------------------------------

    \607\ CAI Comment Letter.
    \608\ See Final Form 24F-2, Item 5(i) and Instruction C.5; see 
also supra footnote 603.
---------------------------------------------------------------------------

    Proposed Instruction C.4 to Form 24F-2 provided a special rule for 
RILAs that clarified that the value of any expiring annuity contract or 
investment option that is rolled over into a new crediting period 
should be reported both as securities sold and as securities redeemed, 
resulting in a net-zero calculation to the extent that these amounts 
are the same. One commenter stated, in discussing this proposed 
approach, that transfers from index-linked options to options (and 
variable options to index-linked options) should be viewed as 
substantially similar to rollovers of crediting periods from a 
registration fee payment perspective. The commenter stated that, in 
both cases, simultaneous purchases and redemptions of equal amounts 
occur, and thus both should be afforded comparable treatment in the 
context of registration fee payment.\609\ This commenter therefore 
recommended that, with respect to combination contracts, we provide 
expanded guidance in Instruction C.4 in Form 24F-2 regarding net zero 
fee transactions to include (1) transfers from index-linked options to 
variable separate account subaccounts; and (2) transfers from variable 
separate account subaccounts to index-linked options. We are not 
adopting this recommendation because in a combination contract, the 
separate account and insurance company each file their own separate 
Form 24F-2. Expanding net zero fee transactions to include transfers 
from index-linked or MVA options to variable separate account 
subaccounts and vice versa would expand the ability of a registrant to 
determine net sales, and thus potentially reduce registration fees, to 
a greater extent than other registrants using Form 24F-2. This is 
because the form does not currently permit two or more legal entities 
to net purchases and redemptions and we do not believe netting across 
legal entities is appropriate. Therefore, we are not adding transfers 
from index-linked or MVA options to variable separate account 
subaccounts (and vice versa) to final Instruction C.2.
---------------------------------------------------------------------------

    \609\ CAI Comment Letter.
---------------------------------------------------------------------------

    One commenter asked us to confirm that RILA issuers could file a 
single Form 24F-2 annually to pay registration fees for all ongoing 
RILA offerings and pay registration fees on a net basis across all such 
offerings rather than having to make multiple Form 24F-2 filings and 
pay registration fees on a RILA offering-by-offering basis as with 
variable product separate account registration fee payments because 
paying registration fees in the aggregate across all RILA offerings 
would allow companies to more effectively use their unsold interests 
registered on Forms S-1 or S-3.\610\ Another commenter suggested that 
we permit RILA issuers to use a single Form 24F-2 on the grounds that 
requiring multiple nearly identical filings has little value to 
investors, leads to additional complexity for both the staff and 
insurance companies, makes tagged data less useful (as a single product 
will have multiple identical tags under different registrants and IDs), 
and provides no upside.\611\ Consistent with the treatment for variable 
annuity and variable life insurance offerings, we agree that issuers 
should be permitted to pay registration fees for multiple offerings of 
non-variable annuities with different Securities Act numbers--provided 
that those Securities Act numbers are under the same Central Index Key 
(CIK) number--on a single Form 24F-2 and have added an instruction to 
that effect.\612\
---------------------------------------------------------------------------

    \610\ CAI Comment Letter.
    \611\ VIP Working Group Comment Letter.
    \612\ See final Form 24F-2, Instruction A.6.
---------------------------------------------------------------------------

2. Post-Effective Amendments and Prospectus Supplements
    The final amendments, which we are adopting as proposed, will 
require RILA issuers to use the same framework for filing post-
effective amendments to the registration statement that other issuers 
on Form N-4 use. We are also adopting

[[Page 60042]]

this requirement in connection with offerings of registered MVA 
annuities. Specifically, we are amending rule 485 to require insurance 
companies to use that rule when amending non-variable annuity 
registration statements on Form N-4. This change will permit insurance 
companies to file post-effective amendments relating to non-variable 
annuity registration statements that become automatically effective 
under rule 485(a) after a specified period of time after the filing or, 
in certain enumerated circumstances, immediately effective under rule 
485(b).\613\ In addition, we also are requiring insurance companies to 
apply rule 497 under the Securities Act when appropriate to file non-
variable annuity prospectuses and prospectus supplements with the 
Commission.\614\ These amendments will facilitate a uniform post-
effective amendment and prospectus filing framework for issuers on Form 
N-4 and will provide increased efficiencies for insurance companies and 
Commission staff by applying consistent procedures for all security 
offerings registered on Form N-4. The one commenter who addressed this 
aspect of the proposal supported the proposed amendments and supported 
their application to registered MVA annuities.\615\
---------------------------------------------------------------------------

    \613\ See rule 485(b).
    \614\ Consistent with this change, we are making corresponding 
changes to (1) rule 424(f) to specify that insurance companies must 
use rule 497 rather than rule 424 when filing non-variable annuity 
prospectuses and prospectus supplements, and (2) rule 415(b) to 
exempt offerings of non-variable annuities from the requirements of 
paragraph (a) of that rule consistent with the treatment of variable 
annuity separate accounts.
    \615\ CAI Comment Letter. This and one other commenter did raise 
questions on the effective dates of the amendments to rules 485 and 
497 which we address below. See CAI Comment Letter; VIP Working 
Group Comment Letter; see also infra Section II.J. Additionally, 
while not specific to this requirement, one commenter suggested that 
we amend 17 CFR 240.10b-10(b)(1) to permit RILA issuers to use 
quarterly statements rather than the immediate confirmations usually 
required, consistent with the treatment of variable annuities under 
that rule. See CAI Comment Letter. We are not adopting this change 
at this time because it is beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    Prior to the adoption of these final amendments, our rules provided 
different processes for insurance companies when registering offerings 
of non-variable annuities on Forms S-1 and S-3, as compared to those of 
variable annuities on Form N-4, to update and keep current a 
registration statement or prospectus. Form N-4 was used by separate 
accounts that are unit investment trusts that offer variable contracts 
to register their securities under the Investment Company Act and to 
register an indefinite amount of continuously-sold securities under the 
Securities Act. As such, these issuers had a system of updating their 
disclosures that facilitates that structure. Issuers on Form N-4 
typically update their registration statements annually through a post-
effective amendment filed in accordance with rule 485 to, among other 
things, comply with Securities Act requirements.\616\ Rule 485(b) 
provides for the immediate effectiveness of many of the routine updates 
that issuers on Form N-4 may make over the course of a continuous, 
long-term offering, such as those amendments filed for no purpose other 
than to bring the financial statements up to date under section 
10(a)(3) of the Securities Act.\617\ These issuers also file forms of 
prospectuses used in their offerings through rule 497 and can 
supplement their prospectuses, also known as ``stickering,'' to reflect 
certain changes to the information disclosed by making a filing with 
the Commission in accordance with rule 497.
---------------------------------------------------------------------------

    \616\ See, e.g., section 10(a)(3) of the Securities Act [15 
U.S.C. 77j(a)(3)].
    \617\ See rule 485(b)(1)(i). Material post-effective amendments, 
however, are not immediately effective. See rule 485(a).
---------------------------------------------------------------------------

    Prior to the final amendments that we are adopting today, insurance 
companies had to follow the processes operating companies use, when 
these insurance companies were updating non-variable annuity 
registration statements. Operating companies that are engaged in a 
continuous offering of securities, like these issuers, are similarly 
required to update their registration statement each year and may 
update their registration statement for changes other than to bring the 
financial statements up to date.\618\ For non-variable annuities whose 
offerings were registered on Form S-1, these updates typically occurred 
through a post-effective amendment.\619\ Rule 462 provided insurance 
companies with a limited set of circumstances, none of which are 
specific or generally relevant to offerings of non-variable annuities, 
in which a post-effective amendment to a registration statement is 
effective upon filing.\620\ Rather, when an insurance company sought to 
update a non-variable annuity registration statement on Form S-1, the 
issuer had to file a post-effective amendment that was typically 
declared effective by Commission staff acting pursuant to delegated 
authority.\621\
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    \618\ See, e.g., section 10(a)(3) of the Securities Act; rule 
415(a); Item 512 of Regulation S-K.
    \619\ Under Form S-3, the section 10(a)(3) update need not be 
made through a post-effective amendment. Rather, under this form, 
the section 10(a)(3) update generally occurs when the issuer files 
its annual report on Form 10-K containing the issuer's audited 
financial statements for its most recently completed fiscal year.
    \620\ See rule 462(d) and (e). For example, this rule provides 
that a post-effective amendment that seeks only to add exhibits to a 
registration statement would be effective upon filing. In addition, 
although a well-known seasoned issuer is permitted to file a post-
effective amendment to an automatic shelf registration statement 
with immediate effectiveness, none of the insurance companies 
currently offering non-variable annuities currently claims status as 
a well-known seasoned issuer.
    \621\ See 15 U.S.C. 77h; 17 CFR 229.501(a); 17 CFR 230.473. See 
also supra footnote 619 (describing the Form S-3 post-effective 
amendment process).
---------------------------------------------------------------------------

    In addition to differences in the post-effective amendment process, 
insurance companies also followed, prior to the adoption of the final 
amendments, different processes to file non-variable annuity 
prospectuses than current Form N-4 filers, relying on rule 424 rather 
than rule 497. Although these rules provide for similar processes, 
certain differences affected these insurance companies. For example, 
rule 424 requires an issuer to file a prospectus only if the issuer 
makes substantive changes or additions to a previously-filed 
prospectus, whereas rule 497 requires funds to file every prospectus 
that varies from any previously-filed prospectus.\622\ Accordingly, 
under the final amendments, an insurance company will need to file 
every prospectus relating to a non-variable annuity offering that 
varies in form from a previously filed prospectus before the modified 
prospectus is first used.\623\ This approach will provide a publicly 
accessible, usable database of current non-variable annuity 
prospectuses which also will assist the Commission in conducting its 
regulatory functions. In addition, rule 424 includes provisions related 
to continuous or delayed securities offering under rule 415.\624\ 
However, in light of the amendments we are making to the non-variable 
annuity registration framework with this rulemaking, these provisions 
will no longer be applicable to non-variable annuities.\625\
---------------------------------------------------------------------------

    \622\ See rule 424(a); rule 497.
    \623\ See rule 497(e).
    \624\ See rule 424(b).
    \625\ See rule 415(b).
---------------------------------------------------------------------------

    Consistent with the other elements of this proposal, the final 
amendments are designed to provide parity between non-variable 
annuities and variable annuities that are currently registered on Form 
N-4. Non-variable annuities, like variable annuities, are longer-term 
investment products that are continuously offered and must maintain a 
current registration statement and up-to-date prospectus for new 
investors as well as for existing investors that may be able to make 
additional contributions

[[Page 60043]]

or reallocate assets. Accordingly, applying rule 485's simplified post-
effective amendment process is a more appropriate framework for non-
variable annuity registration statements given their similarity to 
variable annuities. Non-variable annuity registration statements are 
routinely updated over the course of an offering and may be subject to 
material and non-material amendments over the long-term nature of the 
investment product. As such, the final amendments address the post-
effective amendment process for non-variable annuity registration 
statements and thereby provide benefits to insurance companies 
currently using Form S-1 in relation to non-variable annuity offerings 
by reducing administrative complexity when updating financial 
statements included in a registration statement or when making other 
changes to a registration statement through rule 485's provisions for 
automatic and immediate effectiveness.\626\ Requiring insurance 
companies to rely on the simplified post-effective amendment process 
will enable these issuers to update their disclosures in a manner that 
complements and facilitates the offering structure of non-variable 
annuities and will provide efficiency in the context of combination 
contracts.\627\
---------------------------------------------------------------------------

    \626\ See rule 485.
    \627\ Some commenters asked if RILA issuers would be permitted 
to use the ``rate sheet'' process outlined in ADI 2018-05 for the 
disclosure of certain rate changes. See CAI Comment Letter. The 
application of that staff statement beyond variable contracts is 
beyond the scope of this rulemaking. Insurance companies are 
encouraged to engage with Commission staff on this ADI and whether 
modifications to address RILAs would be appropriate.
---------------------------------------------------------------------------

    Requiring insurance companies to rely on rules 485 and 497 in 
connection with non-variable annuities also will provide a uniform 
post-effective amendment and prospectus filing framework for all 
issuers using Form N-4 and provide insurance companies that may offer 
one or more related insurance products, including index-linked or MVA 
options offered as part of combination annuity contracts, consistent 
filing requirements across related products. This also should result in 
enhanced efficiencies as these issuers would no longer be required to 
manage distinct filing processes for related products. In addition, 
employing the framework provided by rules 485 and 497 will provide 
Commission staff with an increased degree of administrative efficiency 
by facilitating the review of amendments containing material changes to 
non-variable annuity registration statements while permitting 
amendments with non-material changes to become effective immediately.
3. Prospectus Delivery
    As proposed, we are prohibiting the use of rule 172 in connection 
with RILA offerings. We are also prohibiting its use in connection with 
registered MVA annuity offerings. Under rule 172, a final prospectus is 
deemed to precede or accompany a security for sale for purposes of 
Securities Act section 5(b)(2) as long as the final prospectus meeting 
the requirements of Securities Act section 10(a) is filed or the issuer 
will make a good faith and reasonable effort to file the final 
prospectus with the Commission as part of the registration statement 
within the required rule 424 prospectus filing timeline.\628\ We 
received no comments on this aspect of the proposal.
---------------------------------------------------------------------------

    \628\ See rule 172(b) and (c); see also Closed-End Fund Offering 
Reform Adopting Release at n.561 and accompanying text.
---------------------------------------------------------------------------

    Registered investment companies, including variable annuity 
separate accounts, are excluded from rule 172 and therefore must 
deliver a prospectus to investors.\629\ Therefore, we are excluding 
offerings of non-variable annuities from rule 172 to ensure that 
investors receive a prospectus about these complex investments and 
because we are treating these offerings like offerings of variable 
annuities in other respects. Moreover, we understand that, as a 
practical matter, insurance companies typically do not rely on rule 172 
in connection with non-variable annuities because they usually deliver 
prospectuses to accompany or precede other communications, such as 
annuity applications, to avoid those communications being offers that 
otherwise would be non-conforming prospectuses that violate section 5 
of the Securities Act.\630\
---------------------------------------------------------------------------

    \629\ Id. at Section VI.B.1.a.
    \630\ See section 2(a)(10) of the Securities Act (providing, in 
part, that a communication sent or given after the effective date of 
the registration statement shall not be deemed a prospectus if it is 
proved that prior to or at the same time with such communication a 
written prospectus meeting the requirements of section 10(a) was 
sent or given to the person to whom the communication was made). See 
also Closed-End Fund Offering Reform Adopting Release at n.561 
(stating that a final prospectus only filed as provided in rule 172 
will not be considered to be sent or given prior to or with a 
written offer within the meaning of this clause of section 
2(a)(10)).
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G. Communication Rules Applicable to Non-Variable Annuities

    As proposed, we are amending rule 156 to make its provisions 
applicable to RILA sales literature, and, in a change from the 
proposal, we are also applying these changes to registered MVA 
annuities in light of the similarities in the products.\631\ 
Additionally, in a change from the proposal, we are also making a 
technical amendment to rule 433 to allow certain RILA issuers that can 
meet the rule's conditions to continue to use a free writing prospectus 
without it needing to be preceded or accompanied by a prospectus that 
satisfies the requirements of section 10 of the Securities Act.
---------------------------------------------------------------------------

    \631\ See final rule 156.
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1. Sales Literature (Rule 156)
    Under the Federal securities laws applicable to all securities 
(including non-variable annuity offerings), it is unlawful for any 
person to use materially misleading communications in connection with 
the offer or sale of any security.\632\ Rule 156 does not prohibit or 
permit any particular representations or presentation, rather it is an 
interpretive rule that provides factors to be weighed in considering 
whether, in the specific context of investment company sales 
literature, a statement involving a material fact is or might be 
misleading for purposes of the Federal securities laws.\633\ Amending 
rule 156's provisions to include non-variable annuity sales literature 
will provide guidance to insurance companies on ways to avoid 
presenting investors with materially misleading advertisements, which, 
consistent with the RILA Act, should help ensure that investors receive 
the information necessary to make informed decisions about these 
products.
---------------------------------------------------------------------------

    \632\ See 15 U.S.C. 77q(a); 15 U.S.C. 78j(b); 17 CFR 240.10b-5.
    \633\ See Mutual Fund Sales Literature Interpretive Rule, 
Investment Company Act Release No. 10915 (Oct. 26, 1979); [44 FR 
64070 (Nov. 6, 1979)] (``Rule 156 Release'').
---------------------------------------------------------------------------

    Rule 156 provides guidance on whether a statement involving a 
material fact is misleading in sales literature, depending on an 
evaluation of the context in which it is made, with the rule providing 
four non-exhaustive factors to guide in this determination.\634\ Like 
investment company sales literature generally (and variable annuity 
marketing materials particularly), RILA advertisements discuss complex 
investment features that could benefit from rule 156's contextual 
analysis in considering whether a particular representation is 
materially misleading. Moreover, Commission staff reviewed RILA 
advertisements to better understand how insurance companies market 
these products to investors. As part of this review, and based upon 
prior

[[Page 60044]]

experience reviewing RILA registration statements, the staff identified 
RILA marketing approaches that could benefit from rule 156's guidance 
about advertising statements that could be misleading under the Federal 
securities laws without appropriate context. Thus, by extending this 
guidance to RILAs, the final amendments to rule 156 focus attention to 
specific areas of RILA sales literature that we have identified as 
being particularly susceptible to misleading statements.\635\ These 
considerations are equally applicable to registered MVA annuities given 
the similarities in the products.
---------------------------------------------------------------------------

    \634\ See current rule 156(b).
    \635\ See Rule 156 Release (Rule 156 is ``intended to highlight 
general areas which, based on the Commission's regulatory experience 
with investment company sales literature, had proven to be 
particularly susceptible to misleading statements'').
---------------------------------------------------------------------------

    Several commenters expressed support for the proposed amendments to 
rule 156 and no commenters opposed them.\636\ Commenters stressed the 
benefits to investors of applying rule 156 to RILA advertising. One 
commenter stated that the application of rule 156 to RILA sales 
literature is a ``natural fit'' given the applicability of its guidance 
to RILAs, noting that the proposed amendments would protect investors 
by, among other things, requiring insurance companies to consider the 
potentially misleading nature of statements about past performance in 
their sales literature.\637\ Because the features of a RILA investment, 
such as limits on gains, change frequently, this commenter observed 
that past performance is often irrelevant to current RILA investors who 
are not able to utilize those past rates in current market conditions. 
Referring to news reports expressing concerns about sales techniques 
used to sell annuities generally, this commenter suggested that these 
concerns further emphasize the need for marketing rule protections in 
the context of RILA sales literature.\638\
---------------------------------------------------------------------------

    \636\ See, e.g., Better Markets Comment Letter; Johnson Comment 
Letter. One commenter stated concern that the Proposing Release 
implied that misleading marketing practices are common in RILA 
advertising. See CAI Comment Letter. We did not intend to express, 
and are not expressing, a view about the prevalence of misleading 
marketing practices in RILA advertising. This commenter also 
suggested that it is noteworthy that most RILA advertisements are 
submitted for review to the Financial Industry Regulatory Authority 
even though there is currently no legal requirement to do so. We 
discuss this in more detail below. See infra Section II.G.2.
    \637\ See Better Markets Comment Letter.
    \638\ See id. (citing 2023 N.Y. Times article discussing the 
fact that investors often face aggressive sales pitches on annuities 
with opaque terms and hefty commissions that give brokers incentives 
to sell annuities that pay them the most).
---------------------------------------------------------------------------

    Some commenters also expressed concerns about the potential for 
confusion about other RILA features.\639\ One of these commenters 
stated that RILAs are inherently misleading products and urged the 
Commission to do more to protect investors with regard to certain 
confusing RILA features.\640\ For example, some commenters stated that 
claims that RILAs have no ongoing fees are misleading because investors 
will sometimes incur fees even if they hold the investment past the 
surrender charge period.\641\ These commenters urged that we require 
disclosure of such fees and charges even if they are hard to quantify. 
These commenters also stated that there was the potential for investor 
confusion because RILA returns are based on a price return index 
instead of a total return index, suggesting that insurance companies 
need to explain the difference and specify which return is applicable 
to the RILA so that investors can understand the difference between 
investing in an index fund (which might be subject to explicit ongoing 
fees, but in which investors receive a total return, including 
dividends) and a RILA based on a price return index (whose return would 
be less than that of an index fund that includes a total return).
---------------------------------------------------------------------------

    \639\ See Johnson Comment Letter; Lee Comment Letter.
    \640\ See Lee Comment Letter.
    \641\ See Johnson Comment Letter; Lee Comment Letter.
---------------------------------------------------------------------------

    One commenter also expressed concerns about representations 
concerning tax deferral and death benefits in RILA advertisements.\642\ 
For example, this commenter suggested that the term ``death benefit'' 
is misleading because these features are just a return on an investment 
(like that provided by mutual funds, stocks, and bonds), and further, 
unlike other comparable investments, death benefits are fully taxed at 
ordinary income rates. Similarly, this commenter expressed a concern 
that annuity advertisements frequently exaggerate the benefits of tax 
deferral by providing charts and examples that rely on unreasonable 
assumptions (such as comparing the tax-deferred value of an annuity to 
the value of a taxable account without reflecting an investor's 
inability to access her investment from a tax-deferred account without 
paying taxes). Finally, this commenter also expressed concern regarding 
the discretion of an insurance company to change key terms, such as 
minimum rates. This commenter suggested that this discretion was 
particularly concerning because, unlike most other investments where 
the issuer is a fiduciary (such as funds or equity investments), RILA 
issuers have no duty to act in the investor's interest when acting 
unilaterally to alter the product by setting or changing rates.
---------------------------------------------------------------------------

    \642\ See Johnson Comment Letter.
---------------------------------------------------------------------------

    This same commenter stated that focusing on RILA marketing 
practices is important because investors may not read an entire 
prospectus and thus may rely on marketing materials for information 
about a RILA's complex features. This commenter, however, suggested 
that RILA issuers should be permitted (or even required) to produce 
fair presentations of performance, which the commenter believed would 
allow investors to see how RILAs operate under real market conditions. 
This commenter agreed that providing fair representations of RILA 
performance is difficult because the rates offered by insurance 
companies are constantly changing but suggested that RILA performance 
presentations could be required to use average cap rates over a 
calendar year, while prohibiting those presentations from using back-
tested index performance or performance of the RILA prior to the 
product's launch. As described above, rule 156 is an interpretive rule 
that provides factors to weigh in considering whether, in the specific 
context of sales literature, a statement involving a material fact is 
or might be misleading for purposes of the Federal securities laws. 
Because rule 156 does not prohibit or permit any particular 
representations or presentation, we disagree with the commenter's 
suggestion that we impose a requirement under rule 156 regarding the 
use of cap rates in providing representations as to historical RILA 
performance.
    After considering these comments, we are adopting the amendments to 
rule 156 as proposed, with the added application to registered MVA 
annuities. As discussed below, these amendments address commenter 
concerns about potentially misleading statements in RILA sales 
literature by providing insurance companies with guidance about the 
contextual analysis to use in determining whether a particular 
representation in non-variable annuity advertising could be materially 
misleading.
    For example, as stated above, commenters expressed concern about 
the potential for investors to be misled in connection with 
representations in RILA marketing materials about a lack of ongoing 
fees. Final rule 156(b)(4) provides that representations about fees or 
expenses associated with an investment in a non-variable annuity could 
be misleading ``because of

[[Page 60045]]

statements or omissions made involving a material fact, including 
situations where portrayals of the fees and expenses associated with an 
investment in the fund or registered non-variable annuity omit 
explanations, qualifications, limitations, or other statements 
necessary or appropriate to make the portrayals not misleading.'' While 
non-variable annuity investors are not typically charged direct ongoing 
fees or expenses, RILAs do typically limit an investor's ability to 
participate in upside performance, and non-variable annuities with 
contract adjustments (including registered MVA annuities) can impose 
implicit costs upon highlighted features such as guaranteed 
benefits.\643\ Thus, in the context of non-variable annuity sales 
literature, under this provision of rule 156, consideration should be 
given about whether representations or portrayals either of a non-
variable annuity's costs or charges (e.g., advertising implying that a 
RILA has low costs or no ongoing charges), or optional benefits that 
are subject to a contract adjustment, would necessitate qualifying 
statements or explanations regarding the costs or tradeoffs to the 
investor to receive an advertised benefit or those generally associated 
with the non-variable annuity.
---------------------------------------------------------------------------

    \643\ Insurance companies may apply a contract adjustment to an 
investor's account when an investor annuitizes or takes advantage of 
benefits like ``free withdrawal'' provisions (that typically permit 
investors to withdraw up to 10% of the contract value each year 
without paying a surrender charge), death benefits, systemic 
withdrawals, and guaranteed benefits. See, e.g., Dodie Kent and 
Ronald Coenen, Jr., The Design and Regulatory Framework of 
Registered Index-Linked Annuities, ALI CLE Conference on Life 
Insurance Products 2023 (``It is important to note that interim 
value adjustments may apply to surrenders and all types of 
`withdrawals,' such as free look payments; annuitization; death 
benefit payments; deductions for third party advisory fees; systemic 
withdrawals; and even income payments under guaranteed benefit 
riders.'').
---------------------------------------------------------------------------

    Similarly, final rule 156(b)(1)(ii)'s extension to non-variable 
annuity sales literature also addresses some of the commenter concerns 
we received regarding RILA features that, when described in marketing 
materials, may require additional context to ensure they are not 
misleading. Final rule 156(b)(1)(ii) provides that a statement in non-
variable annuity sales literature could be misleading because of 
``[t]he absence of explanations, qualifications, limitations or other 
statements necessary or appropriate to make such statement not 
misleading.'' Whether a given explanation, qualification, or limitation 
is necessary or appropriate to make statements in sales literature not 
misleading will depend on the facts and circumstances in each case. The 
examples that follow are areas where an insurance company should 
consider the need for further explanation, qualifications, or 
limitations, but are not intended to suggest that that further 
explanation, qualifications, or limitations are necessary in each case 
in order to make the examples not misleading.
    For example, where a RILA advertisement includes statements 
regarding index returns, under this provision, consideration should be 
given as to whether the insurance company needs to explain the 
difference between a price return index and a total return index, 
including how that difference can affect an investor's returns, or if 
an advertisement describes a RILA as a growth product, whether 
qualification of the statement is necessary in light of relevant RILA 
features, such as the existence and extent of any limitations on upside 
index performance.
    If RILA sales literature discuss these aspects of the contract 
without adequately explaining these limitations or the insurer's 
discretion to alter key features, that omission could make the 
advertisement misleading. For instance, if sales literature advertises 
a particular feature of a RILA's bounded return structure (including, 
e.g., a specified index; an upside feature such as a particular ``cap 
rate'' or ``participation rate''; or a downside feature such as a 
``floor'' or ``buffer'') that is not available for the life of the 
product, under the rule consideration should be given regarding whether 
the statement could be misleading without providing additional context 
as to the insurer's discretion.
    Additionally, under these provisions of final rule 156, insurance 
companies should also consider whether representations that highlight 
downside protections of a RILA (e.g., describing the RILA as a loss 
avoidance vehicle) could also be misleading without qualifying 
explanations or statements, including the context of the cost or 
limitation of those protections (e.g., upside limitations). Insurance 
companies should further consider whether the same analysis would apply 
to representations that accentuate the benefits of customization 
without discussing the trade-offs associated with that customization 
(e.g., long lock-up periods to get the best rates or having to 
experience a contract adjustment when making a change) or do not 
explain that the insurance company has reserved the right to change or 
remove key features of the contract.
    Lastly, final rule 156(b)(2)(i) states that ``[r]epresentations 
about past or future investment performance could be misleading because 
of statements or omissions made involving a material fact, including 
situations where: [p]ortrayals of past income, gain, or growth of 
assets convey an impression of the net investment results achieved by 
an actual or hypothetical investment which would not be justified under 
the circumstances, including portrayals that omit explanations, 
qualifications, limitations, or other statements necessary or 
appropriate to make the portrayals not misleading.'' In the context of 
non-variable annuity advertising, under this provision, consideration 
should be given to whether illustrations about the operation of a non-
variable annuity or its features could be misleading. This could be the 
case in a RILA advertisement because, for example, it uses assumptions 
(such as limits on gains or index performance that includes dividends, 
whereas the RILA's index does not include dividends) that are not 
currently offered or exceed what could be reasonably anticipated, or 
use ``cherry picked'' data.
    Similarly in the case of RILA and registered MVA annuity 
advertising, with regard to the commenter concern regarding the 
potential for statements that exaggerate the benefits of tax deferral, 
under final rule 156(b)(2)(i) consideration should be given to whether 
portrayals of the tax-deferred value of the annuity, especially where 
this value is compared to the value of a taxable account, should 
reflect the advantages of taxable accounts (e.g., discussing, if 
applicable, whether a taxable account would be taxed at lower capital 
gains rates).\644\ Likewise, given the frequency with which RILA terms 
can change and the sensitivity of a RILA's returns to the 
particularized choices made by individual investors,\645\ including the 
historical performance of a RILA or any particular index-linked option 
itself in an advertisement may be inconsistent with amended rule 156's 
guidance.\646\

[[Page 60046]]

Further, including historical index performance in an advertisement 
also would be misleading if, for example, it suggested that the 
performance shown is predictive of future performance of the index or a 
RILA. On the other hand, using the index's historical performance 
solely to illustrate how a RILA works, and in a fair and balanced way 
(e.g., by showing index performance relative to representative limits 
on gains and losses, as some RILA advertisements currently do) would be 
consistent with final rule 156, assuming those advertisements otherwise 
include appropriate caveats to ensure that the illustrations are not 
misleading and do not suggest that the illustrations show the 
performance of the RILA or a particular index-linked option.
---------------------------------------------------------------------------

    \644\ See Johnson Comment Letter.
    \645\ Registered MVA annuity advertisements do not raise the 
same concerns, as investor returns in a registered MVA are not 
subject to the same range of particularized investor choices, but 
are instead based on a particular fixed rate that is periodically 
reset by the insurance company.
    \646\ Because the terms of a RILA investment, such as limits on 
gains, change frequently, past performance is often irrelevant to 
current investors who are not able to utilize those past rates in 
current market conditions. In addition, to the extent that a RILA is 
using a point-to-point crediting method, that RILA's return to an 
investor would be particularly sensitive to the specific date the 
investor purchased the RILA and when the crediting period ends for 
the index-linked option chosen by the investor. See Proposing 
Release at n.352. This further increases the likelihood of a current 
investor's investment experience deviating from the historical 
performance of a given RILA, even when that RILA had similar terms 
to those currently offered.
---------------------------------------------------------------------------

2. Free Writing Prospectuses and Advertisements (Rules 433 and 482)
    In addition to the prohibition against using materially misleading 
communications in connection with the offer or sale of any security, 
Congress has imposed advertising restrictions to the extent that 
certain advertisements are considered prospectuses under the Securities 
Act.\647\ The Commission has stated that Congress imposed these 
restrictions so that investors base their investment decisions on the 
full disclosures contained in the statutory prospectus, which is 
intended to be the primary selling document.\648\ However, these 
advertising restrictions require special considerations for many 
investment companies. Specifically, investment companies are uniquely 
situated in that the only ``product'' of the typical investment company 
is its shares, and ``because it is in continuous registration, any 
advertisement for such a company is a prospectus that is illegal unless 
it complies with statutory requirements.'' \649\ Because of these 
restrictions, investors were unable to learn about the investment 
company itself, as they would about other companies, ``from 
advertisements of its products or policies or from widely disseminated 
annual reports to shareholders or similar publications.'' \650\ In 
recognition of these problems, the Commission adopted specialized 
advertising rules for registered investment companies and business 
development companies (collectively ``funds''), including rule 482, 
which permits funds to provide advertisements and sales literature to 
investors without being accompanied or preceded by a statutory 
prospectus (``prospectus delivery requirements'') by treating such 
advertisements as prospectuses under section 10(b) of the Securities 
Act.\651\ Accordingly, a rule 482 advertisement is a prospectus for 
purposes of potential civil liability under section 12(a)(2) of the 
Securities Act.\652\ Currently, rule 482 is only available to funds, 
which are substantively regulated under the Investment Company Act. 
These substantive regulations provide a range of direct and indirect 
investor protections by, for example, regulating fund structure, 
holdings and operations, and reducing fund complexity and helping 
ensure that fund fees are reasonable in relation to services 
rendered.\653\ Insurance companies offering non-variable annuities, 
like other non-fund issuers, are not subject to these requirements 
under the Investment Company Act.
---------------------------------------------------------------------------

    \647\ See, e.g., section 2(a)(10) of the Securities Act 
(defining prospectus): section 5(b)(1) of the Securities Act 
(prohibiting the use of any means or instruments of transportation 
to carry or transmit any prospectus relating to any security with 
respect to which a registration statement under the Securities Act 
has been filed unless such prospectus meets the requirements of 
section 10 of the Securities Act); section 10 of the Securities Act 
(stating information required in prospectus).
    \648\ See, e.g., Advertising by Investment Companies, Investment 
Company Act Release No. 9811 (June 8, 1977) [42 FR30378 (June 14, 
1977)] (``Investment Company Advertising Rules Proposing Release''); 
Amendments to Investment Company Advertising Rules, Investment 
Company Act Release No. 26195 (Sept. 29, 2003) [68 FR 57760 (Oct. 6, 
2003)] (``482 Amendment Adopting Release'').
    \649\ See Investment Company Advertising Rules Proposing 
Release.
    \650\ Id. (stating that these concerns put investment companies 
on a different footing than insurance companies, ``since 
institutions such as . . . insurance companies which compete with 
investment companies for investor interest are not subject to the 
same limitations on their advertising as are investment companies,'' 
such that, absent rule 482's provisions, those limitations could 
restrict the availability to investors of information about all 
relevant investment possibilities).
    \651\ Business development companies are a category of closed-
end investment companies that are not required to register under the 
Investment Company Act. See section 2(a)(48) of the Investment 
Company Act [15 U.S.C. 80a-2(a)(48)]. When the investment company 
advertising rule was first adopted, it applied to advertisements of 
any registered investment company (including closed-end funds) so 
long as the investment company was engaged in a continuous offering, 
i.e., ``is selling or proposing to sell its securities pursuant to a 
registration statement which has been filed under the Act.'' See 
Advertising by Investment Companies, Investment Company Act Release 
No. 10852 (Aug. 31, 1979) [44 FR 52816 (Sep. 10, 1979)] (``1979 
Adopting Release''). The rule was subsequently revised to include 
business development companies and omit the requirement that the 
investment company be engaged in a continuous offering. See Adoption 
of Integrated Disclosure System, Investment Company Act Release No. 
12264 (Mar. 3, 1982) [47 FR 11380 (March 16, 1982)].
    \652\ See Investment Company Advertising Rules Proposing Release 
(citing 15 U.S.C. 771(2)).
    \653\ See, e.g., section 12(d) of the Investment Company Act 
(restricting the ability of registered investment companies to 
invest in the securities of other investment companies); section 
15(c) of the Investment Company Act (requiring directors to request 
and evaluate information reasonably necessary to evaluate the terms 
of advisory contracts); and section 26(f) of the Investment Company 
Act (imposing reasonability requirements regarding the fees and 
charges that may be imposed in connection with variable annuity 
separate accounts).
---------------------------------------------------------------------------

    Rule 482 also requires enhanced disclosures in fund advertisements 
designed to convey balanced information to prospective investors, 
including standardized methodologies that certain funds must use if 
they wish to include performance data in their advertisements.\654\ 
These advertisements also generally are filed with the Financial 
Industry Regulatory Authority (``FINRA''), which has adopted rules 
providing standards for the fund advertising practices of its members 
and established and implemented procedures to review that 
advertising.\655\ FINRA does not currently have rules that expressly 
require similar standards for non-variable annuities. As they are 
offered by registered investment companies, variable annuity 
advertisements are currently subject to rule 482, including the 
requirement to provide standardized performance information to the 
extent that they are providing performance data in their 
advertisements.\656\
---------------------------------------------------------------------------

    \654\ In addition to standardized performance requirements, rule 
482 also mandates certain disclosures and generally prohibits rule 
482 advertisements from being accompanied by an application for 
investment in the investment company. See, e.g., rule 482(b) and 
(c).
    \655\ Section 24(b) of the Investment Company Act [15 U.S.C. 
80a-24(b)] requires the filing with the Commission of ``any 
advertisement, pamphlet, circular, form letter, or other sales 
literature'' for any registered investment company other than a 
closed-end fund. 17 CFR 270.24b-3 (``rule 24b-3'') relieves such 
funds of the obligation under the Investment Company Act to file 
advertisements and other sales materials with the Commission if 
those materials are filed with a national securities association 
(such as FINRA) registered under section 15A of the Securities 
Exchange Act of 1934 [15 U.S.C. 78o] that has adopted rules 
providing standards for the investment company advertising practices 
of its members and has established and implemented procedures to 
review that advertising; see also FINRA Rule 2210.
    \656\ Rule 482(d).
---------------------------------------------------------------------------

    Further, Congress expressly directed the Commission to adopt rules 
that permit registered investment companies to use prospectuses that 
include information the substance of which is not included in the 
statutory prospectus, and that are deemed to be

[[Page 60047]]

permitted by section 10(b) of the Securities Act.\657\ Thus, rule 482 
was amended in 2003 to permit investment company sales literature that 
includes information not included in the statutory prospectus.\658\ 
Congress has not provided a similar direction for issuers other than 
registered investment companies. However, the Commission has used its 
exemptive authority to permit the use of prospectuses that include 
information the substance of which is not included in the statutory 
prospectus for issuers that are not investment companies if the free 
writing prospectus meets the requirements of rules 433 and 17 CFR 
230.164 (``rule 164'').\659\ In addition to permitting free writing 
prospectuses that include information the substance of which is not in 
the statutory prospectus, rule 433 also permits seasoned issuers, that 
is, issuers of offerings registered on Form S-3, and other select 
issuers to use a free writing prospectus that is not subject to the 
prospectus delivery requirements, much like rule 482 permits for fund 
sales literature.\660\ We stated in the Proposing Release that, under 
the proposal, the ability of RILA sales literature to be treated as 
``free writing prospectuses'' would continue to be subject to rule 433 
and rule 164, as well as any other applicable rule that permits a 
communication notwithstanding the ``gun jumping'' provisions of the 
Securities Act.\661\
---------------------------------------------------------------------------

    \657\ 15 U.S.C. 80a-24(g); see also National Securities Markets 
Improvement Act of 1996, Public Law 104-290, Section 204.
    \658\ See 482 Amendment Adopting Release at Section II.A.
    \659\ See Securities Offering Reform, Securities Act Release No. 
8591 (Jul. 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (``Securities 
Offering Reform'') at Section III.D.3.b.iii(C)(2)(a). Rule 164 
generally permits the use of a free writing prospectus where an 
eligible user has filed a registration statement, the other 
requirements of rule 164 are met, and the conditions of rule 433 are 
satisfied. See id. at n.212 and accompanying text.
    \660\ RILAs registered on Form S-1 are subject to prospectus 
delivery requirements when using free writing prospectuses pursuant 
to current rule 433.
    \661\ See Proposing Release at n.356.
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    As explained in the Proposing Release, we determined extending rule 
482 to RILA issuers was not warranted currently. This conclusion 
largely followed from our understanding that the rule's emphasis on 
providing standardized performance data requirements would be 
conceptually difficult to apply to RILAs and inconsistent with current 
RILA advertising practices.\662\ However, we sought comment on these 
questions and acknowledged that circumstances might change in the 
future.
---------------------------------------------------------------------------

    \662\ See Proposing Release n.356 and accompanying text (noting 
that while variable annuity marketing materials frequently utilize 
standardized performance returns, this is not the case with RILA 
advertisements, which typically market RILAs on other bases that are 
less amenable to standardized performance metrics, for example, 
highlighting that these are flexible products whose features can be 
customized to fit a particular investor's needs).
---------------------------------------------------------------------------

    Several commenters suggested that we amend rule 482 to extend its 
provisions to RILAs despite the concerns discussed in the Proposing 
Release.\663\ Some of these commenters suggested that an extension of 
rule 482 to RILAs would remedy what they view as an improper dichotomy 
under the current rule 433 framework that impedes the ability of some 
insurance companies to engage in broad-based advertising for RILA 
offerings.\664\ Specifically, these commenters stated that this 
framework often makes it practically impossible to do broad-based 
advertising (such as television commercials) for RILA offerings 
registered on Form S-1 due to the application of the prospectus 
delivery requirements to those advertisements.\665\ Conversely, non-
variable annuity offerings registered on Form S-3, or variable annuity 
options that can use rule 482, can be broadly advertised in print and 
on television because they are not subject to the prospectus delivery 
requirements. These commenters expressed the view that the purposes 
underlying this different treatment under rule 433 of seasoned issuers 
and well-known seasoned issuers (who can file on Form S-3) as compared 
to the treatment of non-reporting and unseasoned issuers (who must file 
on Form S-1) are not relevant to RILA offerings or the ability of a 
RILA investor to contextualize RILA advertisements.\666\
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    \663\ See CAI Comment Letter; ACLI Comment Letter; IRI Comment 
Letter; Gainbridge Comment Letter; VIP Working Group Comment Letter.
    \664\ See CAI Comment Letter; Gainbridge Comment Letter; ACLI 
Comment Letter.
    \665\ These considerations also apply to communications 
regarding registered MVA annuities.
    \666\ One of these commenters suggested that offerings of other 
registered annuity and life insurance products, including registered 
MVA annuities, may be similarly situated to RILAs. See CAI Comment 
Letter.
---------------------------------------------------------------------------

    Thus, according to these commenters, amending rule 482 to include 
RILAs would bring regulatory uniformity both between RILAs whose 
offerings have, until this rulemaking, been registered on different 
forms (i.e., Forms S-1 and S-3), and between RILAs and variable annuity 
options, and therefore reduce the burdens and risks that insurance 
companies face in applying the different advertising frameworks to 
their insurance offerings.\667\ Some commenters suggested that not 
extending rule 482 to include RILAs would essentially result in a 
regulatory preference for variable annuity contracts over RILAs by 
perpetuating prospectus delivery requirements for some RILA issuers 
that do not apply to registered variable annuity contracts by virtue of 
their ability to rely on rule 482.\668\ Additionally, one commenter 
suggested that, in addition to being consistent with the Commission's 
approach to revising Form N-4, expanding rule 482 to include RILAs 
would be consistent with congressional intent and that investors would 
benefit from standardizing the regulation of advertising and sales 
literature across RILA and variable annuity products.\669\
---------------------------------------------------------------------------

    \667\ See CAI Comment Letter; Gainbridge Comment Letter; VIP 
Working Group Comment Letter; IRI Comment Letter.
    \668\ See ACLI Comment Letter; Gainbridge Comment Letter.
    \669\ See Gainbridge Comment Letter.
---------------------------------------------------------------------------

    While some commenters acknowledged our concerns about the 
inapplicability of rule 482's standardized performance provisions to 
RILAs, they suggested that these concerns could be addressed either by 
excluding RILAs from those provisions, or subjecting the ability of 
RILA advertisements to use rule 482 to a condition that they not 
contain historical performance data for the RILA or any particular 
index-linked option.\670\ Commenters stated that the mere absence of 
standard performance rules for RILAs should not be a bar to amending 
rule 482, with one commenter observing that closed-end funds may 
advertise using rule 482 even though standard performance rules do not 
exist for those investments.\671\ Commenters also suggested that the 
Commission could exercise regulatory oversight of RILA advertisements 
by conditioning their ability to use rule 482 on review by FINRA or, in 
the alternative, review by the Commission.\672\ One commenter suggested 
that, in addition to such regulatory review, the ability of RILA 
advertisements to use rule 482 could be conditioned upon other 
criteria, such as performance principles that ensure that performance 
presentations are not misleading, or requiring that RILAs

[[Page 60048]]

meet certain standards applicable to variable annuity products, such as 
a requirement that rates and fees be reasonable in relationship to the 
services rendered and risks assumed under the contract.\673\
---------------------------------------------------------------------------

    \670\ See CAI Comment Letter (stating that the Proposing Release 
correctly noted that RILA issuers do not utilize such performance 
metrics in RILA advertisements, so this condition would not be a 
substantive departure from existing practice); IRI Comment Letter; 
Gainbridge Comment Letter.
    \671\ See CAI Comment Letter; ACLI Comment Letter; VIP Working 
Group Comment Letter.
    \672\ See CAI Comment Letter; Gainbridge Comment Letter; VIP 
Working Group Comment Letter.
    \673\ See VIP Working Group Comment Letter. Congress has 
expressly prohibited the sale of any variable annuity contract 
unless the fees and charges deducted under the contract, in the 
aggregate, are reasonable in relation to the services rendered, the 
expenses expected to be incurred, and the risks assumed by the 
insurance company. Congress further requires that insurance 
companies represent this in a variable annuity contract's 
registration statement. 15 U.S.C. 80a-26(f)(2)(A). These provisions 
do not apply to RILAs.
---------------------------------------------------------------------------

    A number of these commenters suggested that if the Commission were 
unwilling to amend rule 482 to include RILA sales literature, in the 
alternative, we should amend rule 433 to allow all RILAs to use free 
writing prospectuses without meeting the prospectus delivery 
requirements in order to make such requirements consistent for all RILA 
issuers without regard to their seasoned status.\674\ One commenter 
stated that, at a minimum, the Commission would need to amend rule 433 
in order to maintain the status quo by explicitly exempting RILA 
offerings that are registered on Form N-4 by issuers who file reports 
pursuant to section 15(d) of the Exchange Act from the prospectus 
delivery requirements.\675\ Absent such an amendment, the rulemaking 
would have the effect of imposing new, universal prospectus delivery 
requirements in connection with RILA marketing materials, even for RILA 
issuers that would otherwise be eligible to rely on rule 433 by virtue 
of registering on Form S-3. This commenter suggested that changing the 
status quo in this way would be unduly restrictive and inconsistent 
with our approach to other securities offerings.
---------------------------------------------------------------------------

    \674\ See CAI Comment Letter; ACLI Comment Letter; Gainbridge 
Comment Letter.
    \675\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Consistent with the proposal, we have determined not to extend rule 
482 to RILA issuers at this time. As discussed, commenters raised 
broader concerns about the impact of the prospectus delivery 
requirements in rule 433 and how they may operate to impede the ability 
of some insurance companies to engage in broad-based advertising for 
RILA offerings. Commenter suggestions that we amend rule 482 to include 
RILA advertising (so that all insurance companies would be permitted 
the ability to provide RILA sales literature to investors without being 
accompanied or preceded by a summary or statutory prospectus), subject 
to certain conditions, would benefit from further consideration, and 
the Commission invites further engagement on these issues.\676\ Factors 
to consider in any future proposal regarding amendments to rule 482 
would include the nature and scope of any applicable conditions, the 
benefits of any such potential conditional expansion of rule 482, and 
the potential risk of misleading investors.
---------------------------------------------------------------------------

    \676\ See supra footnotes 670-673 and accompanying text.
---------------------------------------------------------------------------

    In response to commenters, however, we are, in a modification from 
the proposal, making a technical amendment to rule 433 in order to 
maintain the status quo for insurance companies that can meet that 
rule's conditions to use a free writing prospectus in connection with 
the offering of non-variable annuities without meeting the prospectus 
delivery requirements, notwithstanding their use of Form N-4 going 
forward.\677\ It would not be appropriate to subject non-variable 
annuity offerings to a categorically different regulatory treatment 
than offerings of other seasoned issuers or to deprive those insurance 
companies that are considered seasoned issuers of the ability to rely 
on the provisions of rule 433 to use a free writing prospectus without 
complying with the prospectus delivery requirements.\678\ It is 
therefore necessary and appropriate in the public interest and for the 
protection of investors to amend rule 433 to provide that an insurance 
company may use a free writing prospectus without needing to meet the 
prospectus delivery requirements with respect to those non-variable 
annuity offerings registered on Form N-4 where the issuer would 
otherwise be eligible to use Form S-3 pursuant to that form's General 
Instructions I.B.1, I.B.2, I.C, or I.D.\679\ Consistent with the 
current requirements applicable to these non-variable annuity 
offerings, these free writing prospectuses can be used after a 
registration statement has been filed and may also include information 
the substance of which is not included in the registration 
statement.\680\
---------------------------------------------------------------------------

    \677\ Additionally, to the extent an insurance company otherwise 
meets the requirements of a well-known seasoned issuer under rule 
405, that issuer would be able to rely on rule 422(b)(1)(iii) in 
connection with an offering of non-variable annuities, 
notwithstanding its registration of the offering on Form N-4.
    \678\ While commenters only specifically raised this issue with 
respect to RILAs, by moving registered MVA annuities to Form N-4 as 
well, applying this change to registered MVA annuity offerings is 
necessary to preserve their ability to communicate under rule 433 
for the same reason the change is necessary for RILA communications.
    \679\ See section 10(b) of the Securities Act and final rule 
433(b)(1)(v). We also are amending paragraphs (b)(1)(i) and (ii) of 
the rule to correct citations to Form S-3 and Form F-3.
    \680\ See final rule 433(a) and (b).
---------------------------------------------------------------------------

H. Existing Commission Letters

    Certain Commission letters, or portions thereof, providing 3-13 
Exemptions in connection with the registration of an offering of RILAs 
and registered MVA annuities on Form S-1 will be withdrawn or rescinded 
in light of the change to permit RILAs and registered MVA annuities to 
provide SAP financial statements on final Form N-4 in the same way that 
other insurance companies offering variable annuities are permitted on 
current Form N-4. On the compliance date of the final amendments, some 
letters, or portions thereof, will be moot, superseded, or otherwise 
inconsistent with the final amendments and, therefore, will be 
withdrawn or rescinded.
    Commenters generally supported or stated that they did not oppose 
withdrawing or rescinding these 3-13 Exemptions.\681\ Some commenters 
agreed that the 3-13 Exemptions extended to RILAs would no longer be 
needed in light of the change to permit RILAs to register on Form N-4 
and provide SAP financial statements in the same way that Form N-4 
currently permits other insurance companies registering variable 
annuities to provide financial statements.\682\ One of these commenters 
agreed with a statement in the Proposing Release that the 3-13 
Exemptions previously granted to registered MVA annuities would be 
withdrawn or rescinded to the extent that offerings of those securities 
are permitted to be registered on Form N-4.\683\ Another commenter 
stated that these 3-13 Exemptions should not be withdrawn or rescinded 
until after the final compliance date.\684\ As proposed, the exemptions 
provided in the letters outlined below will not be rescinded or 
withdrawn until the compliance date.
---------------------------------------------------------------------------

    \681\ See CAI Comment Letter; IRI Comment Letter; VIP Working 
Group Comment Letter.
    \682\ CAI Comment Letter; IRI Comment Letter.
    \683\ CAI Comment Letter. See also Proposing Release at Section 
II.G and n.363 (stating that ``if [insurance companies were required 
to use Form N-4 for registered MVAs], 3-13 Exemptions provided in 
connection with registered MVAs would be withdrawn or rescinded for 
the reasons discussed in'' Section II.G of the Proposing Release).
    \684\ VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    We are not withdrawing or rescinding 3-13 Exemptions, or portions 
thereof, providing exemptions from the GAAP financial statement 
requirements with respect to annuity products other than RILAs and 
registered MVA annuities. With respect to RILAs, this is consistent

[[Page 60049]]

with the proposal.\685\ Commenters agreed with this approach.\686\
---------------------------------------------------------------------------

    \685\ See Proposing Release at n.357.
    \686\ CAI Comment Letter; IRI Comment Letter.
---------------------------------------------------------------------------

    On the compliance date of the final amendments, 3-13 Exemptions 
that will be withdrawn or rescinded include all of the 3-13 Exemptions 
listed below to the extent they relate to RILAs and registered MVA 
annuities.

                  Table 9--Existing Commission Letters
------------------------------------------------------------------------
                         Name                                 Date
------------------------------------------------------------------------
Great-West Life & Annuity Insurance Company and Great-         9/28/2018
 West Life & Annuity Insurance Company of New York...
Athene Annuity and Life Company......................          9/28/2018
Allianz Life Insurance Company of North America and            9/28/2018
 Allianz Life Insurance Company of New York..........
MONY Life Insurance Company of America...............           3/7/2019
Lincoln Benefit Life Company.........................          3/15/2019
Symetra Life Insurance Company and First Symetra                8/8/2019
 National Life Insurance Company of New York.........
Forethought Life Insurance Company...................         10/17/2019
Nationwide Life Insurance Company....................         10/17/2019
Minnesota Life Insurance Co..........................          6/11/2020
MEMBERS Life Insurance Co............................          11/6/2020
Transamerica Life Insurance Company and Transamerica           2/11/2021
 Financial Life Insurance Company....................
Midland National Life Insurance Company..............          8/12/2021
Wilton Reassurance Life Company of New York..........          9/30/2021
Union Security Insurance Company.....................          1/11/2022
Protective Life Insurance Company and Protective Life         10/14/2022
 and Annuity Insurance Company.......................
Everlake Life Insurance Company......................         10/21/2022
Fidelity & Guaranty Life Insurance Company and                 3/17/2023
 Fidelity & Guaranty Life Insurance Company of New
 York................................................
Delaware Life Insurance Company and Gainbridge Life            4/28/2023
 Insurance Company...................................
Brighthouse Life Insurance Company of New York.......          9/21/2023
Jackson National Life Insurance Company and Jackson            9/26/2023
 National Life Insurance Company of New York.........
Eagle Life Insurance Company.........................          9/29/2023
Pacific Life Insurance Company and Pacific Life &               3/1/2024
 Annuity Company.....................................
American General Life Insurance Company, The Variable          5/28/2024
 Annuity Life Insurance Company, and The United
 States Life Insurance Company in the City of New
 York................................................
------------------------------------------------------------------------

I. Technical Amendments to Forms N-3 and N-6

    The Commission is adopting as proposed a technical amendment to 
Form N-6 to reflect the correct placement of an amendment to this form 
that the Commission adopted in 2020 in the release titled 
``Facilitating Capital Formation and Expanding Investment Opportunities 
by Improving Access to Capital in Private Markets'' (herein referred to 
as the ``Exempt Offering Framework Adopting Release'').\687\ In that 
release, the Commission adopted, among other amendments, amendments to 
certain instructions associated with the Exhibits items of Form N-4 and 
Form N-6. The amendatory instructions in the Exempt Offering Framework 
Adopting Release erroneously referred to outdated Exhibits items of 
these forms. That is, the amendatory instructions referred to Items 24 
and 26 respectively, instead of Items 27 and 30 respectively (as 
adopted by the Commission in earlier amendments to Forms N-4 and N-6 in 
the VASP Adopting Release).\688\ The Commission received no comments on 
the proposed technical amendments. The final amendments to Form N-4 
correctly reflect the placement of the amendment that the Commission 
adopted in the Exempt Offering Framework Adopting Release in Item 27 of 
the form instead of in Item 24. We are also adopting a technical 
amendment to Item 30 of Form N-6 to correctly reflect the placement of 
the amendment that the Commission adopted in the Exempt Offering 
Framework Adopting Release in this item instead of in Item 26.
---------------------------------------------------------------------------

    \687\ Facilitating Capital Formation and Expanding Investment 
Opportunities by Improving Access to Capital in Private Markets, 
Investment Company Act Release No. 34082 (Nov. 2, 2020) [86 FR 3496 
(Jan. 14, 2021)].
    \688\ See Exempt Offering Framework Adopting Release at 
amendatory instructions 50 and 51; see also VASP Adopting Release at 
Section II.C.4 (Table 6).
---------------------------------------------------------------------------

    In addition, we are adopting technical amendments to the definition 
of ``Summary Prospectus'' in Forms N-3 and N-6 to reflect the lack of 
subparagraphs in rule 498A(a). When these definitions were originally 
adopted, they inadvertently referred to subparagraphs that did not 
appear in rule 498A(a).\689\
---------------------------------------------------------------------------

    \689\ See final rule 498A(a); see also VASP Adopting Release in 
the Text of Rule and Form Amendments. These amendments are 
ministerial, do not make any substantive modifications, and do not 
impose any new substantive recordkeeping or information collection 
requirements.
---------------------------------------------------------------------------

J. Effective and Compliance Dates

    The effective date for all rules and forms associated with the 
final amendments is September 23, 2024, which is 60 days from the date 
of publication of the final amendments in the Federal Register. As 
discussed in more detail below, the compliance date for the final 
amendments will be May 1, 2026, except with respect to rule 156 and the 
technical amendments to Forms N-3 and N-6. We are not providing a 
compliance period for rule 156 and the technical amendments to Forms N-
3 and N-6 and compliance will therefore be required on the effective 
date.
    We proposed a six-month delayed effective date for all amendments 
except for the final Form N-4, amended rule 498A, and technical 
amendments to Form N-6 which we did not propose to delay. Commenters 
generally supported or did not oppose the proposed effective date for 
final Form N-4, final rule 498A, or the technical amendment to Form N-6 
and agreed that this approach was consistent with the RILA Act.\690\ 
However, comments on the proposed 6-month delayed effective date for 
the remaining amendments were mixed. One commenter opposed delaying the 
effectiveness of the rule 485 amendments for six months.\691\ This 
commenter stated that the rule 485 amendments should be effective 
before the calendar year-end of 2024 so that insurance companies could 
file under

[[Page 60050]]

rule 485(a) ahead of their May 1, 2025 annual update. We also received 
a number of comments requesting that we clarify the practical effect of 
having two effective dates.\692\ For example, one commenter asked 
whether final rules implementing the final Form N-4 framework and 
subject to the six-month delayed effective date (e.g., final rules 415, 
485, 497) would nevertheless apply on the effective date to RILAs 
registered on Form N-4.\693\ Specifically, this commenter asked 
whether, as of the effective date, RILAs registered on the final Form 
N-4 would be required to pay registration fees in arrears consistent 
with final rule 456 and final Form 24F-2, file post-effective 
amendments and supplements consistent with final rules 485 and 497; and 
be exempt from three-year refreshes consistent with final rule 415.
---------------------------------------------------------------------------

    \690\ See, e.g., CAI Comment Letter; IRI Comment Letter.
    \691\ See VIP Working Group Comment Letter.
    \692\ See CAI Comment Letter; VIP Working Group Comment Letter.
    \693\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We reasoned in the proposing release that the six-month delayed 
effective date for certain amendments would provide the Commission with 
the necessary time to prepare the EDGAR system to accommodate 
transitioning RILA offerings onto the proposed framework. After further 
consideration and preparation, we have determined that the EDGAR system 
will be ready to accommodate the transition as of the effective date 
and an additional 6-month delayed effective date for certain amendments 
will be unnecessary. A single effective date for all of the amendments 
adopted in this release will provide filers with a simpler timeline 
that reduces confusion about the logistics of filing.
    We proposed a compliance date of one year after publication of the 
final amendments in the Federal Register.\694\ All initial registration 
statements and post-effective amendments that were annual updates to 
effective registration statements on Form N-4 and filed after the 
proposed compliance date under the proposal would have been required to 
comply with the amendments. We also proposed that RILAs that had 
previously registered offerings of securities on Form S-1 or Form S-3 
would file a post-effective amendment to their registration statement 
pursuant to rule 485(a) at the time of their next annual update 
following the compliance date, using final Form N-4.\695\
---------------------------------------------------------------------------

    \694\ This compliance period would have applied for all of the 
amendments in the Proposing Release other than the technical 
amendment to Form N-6 discussed in Section II.I.
    \695\ See Proposing Release at n.372 and accompanying text.
---------------------------------------------------------------------------

    Commenters generally supported the proposed timeline or supported 
the proposed timeline except as applied to certain amendments. In 
particular, one commenter stated that the compliance date would allow 
sufficient time for all insurers to prepare for compliance with the 
final amendments, but urged the Commission to modify the approach to 
better accommodate insurance companies currently registering RILA 
offerings on Form S-3.\696\ The Commission proposed that compliance 
would be required in the first annual update after the compliance date 
but, because an annual report on Form 10-K operates as an annual update 
to a registration statement filed on Form S-3 and must be filed before 
an annual update to a registration statement on Form S-1, the commenter 
asserted that this approach would unfairly result in a shorter 
compliance period than that of a Form S-1 registrant (on or before 
December 31, 2025 and May 1, 2026, respectively). The commenter 
suggested that we should not consider these Form 10-Ks annual updates 
for purposes of complying with the final amendments.
---------------------------------------------------------------------------

    \696\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We agree that RILA filers should not have different compliance 
periods based on whether they currently file on Form S-1 or S-3 and did 
not intend to provide different compliance periods based on the 
Securities Act form an insurance company is currently using. We 
therefore are providing a compliance date of May 1, 2026 rather than an 
approach based on the timing of an insurance company's annual update. 
Accordingly, all issuers of non-variable annuities that have previously 
registered offerings of securities on Forms S-1 or Form S-3 will be 
required to file a post-effective amendment to their registration 
statement pursuant to final rule 485(a) that will be effective on or 
before May 1, 2026, using final Form N-4.\697\ Similarly, all initial 
registration statements and post-effective amendments filed on Form N-4 
and effective on or after May 1, 2026 will be required to comply with 
the final amendments. This compliance period is designed to give all 
insurance companies sufficient time to comply with the proposed 
changes, including to update their registration statements; to prepare 
to use final rules 485 and 497 to update their registration statements 
and file prospectuses with the Commission; and to begin paying 
securities registration fees on final Form 24F-2. Nonetheless, issuers 
of non-variable annuities may choose to file on Form N-4 as early as 
the effective date (and will thereafter be required to comply with the 
final amendments).
---------------------------------------------------------------------------

    \697\ A post-effective amendment filed under rule 485(a) [17 CFR 
230.485(a)] generally becomes effective either 60 days or 75 days 
after filing, unless the effective date is accelerated by the 
Commission. Insurance companies registering offerings of non-
variable annuities generally should be able to rely on template 
filing relief, in which case they will not need to file a rule 
485(a) filing for each non-variable annuity. See 485(b)(1)(vii). 
Insurance companies with currently-registered non-variable annuities 
that only issue non-variable annuities and will be using the same 
CIK will be permitted to transition by filing a 485APOS or 485BPOS 
in EDGAR. Both of these submission types allow the entity to keep 
its current Securities Act file number, and both allow the filer to 
obtain new contract IDs and the needed Form N-4 investment company 
type designation in EDGAR. Insurance companies that will be 
acquiring new CIKs for their non-variable annuity offerings will 
need to transition by filing an administrative Form N-4 submission 
(which is only used for EDGAR purposes and is not an official 
filing) under a newly-issued CIK to obtain a new Securities Act file 
number, new contract IDs, and the Form N-4 investment company type 
(which is used for EDGAR purposes only) followed by a 485APOS or 
485BPOS in EDGAR.
---------------------------------------------------------------------------

    The Proposing Release stated that, in appropriate circumstances, we 
would consider requests by registrants with respect to existing 
variable annuity contracts to file post-effective amendments pursuant 
to rule 485(b)(1)(vii) when these post-effective amendments make 
conforming changes to comply with the proposed amendments to Form N-
4.\698\ One commenter requested that we allow certain insurance 
companies, on a case-by-case basis, to forgo filing a rule 485(a) post-
effective amendment entirely for insurance companies' stand-alone 
variable annuities on the grounds that the changes necessary to comply 
with the proposal may not be substantive.\699\ After consideration of 
the final amendments to Form N-4, we have concluded it would be 
appropriate for registrants of existing variable annuity contracts that 
are not combination contracts that offer index-linked options or MVA 
options to file post-effective amendments pursuant to rule 485(b) to 
make conforming changes

[[Page 60051]]

to comply with the amendments to Form N-4.
---------------------------------------------------------------------------

    \698\ Proposing Release at text accompanying n.373. A post-
effective amendment filed under rule 485(b) may become effective 
immediately upon filing. A post-effective amendment may be filed 
under rule 485(b) if it is filed for one or more specified purposes, 
including to make nonmaterial changes to the registration statement. 
A post-effective amendment filed for any purpose not specified in 
rule 485(b) generally must be filed pursuant to rule 485(a). Under 
rule 485(b)(1)(vii), the Commission may approve the filing of a 
post-effective amendment to a registration statement under rule 
485(b) for a purpose other than those specifically enumerated in the 
rule. The Commission's staff has been delegated the authority to 
approve registrants' requests under rule 485(b)(1)(vii). 17 CFR 
200.30-5(b-3)(1).
    \699\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Commenters were mixed regarding our proposed approach of not having 
a separate Inline XBRL compliance period. One commenter supported the 
proposed approach, stating that service providers are accustomed to 
Inline XBRL requirements and will be able to transition RILAs within 
our proposed compliance period.\700\ Another commenter opposed having 
the same compliance period for the Inline XBRL requirements and the 
other final amendments, stating that RILA issuers without variable 
products will not be familiar with Inline XBRL.\701\
---------------------------------------------------------------------------

    \700\ See XBRL US Comment Letter.
    \701\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We are not creating a separate, longer compliance period for filers 
to comply with the Inline XBRL requirements because we have determined 
that compliance by May 1, 2026 is feasible. Insurance companies already 
have experience with Inline XBRL tagging. In this regard, 22 of the 23 
insurers that issue RILAs also offer products that are subject to 
tagging requirements on Forms N-3, N-4, or N-6 or otherwise have 
experience tagging registration statements.\702\ Further, although we 
permitted a phased-in compliance date for Inline XBRL tagging in 
connection with the variable product summary prospectus rulemaking, we 
reasoned in that rulemaking that we could collect better data as a 
result because we could observe the new disclosures and create better 
taxonomies prior to the end of the XBRL compliance period, which in 
turn could lead to more accurate tagging and increased comparability of 
tagged disclosures.\703\ The benefit of additional time is reduced in 
this rulemaking because we already update and release our taxonomies 
annually, which allows us to address any concerns about the quality of 
the tagged data we receive. In light of insurers' existing experience 
with tagging registration statements and our ability to update 
taxonomies, any increase in data quality gained from extending the 
Inline XBRL compliance period to May 2027 would be marginal compared to 
the impact on investors and the Commission from not having tagged data 
until 2027--specifically, reduced comparability, data aggregation, and 
a general ability to synthesize and consume non-variable annuity 
disclosures.
---------------------------------------------------------------------------

    \702\ See Proposing Release at n.472 and accompanying text.
    \703\ See VASP Adopting Release at n.917 and accompanying text.
---------------------------------------------------------------------------

    One commenter stated that registration on Form N-4 should be 
optional for registered MVA annuity offerings that no longer involve 
the issuance of new contracts (i.e., closed blocks).\704\ In the 
alternative, if such ``closed block'' registered MVA annuities were 
required to register on Form N-4, this commenter stated that the 
compliance period should be extended from 12 months to 24 months. As we 
discussed above, we are requiring all registered MVA annuities to 
register on Form N-4.\705\ Providing a single compliance date of May 1, 
2026, however, provides a similar period of time to the commenter's 
suggestion.
---------------------------------------------------------------------------

    \704\ See CAI Comment Letter.
    \705\ See supra Section II.B.
---------------------------------------------------------------------------

    One commenter asked that we clarify whether a registrant can choose 
to comply with only a portion of final Form N-4 prior to the end of the 
compliance period.\706\ For an insurance company that continues to use 
either Form S-1 or Form S-3 for non-variable annuity offerings prior to 
the compliance date, the requirements of those forms and associated 
rules will continue to apply until the insurance company begins using 
Form N-4. An insurance company that uses Form N-4 for non-variable 
annuity offerings must comply with all of the requirements of final 
Form N-4 and associated rules, including, for example, filling fees on 
Form 24F-2, after the effective date, provided that the insurance 
company is not required to comply with Inline XBRL tagging requirements 
until the compliance date. The Commission has taken a similar approach 
in other contexts with respect to early compliance by issuers.\707\
---------------------------------------------------------------------------

    \706\ See VIP Working Group Comment Letter.
    \707\ See VASP Adopting Release at paragraph preceding n.994.
---------------------------------------------------------------------------

    In a change from the proposal, we are not providing a compliance 
period for the amendments to rule 156 after the amended rule is 
effective.\708\ The rule is designed to protect investors by addressing 
practices that could lead to materially misleading sales literature in 
connection with the offer or sale of a security, and historically the 
Commission has not provided a transition period to comply with 
amendments to this rule in light of investor protection concerns 
associated with the dissemination of materially misleading sales 
literature.\709\ Further, we understand that a number of insurance 
companies already comply with rule 156 with respect to their offerings 
of non-variable annuities and so compliance with the rule should not 
impose significant additional burdens.\710\ We are also not providing 
an additional compliance period for technical amendments to Forms N-3 
and N-6, as these amendments entail no compliance burden.
---------------------------------------------------------------------------

    \708\ While the Proposing Release did not specifically discuss a 
compliance period for the proposed amendments to rule 156, we stated 
that the compliance period would apply for all of the amendments in 
the release other than the technical amendments to Form N-6. See 
Proposing Release at n.371.
    \709\ This approach is consistent with our past practice 
regarding the rule's compliance date. See Tailored Shareholder 
Reports Adopting Release at Section II.J.
    \710\ At all times the Federal securities laws prohibit 
materially misleading communications in connection with the offer or 
sale of any security (including non-variable annuity offerings). See 
15 U.S.C. 77q(a); 15 U.S.C. 78j(b); rule 10b-5.
---------------------------------------------------------------------------

    We appreciate that these amendments will result in changes in 
practices for insurance companies, both in updating disclosures and in 
registering contract offerings. The final amendments also could result 
in insurance companies reviewing their sales literature in light of the 
final amendments to rule 156. In considering these changes, insurance 
companies are encouraged to contact the Commission staff with any 
questions they may have about these issues.

III. Other Matters

    Pursuant to the Congressional Review Act,\711\ the Office of 
Information and Regulatory Affairs has designated the final amendments 
as a ``major rule'' as defined by 5 U.S.C. 804(2). If any of the 
provisions of these rules, or the application thereof to any person or 
circumstance, is held to be invalid, such invalidity shall not affect 
other provisions or application of such provisions to other persons or 
circumstances that can be given effect without the invalid provision or 
application.
---------------------------------------------------------------------------

    \711\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

IV. Economic Analysis

A. Introduction

    We are mindful of the costs imposed by, and the benefits obtained 
from, our rules. Section 3(f) of the Exchange Act, section 2(b) of the 
Securities Act, and section 2(c) of the Investment Company Act state 
that when the Commission is engaging in rulemaking under such titles 
and is required to consider or determine whether the action is 
necessary or appropriate in (or, with respect to the Investment Company 
Act, consistent with) the public interest, the Commission shall 
consider whether the action will promote efficiency, competition, and 
capital formation, in addition to the protection of investors. Further, 
section 23(a)(2) of the Exchange Act requires the Commission to 
consider, among other matters, the

[[Page 60052]]

impact such rules would have on competition and states that the 
Commission shall not adopt any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.
    We are adopting amendments to our rules designed to carry out the 
requirements of Section 101(b) Division AA, Title I of the Consolidated 
Appropriations Act, 2023, to establish a registration form for RILAs. 
The Commission is amending the form currently used by most variable 
annuity separate accounts, Form N-4, to require insurance companies to 
register offerings of RILAs, as well as registered MVA annuities on 
that form as well. To facilitate this amendment, the Commission is also 
amending certain filing rules and making other related amendments to 
Form N-4 that apply to all issuers that use that form. The final 
amendments also require insurance companies to comply with rule 156, a 
current Commission rule that provides guidance as to when sales 
literature is materially misleading under the Federal securities laws 
to RILA and registered MVA annuity advertisements and sales literature.
    While the Commission has developed a set of specific registration 
forms for variable insurance contracts and their issuers, insurance 
companies that offer non-variable annuities cannot use those forms 
because those issuers are not investment companies. Currently, 
insurance companies register the offerings of non-variable annuities on 
the Securities Act registration forms that are typically used to 
register traditional debt or equity offerings, Forms S-1 and S-3. 
Because Forms S-1 and S-3 are not tailored to the particular 
characteristics of non-variable annuities (or indeed insurance products 
more generally), these forms include a number of disclosure 
requirements that may be less material to investors when evaluating an 
insurance product like a RILA or registered MVA annuity and do not 
include line-item requirements mandating specific information that is 
of importance to investors in these products. The inclusion of 
disclosures that are of little relevance to their investors and the 
omission of information that is of importance to their investors limits 
the usefulness of the information investors currently receive about 
RILAs and registered MVA annuities and thus their ability to make 
informed investment decisions. In addition, Forms S-1 and S-3 require 
the use of GAAP financial statements, rather than the SAP financial 
statements that the State insurance regulators require. SAP financial 
statements, which focus on an issuer's ability to meet its obligations 
under its insurance contracts, as regulated by State law, provide 
material information for investors evaluating RILAs and registered MVA 
annuities and assessing an issuer's solvency. For those insurers that 
will be able to include or incorporate SAP financial statements in the 
Form N-4 registration statement, investors will benefit from the lower 
cost burdens on issuers provided by the use of SAP financial 
statements, to the extent that those savings are passed along to 
investors.
    We have considered the potential costs and benefits that will 
result from the final rules in Section IV.C., as well as the potential 
effects on efficiency, competition, and capital formation in Section 
IV.D. Certain potential economic effects of the final amendments will 
stem from the statutory mandate, while others will stem from the 
discretion we are exercising in amending Form N-4, rule 498A, the 
filing and prospectus delivery rules, as well as the communication 
rules applicable to non-variable annuities. We also consider certain 
alternatives to our approach to implementing the statutory mandate, as 
discussed in Section IV.E. Where possible, we have attempted to 
quantify the economic effects. In some cases, however, we are unable to 
quantify the economic effects because we lack the information necessary 
to provide a reasonable and reliable estimate. For example, the final 
amendments could reduce the amount of time and effort investors require 
to make an investment decision. We do not have data on the extent to 
which the final amendments would reduce the amount of time and effort 
investors require to make an investment decision, or the value of that 
time and effort to investors. Also, because the final amendments 
facilitate not only the evaluation and comparison among non-variable 
annuities, but also facilitate the comparison of non-variable annuities 
to other annuity products, we may observe a change in investment in 
annuities. We do not have data that would allow us to estimate the 
extent to which we may observe a change in investment in annuities. 
Nevertheless, as described more fully below, the Commission is 
providing both a qualitative assessment and quantified estimate of the 
economic effects, where feasible. The Commission has sought comment on 
all aspects of the economic analysis, especially any data or 
information that would better enable a quantification of economic 
effects, and the analysis below takes into consideration relevant 
comments received.

B. Baseline

1. Affected Parties
    The final amendments affect issuers of and investors in RILAs, 
issuers of and investors in registered MVA annuities, as well as 
issuers of and investors in variable annuities currently registered on 
Form N-4.
a. The Market for Annuity Products
    As of May 1, 2024, there were 104 RILAs registered with the 
Commission issued by 29 insurance companies.\712\ Among the 104 RILAs, 
60 are stand-alone RILA products, while 44 are products with a RILA 
component. The number of RILAs registered on Form S-1 is 64, while the 
remaining 40 are registered on Form S-3. About 60% of the registered 
RILAs (63 RILAs) report SAP financials, with the remainder (41 RILAs) 
reporting GAAP financials.\713\
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    \712\ Based on analysis of Forms S-1, S-3 and POS AM filed by 
RILA issuers.
    \713\ EDGAR Database. Certain Commission letters, or portions 
thereof, exempt certain insurance companies from the requirement to 
provide financial statements prepared in accordance with GAAP in 
connection with the registration of an offering of RILAs on Form S-
1. See supra Section II.E.
---------------------------------------------------------------------------

    RILA contracts offer a variety of index-linked options. 
Specifically, RILA contracts offer index-linked options whose returns 
are linked, in part to, indices such as the S&P 500, Russell 2000, and 
NASDAQ-100. RILA contracts offer index-linked options with less well-
known indices and ETFs as well, but with much lower frequency.\714\
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    \714\ See Proposing Release at Section III.B.1. for more 
details.
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    As discussed in Section I, index-linked options whose returns are 
based, in part, on the same index may nevertheless have different 
elements that contribute to an investor's returns. Notably, different 
index-linked options whose returns are linked to the same index may 
offer different crediting periods (the set length of time for measuring 
growth of contract value based on the performance of the linked index--
for example, one or three years), crediting methodologies, and buffer 
or floor levels.\715\
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    \715\ For more details, see Proposing Release at Section 
III.B.1.
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    The final amendments also affect issuers of and investors in 
registered MVA annuities. As of May 1, 2024, there were 53 registered 
MVA annuities registered with the Commission issued

[[Page 60053]]

by 16 insurance companies.\716\ The number of registered MVA annuities 
registered on Form S-1 is 26, while the remaining 27 are registered on 
Form S-3. A little over one third of the registered MVA annuities (18 
MVA annuities) report SAP financials, with the remainder (35 MVA 
annuities) reporting GAAP financials.
---------------------------------------------------------------------------

    \716\ Based on analysis of Forms S-1, S-3 and POS AM filed by 
RILA issuers.
---------------------------------------------------------------------------

    Table 10 provides information on the dollar amount of RILA sales 
over the past eight years.\717\ RILA sales increased from $7.3 billion 
in 2016 to $47.4 billion in 2023, which represents a 549% increase 
between these seven years.\718\ We do not have access to data on the 
sales of registered MVA annuities.
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    \717\ Fact Tank: Sales Data, Life Insurance Marketing and 
Research Association, https://www.limra.com/en/newsroom/fact-tank/ 
(using data from the U.S. Individual Annuity Sales surveys for Q4 
for each year from 2016 through 2023).
    \718\ A recent survey of insurers found that 85% of respondents 
believed in 2021 that RILA sales would increase by 10% or more over 
the next three years, 10% believed that RILA sales would increase by 
less than 10%, while 5% believed that RILA sales would remain the 
same over that time period. No respondents indicated that they 
believed RILA sales would decrease. See discussion in Proposing 
Release at Section III.B.1.a.

                                                                Table 10--Sales of RILAs
                                                                      [$ billions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              2016          2017          2018          2019          2020          2021          2022          2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sales of RILAs..........................          7.3           9.0          11.2          17.4          24.1          38.7          41.1          47.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Fact Tank: Sales Data, Life Insurance Marketing and Research Association, https://www.limra.com/en/newsroom/fact-tank/ (using data from the U.S.
  Individual Annuity Sales surveys for Q4 for each year from 2016 through 2023).

    Additionally, the final amendments affect issuers of and investors 
in variable annuities currently registered on Form N-4. As of 2019, 
there were a total of 2,396 unique variable annuity products offered by 
a total of 33 companies.\719\ Net assets totaled $2,018.0 billion. Also 
in 2019, variable annuity sales totaled $98.3 billion.\720\ Of the 
total sales, $62.8 billion (64% of total sales) were annuities within 
qualified plans and $35.5 (36%) were non-qualified annuities.\721\ 
Investors purchased annuities across various distribution channels--
captive agents, $34.5 billion, (35% of total sales); independent 
financial planners/NASD firms, $39.2 billion (40%); banks/credit 
unions, $9.2 billion (9%); wire houses/regional broker-dealers, $12.6 
billion (13%); and direct response, $2.8 billion (3%).\722\
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    \719\ See Insured Retirement Institute Retirement Fact Book 2020 
(``IRI Fact Book''). In 2018 (the last year for which this 
information is available in the 2020 edition), the total number of 
variable annuity contracts in force was 17.9 million, with an 
average individual contract value of $113,053.
    \720\ Id.
    \721\ Id.
    \722\ Id.
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b. Issuing Insurance Companies
    The number of insurance companies currently offering securities 
registered as RILAs with the Commission is 29, from 24 insurance 
company complexes. Out of these 29 insurance companies, 20 register 
RILAs on Form S-1, while the remaining 9 use Form S-3.\723\ Insurance 
companies offer, on average, 4.3 RILA contracts, ranging from a maximum 
of 13 RILAs to a minimum of 1 RILA. The top five issuers offer 58 RILAs 
in total, or 56% of the number of existing RILAs.\724\
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    \723\ As of May 1, 2024. Data obtained from Forms S-1, S-3 and 
POS AM filed by RILA issuers.
    \724\ Calculated using data obtained from Forms S-1, S-3 and POS 
AM filed by RILA issuers, as of May 1, 2024.
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    The number of insurance companies currently offering registered MVA 
annuities registered with the Commission is 16, from 14 insurance 
company complexes.\725\ Out of the 16 insurance companies, 8 register 
MVA annuities on Form S-1 and 8 register MVA annuities on Form S-
3.\726\ Insurance companies offer, on average, 3.8 registered MVA 
annuity contracts, ranging from a maximum of 8 registered MVA annuity 
contracts to a minimum of 1 registered MVA annuity. The top five 
issuers offer 32 registered MVA annuities in total, or 60 percent of 
the number of existing registered MVA annuities.\727\
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    \725\ Some of these insurance companies also issue RILAs, or 
annuity contracts offering index-linked options and MVA options. 
There are 38 insurance companies in total that issue RILAs, 
registered MVA annuities, or annuity contracts offering index-linked 
options and MVA options.
    \726\ As of May 1, 2024. Data obtained from Forms S-1, S-3 and 
POS AM filed by MVA annuity issuers.
    \727\ Calculated using data obtained from Forms S-1, S-3 and POS 
AM filed by MVA annuity issuers, as of May 1, 2024
---------------------------------------------------------------------------

c. Investors
    In 2023 there were an estimated 82.3 million individuals aged 45-64 
and 59.3 million individuals aged 65 or older in the United States, 
representing 25 percent and 18 percent of the total population, 
respectively.\728\ The number of individuals aged 65 or older is 
projected to be 63 million (19 percent of the projected population) in 
2025, 76 million (22 percent of the projected population) in 2035, 80 
million (22 percent of the projected population) in 2045, and 85 
million (23 percent of the projected population) in 2055.\729\
---------------------------------------------------------------------------

    \728\ U.S. Census Bureau, Annual Estimates of the Resident 
Population for Selected Age Groups by Sex for the United States: 
Apr. 1, 2020, to July 1, 2023 (NC-EST2023-AGESEX-RES). We do not 
have demographic data on RILA investors. A 2022 survey found that 84 
percent of individual annuity investors purchased their first 
annuity before age 65, including 45% who were between the ages of 50 
and 64 years old. The average age of investors at first purchase of 
an annuity is 51. The average current annuity investor age is 74. 
See The Gallup Organization and Mathew Greenwald & Associates for 
The Committee of Annuity Insurers, Survey of Owners of Individual 
Annuity Contracts (2022), available at https://www.annuity-insurers.org/wp-content/uploads/2023/07/Gallup-Survey-of-Owners-of-Individual-Annuity-Contracts-2022.pdf.
    \729\ Projected Age Groups and Sex Composition of the 
Population: Main Projections Series for the United States, 2023 to 
2100. U.S. Census Bureau, Population Division: Washington, DC.
---------------------------------------------------------------------------

    Individuals may face meaningful burdens (e.g., search costs) when 
trying to identify appropriate investments or savings products. Once 
identified, investors may face additional burdens (e.g., acquiring and 
analyzing large amounts of information) to determine which specific 
investments or saving products among the ones identified allow 
investors to best meet their savings goals.\730\ In addition, financial 
innovation has led to more complex financial products.\731\ As a result 
of the burden associated with identifying appropriate investments, as 
well as the burden of acquiring and analyzing information to choose 
among the set of appropriate investments, investors may choose to limit 
the time and effort (i.e., resources) expended to make investment 
decisions.
---------------------------------------------------------------------------

    \730\ John Y. Campbell et al., Consumer Financial Protection, 25 
J. Econ. Perspectives 91 (2011) (``Campbell et al. Paper''). 
Campbell et al. note that making decisions about financial products 
often requires considerable information on terms and conditions, 
particularly for financial decisions that are undertaken only 
infrequently.
    \731\ See Campbell Paper.
---------------------------------------------------------------------------

    Decision making limitations may be particularly problematic in the 
context

[[Page 60054]]

of saving for retirement because learning from experience is difficult. 
Investing in retirement products is only done infrequently and the 
outcomes of investing decisions are delayed, perhaps for decades, and 
are subject to large random shocks, so that personal experience is slow 
to accumulate and is contaminated by noise. Also, financial innovation 
can reduce the relevance of an investor's prior experiences. For 
example, prior experience investing in investment vehicles with 
unbounded returns would be less relevant for investing in RILAs (which 
have bounded returns) than it would be for investing in variable 
annuities (which have unbounded returns).\732\
---------------------------------------------------------------------------

    \732\ See Campbell et al. Paper. The Campbell et al. Paper 
identifies five aspects of ``financial ignorance'' that may lead to 
poor investor decision making. First, investors may lack 
understanding of basic concepts necessary to make appropriate 
decisions. For example, investors appear to lack an understanding of 
diversification and the tradeoff between risk and return. Second, 
investors may not understand the terms of financial contracts. 
Third, it appears that, rather than using all available historical 
data to form views about future returns on alternative strategies, 
investors rely on their own specific experiences to form an opinion. 
Fourth, individuals appear to not understand their own difficulties 
with financial decision making. Finally, investors appear to not 
understand the incentives faced by other parties and the effect 
these incentives have on their strategic behavior. Other studies 
suggest poor investment decisions may result from investor 
uncertainty and lack of investor familiarity with different assets. 
For example, individuals may invest sub-optimally because 
individuals are unable, given historical experience, to form precise 
estimates of how they expect assets to perform in the future. See, 
e.g., Raymond Kan and Guofu Zhao (2007). Optimal Portfolio Choice 
with Parameter Uncertainty, Journal of Financial and Quantitative 
Analysis, 27(3), 621-656. Rather than being unable to form precise 
estimates of how they expect assets to perform in the future, 
investors may not have, perhaps due to not having the requisite 
experience, the ability to form any expectation about how an asset 
will perform in the future. If investors' ambiguity is great enough, 
they simply may choose not to invest in particular assets. See, 
e.g., David Easley and Maureen O'Hara (2009). Ambiguity and 
Nonparticipation: The Role of Regulation, Review of Financial 
Studies, 22(5), 1817-1843. Finally, investors may make poor 
investment decisions because they choose to overweight investment in 
assets with which they are familiar, and underweight, or exclude, 
investment assets with which they are less familiar. See, e.g., Gur 
Hubberman (2001). Familiarity Breeds Investment, Review of Financial 
Studies, 14(3), 659-680 and Massimo Massa and Andrei Simonov (2006). 
Hedging, Familiarity, and Portfolio Choice, Review of Financial 
Studies, 19(2), 633-685.
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2. Current Regulatory Requirements
    As discussed in Section I above, non-variable annuities are 
securities for purposes of the Securities Act, and public offerings of 
non-variable annuities, therefore, must be registered with the 
Commission.\733\ Unlike variable annuity contracts for which the 
Commission has adopted a specific registration form tailored to those 
products, insurance companies register non-variable annuity offerings 
on Form S-1 or Form S-3.
---------------------------------------------------------------------------

    \733\ See supra footnote 26 and accompanying text.
---------------------------------------------------------------------------

    Form S-1 is available to any issuer (except foreign governments and 
issuers of asset-backed securities) to register securities for which no 
other registration form is authorized or prescribed. A registration 
statement on Form S-1 contains extensive disclosure about all aspects 
of the issuer's business and financial condition and consists of two 
parts: a prospectus (Part I), and additional information not required 
to be included in the prospectus (Part II), but that is publicly 
available on EDGAR. Form S-1 allows incorporation by reference only on 
a very limited basis. The prospectus must contain financial statements 
meeting the requirements of Regulation S-X, which generally requires 
audited financial statements prepared in accordance with GAAP.\734\ 
Currently, disclosures about non-variable annuity offerings are largely 
unstructured. However, the audited financial statements in the 
prospectus, if prepared in accordance with GAAP, must be tagged in 
Inline XBRL if the Form S-1 contains a price or a price range.\735\ 
Form S-1 must be declared effective by the Commission before any sales 
of the registered securities may be made. The time required for 
Commission review will depend on the number and complexity of 
Commission comments and the issuer's ability to adequately address 
those comments. The issuer must pay the Commission registration fee 
before it files a Form S-1. The amount of the fee is based on the 
proposed maximum aggregate offering price.\736\ The issuer must 
indicate the amount of each type of security being registered and 
calculate the fee payable for each security.
---------------------------------------------------------------------------

    \734\ Certain Commission letters, or portions thereof, exempt 
certain insurance companies from the requirement to provide 
financial statements prepared in accordance with GAAP in connection 
with the registration of an offering of non-variable annuities on 
Form S-1. As discussed in Section IV.B.1.a, 63 RILAs and 18 
registered MVA annuities report SAP financials.
    \735\ See 17 CFR 229.601(b)(101)(i)(B).
    \736\ Generally, Form S-1 (or Form S-3) fees paid for a 
withdrawn registration statement are available to the issuer for use 
with its future registration statements. The amount available for 
use as an offset under rule 429 under the Securities Act equals the 
portion of the filing fee paid that is associated with any unsold 
securities of the same class registered on an earlier registration 
statement. Once a filing fee has been used as an offset, those 
unsold securities on the earlier registration statement are deemed 
deregistered. Non-variable annuities are continuously offered to 
investors, who in many cases are long-term investors that may make 
additional allocations or other investment decisions with respect to 
an investment in a RILA. Because non-variable annuity investors may 
make additional allocations or other investment decisions with 
respect to an investment, unless a prior non-variable annuity 
offering is completely unsold, non-variable annuity issuers may have 
increased difficulty in using filing fees associated with unsold 
securities of a prior offerings.
---------------------------------------------------------------------------

    Form S-3 is a ``short-form'' registration statement under the 
Securities Act that can be used by companies that have been subject to 
reporting obligations under the Exchange Act for at least one year and 
that satisfy certain other requirements.\737\ Reporting obligations 
under the Exchange Act include audited financial statements prepared in 
accordance with GAAP and are structured in Inline XBRL. A registration 
statement on Form S-3 contains extensive disclosure about all aspects 
of the issuer's business and financial condition and consists of two 
parts: a prospectus which includes, either directly or incorporated by 
reference from the issuer's Exchange Act filings, detailed information 
about the issuer (Part I), and additional information not required to 
be included in the prospectus (Part II), but that is publicly available 
on EDGAR.
---------------------------------------------------------------------------

    \737\ The issuer must be either organized under U.S. law with 
its principal business operations in the United States or a foreign 
private issuer that reports under the Exchange Act using the 
domestic reporting forms. The issuer must have a class of securities 
registered under section 12(b) or 12(g) of the Exchange Act, or be 
required to file reports under section 15(d) of the Exchange Act. 
The issuer must have been subject to the reporting requirements of 
the Exchange Act and have filed all reports and materials required 
under sections 13, 14, and 15(d) of the Exchange Act for the 12 
calendar months preceding the filing of Form S-3, and, with certain 
exceptions, must have timely filed all such reports and other 
materials required to be filed during the 12 calendar months and any 
portion of a month immediately preceding the filing of the 
registration statement. An issuer that meets all of the requirements 
of Form S-3 and that has a public float of $75 million or more 
(i.e., ``seasoned issuers'') may use Form S-3 to register any 
offering of debt or equity for cash.
---------------------------------------------------------------------------

    Registration using Form S-3 offers issuers advantages over 
registration using Form S-1. First, Form S-3 allows significant 
incorporation by reference, which allows for shorter prospectuses and 
makes Form S-3 easier to complete. Also, Form S-3 also allows for 
forward incorporation by reference, eliminating the need to file post-
effective amendments to keep registration statements current.\738\
---------------------------------------------------------------------------

    \738\ One commenter noted that it can be more efficient and 
provide a better investor experience to register RILAs on Form S-3 
rather than on Form S-1 because, unlike an S-1 prospectus, due to 
the fact that Form S-3 incorporates by reference company-related 
information from periodic reports filed on Forms 10-K and 10-Q, an 
S-3 prospectus concentrates on disclosures about the features, 
benefits, and risks associated with the RILA contract that is not 
impeded by extensive and irrelevant company-related disclosures. See 
CAI Comment Letter.

---------------------------------------------------------------------------

[[Page 60055]]

    A Form S-3 filed by a non-WKSI must be declared effective by the 
Commission.\739\ A Form S-3 receives either a full review or a targeted 
review of one or more sections of the registration statement. The time 
to resolve any Commission comments will depend on the number and 
complexity of the Commission's comments. An issuer must pay Commission 
filing fees before it files Form S-3. The amount of the filing fee is 
based on the proposed maximum aggregate offering price.
---------------------------------------------------------------------------

    \739\ Currently, none of the insurance companies that issue non-
variable annuities currently claim status as a well-known seasoned 
issuer. See supra footnote 598.
---------------------------------------------------------------------------

    Under the Federal securities laws applicable to all securities 
(including non-variable annuity offerings), it is unlawful for any 
person to use materially misleading communications in connection with 
the offer or sale of any security.\740\ Rule 156 is an interpretive 
rule that provides factors to be weighed in considering whether a 
statement involving a material fact is or might be misleading in the 
specific context of investment company sales literature, including 
literature relating to the sale of variable annuities.
---------------------------------------------------------------------------

    \740\ See 15 U.S.C. 77q(a); 15 U.S.C. 78j(b); 17 CFR 240.10b-5.
---------------------------------------------------------------------------

    As discussed in Section I above, in 2022 Congress enacted the RILA 
Act directing the Commission to adopt a new registration form for RILAs 
within 18 months of enactment (i.e., the end of June 2024). If the 
Commission fails to adopt the form by the end of June 2024, the RILA 
Act provides that issuers can begin registering the offering of RILAs 
on Form N-4.
3. Market Practice
    Annuities can play a role in helping investors save for retirement 
and receive guaranteed lifetime income during retirement.\741\ There 
are multiple types of annuities available to help investors who have 
different financial goals or tolerances for risk save for retirement: 
fixed annuities (including registered MVA annuities), variable 
annuities, and RILAs. Generally, fixed annuities offer investors 
preservation of their investment by guaranteeing a minimum rate of 
return, but with little opportunity for asset growth. For example, 
during the accumulation phase,\742\ a traditional (i.e., book value) 
fixed annuity offers investors a fixed rate of return (known in 
advance) for a given period of time.\743\ A registered MVA annuity is 
similar to a traditional fixed annuity, but the surrender value is 
subject to a market value adjustment based on interest rate changes. 
Fixed index annuities guarantee a certain rate of return, but also 
provide the potential for (limited) additional returns based on the 
performance of a specified market index.\744\
---------------------------------------------------------------------------

    \741\ See IRI Fact Book (arguing that annuities give investors 
the ability to create their own pensions). For example, as also 
discussed in the IRI Fact Book, death benefits provide principal 
protection in the event that an investor dies during a market 
downturn.
    \742\ See id. During the accumulation phase, also called the 
savings phase, capital builds up. In this phase, the investor pays 
premiums into the contract to accumulate assets.
    \743\ Id. The IRI Fact Book also notes that fixed annuities 
involve less investment risk because they offer a guaranteed minimum 
rate of interest. The minimum rate is not affected by fluctuations 
in market interest rates. Also, the surrender value is based on the 
annuity's purchase value plus credited interest, net of any charges. 
Currently, insurance companies with a minimum A.M. Best Insurance 
Ratings of A- offer fixed rate annuities that guarantee between 
3.55% and 5.40% for a three-year period, and between 3.20% and 5.40% 
for a ten-year period. Multi-Year Guarantee Annuities (MYGA), 
Annuity Advantage (accessed Feb. 16, 2024, and filtered by ``State'' 
of ``- All''; ``Min AM Best'' of ``A-''; ``Years'' of ``10''; and 
``Range'' of ``Exact''), available at https://www.annuityadvantage.com/annuity-rates-quotes/multi-year-guarantee-annuities/?rating=4&years=10&pos=300&sort=guarantee_period_yield&limit=all.
    \744\ See id.
---------------------------------------------------------------------------

    Variable annuities accumulate savings based on the performance of 
the underlying investment options chosen by an investor. Typically, 
investors are able to choose among investment options that pass on the 
returns of a wide variety of mutual funds such as equity funds, bond 
funds, funds that combine equities and bonds, actively managed funds, 
index funds, domestic funds, and international funds.\745\ Depending on 
the investment options chosen, variable annuities can offer investors 
the greatest opportunity for asset growth, but they also can involve 
the greatest amount of investment-based risk, compared to other types 
of annuities.\746\
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    \745\ Id.
    \746\ Additionally, variable annuities often involve direct 
fees, such as insurance charges, and indirect expenses, including 
management and other fees and expenses associated with the 
underlying mutual funds in which the variable annuity subaccounts 
invest. See IRI Fact Book.
---------------------------------------------------------------------------

    RILAs are an index-linked product that can be purchased by 
individual investors as part of both qualified and non-qualified 
retirement accounts.\747\ RILAs combine features of fixed-index 
annuities and variable annuities. RILAs limit or reduce downside risk, 
but also limit upside performance. In exchange for giving up the 
complete protection of principal offered by fixed annuities, a RILA 
investor is potentially afforded greater upside potential than that 
provided by fixed annuities, though typically less than the potential 
upside of investing in the same index within a variable annuity.\748\ 
RILAs allow investors some ability to customize a level of risk with 
which they are comfortable.\749\ Like other annuities, RILAs have an 
accumulation phase followed by a payout phase. The accumulation phase 
is divided into one or more crediting periods.\750\ Also like other 
annuities, after a ``surrender charge'' period (generally, 3 to 10 
years following an investor's last premium payment), investors can 
usually surrender their contract at the end of any crediting period and 
receive full account value.\751\ Investors, however, may lose money if 
they withdraw early from an investment option or, in some RILAs, from 
the contract within a specified period, as explained in Section II.C.6 
above.
---------------------------------------------------------------------------

    \747\ Thorsten Moenig, It's RILA Time: An Introduction to 
Registered Index-Linked Annuities, 89 J. Risk & Ins. 339 (2022) 
(``Moenig Paper'').
    \748\ See IRI Fact Book.
    \749\ Id.
    \750\ Id.
    \751\ Id.
---------------------------------------------------------------------------

    At the end of a crediting period, the issuer credits a RILA 
investor's contract value with ``interest'' (which can be either 
positive or negative) that is based on the performance of a specified 
index, subject to restrictions on the upside, through a cap and/or 
``participation rate,'' as well as some form of downside 
protection.\752\ If the index declines, the credited loss is lessened 
by either a floor (a maximum loss percentage), a buffer (index losses 
are credited to the RILA investor's contract value only when they 
exceed a certain threshold), or a downside participation rate (the loss 
credited to contract value is a certain percentage of the index 
loss).\753\ RILA downside protection mechanisms typically do not change 
over time, whereas issuers may, and likely will, change upside limits 
on gains for both new contracts as well as existing contracts to 
reflect changing market conditions.\754\ If a RILA contract offers 
downside protection in the form of a floor, then the increased 
volatility would expose the issuer to greater downside risk. To offset 
the increased downside risk, an issuer might choose

[[Page 60056]]

to reduce its upside risk by lowering cap rates.\755\ If the RILA 
contract offers downside protection in the form of a buffer, then 
increased volatility would expose the issuer to reduced downside risk. 
The reduced downside risk might cause issuers to increase cap 
rates.\756\
---------------------------------------------------------------------------

    \752\ Id.
    \753\ Id. See also Moenig Paper arguing that RILAs are 
structurally similar to fixed-index annuities except that RILAs may 
credit negative returns. A fixed-index annuity can be viewed as a 
special case of a RILA with a floor of 0%. The insurer provides full 
protection on the index return in exchange for a low cap rate 
(commonly between 2% and 4%).
    \754\ See Moenig Paper. One commenter agreed, stating that 
although index-linked options include multiple parts, including an 
index, crediting period, upside crediting feature and rate, downside 
protection feature and rate, and associated fees (as applicable), 
the only ``moving part'' is the upside protection. See CAI Comment 
Letter.
    \755\ Id.
    \756\ Id.
---------------------------------------------------------------------------

    Also, unlike variable annuities, most RILAs do not include any 
direct ongoing fees or charges to the investor. Insurance companies, 
however, potentially can benefit from offering RILAs in at least three 
ways.\757\ First, insurance companies can benefit from a favorable 
imbalance between the downside protections that a RILA contract offers, 
and the upside limits the contract offers.\758\ That is, insurance 
companies might benefit to the extent the cost of providing the 
downside protection is less than the value, to the insurance company, 
of the upside limits.\759\ One study estimates an average annual cost 
to investors from the imbalance between the downside protections and 
the upside limits that a RILA contract offers is approximately 0.17% of 
the RILA investment amount.\760\ Similarly, holding constant the other 
terms of the contract, insurance companies can benefit when a RILA 
offers index-linked options whose index for measuring performance is a 
price-based index that does not account for dividend payments. For 
example, if an investor chooses an index-linked option whose 
performance is based, in part, on the S&P 500 Price Return Index, the 
credited return may be based on the point-to-point change in the S&P 
500, which does not include the dividend payments of the underlying 
stocks.\761\ Also, we understand that, generally, insurance companies 
can benefit from offering RILAs by investing RILA proceeds into fixed-
income securities such as corporate bonds, thereby earning a ``credit 
risk premium.'' \762\
---------------------------------------------------------------------------

    \757\ One commenter observed, without providing examples, that 
insurance companies utilize a variety of means to produce profit 
from RILAs. See ACLI Comment Letter.
    \758\ See Moenig Paper. One commenter agreed with our 
description, stating that RILAs are ``spread'' products, meaning 
that the issuer's profits are principally embedded in the 
structuring of the product and are not a portion of an overt fee or 
charge. The same commenter noted that there is an inextricable 
relationship between the limits on potential gains and the 
protection from potential losses while also stating that spreads 
cover expenses and compensate the insurer not only for the 
investment elements of the product, but liquidity, protection and 
other insurance features that are bundled together. See CAI Comment 
Letter. Another commenter stated that the amount of market 
participation or upside performance is oftentimes directly related 
to the amount of downside risk the investor wishes to assume. See 
Gainbridge Comment Letter. Also, one commenter noted that 
distribution costs are not recouped through the spread, but through 
explicit surrender charges. See CAI Comment Letter.
    \759\ We understand that insurance companies may use derivative 
securities to closely approximate the insurer's liabilities from a 
RILA contract at the end of each crediting period. See, e.g., Moenig 
Paper and CAI Comment Letter. For example, for a RILA with both a 
floor and a cap, the insurance company can hedge its liability by 
purchasing a call option (with an appropriate strike price given the 
floor) and selling a call (with a higher strike price that is 
dependent on the cap). The insurance company may be able to offer a 
cap such that the proceeds from selling the call with the higher 
strike price exceed the cost of purchasing the call option with the 
lower strike price. For a RILA with a downside buffer (as opposed to 
a floor) and a cap, the process for insurance companies to hedge 
their liabilities is similar, but with a different mix of options. 
In the case of a RILA with a downside buffer and a cap, the 
insurance company could purchase a call option, sell a call option 
(with a higher strike price), and sell a put option (with a lower 
strike price, as appropriate given the downside buffer). In this 
case, the insurance company might be able to offer a cap such that 
the proceeds from selling the call and the put exceed the cost of 
the call option with the lower of the two strike prices. One 
commenter stated that insurance companies set downside protections 
and upside limits such that a favorable imbalance between the two 
does not exist. See CAI Comment Letter. Another commenter stated 
that RILAs are intended to produce revenue for insurance companies 
sufficient to cover the cost of doing business. See ACLI Comment 
Letter.
    \760\ See Moenig Paper; Public Filings on EDGAR. Staff examined 
24 one-year term rates linked to the S&P 500 index, Nasdaq 100 
index, Russell 2000 index, and MSCI EAFE and found results consist 
with the 0.17% estimate of the Moenig Paper. See discussion in 
Proposing Release, Section III.B.3.
    \761\ See Moenig Paper. The Moenig Paper provides the following 
example: assuming insurance companies hold the underlying 
securities, if stock prices rise by 7% on average over the crediting 
period, in addition to paying 2% in dividends, then the RILA account 
would be credited 7%, even though investors in the underlying stocks 
would earn a 9% return. When insurance companies rely on derivative 
securities, omitting dividend payments can also benefit insurers by 
reducing the cost of providing a given amount of downside protection 
(e.g., through lower option prices). Comment letters were mixed 
regarding whether insurance companies benefit when a RILA offers 
index-linked options whose index for measuring performance is a 
price-based index. One commenter noted that insurance companies do 
not earn or keep any dividends paid by the companies whose 
securities comprise an index because insurance companies invest in 
derivatives, rather the underlying securities themselves. The same 
commenter also noted that while it is true that using a price return 
index lowers options costs for insurance companies, those lower 
costs are passed along to RILA investors in the form of greater 
participation in upside performance. See CAI Comment Letter. Other 
commenters offered an opposing view. For example, one commenter 
stated that the biggest ``drag,'' and benefit to the insurance 
company, on RILAs and all indexed annuities is the use of a price 
return index instead of a total return index. In particular, the 
commenter stated that the insurance company, in essence, gets the 
total return on its investments and passes along the lower price 
return, keeping the difference. See Johnson Comment Letter. Another 
commenter suggested that the use of price return indices misleads 
investors regarding RILA performance. See Lee Comment Letter.
    \762\ We understand that insurance companies can similarly 
benefit from offering registered MVA annuities to the extent 
insurance companies' investment yields exceed interest credited to 
investors. One commenter stated that insurance companies do not 
benefit from the entire credit risk premium when offering RILAs. The 
commenter stated that much of the credit risk premium is used to 
pass additional value to customers via greater participation in 
upside performance. See CAI Comment Letter.
---------------------------------------------------------------------------

    While most RILAs do not include any explicit ongoing fees or 
charges to the investor, RILAs typically have charges for early or mid-
term withdrawals. As discussed in Section II.C.3.b, charges for early 
or mid-term withdrawals could include surrender charges and contract 
adjustments.
    RILAs differ from other annuity contracts in other ways as well. 
Variable annuities involve a direct investment of premiums into 
subaccount(s) that correspond to one, or more, of many mutual funds. 
RILA premiums, on the other hand, are not directly invested into the 
assets of the underlying index, and typically investors can only choose 
among index-linked options whose returns are based on a small number of 
mainstream indexes.\763\ In terms of the returns an investor 
experiences, the issuer of a variable annuity has no contractual 
obligations to fund such returns, in that premiums are directly 
invested into subaccounts which in turn are invested in shares of 
underlying portfolio companies. On the other hand, the RILA issuer does 
have contractual obligations relating to the returns an investor 
experiences, taking into account RILA contracts' bounded return 
structures, because the RILA premiums are not directly invested in the 
assets of the underlying index. These obligations are short-term (i.e., 
they are limited to the crediting period of the index-linked option the 
investor selects, which is usually one, two, three, or six years) and 
tied to the performance of a common index, so that issuers can hedge 
the embedded liabilities accurately through the financial markets.\764\
---------------------------------------------------------------------------

    \763\ See Moenig Paper.
    \764\ Id.
---------------------------------------------------------------------------

    Like RILAs, registered MVA annuities have an accumulation phase 
divided into one or more crediting periods followed by a payout phase. 
Also like RILAs, registered MVA annuities apply contract adjustments 
upon withdrawals prior to term maturity. Unlike RILAs, however, 
registered MVA annuities' credited interest is not linked to the 
performance of an index. Registered MVA annuities offer a rate of 
return that is determined by the insurance company for a set period, 
subject to a specified minimum.\765\ At the end of the period, the 
insurance company may

[[Page 60057]]

offer a new rate for the next period.\766\ Like RILAs, generally 
registered MVA annuities typically do not impose direct fees on the 
investor, other than surrender charges. Instead, insurance companies 
can benefit from the difference between what the insurance companies 
expects to earn on the proceeds from registered MVA annuity sales and 
what the insurance company has committed to paying out (i.e., the 
``spread'').\767\
---------------------------------------------------------------------------

    \765\ See IRI Fact Book.
    \766\ Id. Generally, registered MVA annuities specify a minimum 
credited interest rate for the lifetime of the contract.
    \767\ See IRI Fact Book.
---------------------------------------------------------------------------

    Additionally, non-variable annuities and variable annuities differ 
with respect to their use of proceeds. As discussed in Section II.C.5, 
variable annuity proceeds are held in separate accounts insulated from 
the insurance company's general account and, therefore, are insulated 
from the issuer's general account creditors. Variable annuity proceeds 
in unitized sub-accounts must be invested as the investor chooses and 
returns are credited to the account directly. On the other hand, 
contract values, benefits, and guarantees provided by non-variable 
annuities are paid out of assets held in the insurance company's 
general account or a non-unitized separate account, and may not be 
insulated from the claims of the insurer's general creditors (and thus 
subject to the insurance company's claims-paying ability).
    Also, non-variable annuity proceeds can be invested as the issuer 
sees fit. We understand that insurance companies are able to invest 
RILA proceeds in derivative securities that closely approximate the 
issuer's liabilities from RILA contracts.\768\ In doing so, insurance 
companies are able to hedge away their risk at a low cost. Further, we 
understand that insurance companies can invest remaining proceeds into 
fixed-income securities (e.g., corporate bonds) that allow them to earn 
a ``credit risk premium.'' \769\ The credit risk premium can be an 
important source of benefits to RILA issuers.\770\
---------------------------------------------------------------------------

    \768\ See Moenig Paper. One commenter noted that investments 
supporting RILA contracts are not generally specifically earmarked 
to a contract, but rather are managed based on the insurer's 
aggregate reserves supporting all its RILA contracts. See CAI 
Comment Letter.
    \769\ Id.
    \770\ Id. One commenter noted that insurance companies do not 
benefit from the entire credit risk premium, stating that ``Much of 
this credit risk premium is used to pass additional value to 
customers via greater participation in upside performance.'' See CAI 
Comment Letter.
---------------------------------------------------------------------------

C. Benefits and Costs

1. Benefits
a. Use of Form N-4
    Unlike variable annuity offerings that are registered on Form N-4, 
insurance companies register non-variable annuity offerings on Forms S-
1 or S-3. Forms S-1 and S-3 include a number of disclosure requirements 
that are specific to the insurance company issuing the non-variable 
annuity that the Commission does not require in the registration 
statements for offerings of variable annuities.
    The final amendments require that insurance companies use Form N-4 
to register the offering of RILAs and registered MVA annuities and we 
are adapting Form N-4 for that purpose.\771\ Because it is an existing 
form, non-variable annuity issuers and investors are familiar with Form 
N-4. As a result of expanding the scope of Form N-4 to address non-
variable annuities, non-variable annuity offerings will be registered 
on the same form as variable annuities. Requiring insurance companies 
to register non-variable annuity offerings on Form N-4 leverages 
insurance-product specific disclosure requirements reflected in the 
form and also makes use of the summary prospectus layered disclosure 
framework the Commission adopted in 2020 for variable annuities.
---------------------------------------------------------------------------

    \771\ See Form N-4, proposed General Instruction B.1. Commenters 
broadly supported this element of the proposal. See discussion in 
supra Section II.A.
---------------------------------------------------------------------------

    The following sections discuss the specific benefits deriving from 
the contents and requirements of the form in detail. In addition to 
these benefits, expanding the scope of Form N-4 to include RILAs and 
registered MVA annuities will benefit investors by making it easier for 
them to evaluate and compare non-variable annuities, and also to 
compare other annuity products with non-variable annuities. For 
example, investors may require less effort to evaluate and compare 
annuity products that register using the same form and may find the 
focus of Form N-4 on insurance-product specific information helpful in 
evaluating and comparing these annuity products. Additionally, 
investors in combination contracts will benefit by receiving one 
prospectus that describes the entire contract and available investment 
options, rather than two prospectuses that separately describe variable 
and non-variable options (and that repeat information about contract 
features that variable- and non-variable annuity contracts have in 
common). To the extent that investors require less effort to evaluate 
and compare these annuity products, investors may be more likely to 
make decisions that better align with their investment goals. 
Commenters broadly agreed that the proposed amendments to Form N-4 
would provide RILA investors with more meaningful and helpful 
disclosures as compared to the more generic disclosures required on 
Forms S-1 and S-3.\772\
---------------------------------------------------------------------------

    \772\ See discussion in supra Section II.A. With respect to 
issuers that already provide the same or similar disclosures on 
Forms S-1 or S-3 as are required by the final amendments, the 
benefits of disclosure of that same information may be mitigated.
---------------------------------------------------------------------------

    One commenter, who agreed with the Commission's proposal to amend 
Form N-4 to include existing disclosures for registered MVA annuities 
that are filed on Form S-1 or S-3, requested that MVA issuers be 
permitted to continue to register MVA contracts no longer offered for 
sale to new investors on Form S-1 or S-3.\773\ The commenter went on to 
state that the costs of transitioning a closed block of MVAs from Form 
S-1 or S-3 to Form N-4 could ``significantly outweigh the benefits.'' 
\774\ We disagree with the commenter's statement that the costs of 
transitioning a closed block of MVAs from Form S-1 or S-3 to Form N-4 
could significantly outweigh the benefits. By requiring rather than 
permitting insurance companies to register all MVA annuities on Form N-
4, investors will benefit by having access to more tailored and 
comparable information necessary to make informed investment 
decisions.\775\ For registered offerings of closed block registered MVA 
annuities, tailored disclosures will benefit investors when making 
additional investments in the contract or deciding how to reallocate 
their existing investment at the expiration of the MVA period.
---------------------------------------------------------------------------

    \773\ See CAI Comment Letter.
    \774\ See id. See also IRI Comment Letter (stating that 
transitioning registered MVA annuities that are no longer offered or 
sold to new investors to Form N-4 would be unnecessary.)
    \775\ See discussion in supra Section II.B.
---------------------------------------------------------------------------

b. Contents of Form N-4
    The final amendments are designed to help investors make informed 
investment decisions regarding the annuity products that are registered 
on Form N-4. The registration process on Form N-4 uses a layered 
disclosure approach designed to provide investors with key information 
relating to the contract's terms, benefits, and risks in a concise and 
reader-friendly presentation, with access to more detailed information 
for those investors who want it. Providing investors with key 
information is particularly

[[Page 60058]]

important in the context of annuity contracts such as RILAs, registered 
MVA annuities, and variable annuities because their structures are 
typically more complex than other types of investment products commonly 
sold to retail investors.
    In particular, the final amendments update the contents of Form N-4 
to specifically address non-variable annuities, including by: (1) 
amending the form's general instructions; (2) amending the requirements 
for front and back cover pages; (3) updating the Key Information Table 
(or ``KIT''); (4) providing new principal disclosures regarding non-
variable annuity investment options; and (5) providing for new contract 
adjustment and fee disclosures. The final amendments also include 
certain other technical and conforming amendments to Form N-4 and 
related rules designed to accommodate the inclusion of non-variable 
annuity offerings on that form as well as requiring the insurance 
company to provide disclosure in response to the remaining items on 
Form N-4 to the extent applicable.\776\
---------------------------------------------------------------------------

    \776\ The technical amendments to Forms N-3 and N-6 discussed in 
Section II.I have no economic effects.
---------------------------------------------------------------------------

General Instructions
    The final amendments require RILA and registered MVA annuity 
offerings registered on Form N-4 to comply with the general 
instructions of that form, including requirements related to: (1) using 
document design techniques that promote effective communication; (2) 
organizing information to make it easier for investors to understand; 
(3) including information in the prospectus or SAI not otherwise 
required so long as the additional information is not incomplete, 
inaccurate, or misleading, and does not obscure or impede understanding 
of the information that is required; (4) requiring Form N-4 filers to 
define special terms used in the prospectus in any presentation that 
clearly conveys meaning to investors; (5) allowing insurance companies 
to describe multiple contracts that are essentially identical in a 
single prospectus; (6) making available the dates of both the 
prospectus and SAI; (7) providing an interactive data file related to 
certain information on the form; (8) requiring insurance companies to 
include active hyperlinks, or other means of facilitating access that 
leads directly to the relevant website, for an electronic version of 
the prospectus; and (9) the use of incorporation by reference. The 
general instructions are designed to require clear and consistent 
disclosure to investors about annuity contracts currently registered on 
the form and to make clear how filers must prepare and file their 
registration statements.
    One commenter stated that the proposed amendments would delete the 
last sentence of General Instruction C.3.(a), which states that 
information required in the KIT or the overview section need not be 
repeated elsewhere in the prospectus. That commenter stated that 
excessive repetition adds to the length of the prospectus without any 
commensurate value to investors.\777\ The final form amendments take 
commenter concerns into account and address areas where the discussion 
of the same or similar topics in multiple locations could be limited 
while continuing to promote the goal of highlighting key information 
about non-variable annuities and enhancing understanding of non-
variable annuity features and risks.\778\ Also, the final amendments, 
like the proposal, incorporate layered disclosure. The use of layered 
disclosure means that the disclosure requirements necessarily address 
particular topics in more than one location in the registration 
statement. Where this occurs, the disclosure requirements intentionally 
include summary disclosure in the first ``layer,'' and additional 
details building on the summary in the second ``layer.''
---------------------------------------------------------------------------

    \777\ See CAI Comment Letter.
    \778\ See discussion of comments related to repetition informing 
the final amendments in Section I.D.2.
---------------------------------------------------------------------------

    Clear disclosure benefits investors by making it easier for 
investors to evaluate and compare offerings. Concise and decision-
useful disclosures can help facilitate the investment decision-making 
process. Also, the presentation of information in a consistent manner 
will facilitate not only the evaluation and comparison among RILA and 
registered MVA annuity offerings, but also will facilitate the 
comparison of non-variable annuities to other annuity products.\779\ 
Further, certain investors, while aware of variable annuities, simply 
may not be aware of RILAs or registered MVA annuities as investment 
options. Presentation of information in a consistent manner on Form N-4 
could increase investor awareness of non-variable annuities as an 
investment option.
---------------------------------------------------------------------------

    \779\ The consistent presentation of information also could 
facilitate information collection by third parties such as 
investment advisers and data aggregators who could then, in turn, 
provide information to investors.
---------------------------------------------------------------------------

Front and Back Cover Pages
    The final amendments make certain changes to information currently 
required on the front and back pages of a prospectus for all 
registrants on Form N-4. Like variable annuities registered on Form N-
4, RILAs and registered MVA annuities are required to present certain 
information on the front and back cover pages of the prospectus. The 
final amendments require several new cover page disclosures for all 
Form N-4 issuers. One set of changes provides additional information 
distinguishing among the investment options available in the annuities 
registering on Form N-4 and cross-reference the prospectus appendix 
that provides additional information about each option. These changes 
could help investors better understand what investment options are 
available under the contract, in an easily identifiable location. Some 
commenters suggested that the proposed cover page disclosures were too 
voluminous given the purpose of the front cover page and could cut 
against the form's layered disclosure approach, thereby reducing the 
benefits to investors.\780\ The number of specific features and risks 
highlighted on the cover page is driven by the complex nature of the 
non-variable annuity being registered. Further, because these points 
are generalized on the cover page but discussed in more detail later in 
the prospectus, they are consistent with the concept of layered 
disclosure.
---------------------------------------------------------------------------

    \780\ See discussion in supra Section II.C.1.
---------------------------------------------------------------------------

    Some commenters also raised concerns about specific required front 
and back cover disclosures.\781\ Generally, the disclosures highlight 
risks that are particularly prevalent in non-variable annuities. These 
new disclosures should benefit investors by putting them on notice of 
key considerations at the outset, helping investors make informed 
decisions.
---------------------------------------------------------------------------

    \781\ See discussion in supra Section II.C.1.
---------------------------------------------------------------------------

Key Information Table
    As required for current Form N-4 issuers, the final amendments 
require RILA and registered MVA annuity issuers to provide a Key 
Information Table in their registration statements. The KIT includes a 
summary of five areas: (1) fees, expenses, and adjustments; (2) risks; 
(3) restrictions; (4) taxes; and (5) conflicts of interest. The KIT is 
important summary disclosure for investors that is included in the 
prospectus, and the final amendments to the KIT requirements are 
intended to highlight important considerations related to non-variable 
annuities, including certain unique and/or opaque aspects of non-
variable

[[Page 60059]]

annuities.\782\ Consistent with our layered disclosure approach for 
variable annuities registered on Form N-4, non-variable annuity issuers 
are required to provide cross-references in the KIT to the location in 
the statutory prospectus where the subject matter is described in 
greater detail. Certain of the amended KIT requirements apply to all 
Form N-4 issuers. In particular, in a change from the current KIT 
requirements for Form N-4 issuers, the final amendments require that 
responses to various line items be presented in a Q&A format.\783\ Some 
commenters stated that the format requirement would reduce the benefits 
of the KIT because it may reduce comparability and because answers 
provided may not always be concise.\784\ As discussed above, because 
the KIT disclosures as amended continue to be brief, we anticipate that 
any negative effect that the Q&A format may have on comparability or 
conciseness will be limited.\785\ In addition, as stated in the 
Proposing Release, the Q&A format should improve investor comprehension 
of variable and non-variable annuities and contract adjustment-specific 
topics based on the results of our quantitative investor testing.\786\
---------------------------------------------------------------------------

    \782\ Many of the summary points presented in the KIT are 
discussed in greater detail in other parts of the form. In this way, 
the KIT is an integral part of the layered disclosure approach the 
Commission traditionally has taken with annuity products. To ensure 
that the KIT serves this function effectively, final rule will 
delete Form N-4's general instruction stating that where the 
discussion of information required by the Overview of the Contract 
(currently Item 3) or KIT (currently Item 2) also responds to the 
disclosure requirements in other items of the prospectus, 
registrants need not include additional disclosure in the prospectus 
that repeats the information disclosed in the Overview of the 
Contract or the KIT. See supra footnote 163 and accompanying text.
    \783\ Currently, such format is suggested but not required. See 
Form N-4, General Instruction C.3.(c).
    \784\ See ACLI Comment Letter; CAI Comment Letter.
    \785\ See discussion in supra Section II.C.3.a.
    \786\ See supra footnote 160.
---------------------------------------------------------------------------

    In a change for all Form N-4 issuers, the final amendments change 
the order in which the KIT appears relative to the Overview of the 
Contract disclosures in the prospectus. We received one comment on this 
aspect of the proposal. The commenter stated that the repetition of 
information required in the Overview of the Contract and KIT would 
reduce the benefits of the KIT.\787\ We disagree that covering the same 
topics in the Overview of the Contract and the KIT would reduce the 
benefits of the KIT. The disclosure is included in both locations to 
allow the reader to understand the contract at a high level (in the 
Overview of the Contract), as well as key features and risks of the 
annuity whose offering is being registered (in the KIT). Further, KIT 
requirements that address the same topic in different contexts may aid 
investor understanding of complex disclosure, and this approach is 
consistent with a layered disclosure approach.
---------------------------------------------------------------------------

    \787\ See discussion in supra Section II.C.2.
---------------------------------------------------------------------------

    Overall, the final KIT requirements (like the KIT requirements for 
variable annuities prior to these amendments) are designed to provide a 
brief description of key facts about RILAs and registered MVA annuities 
in a specific sequence and in a standardized presentation that is 
designed to be easy to read and navigate. A standardized presentation 
that is designed to be easy to read and navigate benefits investors by 
making it easier for investors to evaluate and compare non-variable 
annuity offerings. Also, the standardized presentation of information 
could facilitate not only the evaluation and comparison among non-
variable annuity offerings, but also could facilitate the comparison of 
RILAs and registered MVA annuities to other annuity products.
Principal Disclosure Regarding Index-Linked or MVA Options
    The final amendments to Form N-4 require disclosures that will 
provide investors with information about all annuities whose offerings 
are registered on Form N-4 as well as with specific information about 
RILAs and registered MVA annuities and non-variable options under the 
contract. With regard to Form N-4 issuers generally, the final 
amendments require registrants to disclose market risk, early 
withdrawal risk, contract benefits risk, insurance company risk, and 
the risk of contract changes. With regard to specific information about 
non-variable annuities, the final amendments include requirements 
related to: (1) information about non-variable annuities generally and 
an overview of certain key elements of any index-linked option offered 
under the contract; (2) a more in-depth description of any index-linked 
investment options available under the contract; (3) the inclusion of 
an appendix that consolidates certain summary information related to 
any index-linked options and fixed options available under the contract 
(which will accompany similar information about variable options 
offered under a ``combination'' contract); and (4) certain principal 
risk disclosures relating to investing in the non-variable annuity 
contract that the prospectus describes.
    The final requirements are designed to provide additional 
information regarding the risk of investing in Form N-4 products 
generally, as well as the unique aspects of non-variable annuities and 
certain summary and detailed information about index-linked options 
available under a non-variable annuity contract. The information should 
benefit investors by making it easier for investors to evaluate and 
compare variable and non-variable annuity products registered on Form 
N-4. The required disclosure relating to index-linked and fixed options 
available under a contract should benefit investors by facilitating the 
comparison of these investment options to other investment options 
available under the contract, as well as to investment options that 
other non-variable annuity contracts offer.
    The final amendments permit insurance companies to disclose current 
upside rates in the prospectus either by disclosing the information 
directly in the prospectus, as proposed, or by including a website 
address where the current upside rates can be found and incorporating 
by reference the information on the website into the prospectus.\788\ 
Investors likely will find it more efficient to obtain current upside 
rates on the insurer's website identified in the prospectus than to 
review a potentially high number of prospectus supplements. It also 
will be familiar to many investors because this is the approach that 
many RILA investors currently use to obtain information about current 
upside rates. Moreover, allowing insurance companies to disclose 
current upside rates on a website and to incorporate this information 
by reference into the prospectus also will retain prospectus and 
registration statement liability, and ready accessibility of 
information that is a core aspect of the RILA offering. It will also 
accommodate RILA issuers' practice of changing current upside rates in 
response to market conditions. Because the approach we are adopting is 
consistent with current practice, we anticipate that all insurance 
companies will choose to use the website posting approach to disclose 
current upside rates instead of disclosing such information directly in 
the prospectus. To the extent the approach we are adopting is 
consistent with current practice, the benefits discussed above would be 
reduced.
---------------------------------------------------------------------------

    \788\ Final Form N-4, Instruction 1 to Item 6(d)(2)(ii)(B).
---------------------------------------------------------------------------

Addition of Contract Adjustments and Other Amendments to Fee and 
Expense Disclosures
    RILA and registered MVA annuity investors have the ability to 
withdraw or transfer their money before the end of a

[[Page 60060]]

crediting period. If amounts are removed from an index-linked option 
before the end of a crediting period, typically an insurance company 
will apply an IVA to the investor's contract value. The IVA, which 
adjusts the contract value based on a formula, typically changes with 
market conditions throughout the crediting period and may adjust daily. 
Similarly, a positive or negative market value adjustment could apply 
if amounts are partially or fully withdrawn from the contract or from 
an MVA option before the end of a specified period. These contract 
adjustments, whose calculation varies by insurance company, may have a 
positive or negative effect on the value of the contract.
    The final amendments to Form N-4 require specific disclosures with 
respect to contract adjustments. Currently, Form N-4 requires variable 
annuity registrants to provide comprehensive information on the fees 
and expenses that investors will pay when buying, owning, and 
surrendering a contract, including expenses paid each year during the 
time the investor owns the contract. Although RILAs and registered MVA 
annuities typically do not charge the explicit fees and expenses common 
to variable annuities, they do typically utilize contract adjustments. 
Since negative adjustments may result in substantial costs to 
investors, it is important to include a detailed description of 
contract adjustments in the registration statement.
    Specifically, the final amendments expand current disclosure 
requirements to address contract adjustments that could affect 
investors' contract value when buying, owning, and surrendering or 
making withdrawals from an investment option. The final amendments also 
require certain other specific disclosures about contract adjustments, 
such as requiring disclosures about the maximum potential loss that an 
investor could experience in connection with a negative contract 
adjustment.
    Some commenters opposed certain changes to Item 4 and Item 7, 
arguing that the changes would mischaracterize the nature or magnitude 
of the quantities being disclosed, thereby reducing the benefits of the 
disclosures to investors.\789\ The required disclosures help ensure 
that investors have access, in one place, to full disclosure regarding 
the economic consequences of withdrawing money from an index option or 
the contract. These disclosures will benefit investors by enabling them 
to better evaluate the costs of purchasing and owning annuity 
contracts, including non-variable annuities. In addition, these 
disclosures can make less-informed investors aware of non-variable 
annuities' unique characteristics, which could increase investor 
understanding of non-variable annuities as an investing option.
---------------------------------------------------------------------------

    \789\ See discussion in supra Section II.C.6.
---------------------------------------------------------------------------

    Some commenters on the proposal raised concerns about the inclusion 
of the maximum potential loss as part of the fee table disclosure 
requirements in Item 4, stating that contract adjustments do not 
reflect fees.\790\ One commenter further stated that characterizing 
contract adjustments as a fee or charge is confusing.\791\ The final 
amendments clarify the exposition within Item 4 by presenting 
information related to the maximum potential contract adjustment in a 
separate ``adjustments'' table. Further, the description of the new 
table makes it clear that these contract adjustments are in addition, 
and thus distinct, from fees. As a result, the revised disclosure 
should mitigate the concerns raise by commenters on the proposal. At 
the same time, addressing contract adjustments in the Item 4 
disclosure--and clearly distinguishing them from fees--will alert an 
investor to the possibility of experiencing a contract adjustment, in 
addition to paying certain fees, if the investor removes money 
prematurely from an index-linked option or an MVA option, or the 
contract.\792\ Therefore, including this information in Item 4 could 
benefit some investors by allowing them to more easily consider the 
economic consequences of removing amounts from an investment option 
before the end of a crediting period.
---------------------------------------------------------------------------

    \790\ See, e.g., CAI Comment Letter; VIP Working Group Comment 
Letter; Gainbridge Comment Letter.
    \791\ See CAI Comment Letter (stating that characterizing 
maximum potential loss due to a negative contract adjustment as a 
fee or charge is ``inaccurate and far more confusing than 
informative'').
    \792\ Additional information regarding contract adjustments also 
is available to investors in other parts of the prospectus where 
those adjustments are discussed in greater detail. See, e.g., Items 
5, 6, 7, 12, 22, and 31A.
---------------------------------------------------------------------------

Other Amendments to Form N-4
    The final amendments include certain other amendments to Form N-4 
and related rules designed to accommodate the inclusion of RILA and 
registered MVA annuity offerings on Form N-4. These include amendments 
to Form N-4's facing sheet, definitions, exhibit list, and required 
representations, as well as amendments to certain Securities Act rules. 
Because these other amendments to Form N-4 and related rules are 
designed to accommodate the inclusion of non-variable annuity offerings 
on Form N-4, the benefits that could accrue as a result of these other 
amendments are those that result from RILA issuers registering 
offerings on Form N-4 rather than Form S-1 or Form S-3. For example, 
amending Form N-4 and related rules to accommodate the inclusion of 
non-variable annuity offerings on Form N-4 benefits investors because 
Form N-4 should make it easier for investors to evaluate and compare 
non-variable annuities, and also to compare other annuity products with 
non-variable annuities.
    The final amendments also amend Form N-4's required exhibits list 
to add new Item 27(p) for all issuers, which requires the filing of any 
power of attorney included pursuant to rule 483(b). While this exhibit 
is already required to be filed with a Form N-4 registration statement 
under rule 483(b), practices differ regarding the placement of a 
required power of attorney exhibit within the exhibit list. This 
amendment will benefit investors in comparing these exhibits for all 
annuity products whose offerings are registered using Form N-4 by 
standardizing the location of these exhibits in the registration 
statement. Facilitating the comparison of annuity products could 
benefit investors by helping them to invest in non-variable annuities 
in a manner that is consistent with their overall financial needs and 
objectives.\793\
---------------------------------------------------------------------------

    \793\ We did not receive any comments on the proposed amendments 
to Item 27.
---------------------------------------------------------------------------

    The final amendments also add new Item 31A in Form N-4 to require 
census-type information regarding non-variable annuities offered in 
connection with the applicable registration statement. Under this new 
item, insurance companies have to provide information regarding any 
non-variable annuity offered through the registration statement, as of 
the most recent calendar year-end, including (1) the name of each 
contract; (2) the number of contracts outstanding; (3) the total value 
of investor allocations attributable to index-linked or fixed options; 
(4) the number of contracts sold during the prior calendar year; (5) 
the gross premiums received during the prior calendar year; (6) the 
amount of contract value redeemed during the prior calendar year; and 
(7) whether the contract is a combination contract.
    One commenter stated that the information in Item 31A would not be 
useful to investors in making investment decisions and would require 
insurance companies to publicly reveal ``private and confidential'' 
information that could be used by competitors. We

[[Page 60061]]

disagree with the comment suggesting this information to be disclosed 
will result in private and confidential information being disclosed 
that will aid competitors.\794\ The information that will be reported 
would complement the parallel census-type information that is currently 
required to be reported annually on Form N-CEN by registered unit 
investment trusts offering variable annuities. Moreover, information 
that insurance companies will report in response to Item 31A will be 
aggregated at the contract level, which reduces the possibility that 
any confidential or private information would be disclosed. The 
information in new Item 31A will help the Commission and staff in 
identifying trends in insurance companies' offerings of RILAs and 
registered MVA annuities by providing a more complete understanding of 
the marketplace for annuity securities. A more complete understanding 
of the marketplace for annuity securities will benefit investors by 
helping us carry out regulatory responsibilities, including monitoring 
risk and trends, formulating policy and guidance, and reviewing 
registration statements.
---------------------------------------------------------------------------

    \794\ See discussion in supra Section II.C.7.
---------------------------------------------------------------------------

    The final amendments also amend Item 34 of Form N-4 to require 
insurance companies to include two specific undertakings in their 
registration statements on Form N-4: (1) to file, during any period in 
which offers or sales are made, through a post-effective amendment to 
their registration statement, any prospectus required by section 
10(a)(3) of the Securities Act and; (2) that, for the purposes of 
determining liability under the Securities Act, each post-effective 
amendment shall be deemed to be a new registration statement relating 
to the securities offered therein, and the offering of such securities 
at that time shall be deemed to be the initial bona fide offering 
thereof. These undertakings are the same as two undertakings insurance 
companies were required to provide in registration statements 
registered on Forms S-1 or S-3. It remains appropriate for insurance 
companies to continue to furnish these representations concerning post-
effective amendments to a registration statement as, under the final 
amendments, non-variable annuities may be continuously offered on a 
registration statement for an indefinite amount of time.\795\
---------------------------------------------------------------------------

    \795\ We did not receive any comments on the proposed amendments 
to Item 34.
---------------------------------------------------------------------------

Remaining Items
    The final amendments require RILA and MVA annuity issuers to 
provide disclosure in response to the remaining items on Form N-4 to 
the extent applicable. These are items that we have previously 
determined are relevant in the context of variable annuity offerings. 
Requiring RILA and MVA annuity filers to provide disclosure in response 
to the remaining items on Form N-4 to the extent applicable will help 
ensure that comparable information is provided in a standardized, 
consistent manner for all filers using Form N-4.
    Standardized, consistent disclosure of comparable information 
benefits investors by making it easier for investors to evaluate and 
compare RILA and registered MVA annuity offerings. Also, the 
presentation of information in a standardized, consistent manner across 
all filers using Form N-4 will facilitate not only the evaluation and 
comparison among non-variable annuities, but also the comparison of 
non-variable annuities to variable annuities. Further, certain 
investors, while aware of variable annuities, simply may not be aware 
of RILAs and registered MVA annuities as investment options. 
Presentation of information in a standardized, consistent manner on 
Form N-4 could increase investor awareness of RILAs and registered MVA 
annuities as investing options. Facilitating the comparison of annuity 
products could benefit investors by helping them to invest in non-
variable annuities in a manner that is consistent with their overall 
financial needs and objectives.
Inline XBRL
    The final amendments require many of the newly added disclosures on 
Form N-4 to be structured (i.e., tagged) in Inline XBRL, a structured, 
machine-readable data language.\796\ In addition, RILA and registered 
MVA annuity issuers will have to tag those prospectus disclosures that 
Form N-4 currently requires to be tagged.
---------------------------------------------------------------------------

    \796\ See supra section II.B.11.
---------------------------------------------------------------------------

    As discussed in Section II.C.10., one commenter stated that the 
Inline XBRL requirements would be beneficial to all investors because 
they would facilitate access to data about non-variable annuities in a 
structured, machine-readable format.\797\ Some commenters stated that 
tagging the newly added disclosures on Form N-4 would benefit investors 
by highlighting key elements of a RILA, allowing ``investors and their 
investment professionals (as well as data aggregators, financial 
analysts, and other data users) to efficiently analyze and compare 
information about available contracts.'' \798\ However, one commenter 
stated Inline XBRL has little value for investment companies and 
insurance products.\799\
---------------------------------------------------------------------------

    \797\ XBRL US Comment Letter.
    \798\ CAI Comment Letter. See XBRL US Comment Letter; see also 
infra footnote 449 and accompanying text.
    \799\ Johnson Comment Letter.
---------------------------------------------------------------------------

    Inline XBRL has value for companies and insurance products, 
investors, investment professionals, and third parties such as data 
aggregators, financial analysts and other data users because it will 
make the tagged disclosures more readily accessible for aggregation, 
comparison, filtering, and other analysis. The Inline XBRL requirement 
will facilitate access to data about non-variable annuities, which 
could improve investor understanding of the disclosed information and 
indirectly benefit insurance companies.\800\ For example, the data 
tagging could allow third parties such as financial data aggregators to 
efficiently compare and otherwise process the disclosed information 
into analyses accessible to investors. This could benefit insurance 
companies and non-variable annuity issuers by increasing investor 
understanding of non-variable annuities as an investment option, or 
make investors aware of RILAs' and registered MVA annuities' unique 
characteristics that may be appropriate for their particular situation. 
Additionally, an Inline XBRL requirement will enable other analyses 
that could directly benefit insurance companies, such as the ability to 
compare/redline disclosures automatically against the same disclosures 
in other periods, or perform targeted searches and redline comparisons 
of specific disclosure items, rather than performing such assessments 
on an unstructured

[[Page 60062]]

document.\801\ Accordingly, for Form N-4 filers, Inline XBRL can 
enhance the efficiency of review, yield savings in time and cost of 
preparing machine-readable data, and potentially enhance the quality of 
the data over other machine-readable standards as certain errors will 
be easier to identify and correct because the data is also human-
readable.\802\
---------------------------------------------------------------------------

    \800\ It has been observed XBRL requirements improve investor 
understanding for public operating company financial statement 
disclosures. See, e.g., Birt, J., Muthusamy, K. & P. Bir, XBRL and 
the Qualitative Characteristics of Useful Financial Information, 30 
Account. Res. J. 107 (2017) (finding ``financial information 
presented with XBRL tagging is significantly more relevant, 
understandable and comparable to non-professional investors''); 
Cahan, S.F. et al., The roles of XBRL and processed XBRL in 10-K 
readability, J. Bus. Fin. Account. (2021) (finding 10-K file size 
reduces readability before XBRL's adoption since 2012, but increases 
readability after XBRL adoption, indicating ``more XBRL data 
improves users' understanding of the financial statements''); 
Efendi, J., Park, J.D. & C. Subramaniam, Does the XBRL Reporting 
Format Provide Incremental Information Value? A Study Using XBRL 
Disclosures During the Voluntary Filing Program, 52 Abacus 259 
(2016) (finding XBRL filings have larger relative informational 
value than HTML filings).
    \801\ While these studies were not done within the insurance 
company context, it has been observed that XBRL requirements improve 
firm disclosures and decision making. See Olivia Berkman, XBRL: What 
are the Benefits, FEI Daily (Aug. 29, 2019), https://www.financialexecutives.org/FEI-Daily/August-2019/XBRL-What-are-the-Benefits.aspx (noting in an interview with a public company's chief 
financial officer that the company is able to ``search through XBRL 
filings to find similar companies within [its] industry that have 
had to present certain similar [disclosures] in the past,'' which 
has helped the company ``craft[ ] [its] disclosures to make sure 
that [the company is] complying with the spirit of GAAP and 
providing the information that [the company is] supposed to be 
providing''); see also Hyun Woong (Daniel) Chang, et al., The Effect 
of iXBRL Formatted Financial Statements on the Effectiveness of 
Managers' Decisions when Making Inter-Firm Comparisons. J. Info. 
Sys. (2020) (finding ``iXBRL filings facilitate information search 
and information match by allowing users to view XBRL data in HTML 
filings,'' and ``managers make more effective decisions when 
presented with financial information formatted in iXBRL (XBRL)'').
    \802\ See VASP Adopting Release at Section II.D (articulating 
similar benefits for tagging variable annuities).
---------------------------------------------------------------------------

c. Option to Use a Summary Prospectus
    The final amendments to rule 498A permit non-variable annuity 
issuers, as well as issuers of ``combination contracts'' offering a 
combination of index-linked options and variable options, to use a 
summary prospectus to satisfy statutory prospectus delivery 
obligations. Investors will continue to have access to the non-variable 
annuity statutory prospectus and other information about the non-
variable annuity contract online, with paper or electronic copies of 
this information upon request. The current summary prospectus rule for 
variable contracts uses a layered disclosure approach designed to 
provide investors directly with key information relating to the 
contract's terms, benefits, and risks in a concise and reader-friendly 
presentation, with more detailed information available elsewhere. The 
final amendments to rule 498A broaden the scope of the rule to expand 
the layered disclosure approach to non-variable annuity contracts.\803\
---------------------------------------------------------------------------

    \803\ Some commenters questioned the inclusion of certain items. 
See discussion in supra Section II.D.
---------------------------------------------------------------------------

    As discussed in Section II.D above, the final amendments to rule 
498A involve the use of two distinct types of summary prospectuses for 
non-variable annuity contracts, employing the same approach the rule 
currently uses for variable contracts. An ``initial summary 
prospectus,'' covering contracts offered to new investors, will include 
certain key information about the contract's most salient features, 
benefits, and risks, presented in plain English in a standardized 
order. The rule amendments also require ``updating summary 
prospectuses'' to be provided to existing investors in non-variable 
annuity contracts. The updating summary prospectus includes a brief 
description of certain changes to the contract that occurred during the 
previous year, as well as a subset of the information required to 
appear in the initial summary prospectus. Certain key information about 
the index-linked options that the contract offers as investment options 
will be provided in both the initial summary prospectus and updating 
summary prospectus.
    The final amendments create a choice for insurance companies. 
Insurance companies may meet their prospectus delivery obligations by 
providing the statutory prospectus, or by providing a summary 
prospectus and making statutory prospectuses and other required 
documents available online. Those insurance companies that expect to 
benefit by providing summary prospectuses would choose to rely on the 
final amendments to meet their prospectus delivery obligations. For 
example, as discussed in Section II.F.3, we understand that non-
variable annuity issuers typically deliver prospectuses to accompany or 
precede other communications, such as annuity applications. It is 
possible that providing layered disclosure through a summary contract 
prospectus regime (including costs of delivering initial summary and 
updating summary prospectuses and making statutory prospectuses and 
other documents available online) could result in reduced costs for 
issuers.\804\ Conversely, those insurance companies that do not expect 
to benefit from this optional prospectus delivery regime would choose 
to continue to provide statutory prospectuses to investors.
---------------------------------------------------------------------------

    \804\ See VASP Adopting Release. In the VASP Adopting Release we 
estimate that printing and mailing expenses are $0.18 less for 
initial and updating summary prospectuses than for statutory 
prospectuses. Because we understand RILA prospectuses to not be as 
long as variable annuity prospectuses, we would expect savings among 
RILA issuers to be less than the VASP Adopting Release savings, but 
we do not have a basis for believing savings for RILA issuers will 
be of an order of magnitude less than the VASP Adopting Release 
savings. We therefore believe savings for RILA issuers will be 
between approximately $.02 and $.18. We estimate the internal cost 
time of online posting of contract documents to be $772. See infra 
Table 11.
---------------------------------------------------------------------------

    If insurance companies choose to meet their prospectus delivery 
obligations by delivering summary prospectuses to investors, with other 
documents available online, investors will then have a choice as well. 
Under the layered disclosure framework we are adopting for non-variable 
annuities, investors will receive information in the form of a summary 
prospectus, with more detailed information available online if the 
investor chooses to access it.\805\ Thus, investors can continue to 
review the statutory prospectuses by accessing them online, or they may 
request paper or electronic delivery of statutory prospectuses on an ad 
hoc basis. Alternatively, investors may choose only to consult the 
summary prospectuses. Further, if investors want to rely on some 
combination of summary and statutory prospectuses to receive 
information about the contract, that choice is available to them as 
well. Given the Commission's experience administering the optional 
summary prospectus regime for variable annuities, we expect a majority 
of non-variable annuity issuers will choose to use summary 
prospectuses. Thus, we expect that the vast majority of investors will 
have the option to use both summary prospectuses and statutory 
prospectuses in their decision-making, in whatever proportion investors 
think is best for their preferences.
---------------------------------------------------------------------------

    \805\ During investor testing, several participants felt they 
would need information beyond the information contained in the KIT 
to make a decision about a RILA. See OIAD Investor Testing Report at 
Section 5, Qualitative Testing, Results from Round 1.
---------------------------------------------------------------------------

    The presentation required for the initial summary prospectus may 
reduce the investor effort required to compare non-variable annuity 
contracts, to consider different index-linked options that RILAs offer, 
or to compare non-variable annuity contracts with each other and with 
variable annuity contracts, when an investor considers a new 
investment. Information provided in a concise, user-friendly 
presentation could allow investors to compare information across 
contracts and as a result, may lead investors to make decisions that 
better align with their investment goals.\806\
---------------------------------------------------------------------------

    \806\ Research suggests that individuals are generally able to 
make more efficient decisions when they have comparative information 
that allows them to assess relevant trade-offs. See, e.g., 
Christopher K. Hsee et al., (1999). Preference Reversals Between 
Joint and Separate Evaluations of Options: A Review and Theoretical 
Analysis, Psychological Bulletin, 125(5), 576-90; see also Samuel B. 
Bonsall & Brian P. Miller, The Impact of Narrative Disclosure 
Readability on Bond Ratings and the Cost of Debt, 22 Rev. Acct. 
Stud. 608 (2017) and Alistair Lawrence, Individual Investors and 
Financial Disclosure, 56 J. ACCT. & ECON. 130 (2013) (finding that 
shorter and more focused disclosures could be more effective at 
increasing investor understanding than longer, more complex 
disclosures). Consistent with these findings, other empirical 
evidence suggests that disclosure simplification may benefit 
consumers of disclosed information. See, e.g., Sumit Agarwal, et 
al., Regulating Consumer Financial Products: Evidence from Credit 
Cards Nat'l Bureau of Econ. Rsch (working paper no. 19484, Sept. 28, 
2013, last revised Mar. 29, 2023), available at https://ssrn.com/abstract=2332556 (finding that a series of requirements in the 
Credit Card Accountability Responsibility and Disclosure Act (CARD 
Act), including several provisions designed to promote simplified 
disclosure, have produced substantial decreases in both over-limit 
fees and late fees, thus saving U.S. credit card users $12.6 billion 
annually).

---------------------------------------------------------------------------

[[Page 60063]]

    Initial Summary Prospectus. Should insurance companies issuing non-
variable annuities choose to use summary prospectuses, investors may 
benefit in a number of ways.\807\ The initial summary prospectus for 
non-variable annuities will be limited to describing only the contract 
and features currently available under the statutory prospectus. This 
focus could make more salient the features and risks of a non-variable 
annuity, thereby facilitating investors' evaluation of those features 
and risks.
---------------------------------------------------------------------------

    \807\ Some investors may prefer to read statutory prospectuses, 
and therefore, the advantages associated with summary disclosure, as 
described in this section, may not apply to those investors. The 
statutory prospectus will, under the final amendments, be available 
online and in paper or electronic format upon request.
---------------------------------------------------------------------------

    The final amendments require a standardized presentation for non-
variable annuity initial summary prospectuses to require certain 
disclosure items that will be most relevant to investors to appear at 
the beginning of the initial summary prospectus, followed by 
supplemental information. An initial summary prospectus must contain 
the information required by the rule, and only that information, in the 
order specified by the rule.\808\ The information is required to appear 
in the same order, and under relevant corresponding headings, as the 
rule specifies. The required presentation could also facilitate 
comparisons of different non-variable annuity contracts, as well as 
comparisons between non-variable annuity contracts and variable 
annuities.
---------------------------------------------------------------------------

    \808\ Rule 498A(b)(5).
---------------------------------------------------------------------------

    Standardized, consistent disclosure of comparable information 
benefits investors by making it easier for investors to evaluate and 
compare non-variable offerings. Also, the presentation of information 
in a standardized, consistent manner will facilitate not only the 
evaluation and comparison among non-variable offerings, but also will 
facilitate the comparison of non-variable annuities to other variable 
annuities. Further, certain investors, while aware of variable 
annuities, simply may not be aware of RILAs and registered MVA 
annuities as investment options. Presentation of information in a 
standardized, consistent manner in an initial summary prospectus could 
increase investor awareness of RILAs and registered MVA annuities as 
investing options.
    In addition, given the time required to review a statutory 
prospectus, non-variable annuity investors may benefit from summary 
prospectuses because they offer a shorter alternative to statutory 
prospectus disclosure. There is evidence that suggests that consumers 
benefit from summary disclosures.\809\ Within the specific context of 
investing, there is evidence from related contexts that suggests that 
summary prospectuses allow investors to spend less time and effort to 
arrive at the same portfolio decision as if they had relied on a 
statutory prospectus.\810\ This research is consistent with the 2012 
Financial Literacy Study, which showed that at least certain investors 
favor a layered approach to disclosure with the use, wherever possible, 
of summary documents containing key information about an investment 
product or service.\811\
---------------------------------------------------------------------------

    \809\ There is evidence that the summarization of key 
information is useful to consumers. See, e.g., Sumit Agarwal et al., 
Regulating Consumer Financial Products: Evidence from Credit Cards 
(NBER Working Paper No. 19484, rev. 2014), available at https://www.nber.org/papers/w19484. The authors find that a series of 
requirements in the CARD Act, including provisions designed to 
promote simplified disclosure, has produced decreases in both over-
limit and late fees, saving US credit card users $20.8 billion 
annually; see also Robert L. Clark, Jennifer A. Maki & Melinda 
Sandler Morrill, Can Simple Informational Nudges Increase Employee 
Participation in a 401(k) Plan? 80 S. Econ. J. 677 (2014). The 
authors find that a flyer with simplified information about an 
employer's 401(k) plan, and about the value of contributions 
compounding over a career, had a significant effect on participation 
rates.
    \810\ See John Beshears et al., How Does Simplified Disclosure 
Affect Individuals' Mutual Funds Choices? in Explorations in the 
Economics of Aging 75 (David A. Wise ed., 2010) (``Beshears 
Paper''), available at https://scholar.harvard.edu/laibson/publications/how-does-simplified-disclosure-affect-individuals-mutual-fund-choices. We note, however, that while the authors find 
evidence that investors spend less time making their investment 
decision when they are able to use summary prospectuses, there is no 
evidence that the quality of their investment decisions is improved. 
In particular, ``On the positive side, the Summary Prospectus 
reduces the amount of time spent on the investment decision without 
adversely affecting portfolio quality. On the negative side, the 
Summary Prospectus does not change, let alone improve, portfolio 
choices. Hence, simpler disclosure does not appear to be a useful 
channel for making mutual fund investors more sophisticated . . .'' 
Id. at 13 (manuscript page).
    \811\ See 2012 Financial Literacy Study.
---------------------------------------------------------------------------

    Also, investors allocate their attention selectively,\812\ and the 
sheer volume of disclosure in a statutory prospectus may discourage 
some investors from reading contract statutory prospectuses. The 
observations of a telephone survey conducted on behalf of the 
Commission with respect to mutual fund statutory prospectuses (which 
are typically shorter than variable contract statutory prospectuses, 
and shorter than non-variable annuity statutory prospectuses are 
expected to be under the proposal) are consistent with the view that 
the volume of disclosure may discourage investors from reading 
statutory prospectuses.\813\ That survey observed that many mutual fund 
investors do not read statutory prospectuses because they are long, 
complicated, and hard to understand. Responses to investor surveys in 
other contexts, also suggest that shareholders may be more likely to 
read more concise shareholder reports.\814\
---------------------------------------------------------------------------

    \812\ See George Loewenstein, Cass R. Sunstein & Russell Golman. 
(2014) Disclosure Psychology Changes Everything, 6 Ann. Rev. Econ. 
391 (2014).
    \813\ Prior to the Commission's 2009 adoption of mutual fund 
summary prospectus rules, the Commission engaged a consultant to 
conduct focus group interviews and a telephone survey concerning 
investors' views and opinions about various disclosure documents 
filed by companies, including mutual funds. During this process, 
investors participating in focus groups were asked questions about a 
hypothetical Summary Prospectus. Investors participating in the 
telephone survey were asked questions relating to several disclosure 
documents, including mutual fund prospectuses. See Abt SBI, Inc., 
Final Report: Focus Groups on a Summary Mutual Fund Prospectus (May 
2008), available at https://www.sec.gov/comments/s7-28-07/s72807-142.pdf. Although the results from the investor testing reflect 
stated investor preferences, they do not provide us with information 
with respect to the extent to which RILA investors would actually be 
more likely to read a RILA summary prospectus relative to a 
statutory prospectus.
    \814\ See Tailored Shareholder Reports Adopting Release.
---------------------------------------------------------------------------

    To the extent summary prospectuses increase readership of non-
variable annuity contract disclosures, they could improve the quality 
and efficiency of portfolio allocations made on the basis of disclosed 
information for those investors who otherwise will not have read the 
statutory prospectus.
    The required presentation for the initial summary prospectus may 
also reduce the investor effort required to compare non-variable 
annuity contracts, to consider different index-linked options that a 
RILA offers, or to compare non-variable annuity contracts with each 
other and with variable annuity contracts, when an investor considers a 
new investment. Information provided

[[Page 60064]]

in a concise, user-friendly presentation could allow investors to 
compare information across contracts and as a result, may lead 
investors to make decisions that better align with their investment 
goals.\815\ For example, the final amendments require insurance 
companies to distill certain key product information into tables, which 
could facilitate comparison across different products.
---------------------------------------------------------------------------

    \815\ See infra footnote 806.
---------------------------------------------------------------------------

    Further, the final framework for non-variable annuity contract 
summary and statutory prospectuses also includes design elements to 
facilitate investor use. In particular, the final amendments include 
requirements for linking both within the electronic version of a 
contract statutory prospectus and between the electronic versions of 
the contract statutory prospectus and the contract summary prospectus. 
The linking requirement will permit investors who use the electronic 
versions of contract prospectuses to quickly navigate between related 
sections within the contract statutory prospectus and back and forth 
between related sections of the contract summary prospectus and the 
contract statutory prospectus. Further, the final amendments also 
require that investors either be able to view the definition of each 
special term used in an online summary prospectus upon command, or to 
move directly back and forth between each special term and the 
corresponding entry in any glossary or list of definitions that the 
summary prospectus includes. This requirement will facilitate 
understanding of terms that may be confusing or unfamiliar among 
investors viewing the documents online.
    Updating Summary Prospectus. As under current rule 498A, we are not 
requiring that RILA and registered MVA annuity issuers send an updated 
initial summary prospectus to investors each year. Instead, any non-
variable annuity issuer that relies on rule 498A will send an updating 
summary prospectus, which will provide a brief description of certain 
changes with respect to the contract that occurred within the prior 
year.\816\ The updating summary prospectus will also include certain of 
the information required in the initial summary prospectus that we 
consider most relevant to investors when considering additional 
investment decisions.\817\ Further, updating summary prospectuses for 
non-variable annuity contracts, like initial summary prospectuses, will 
include specific disclosure items appearing in a prescribed order, 
under relevant corresponding headings.\818\ An updating summary 
prospectus for a non-variable annuity contract will have to contain the 
information required by the rule, and only that information, in the 
order specified by the rule.
---------------------------------------------------------------------------

    \816\ Rule 498A(c)(1).
    \817\ See Table 8.
    \818\ Rule 498A(c)(6).
---------------------------------------------------------------------------

    The updating summary prospectus for RILAs and registered MVA 
annuities will have many of the same benefits for investors associated 
with the initial summary prospectus discussed above, with respect to 
presenting key information in an easier and less time-consuming manner 
for investors. Specifically, because many terms of the non-variable 
annuity contract do not change from year-to-year, the contract 
statutory prospectus may contain large amounts of disclosure that is 
duplicative of disclosure that the investor has previously received. 
Those changes that do occur may be important to investors, but the 
disclosure about these changes could be difficult for the investor to 
identify given the volume of prospectus disclosure that investors would 
otherwise receive, and the current lack of a requirement to identify 
new or changed information.
    Under the final amendments, the updating summary prospectus will 
include a concise description of important changes affecting the 
statutory prospectus disclosure relating to certain topics that 
occurred within the prior year--namely: (1) the availability of 
investment options under the contract, (2) the overview of the 
contract, (3) the KIT, (4) certain information about fees, (5) benefits 
available under the contract, (6) purchases and contract value, and (7) 
surrenders and withdrawals. These are topics that are most likely to 
entail contract changes and, for the reasons previously noted, are the 
types of contract changes most likely to be important to investors 
because they affect how investors evaluate non-variable annuity 
contracts and are relevant to investors when considering whether to 
continue in the existing option (if available) or transfer funds to a 
different option. The updating summary prospectus, if used by issuers 
to satisfy their prospectus delivery obligations, will likely reduce 
the burden on investors and increase their understanding of their 
contract by highlighting certain changes to the contract made during 
the previous year, while forgoing the repetition of most information 
that had remained unchanged.
d. Use of Statutory Accounting
    The final amendments permit RILA and registered MVA annuity issuers 
to provide financial statements on amended Form N-4 in the same way 
that insurance companies currently provide financial statements on that 
form.\819\ As a result of this change, the financial statements filed 
in connection with a registration statement that relates to the 
offering of either of these securities may be prepared in SAP to the 
same extent as currently permitted for insurance companies' financial 
statements filed on that form. We expect this approach to appropriately 
recognize the cost burdens if we were to require GAAP financial 
statements in cases where the insurance company is not otherwise 
required to prepare financial information in accordance with GAAP. In 
addition, SAP financial statements, which focus on an issuer's ability 
to meet its obligations under its insurance contracts, as regulated by 
State law, provide material information for investors evaluating RILAs 
and registered MVA annuities. As a result, permitting insurance 
companies to provide SAP financial statements when registering the 
offering of a RILA or registered MVA annuity to the same extent as they 
can in connection with variable annuities on Form N-4 will be 
consistent with maintaining investor protection. Also, investors could 
benefit to the extent the reduced cost burdens provided by SAP 
financial statements are passed along to investors.
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    \819\ Certain Commission letters, or portions thereof, exempt 
certain insurance companies from the requirement to provide 
financial statements prepared in accordance with GAAP in connection 
with the registration of an offering of RILAs on Form S-1. As 
discussed in Section III.B.1.a, among RILA contracts that are 
currently registered with the Commission, 47 RILAs report SAP 
financials and 43 RILAs report GAAP financials. Comments received on 
this aspect of the proposal are discussed in Section II.E.
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    The final amendments also require insurance companies registering 
non-variable annuities to provide information relating to changes in 
and disagreements with accountants on accounting and financial 
disclosure as detailed in 17 CFR 229.304 (``Item 304 of Regulation S-
K''). Further, insurance companies will be required to provide as an 
exhibit any letter from the insurance company's former independent 
accountant regarding its concurrence or disagreement with the 
statements made by the insurance company in the registration statement 
concerning the resignation or dismissal as the insurance company's 
principal accountant. These items are currently provided by RILAs and 
registered MVA

[[Page 60065]]

annuities on Forms S-1, 8-K, and 10-K, as applicable, and are designed 
to address the practice of ``opinion shopping'' for an auditor willing 
to support a proposed accounting treatment designed to help a company 
achieve its reporting objectives even though that treatment might 
frustrate reliable reporting.\820\ Because the requirements for Form N-
4 filers under the final amendments are the same as for Form S-1, Form 
8-K, and Form 10-K filers currently, we do not expect any additional 
benefits from the requirement to provide information relating to 
changes in and disagreements with accountants on accounting and 
financial disclosure.
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    \820\ See Disclosure Amendments to Regulation S-K, Form 8-K and 
Schedule 14A; see also Form S-1, Item 11(i).
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e. Filing Rules
    Fee Payment Method and Amendments to Form 24F-2. The final filing 
rules require RILA and registered MVA annuity issuers to pay 
registration fees for using the same method that other filers on Form 
N-4 currently use.\821\ Issuers registering the offerings of non-
variable annuities on amended Form N-4 are deemed to be registering an 
indeterminate amount of non-variable annuities upon effectiveness of 
the registration statement. These issuers will then be required to pay 
registration fees annually based on their net sales of these 
securities, no later than 90 days after the issuer's fiscal year ends, 
on the form that is used by current Form N-4 filers to pay registration 
fees (Form 24F-2). The final filing rule further specifies the 
calculation method for paying non-variable annuity registration fees, 
consistent with the fee calculation methodology that applies to current 
Form N-4 filers. The final filing rule also indicates when issuers can 
take credits for non-variable annuity redemptions that pre-date their 
use of that form and when expiring annuity contracts are rolled over 
into a new crediting period as well as other minor technical 
amendments.
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    \821\ Some commenters had specific recommendations on how we 
could modify Form 24F-2. See discussion in supra Section II.F.1.
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    The final filing rules will provide benefits to insurance 
companies. Registering an indeterminate amount of securities benefits 
insurance companies by eliminating the risk that a non-variable annuity 
issuer may inadvertently oversell securities with respect to a 
registration statement on Form N-4. The payment of fees on an annual 
net basis furthermore should lead to a reduction in overall filing fees 
relating to non-variable annuities. For example, insurance companies 
will no longer pay fees on registered, but unsold, securities. To the 
extent that there are cost savings for issuers, some of those savings 
may potentially be passed on to investors.
    Post-Effective Amendments and Prospectus Supplements. As discussed 
in Section II.F.2, the final amendments require RILA and registered MVA 
annuity issuers to use the same framework for filing post-effective 
amendments to the registration statement as is currently used by other 
filers on Form N-4. First, the final amendments amend rule 485 under 
the Securities Act to require non-variable annuity issuers to use that 
rule when amending non-variable annuity registration statements on Form 
N-4. Requiring non-variable annuity issuers to use rule 485 when 
amending non-variable annuity registration statements on Form N-4 
permits non-variable annuity issuers to file post-effective amendments 
that become automatically effective under rule 485(a) after a specified 
period of time after the filing or, in certain enumerated 
circumstances, immediately effective under rule 485(b). Issuers may 
benefit to the extent automatic effectiveness allows issuers to tap 
favorable windows of opportunity in the non-variable annuity market, to 
structure terms of non-variable annuities on a real-time basis to 
accommodate investor demand, and to determine or change the plan of 
distribution in response to changing market conditions.
    Second, the final amendments require RILA and registered MVA 
annuity issuers to apply rule 497 under the Securities Act when 
appropriate to file non-variable annuity prospectuses and prospectus 
supplements with the Commission. Under the final amendments, a non-
variable annuity issuer is required to file every prospectus relating 
to a non-variable annuity offering that varies in form from a 
previously filed prospectus before it is first used. This approach--
rather than requiring filing only if the issuer makes substantive 
changes from or additions to a previously-filed prospectus--may benefit 
both investors and issuers. The requirement that insurance companies 
file every prospectus that varies in form from a previously filed 
prospectus before it is first used could facilitate investor evaluation 
and comparison by making publicly available the most timely information 
currently available to investors. We expect this benefit to be minimal, 
however, because rule 424 under the Securities Act requires non-
variable annuity issuers only to file prospectuses that contain 
substantive changes. Prospectuses required to be filed under rule 497 
that will not be required to file under rule 424, then, will be 
prospectuses updated with minor, non-substantive changes and likely of 
limited informational benefit to investors.
    Issuers may benefit from applying rule 497 as well. The final 
amendments facilitate a uniform post-effective amendment and prospectus 
filing framework for all Form N-4 filers, which will provide insurance 
companies with more consistent filing requirements across similar 
products. This, in turn, could benefit insurance companies by making it 
easier to execute such offerings and may decrease compliance costs.
    As discussed above, certain issuers use a short-form registration 
statement on Form S-3, which requires less information than Form S-1 
and allows for significant incorporation by reference. Certain issuers 
also can rely on rule 430B under the Securities Act to omit certain 
information from the ``base'' prospectus when the registration 
statement becomes effective and later provide that information in a 
subsequent Exchange Act report (forward) incorporated by reference, a 
prospectus supplement, or a post-effective amendment. Issuers 
registering annuity product offerings on Form N-4, on the other hand, 
have limited ability to incorporate information by reference into their 
registration statements and cannot forward incorporate information from 
subsequently filed Exchange Act reports. Issuers registering annuity 
product offerings on Form N-4 also cannot rely on rule 430B to omit 
certain information from the base prospectus. Under the final 
amendments, then, non-variable annuity investors will generally have 
all the information available in one location (other than current 
rates, which will be permitted to be incorporated by reference from a 
website) rather than needing to separately access the information on a 
website or request the incorporated materials. As a result, costs to 
investors for assembling and assimilating necessary information could 
decrease, with a potentially stronger effect for investors that may not 
have the technical capabilities or monetary resources to search 
efficiently through multiple information sources.
f. Materially Misleading Statements in RILA Sales Literature
    We are amending rule 156 to make its provisions applicable to RILA 
and registered MVA annuity sales literature. Rule 156 is an 
interpretive rule that provides factors to be weighed in considering 
whether a statement

[[Page 60066]]

involving a material fact is or might be misleading in the specific 
context of investment company sales literature, including literature 
relating to the sale of variable annuities. The final amendments to 
rule 156 indicate that whether a statement involving a material fact is 
misleading in non-variable annuity sales literature will depend on an 
evaluation of the context in which it is made, with the rule providing 
non-exhaustive factors to guide in this determination.
    For example, rule 156(b)(1)(ii) provides that a statement could be 
misleading because of the absence of explanations, qualifications, 
limitations or other statements necessary or appropriate to make such 
statement not misleading. Under this provision, where made applicable 
to non-variable annuity sales literature, consideration should be given 
about whether an advertisement will be materially misleading if it 
markets the investment as a growth investment, a loss-avoidance 
vehicle, or a customizable product in the absence of qualifying 
explanations or statements. Similarly, under the provision, where made 
applicable to non-variable annuity sales literature, consideration 
should be given about whether an advertisement will be materially 
misleading if sales literature advertises a particular feature of the 
product's bounded return structure that is not available for the life 
of the product without providing additional context as to the issuer's 
discretion to make changes.
    Further, rule 156(b)(4), prior to these amendments, provided that 
representations about fees or expenses associated with an investment in 
a fund could be misleading because of statements or omissions made 
involving a material fact, including situations where portrayals of the 
fees and expenses associated with an investment in the fund omit 
explanations, qualifications, limitations, or other statements 
necessary or appropriate to make the portrayals not misleading. The 
final amendments change this provision to also address representations 
about the fees or expenses associated with a non-variable annuity 
contract and provide guidance about the contextual analysis to use in 
determining whether a particular representation in a non-variable 
annuity advertising could be materially misleading. As discussed in 
Section II.G.1., when complying with this provision in the context of 
non-variable annuity sales literature, under final rule 156(b)(4), 
insurance companies are prompted to consider whether representations or 
portrayals either of a non-variable annuity's costs or charges, or 
optional benefits that are subject to a contract adjustment, would 
necessitate qualifying statements or explanations regarding the 
economic costs to the investor to receive an advertised benefit or 
those generally associated with the non-variable annuity.
    Also, rule 156(b)(2)(i) states that representations about past or 
future investment performance could be misleading because of statements 
or omissions made involving a material fact. This includes situations 
where portrayals of past income, gain, or growth of assets convey an 
impression of the net investment results achieved by an actual or 
hypothetical investment which would not be justified under the 
circumstances, including portrayals that omit explanations, 
qualifications, limitations, or other statements necessary or 
appropriate to make the portrayals not misleading. Under the provision, 
where made applicable to non-variable annuity sales literature, 
consideration should be given about whether illustrations about the 
operation of a non-variable annuity or its features could be misleading 
because, for example, they use assumptions that are not currently 
offered or exceed what could be reasonably anticipated or use ``cherry 
picked'' data.
    By reducing the potential for misleading or fraudulent statements 
in non-variable annuity sales literature, applying rule 156 to RILAs 
and registered MVA annuities provides investors with protections and 
helps ensure that investors receive the information necessary to make 
informed decisions about these products. Ensuring that investors 
receive the information necessary to make informed decisions could 
benefit investors by facilitating investor evaluation of RILAs and 
registered MVA annuities as well as investor comparison of non-variable 
annuities to other annuity products.
    We are also making a technical amendment to rule 433 to maintain 
the status quo for insurance companies that can meet that rule's 
conditions to use a free writing prospectus in connection with the 
offering of non-variable annuities without meeting the prospectus 
delivery requirements, notwithstanding their use of Form N-4 going 
forward. Absent such an amendment, the rulemaking would have the effect 
of imposing new, universal prospectus delivery requirements in 
connection with RILA marketing materials, even for RILA issuers that 
would otherwise be eligible to rely on rule 433 by virtue of 
registering on Form S-3. Because the technical amendment to rule 433 
maintains the status quo for insurance companies that can meet the 
rule's conditions to use a free writing prospectus in connection with 
the offering of non-variable annuities without the prospectus delivery 
requirements, we do not believe this amendment to rule 433 will create 
additional economic effects.
2. Costs
    The final amendments will likely lead to certain additional costs 
for insurance companies registering non-variable annuities. These costs 
will likely vary across insurance companies, depending on their 
existing lines of business. Costs may also vary depending on the extent 
to which insurance companies will, as a result of the final amendments, 
create prospectuses that vary in form from previously filed 
prospectuses and the frequency of certain events, such as changes in 
accountants and disagreements with accountants on accounting and 
financial disclosure. Generally, the costs will be lower for insurance 
companies that currently offer products that register on Form N-4, for 
those insurance companies that do not change or remove key features of 
non-variable annuities frequently, and for those insurance companies 
that do not experience changes in, and disagreements with, accountants 
on accounting and financial disclosure. The costs of the final 
amendments may also be mitigated to the extent that insurance companies 
already provide the same or similar disclosures on Forms S-1 and S-3, 
8-K, and 10-K, as applicable, as are required by the final amendments.
    The costs to insurance companies will be composed of both direct 
compliance costs and indirect costs. Direct costs for insurance 
companies will consist of internal costs (for compliance attorneys and 
other non-legal staff, such as computer programmers, to prepare and 
review the required disclosure) and external costs (including filing 
fees, outside legal and accounting fees, as well as any costs 
associated with outsourcing all or a portion of the Form N-4 filing 
responsibilities to a filing agent, software consultant, or other 
third-party service provider).
    The final amendments could lead to certain costs for investors as 
well. Direct costs that will be incurred by the insurance companies in 
coming into compliance with the final amendments ultimately may be 
passed on to investors. Investors also may bear costs associated with 
certain final amendments such as the change in filing rules as well as 
an insurance companies' option to use a summary prospectus.

[[Page 60067]]

a. Direct Costs
    Form N-4. The direct costs associated with the final amendments 
will be most significant for the first Form N-4 registration statement 
that an insurance company will be required to prepare and file because 
the insurance company will need to familiarize itself with the new 
registration form and may need to configure its systems to efficiently 
gather the required information. In subsequent periods, we anticipate 
that insurance companies will incur significantly lower costs because 
much of the work involved in the initial registration statement 
preparation and filing is non-recurring and because of efficiencies 
realized from system configuration and reporting automation efforts 
accounted for in the initial filing period. The costs associated with 
preparing and filing a new registration statement (on Form N-4 as 
opposed to Forms S-1/S-3) will be lower to the extent an insurance 
company already has experience and systems in place to prepare and file 
registration statements on Form N-4 (e.g., because the insurance 
company currently offers variable annuities whose offerings are 
registered on Form N-4).
    Under the final amendments, insurance companies will register non-
variable and variable annuity contract offerings on final Form N-4. In 
addition, the Commission is adopting other amendments to Form N-4 that 
will apply to all issuers that use that form.\822\ We estimate the 
average cost of the final amendments for Form N-4 to be around $200,000 
per contract per year.\823\
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    \822\ For example, compared to the current Form N-4, the final 
amendments switch the order of the Key Information Table and 
Overview of the Contract items, require issuers to present 
information in the KIT in a Q&A format, and require more specific 
principal risk disclosures.
    \823\ The $200,000 estimate is based on the following 
calculations: $159,600 (blended hourly rate for compliance attorney 
and senior programmer at $420 for 380 hours) + $40,000 (costs for 
external services) [ap] $200,000. Salaries for estimates presented 
in this section are derived from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified to account for an 
1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits and overhead. See 
Table 12 (with relevant details about estimates in footnotes 2-5). 
This estimate assumes that the annual cost per contract is the same 
regardless of whether a contract is first registered or whether the 
issuer files a post-effective amendment. We anticipate that the cost 
of filing post-effective amendments (see Table 13) will be lower 
than the cost of initial filings. As a result, this estimate is 
conservative.
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    Insurance companies will also incur compliance costs to tag many of 
the newly required Form N-4 disclosures (as well as those prospectus 
disclosures that Form N-4 currently requires to be tagged) in Inline 
XBRL. Various XBRL and Inline XBRL preparation solutions have been 
developed and used by operating companies and investment companies to 
fulfill their structuring requirements, and some evidence suggests 
that, for smaller operating companies, XBRL compliance costs have 
decreased over time.\824\ To the extent these insurance companies 
comply with Inline XBRL requirements internally rather than outsourcing 
to an external service provider, they may already be familiar with 
Inline XBRL software and may be able to leverage existing Inline XBRL 
preparation processes and/or expertise in complying with the new 
tagging requirements. This will limit the compliance costs arising from 
the new tagging requirements for these issuers to only those costs 
related to selecting additional Inline XBRL tags for those new 
disclosures to be tagged, and reviewing the tags selected for those 
disclosures. We estimate the average annual cost for XBRL compliance 
will be around $500 for each current N-4 filer, which is already 
familiar with structured disclosure in the context of Form N-4, and 
around $2,400 for each non-variable annuity issuer, which would newly 
file Form N-4.\825\ However, 32 of the 38 insurers that issue RILAs and 
registered MVA annuities also offer variable products registered on 
Forms N-3, N-4, or N-6, all of which are currently structured, or 
otherwise have experience tagging registration statements, which would 
reduce the cost to these issuers compared to our estimate.\826\
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    \824\ An AICPA survey of 1,032 public operating companies with 
$75 million or less in market capitalization in 2018 found an 
average cost of $5,850 per year, a median cost of $2,500 per year, 
and a maximum cost of $51,500 per year for fully outsourced XBRL 
creation and filing, representing a 45% decline in average cost and 
a 69% decline in median cost since 2014. See AICPA, XBRL Costs for 
Small Companies Have Declined 45% since 2014 (2018), available at 
https://us.aicpa.org/content/dam/aicpa/interestareas/frc/accountingfinancialreporting/xbrl/downloadabledocuments/xbrl-costs-for-small-companies.pdf. Note that this survey was limited to small 
operating companies. Additionally, a NASDAQ survey of 151 listed 
issuers and other respondents in 2018 found an average XBRL 
compliance cost of $20,000 per quarter, a median XBRL compliance 
cost of $7,500 per quarter, and a maximum XBRL compliance cost of 
$350,000 per quarter in XBRL costs per quarter. See Letter from 
Nasdaq, Inc. (Mar. 21, 2019); Request for Comment on Earnings 
Releases and Quarterly Reports, Securities Act Release No. 10588 
(Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)].
    \825\ The $500 estimate is based on the following calculations: 
$406 (blended hourly rate for compliance attorney and senior 
programmer at $406 for 1 hours) + $50 (costs for external services) 
[ap] $500. The $2,400 estimate is based on the following 
calculations: $1,624 (blended hourly rate for compliance attorney 
and senior programmer at $406 for 4 hours) + $700 (costs for 
external services) [ap] $2,300. See Table 16 (with relevant details 
about estimates in footnotes 2-9).
    \826\ Based on analysis of Forms S-1, S-3, and POS AM filed by 
RILA issuers as of May 2024. See also infra footnote 867.
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    Option to Use a Summary Prospectus. Issuers will benefit from the 
option to use a summary prospectus to the extent that providing layered 
disclosure through a summary prospectus regime (including costs of 
producing and delivering initial summary and updating summary 
prospectuses and of making statutory prospectuses, and other documents 
available online) is less expensive than providing statutory 
prospectuses to new investors and updated statutory prospectuses to 
existing investors annually. Insurance companies choosing to provide 
summary prospectuses will bear a one-time cost of preparing both the 
initial summary prospectus and the updating summary prospectus, as well 
as costs associated with preparing updated versions the updating 
summary prospectus in the future on at least an annual basis.\827\ We 
estimate the average annual cost to prepare initial and updating 
summary prospectuses to be around $2,600 for each separate account 
registrant, who use rule 498A currently, and around $13,000 for each 
insurance company that issues non-variable annuities.\828\
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    \827\ The final amendments require insurance companies to use 
Form N-4 for registered MVA annuities and, as is the case with non-
variable annuities and variable annuities, allowing registered MVA 
annuities the option to use a summary prospectus. As a result, 
additional insurance companies may opt to use summary prospectuses 
in connection with registering offerings compared to the proposal.
    \828\ The $2,600 estimate is based on the following 
calculations: hourly rate for compliance attorney at $425 for 6 
hours [ap] $2,600. The $13,000 estimate is based on the following 
calculations: $7,512 (blended hourly rate for compliance attorney 
and intermediate accountant at $313 for 24 hours) + $897 (hourly 
rate for webmaster at $299 for 3 hours) + $5,000 (costs for external 
services) [ap] $13,000. This estimate includes the cost to include 
inter-and intra-document linking and special terms definitions. In 
addition, we estimate that non-variable annuity issuers will incur 
printing and mailing costs of approximately $1,500 per registrant 
for initial summary prospectuses and approximately $12,000 per 
registrant for updating summary prospectuses. (Separate account 
registrants already incur these printing and mailing costs under the 
baseline.) See Table 11 (with relevant details about estimates in 
footnotes 2-9).
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    Insurance companies that choose to provide summary prospectuses are 
required to make statutory prospectuses and other materials available 
online. We estimate the average annual cost to comply with the final 
website posting requirements of the rule to be around $900 for each 
insurance company that

[[Page 60068]]

issues non-variable annuities.\829\ However, some of these costs may 
have already been incurred by issuers of contracts offering variable 
options as well as non-variable annuities.
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    \829\ The $900 estimate is based on the following calculations: 
hourly rate for webmaster at $299 for 3 hours. See Table 11 (with 
relevant details about estimates in footnotes 2-9).
---------------------------------------------------------------------------

    Filing the Prospectus. As discussed in Section II.F, insurance 
companies registering offerings of RILAs and registered MVA annuities 
follow different processes to file prospectuses than current Form N-4 
filers. For example, a RILA issuer is required to file a prospectus 
only if the issuer makes substantive changes or additions to a 
previously-filed prospectus, whereas current Form N-4 filers are 
required to file every prospectus that varies from any previously-filed 
prospectus. Accordingly, under the final amendments, a non-variable 
annuity issuer is required to file every prospectus relating to a non-
variable annuity offering that varies in form from a previously filed 
prospectus before it is first used. This requirement could increase the 
number of prospectuses required to be filed by non-variable annuities 
which could, in turn, increase costs for issuers.\830\ One commenter 
stated that the proposed rule would require RILA issuers to include the 
current rate in the prospectus on the day it goes effective and 
subsequently update such rates through the proposed 497 RILA rate-
setting regime.\831\ The commenter stated further that the requirement 
would be a significant change, and added expense, for RILA issuers, 
particularly companies that change current rates frequently. The 
commenter provided an example from a member firm suggesting that the 
member firm would need to file 432 supplements each year. The commenter 
did not provide an estimate of the cost of providing a supplement. As 
discussed further in Section II.C.4.a, certain commenters suggested 
that current upside rates should be posted online instead of included 
directly in the prospectus. After considering comments, we have 
determined to permit insurance companies to disclose current upside 
rates in the prospectus either by disclosing the information directly 
in the prospectus, as proposed, or by including a website address where 
the current upside rates can be found and incorporating by reference 
the information on the website into the prospectus. Additionally, all 
upside rate information for the prior calendar year must be filed 
annually with the Commission in a structured data format in response to 
Item 31A of Form N-4. Because the approach we are adopting is largely 
consistent with current practice, we anticipate that insurance 
companies will not incur significant additional costs.
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    \830\ The potential increase in cost could be greater for Form 
S-3 filers than for Form S-1 filers. Form S-3 requires less 
information than Form S-1. Also, Form S-1 allows incorporation by 
reference only on a very limited basis. Form S-3 allows for forward 
incorporation by reference. Form S-3 filers may need to produce 
incrementally more information to file on Form N-4 than Form S-1 
filers. Transitioning to Form N-4 could be more expensive for Form 
S-3 filers than for Form S-1 filers, as a result.
    \831\ See CAI Comment Letter.
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    Securities Registration Fees. Insurance companies registering 
offerings of RILAs and registered MVA annuities will be required to pay 
securities registration fees relating to non-variable annuity offerings 
in arrears annually by filing Form 24F-2. Like Form N-4, insurance 
companies will need to familiarize themselves with the new form and may 
need to configure their systems to efficiently gather the required 
information. We estimate the average annual cost of this requirement to 
be around $1,200 for each insurance company that issues non-variable 
annuities.\832\
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    \832\ The $1,200 estimate is based on the following 
calculations: $246 (rate for compliance clerk at $82 for 3 hours) + 
$938 (rate for programmer at $316 for 3 hours) [ap] $1,200. See 
Table 15.
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    Materially Misleading Statements in Non-Variable Annuity Sales 
Literature. The final amendments make the provisions of rule 156 
applicable to non-variable annuity sales literature. The cost of the 
final amendments includes the direct cost of analyzing advertising 
materials in light of the guidance rule 156 provides. Insurance 
companies may review and approve advertisements beyond what occurs 
currently, particularly because determining whether a statement 
involving a material fact is misleading in non-variable annuity sales 
literature will depend on an evaluation of the context in which it is 
made. We expect some of these costs to be borne in the first year after 
adoption of the final amendments. That is, these costs will be 
transition costs and not sustained beyond the first year. We estimate 
that the transition costs associated with the advertising rule 
amendments will be around $5,800 per advertisement.\833\ Also, ongoing 
sales literature activity may require internal review and approval of 
advertisements. We estimate that the costs associated with ongoing 
sales literature activity will be around $1,900 annually per 
advertisement.\834\ These costs will be borne by insurance companies 
that issue and advertise non-variable annuities and third parties who 
prepare these advertisements.
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    \833\ See Tailored Shareholder Reports for Mutual Funds and 
Exchange-Traded Funds; Fee Information in Investment Company 
Advertisements adopting release at n.744. However, these costs may 
be lower to the extent the advertisement at issue is less complex.
    \834\ See Tailored Shareholder Reports for Mutual Funds and 
Exchange-Traded Funds; Fee Information in Investment Company 
Advertisements adopting release at n.745. However, these costs may 
be lower to the extent the advertisement at issue is less complex or 
higher if it is more complex.
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b. Indirect Costs
    Form N-4. While the prospectuses and other registration statement 
disclosure required by the final amendments will likely facilitate 
investor evaluation and comparison of non-variable annuities, investors 
could experience certain transition costs, and some investors may 
experience other ongoing costs. Transition costs will include the costs 
of the inconvenience to some investors of adapting to the new materials 
and to the changes in the presentation of information. Investors will 
also bear a one-time cost of the inconvenience of adjusting to the 
changes in the disclosures they receive. These costs are likely to be 
relatively lower for investors with less experience investing in non-
variable annuities who are accustomed to existing non-variable annuity 
practices. Also, one commenter stated that while the proposed rule 
would facilitate comparison of non-variable annuities and variable 
annuities (both registered on Form N-4), the proposed rule would result 
in inconsistency in the disclosure of non-variable annuities and 
similar life insurance product offerings (that are not registered on 
Form N-4).\835\ However, investors only would bear any associated cost 
to the extent investors consider life insurance products to be 
substitutes for non-variable and variable annuities. Generally, 
investors may treat variable life insurance products as supplements to 
their non-variable and variable annuity investments, rather than as 
substitutes.\836\ As a result, we do not believe this cost, to the 
extent it exists, would be meaningful for investors.
---------------------------------------------------------------------------

    \835\ See CAI Comment Letter.
    \836\ The Insured Retirement Institute states that ``The cash 
value available in a whole life policy can be used to supplement 
retirement income.'' For example, ``A whole life insurance policy 
can be used to soften the effects of a down market by allowing 
investors to either withdraw cash or take a loan from the life 
policy and avoid drawing down their other retirement savings at the 
least opportune time.'' See IRI Fact Book.
---------------------------------------------------------------------------

    Option to Use a Summary Prospectus. While we expect that, should 
insurance companies opt to use summary

[[Page 60069]]

prospectuses, the majority of investors will benefit from their 
disclosures, certain investors may incur costs. For example, although 
research indicates that investors generally prefer to receive summary 
disclosures, there may be non-variable annuity investors who prefer to 
rely on statutory prospectuses when making investment decisions. While 
non-variable annuity statutory prospectuses will continue to be 
available online and in paper or electronic copy upon request, access 
to those statutory prospectuses will require investors to take 
additional steps, imposing some burden. For example, investors choosing 
to access the statutory prospectus online rather than requesting a 
paper copy will need to manually enter a hyperlink from a paper 
updating summary prospectus or click on a link to a website containing 
the statutory prospectus. To the extent that internet access and use 
among non-variable annuity investors is not universal, those investors 
without home internet access might experience a reduction in their 
ability to access statutory prospectus information quickly and 
easily.\837\ Even for those investors with home internet access, there 
may be some resistance to taking the additional step of accessing the 
statutory prospectus online.
---------------------------------------------------------------------------

    \837\ According to the most recent U.S. census data, 
approximately 85% of U.S. households had some form of broadband 
internet access in their home in 2018, and 92% had a computer (e.g., 
desktop, laptop, tablet or smartphone). See Michael Martin, Computer 
and internet Usage in the United States: 2018, U.S. Census Bureau 
(Apr. 21, 2021), available at https://www.census.gov/library/publications/2021/acs/acs-49.html; see also Pew Research Center, 
internet/Broadband Fact Sheet (Apr. 7, 2021), available at https://www.pewresearch.org/internet/fact-sheet/internet-broadband/ 
(``Today, 93% of American adults use the internet.'' and ``Today, 
roughly three-quarters of American adults have broadband internet 
service at home.''); see also Ani Petrosyan, internet Usage in the 
United States--Statistics & Facts, Statista (Aug. 31, 2023), 
available at https://www.statista.com/topics/2237/internet-usage-in-the-united-states/#topicOverview (``Today, over 90 percent of 
Americans have access to the internet'').
---------------------------------------------------------------------------

    Use of Statutory Accounting Principles. The final amendments permit 
RILA and registered MVA annuity issuers to provide financial statements 
on amended Form N-4 in the same way that insurance companies currently 
do on Form N-4. One consequence of this change will be that the 
financial statements filed in connection with a non-variable annuity 
registration statement could be prepared in SAP to the same extent as 
currently permitted for insurance companies' financial statements filed 
on that form. The final amendments create a choice for certain 
insurance companies. They may prepare their financial statements for 
use in a registration statement in SAP, or they may prepare their 
financial statements for use in a registration statement in GAAP. Those 
insurance companies that expect to benefit from preparing their 
financial statements for use in a registration statement in SAP (e.g., 
through reduced costs) will choose SAP.\838\ Those insurance companies 
that do not expect to benefit from the option to prepare their 
financial statements for use in registration statement in SAP will 
continue to prepare their financial statements for use in a 
registration statement in GAAP. Because the final amendments will 
create the option, but not the obligation, to prepare their financial 
statements for use in a registration statement in SAP, we do not 
believe this provision of the final amendments will create additional 
costs.
---------------------------------------------------------------------------

    \838\ Some commenters stated that permitting the use of SAP 
financials would reduce the burdens on many insurance companies 
offering or seeking to offer RILAs. See supra footnote 568.
---------------------------------------------------------------------------

    Filing and Prospectus Delivery Rules. As discussed in Section II.F, 
when a non-variable annuity issuer seeks to amend a non-variable 
annuity registration statement on Form S-1, the issuer must file a 
post-effective amendment that is typically declared effective by 
Commission staff acting pursuant to delegated authority on such date as 
the Commission may determine. To the extent that investors previously 
benefited from the Commission staff's review of these filings before 
they become effective, allowing filings of non-variable annuity 
offerings to become automatically effective may eliminate such reviews 
and, as a result, possibly increase the costs to investors. However, 
issuers will still face liability under the Federal securities laws for 
registration statement disclosures (e.g., sections 12 and 17 of the 
Securities Act and section 10(b) and rule 10b-5 under the Exchange 
Act), which may ameliorate the potential costs associated with reduced 
staff review. Moreover, rule 485 only permits updates to become 
immediately effective in limited, enumerated circumstances, in order to 
provide an opportunity for staff review for all other changes.
    Materially Misleading Statements in RILA Sales Literature. While 
reducing the potential for misleading or fraudulent statements in non-
variable annuity sales literature will provide investors with 
protections and help ensure that investors receive the information 
necessary to make informed decisions about these products, investors 
could bear the costs of these amendments through increased expenses 
that issuers would incur to implement the final amendments. 
Alternatively, if the cost of compliance with these final amendments is 
significant, some non-variable annuity issuers might reduce advertising 
to lower the extra costs of compliance. If this occurs, investors who 
would otherwise rely on advertisements to make investment decisions 
about non-variable annuities or compare non-variable annuities with 
other investment products might have less complete information for 
these purposes.

D. Effects on Efficiency, Competition, and Capital Formation

    Efficiency. To investors, the costs of purchasing a non-variable 
annuity are more than just the dollar cost of the contract and include 
the value of an individual's time spent evaluating the contract and its 
various aspects. Further, for those investors who do not gain a full 
understanding of the contract, there could be a cost stemming from a 
potential mismatch between an investor's goals and the purchased 
contract. Depending on the size of an individual's potential purchase, 
certain of these additional costs could be considerable in comparison 
to the monetary costs associated with a contract purchase and could 
discourage investors from considering non-variable annuities even in 
circumstances where investment in a non-variable annuity would be 
beneficial.
    For their part, insurance companies only supply RILAs and 
registered MVA annuities to the extent they expect the benefits derived 
from providing the contracts to be greater than the costs of supplying 
the contract. For issuers, costs include not only those costs 
associated with producing and servicing non-variable annuities, but 
also those costs associated with meeting various statutory and 
regulatory obligations.
    These costs borne by both insurance companies and individuals are 
examples of market ``frictions.'' Market frictions have the effect of 
reducing the benefits from (i.e., the efficiency of) contracting 
between market participants.\839\ Rules that reduce costs for 
investors, issuers, or both, reduce market frictions and potentially 
enhance the benefits from contracting between market participants. By 
facilitating investor evaluation and comparison of RILAs and registered 
MVA annuities as well as facilitating the comparison of non-variable 
annuities to other annuity contracts, the final amendments could reduce 
frictions for investors. Requiring

[[Page 60070]]

insurance companies to use a single registration form and filing 
process for all non-variable annuities as well as all variable annuity 
separate accounts that are structured as unit investment trusts, as 
well as allowing non-variable annuity issuers to provide financial 
statements on amended Form N-4 in the same way that insurance companies 
currently do on Form N-4, may also reduce certain compliance burdens 
for insurance companies. In addition, requiring non-variable annuity 
issuers to tag certain key information in Inline XBRL will enable 
investors, third-party information providers, Commission staff, and 
other data users to capture and analyze that information more quickly 
and efficiently than is possible when the same information is provided 
solely in a static, text-based format.
---------------------------------------------------------------------------

    \839\ If market frictions are sufficiently large, market 
frictions can eliminate exchange altogether.
---------------------------------------------------------------------------

    These increases in efficiency could lead investors to save more 
appropriately to meet their retirement goals. For example, for existing 
non-variable annuity investors the final amendments may increase the 
likelihood that investors choose to invest more or less money in non-
variable annuities in a manner that is consistent with their overall 
financial needs and objectives--a level that may be higher or lower 
than current levels. Similarly, the final amendments may lead existing 
investors to choose to allocate their money into different investment 
options that the non-variable annuity offers, or different non-variable 
annuities (or other insurance products like variable annuities) that 
best meet their needs.\840\ The final amendments also could help 
promote investment in non-variable annuities by investors who currently 
do not invest in non-variable annuities, to the extent such investments 
are appropriate for them. Finally, access to clearer information about 
the contract provisions may reduce the chances that an investor makes 
mid-crediting period withdrawals or transfers or surrenders a non-
variable annuities when the costs of doing so do not justify the 
benefits.
---------------------------------------------------------------------------

    \840\ One commenter stated that extending the relief provided by 
Form N-4 to issuers of RILA contracts will enable more insurance 
companies to enter the RILA market, which will increase market 
competition and the choices available to investors among products 
for retirement and other long-term purposes. See CAI Comment Letter. 
Increased choice in the future could benefit investors to the extent 
increased choices allow investors to allocate their money into 
different investments that better match their overall financial 
needs and objectives.
---------------------------------------------------------------------------

    Competition. If the final amendments increase efficiency of 
exchange in the non-variable annuity market, then we may observe a 
change in investment in non-variable annuities. For example, if there 
are individuals who currently do not invest in non-variable annuities 
(or invest less than they would have) because the costs other than the 
price of the contract are too high (including the effort to gain 
sufficient understanding of the product) or they are not aware of non-
variable annuities as an investment, then to the extent the final 
amendments lower those costs or make investors more aware of non-
variable annuities, we will expect to observe more investors entering 
the non-variable annuity market (i.e., there could be an increase in 
demand for non-variable annuities). Conversely, there may be non-
variable annuity investors who, because of the burden, choose not to 
read statutory prospectuses. To the extent those investors are more 
likely to read summary prospectuses, those investors may decide, as a 
result, that other investments or products are better suited to their 
investment goals. This could result in fewer investments in non-
variable annuities (i.e., there could be a decrease in demand for non-
variable annuities).
    As stated in the Proposing Release, if there are insurance 
companies who limited their participation in the non-variable annuity 
market prior to the final amendments as a result of the requirement to 
register non-variable annuity offerings on Form S-1 or Form S-3 or 
because of the costs of current prospectus delivery requirements, those 
insurance companies might increase participation in the non-variable 
annuity market (i.e., there could be an increase the supply of non-
variable annuities) as a result of the final amendments.\841\ 
Commenters agreed with this assessment in the context of the proposal 
for RILAs, and provided comments that could similarly apply to 
registered MVA annuities. For example, several commenters noted that 
the ability of RILA issuers to provide financial statements on final 
Form N-4 in the same way that insurance companies currently do on Form 
N-4 would facilitate new entrants to, and enhanced competition in, the 
RILA marketplace.\842\ More generally, one commenter stated that Forms 
S-1 and S-3 are not well-suited for insurance products and, as a 
result, the use of Form S-1 and S-3 has impeded the entry of new 
issuers to the RILA marketplace.
---------------------------------------------------------------------------

    \841\ See Proposing Release at Section III.D.
    \842\ See, e.g., IRI Comment Letter; Gainbridge Comment Letter; 
CAI Comment Letter.
---------------------------------------------------------------------------

    While stating that certain provisions of the proposed rule would 
promote market competition, this commenter did express concern--
specific to RILAs--that the proposed requirement to disclose a 
guaranteed minimum limit on index losses for the life of the contract 
for each index-linked option would unreasonably constrain insurance 
companies from offering competitive upside rates or even certain 
classes of index-linked options altogether and might have an 
inadvertent chilling effect on product innovation and, in turn, 
investor choice.\843\ As discussed in Section II.C.1, we are modifying 
the disclosure requirement to reflect the fact that not all non-
variable annuities provide minimum guaranteed limits on index loss for 
the life of the contract. By clarifying that disclosure of minimum 
guaranteed limits on index loss for the life of the contract is not 
intended to require insurance companies to establish such minimums, the 
adopted change mitigates the commenter's concern. To the extent that 
competition in a market is related to the size of the market, the net 
effect of these potential changes in investor demand for, and issuer 
supply of, non-variable annuities might affect competition in the non-
variable annuity market.
---------------------------------------------------------------------------

    \843\ See CAI Comment Letter.
---------------------------------------------------------------------------

    The final amendments might also affect competition by requiring 
that information about non-variable annuities be presented in a 
concise, user-friendly way, which could allow investors to compare 
information across products. Requiring non-variable annuity issuers to 
tag certain key information in Inline XBRL could further facilitate 
comparisons of information across registrants by making it easier for 
investors (directly or through third-party data aggregators) to extract 
and aggregate information through automated means for analysis and 
comparison, which could increase competition among non-variable annuity 
issuers for investor capital. For example, the final amendments require 
issuers to distill certain key product information into tables. The 
presentation of this information in a table facilitates evaluation 
among different non-variable annuities as well as comparison to 
variable annuities. Greater comparison among different non-variable 
annuities as well as comparison to variable annuities could lead to 
greater competition. Furthermore, by reducing the costs associated with 
aggregating data across non-variable annuities, the final Inline XBRL 
requirement could reduce barriers to entry for third-party data 
aggregators and induce competition among firms that supply information 
about non-variable annuities to investors, including other third-party 
aggregators and sales agents. Accordingly, we do

[[Page 60071]]

not anticipate that the costs associated with Form N-4 tagging will be 
significant enough to deter insurance companies from entering the 
market for RILAs and registered MVA annuities. As such, we do not 
expect that the new and modified tagging requirements will decrease 
competition in the market for RILAs and registered MVA annuities.\844\
---------------------------------------------------------------------------

    \844\ See also infra Section III.D.
---------------------------------------------------------------------------

    The effect on competition between insurance companies could be 
limited, however, to the extent non-variable annuity investors rely on 
an agent to help them select their non-variable annuity contract and 
the investment options under the contract and do not have access to 
broad comparisons across different non-variable annuities (or among 
different investment options that non-variable annuities offer) at the 
time of sale.\845\ Agents generally only provide their customers with a 
subset of all non-variable annuities available in the general 
marketplace. Thus, while the product information in summary 
prospectuses will facilitate comparison across products offered by the 
agent, the effect will likely be limited to the agent's set of products 
rather than to the broader market.
---------------------------------------------------------------------------

    \845\ We do not have data on the extent to which investors rely 
on agents when purchasing RILAs. In 2019, $95.5 billion of total 
variable annuity sales of $98.3 billion (97%) were through a 
distribution channel involving an agent (see IRI Fact Book). If 
investors rely on agents when purchasing RILAs to the same extent 
they do when purchasing variable annuities, then the vast majority 
of RILA investors rely on agents when purchasing RILAs.
---------------------------------------------------------------------------

    Capital Formation. As discussed in connection with the potential 
effects of the final amendments on competition, if the final amendments 
increase the efficiency of exchange in the non-variable annuity market, 
then we may observe a change in investment in non-variable annuities. 
As discussed in Section IV.B.3, unlike variable annuities that involve 
a direct investment of premiums into one or more mutual funds, which in 
turn invest in underlying securities, non-variable annuity premiums are 
not directly invested into equity securities, but are typically 
invested into derivative securities or fixed-income securities such as 
corporate bonds. To the extent that an increase or decrease in the 
demand for non-variable annuities is not driven by investors 
substituting either away from, or into, variable annuities or other 
investment vehicles as an alternative, we would not expect changing 
demand for non-variable annuities to have any effect on the underlying 
securities. An increase or decrease in the demand for non-variable 
annuities could, however, increase or decrease the demand for fixed-
income securities such as corporate bonds by insurance companies. To 
the extent the final amendments would cause investors to either 
substitute away from, or into, variable annuities or another investment 
that entail investment in underlying funds (which, in turn, invest in a 
portfolio of securities), there could be an effect on capital 
formation. If investors substitute away from variable annuities or 
other investment vehicles into non-variable annuities, there could be a 
reduction in the demand for the underlying securities and, by 
extension, a reduction in capital formation. If investors substitute 
away from non-variable annuities and into variable annuities or other 
investment vehicles, there could be an increase in the demand for the 
underlying securities. To the extent issuers invest non-variable 
annuity proceeds into fixed-income securities such as corporate bonds, 
there could be an increase in the demand for those securities.
    The final Inline XBRL requirements could increase the efficiency of 
capital formation to the extent that making disclosures available in a 
structured format reduces some of the information barriers that make it 
costly for non-variable annuity issuers to find appropriate sources of 
new investors. Smaller issuers may benefit more from enhanced exposure 
to investors. If tagging certain disclosures in a structured format 
increases the availability, or reduces the cost, of collecting and 
analyzing key information about non-variable annuities, smaller non-
variable annuity issuers may benefit from improved coverage by third-
party information providers and data aggregators.

E. Reasonable Alternatives Considered

1. Creating an Entirely New Registration Form for RILAs
    The final amendments require the registration of RILA offerings on 
Form N-4. As an alternative, we considered requiring insurance 
companies to register RILA offerings on an entirely new form. Most 
variable annuities use Form N-4, which has disclosure requirements 
tailored to these investments that provide investors with key 
information about a variable annuity's terms, benefits, and risks, 
along with information about the insurance company and the offering. 
Currently, insurance companies register RILA offerings on Forms S-1 or 
S-3, which allow registering general debt or equity offerings. Forms S-
1 and S-3 require issuers to disclose not only information about the 
offering itself, but also extensive information about the registrant 
issuing the securities. In addition, registrants must include financial 
statements prepared in accordance with GAAP, unless an exemption has 
been granted pursuant to 17 CFR 210.3-13 that permits an insurance 
company to substitute SAP financials for GAAP financials. Form N-4, on 
the other hand, allows insurance companies to file financial statements 
prepared in accordance with SAP if they do not otherwise prepare GAAP 
financial statements.
    A completely new registration form for RILA offerings could 
negatively affect investors' ability to compare different RILAs with 
variable annuities that register on Form N-4 (including contracts that 
offer index-linked options along with other investment options such as 
variable options or fixed investment options). Furthermore, given that 
we are amending Form N-4 to add information to capture aspects specific 
to RILAs, but many of the current form requirements are relevant to the 
registration of RILA offerings, a completely new and separate form for 
RILAs would not offer much (if any) benefit to investors in terms of 
new information compared to the final amendments to Form N-4. Since 
most variable annuity issuers already use Form N-4 to register their 
securities, and many RILA contracts are offered as ``combination'' 
contracts, the amended Form N-4 will efficiently provide investors with 
product-specific information about these combination contracts. As a 
result, investors will be able to compare annuity products, and the 
investment options that these products offer, with less time and 
effort.\846\ To the extent that investors use less time and effort to 
compare annuity products and their underlying investment options, 
investors may be more likely to make decisions that align better with 
their investment goals.
---------------------------------------------------------------------------

    \846\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Requiring RILA offerings to be registered on Form N-4 rather than 
on an entirely new form will also be more efficient for insurance 
companies since they will generally follow the same procedures they 
already use for the registration of variable annuities.\847\ Using Form 
N-4 to register variable annuities and RILA offerings will also be less 
costly for insurance companies than using Form N-4 for variable 
annuities and a completely new form for RILAs since registrants are 
already familiar with Form N-4. It also will be less costly because, if 
RILA offerings had to be registered on a form other than

[[Page 60072]]

Form N-4, combination contracts offering variable options and index-
linked options would have to use two separate registration forms.
---------------------------------------------------------------------------

    \847\ Id.
---------------------------------------------------------------------------

    The Commission will also benefit from using Form N-4 for RILAs 
because the disclosure requirements for variable annuities and RILAs 
will be located in one form only, and registration statements for these 
products will be subject to the same filing and review processes.\848\ 
This will reduce the use of resources by Commission staff needed to 
review the registration statements of RILAs and variable annuities.
---------------------------------------------------------------------------

    \848\ Id.
---------------------------------------------------------------------------

2. Alternatives to Specific Form N-4 Amendments
    The Commission is making amendments to Form N-4 so that insurance 
companies are required to register non-variable annuity offerings using 
that form. While the substance of many of the requirements in Form N-4 
does not change from the current version of the form, we are updating 
some items to include disclosures specifically tailored to non-variable 
annuities. In certain limited circumstances, we have changed the 
disclosure requirements provided on the form for all filers, including 
those registering variable annuities.
    As an alternative, we could have required more or less tailoring of 
the form for non-variable annuities. A larger number of amendments 
tailored to non-variable annuities than the number we adopted would be 
more costly for insurance companies registering non-variable annuity 
offerings because insurance companies that offer combination contracts 
(or that otherwise register variable annuities on Form N-4) would have 
to make more changes to their disclosure. For example, we could have 
required insurance companies to provide a diagram in the KIT to 
illustrate surrender charges and contract adjustments during different 
time periods of the contract, or illustrations showing how caps, 
floors, and/or buffers could affect an investor's returns across 
different market scenarios.
    Also, we could have required insurance companies to provide 
information related to the economic tradeoffs associated with index-
linked options. For example, we could have required RILA issuers to 
compare a hypothetical investment in the index-linked option to the 
value, or cost, of a combination of (i) derivatives that would provide 
the index-linked option's investment exposure; (ii) a fixed-income 
component; and (iii) the standard insurance features offered with the 
index-linked option, similar to the analysis conducted by the staff in 
the Proposing Release.\849\ In such a comparison, we could either have 
required that the insurance company use the hypothetical investment 
discounted by the rate of interest the insurance company is crediting, 
or would credit, on fixed annuities with a term equal to the duration 
of the crediting periods of the index-linked option, or we could have 
required the insurance company to use the value of a risk-free zero-
coupon bond with a time to maturity equal to the crediting period of 
the index-linked option. We also considered requiring additional 
disclosure related to the setting of early withdrawal charges or 
penalties and their impact on such a comparison of hypothetical 
investments. For example, we could have required the calculation of a 
disclosure to explicitly include the impact of early withdrawal charges 
or penalties on the liquidity of the investment. We could also have 
required more prominent placement of these features on marketing or 
other materials, or we could have required a comparison of these 
features to potential benefits of the RILA to clarify for investors 
possible trade-offs.
---------------------------------------------------------------------------

    \849\ See Proposing Release at III.B.3., describing the staff 
analysis and the similar study conducted in the Moenig paper.
---------------------------------------------------------------------------

    Conversely, a smaller number of amendments tailored to non-variable 
annuities than the number we are adopting would be less costly for 
insurance companies. Since insurance companies already use Form N-4 to 
register variable annuities, and most non-variable annuity issuers 
offer variable annuities registered on Form N-4, the costs of complying 
with the disclosure requirements of the amended form will not be 
substantial.
    The amendments to Form N-4 will promote investor understanding of 
non-variable annuity contracts by presenting information in a clear and 
concise manner. We are not adopting a larger number of amendments 
tailored to non-variable annuities because they may add too much, or 
less relevant, information, which may overwhelm investors who may not 
have the time or capacity to process all the information.\850\ \851\ We 
are also not adopting only a subset of amendments tailored to non-
variable annuities, as compared with the final rule, because they could 
result in less investor understanding relative to the understanding 
resulting from the final amendments.
---------------------------------------------------------------------------

    \850\ See, e.g., Julie R. Agnew and Lisa R. Szykman (2005). 
Asset Allocation and Information Overload: The Influence of 
Information Display, Asset Choice, and Investor Experience, Journal 
of Behavioral Finance, 6(2), 57-70, and Alejandro Bernales, Marcela 
Valenzuela and Ilknur Zer (2023). Effects of Information Overload on 
Financial Markets: How Much Is Too Much? International Finance 
Discussion Papers 1372, Washington: Board of Governors of the 
Federal Reserve System.
    \851\ Some commenters stated that the disclosure of the economic 
tradeoffs associated with index-linked options would be irrelevant, 
and even confusing and misleading, to investors. See IRI Comment 
Letter; CAI Comment Letter.
---------------------------------------------------------------------------

3. Limiting Scope of Structured Data Requirements
    The adopted rule requires many of the newly added disclosures on 
Form N-4 to be tagged in Inline XBRL, in addition to those prospectus 
disclosures that Form N-4 currently requires to be tagged. 
Alternatively, the Commission could have limited the tagging 
requirement to only those disclosures being added to Items of Form N-4 
that are already tagged in Inline XBRL. Under this alternative, 
disclosures relating to: the overview of the contract; the description 
of the Insurance company, registered separate account, and investment 
options; charges; purchases and contract value; purchase of securities 
being offered; disagreements with and changes to accountants; 
information about contracts with index-linked options and fixed options 
subject to a contract adjustment; and fee representations and 
undertakings would not be tagged.
    Limiting the scope of tagging requirements in this manner would 
result in reduced compliance burdens for insurance companies, which 
would be required to apply fewer tags to their disclosures on Form N-4 
filings. However, the alternative would also remove the informational 
benefits associated with making those disclosures available in a 
machine-readable manner. Furthermore, because Form N-4 filers already 
have Inline XBRL tagging obligations with respect to certain of the 
form's disclosure requirements, the burden reductions resulting from 
such an alternative would be limited. Therefore, we are not excluding 
the newly added disclosures on Form N-4 from the Inline XBRL tagging 
requirements.

V. Paperwork Reduction Act

    We are amending several rules and forms that will modify the 
registration, offering, and communications processes for non-variable 
annuities under the Securities Act. We also are amending Form N-4 and 
related rules that will apply to all issuers of that form.\852\ The

[[Page 60073]]

amendments will implement the requirements relating to non-variable 
annuities in the RILA Act. The amendments will have an impact on the 
current collections of information burdens under the Paperwork 
Reduction Act of 1995 (``PRA'') of the following rules and forms: Rule 
498A, Form N-4, Investment Company Interactive Data, and Form 24F-2. 
The titles for the existing collections of information are: (1) ``Rule 
498A Summary Prospectus for Variable Annuity and Variable Life 
Insurance Contracts'' (OMB Control No. 3235-0765), which we are 
retitling to ``Rule 498A Summary Prospectus for Variable and Non-
Variable Annuity and Variable Life Insurance Contracts;'' (2) ``Form N-
4, Registration Statement of Separate Accounts Organized as Unit 
Investment Trust'' (OMB Control No. 3235-0318), which we are retitling 
to ``Form N-4, Registration Statement of Separate Accounts Organized as 
Unit Investment Trust or of Index-Linked Annuity Contracts;'' (3) 
``Annual Notice of Securities Sold Pursuant to Rule 24f-2.'' (OMB 
Control No. 3235-0456), which we are retitling to ``Annual Notice of 
Securities Sold Pursuant to 17 CFR 270.24f-2 or 230.456(e);'' and (4) 
``Investment Company Interactive Data'' (OMB Control No. 3235-0642).
---------------------------------------------------------------------------

    \852\ We are amending rules 485 and 497 of Regulation C (OMB 
Control No. 3235-0074), which describes the procedures to be 
followed in preparing and filing registration statements with the 
Commission, and rule 405 of Regulation S-T (OMB Control No. 3235-
0424), which specifies the requirements that govern the electronic 
submission of documents. The amendments will require insurance 
companies that issue non-variable annuities to tag specified 
information in registration statements filed on Form N-4 or post-
effective amendments thereto, as well as in forms of prospectuses 
filed pursuant to rule 497(c) or 497(e) under the Securities Act 
that include information that varies from the registration statement 
using Inline XBRL. These burdens are included in our estimates for 
the Investment Company Interactive Data collection of information 
discussed in section V.D below.
---------------------------------------------------------------------------

    The Commission published notice soliciting comments on the 
collection of information requirements in the Proposing Release and 
submitted the proposed collections of information to OMB for review and 
approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. While the Commission received no comments 
specifically addressing the estimated PRA burdens and costs that the 
Proposing Release described, the Commission did receive comments 
discussing the burdens of implementing certain aspects of the proposal. 
We discuss those comments below, along with discussing updated 
estimates of the collection of information burdens associated with the 
final amendments. We also discuss below the collection of information 
burdens associated with amendments to rule 498A and Investment Company 
Interactive Data, as well as Forms N-4 and 24F-2, which are filed with 
the Commission and are not kept confidential. A description of the 
amendments, including the need for the information and its use, as well 
as a description of the likely respondents, can be found in Section II 
above, and a discussion of the economic effects of the amendments can 
be found in Section III above.

A. Rule 498A

    We are amending rule 498A to permit insurance companies registering 
offerings of non-variable annuities, as well as issuers of 
``combination contracts'' offering a combination of variable and non-
variable options, to use a summary prospectus to satisfy statutory 
prospectus delivery obligations. Consistent with current rule 498A, the 
use of summary prospectuses for non-variable annuities will be 
voluntary, but the rule's requirements will be mandatory for issuers 
that elect to send or give a summary prospectus in reliance upon rule 
498A. We also are making certain amendments to Form N-4 that will 
affect the variable annuity summary prospectuses currently provided to 
investors. The amendments to rule 498A are part of a layered disclosure 
approach that is designed to provide investors with a summary 
prospectus to help them make informed investment decisions regarding 
non-variable annuities, as discussed in more detail above. These 
amendments will result in a change in our current estimate of the 
burdens associated with this collection of information, specifically to 
account for these additional requirements for issuers that use rule 
498A currently and to add non-variable annuities to the estimates.
    The respondents to these collections of information will be 
insurance companies registering offerings of non-variable annuities and 
registered variable annuity separate accounts. The information provided 
under rule 498A will not be kept confidential.
    The Commission did not receive public comments regarding the PRA 
estimates for rule 498A in the Proposing Release. Commenters that 
discussed rule 498A voiced support for the proposal to extend rule 498A 
to non-variable annuities.\853\ As discussed above, in a change from 
the proposal, we are requiring insurance companies to use Form N-4 to 
register offerings of registered MVA annuities and, as is the case with 
non-variable annuities and variable annuities, allowing issuers of 
registered MVA annuities the option to use a summary prospectus. We 
have adjusted our numbers to account for the potential that additional 
insurance companies will opt to use summary prospectuses in connection 
with offerings of registered MVA annuities.
---------------------------------------------------------------------------

    \853\ See CAI Comment Letter.
---------------------------------------------------------------------------

    In our most recent Paperwork Reduction Act submission for Rule 
498A, we estimated for rule 498A a total aggregate annual hour burden 
of 7,634 hours, and a total aggregate annual external cost burden of 
$9,094,866.\854\ We have historically estimated the paperwork burden of 
rule 498A based on the number of variable annuity and variable life 
insurance separate account registrants, and our estimates of the 
updated burden resulting from the final amendments are similarly based 
on the number of non-variable annuity issuers.\855\ We estimate that 
there are 38 insurance companies that issue RILAs, registered MVA 
annuities, or annuity contracts offering index-linked options and MVA 
options, and that there are 416 separate account registrants on current 
Form N-4 that would be impacted by the proposed amendments.\856\ The 
summary prospectus is voluntary, so the percentage of non-variable 
annuity issuers that will choose to utilize it is uncertain. Given this 
uncertainty, we have assumed that insurance companies will choose to 
use a summary prospectus for 90% of all non-variable annuities, which 
is the same as our current estimate for variable annuity separate 
accounts. The table below summarizes our PRA initial and ongoing annual 
burden estimates associated with the final amendments to rule 498A.
---------------------------------------------------------------------------

    \854\ On January 9, 2024, the Office of Management and Budget 
approved this collection of information estimate for rule 498A. The 
Proposing Release discussed a prior burden estimate, which the 
Office of Management and Budget approved on November 13, 2020. See 
Proposing Release at n.494.
    \855\ VASP Adopting Release at Section V.E.
    \856\ The non-variable annuity issuer estimate is based on a 
review of non-variable annuity registration statements filed with 
the Commission as of May 2024. See supra footnote 725. The estimate 
of variable annuity separate accounts is based on Form N-CEN data as 
of December 31, 2023. The Office of Management and Budget approved 
the burden estimate for rule 498A on January 9, 2024.

[[Page 60074]]



                                       Table 11--Rule 498A--PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                  Internal        Internal                                            Annual
                                   initial     annual  burden      Wage rate      Internal  time   external cost
                                burden hours        hours                             costs           burden
----------------------------------------------------------------------------------------------------------------
                                               PROPOSED ESTIMATES
----------------------------------------------------------------------------------------------------------------
                                          Separate Account Registrants
----------------------------------------------------------------------------------------------------------------
Proposed Amendments..........               9               6  $425 (compliance           $2,550  ..............
                                                                attorney).
Number of registrants........  ..............           x 419  ................            x 419  ..............
Total annual burden..........  ..............           2,514  ................       $1,068,450  ..............
Use of summary prospectus....  ..............           x 90%  ................            x 90%  ..............
Total new annual burden for    ..............        2,262.60  ................         $961,605  ..............
 Reliance on Rule 498A.
----------------------------------------------------------------------------------------------------------------
                                                RILA Registrants
----------------------------------------------------------------------------------------------------------------
Preparation and filing of                  40           24.67  $313 (blended           $7,709.38          $5,000
 Initial Summary Prospectus/                                    rate).
 Updating Summary Prospectus.
Online Posting of Contract                  2            2.67  $289 (webmaster)          $771.63  ..............
 Documents.
Total burden per registrant..  ..............           27.34  ................         8,481.01          $5,000
Number of registrants........  ..............            x 90  ................             x 90            x 90
Total annual burden..........  ..............        2,460.60  ................      $763,290.90        $405,000
Use of summary prospectus....  ..............           x 90%  ................            x 90%           x 90%
Total new annual burden for    ..............        2,214.54  ................      $686,961.81        $364,500
 Reliance on Rule 498A.
----------------------------------------------------------------------------------------------------------------
                         PROPOSED ESTIMATES FOR PRINTING AND MAILING BY RILA REGISTRANTS
----------------------------------------------------------------------------------------------------------------
Initial Summary Prospectus......................................................................        $120,000
Updating Summary Prospectus.....................................................................      $1,048,000
Total annual burden.............................................................................      $1,168,000
Use of summary prospectus.......................................................................           x 90%
Total new annual burden for Reliance on Rule 498A...............................................      $1,051,200
----------------------------------------------------------------------------------------------------------------
                                        Total Proposed Estimated Burdens
----------------------------------------------------------------------------------------------------------------
                                  Responses     Internal hour                     Internal hour    External cost
                                                  estimate                        cost estimate      estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual                  676          14,688  ................       $3,900,193     $11,559,420
 burden estimates.
Aggregate proposed additional            + 83      + 4,477.14  ................   + 1,648,566.81    + $1,415,700
 annual burden estimates.
Revised aggregate annual                = 759     = 19,165.14  ................   = 5,548,759.81   = $12,975,120
 burden estimates.
----------------------------------------------------------------------------------------------------------------
                                  Internal        Internal       Wage rate \1\    Internal time       Annual
                               initial burden   annual burden                         costs        external cost
                                    hours           hours                                             burden
----------------------------------------------------------------------------------------------------------------
                                                 FINAL ESTIMATES
----------------------------------------------------------------------------------------------------------------
                                          Separate Account Registrants
----------------------------------------------------------------------------------------------------------------
Final Amendments.............               9           \2\ 6  $425 (compliance           $2,550  ..............
                                                                attorney).
Number of separate account     ..............       \3\ x 416  ................            x 416  ..............
 registrants.
Total annual burden..........  ..............           2,496  ................       $1,060,800  ..............
Use of summary prospectus....  ..............           x 90%  ................            x 90%  ..............
Total new annual burden for    ..............           2,246  ................         $954,720  ..............
 Reliance on Rule 498A.
----------------------------------------------------------------------------------------------------------------
                                        Non-Variable Annuity Registrants
----------------------------------------------------------------------------------------------------------------
Preparation and filing of                  40          \4\ 24  \5\ $313                   $7,512      \6\ $5,000
 Initial Summary Prospectus/                                    (blended rate).
 Updating Summary Prospectus.
Online Posting of Contract                  2           \7\ 3  $299 (webmaster)             $897  ..............
 Documents.
Total burden per registrant..  ..............              27  ................           $8,409          $5,000
Number of non-variable         ..............        \8\ x 38  ................             x 38            x 38
 annuity issuers.
Total annual burden..........  ..............            1026  ................         $319,542        $190,000
Use of summary prospectus....  ..............           x 90%  ................            x 90%           x 90%
Total new annual burden for    ..............             923  ................         $287,588        $171,000
 Reliance on Rule 498A.
----------------------------------------------------------------------------------------------------------------
                FINAL ESTIMATES FOR PRINTING AND MAILING BY NON-VARIABLE ANNUITY REGISTRANTS \9\
----------------------------------------------------------------------------------------------------------------
Initial Summary Prospectus......................................................................         $57,000
Updating Summary Prospectus.....................................................................        $456,000
Total annual burden.............................................................................        $513,000
Use of summary prospectus.......................................................................           x 90%
Total new annual burden for Reliance on Rule 498A...............................................        $461,700
----------------------------------------------------------------------------------------------------------------
                                          Total Final Estimated Burdens
----------------------------------------------------------------------------------------------------------------
                                  Responses     Internal hour                     Internal hour    External cost
                                                  estimate                        cost estimate      estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual                  663           7,634  ................       $2,337,471      $9,094,866
 burden estimates.
Aggregate proposed additional            + 35  + 3,169 (2,246  ................     + $1,242,308      + $632,700
 annual burden estimates.                              + 923)                        ($954,720 +     ($171,000 +
                                                                                       $287,588)       $461,700)

[[Page 60075]]

 
Revised aggregate annual                = 698        = 10,803  ................     = $3,579,779    = $9,727,566
 burden estimates.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ The Commission's estimates of the relevant wage rates are based on salary information for the securities
  industry compiled by the Securities Industry and Financial Markets Association's Office Salaries in the
  Securities Industry 2013. The estimated wage figures are modified by Commission staff to account for an 1,800-
  hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and
  adjusted to account for the effects of inflation. See Securities Industry and Financial Markets Association,
  Report on Management & Professional Earnings in the Securities Industry 2013 (as adjusted to account for
  inflation, the ``SIFMA Wage Report'').
\2\ Internal annual burden hours represents initial burden estimates annualized over a three-year period (9
  hours/3 = 3 hours) plus 3 hours of ongoing annual burden hours.
\3\ Estimate is based on a review of Form N-CEN reports through December 31, 2023. In its most recently approved
  PRA submission, the Commission estimated that 419 registrants on Form N-4 would be subject to the information
  collection burden under current rule 498A. For the estimated burden of the amendments to rule 498A, we have
  taken into account updated data regarding the number of registrants on Form N-4.
\4\ Represents initial burden estimates annualized over a three-year period plus 11 hours of ongoing annual
  burden hours ((40 hours/3 = approximately 13 hours) + 11 hours = approximately 24 hours).
\5\ Represents a blended wage rate of a compliance attorney ($425 per hour) and an intermediate accountant ($200
  per hour). $313 is based on the following calculation: ($425 + $200)/2 = $313 rounded to the nearest whole
  dollar.
\6\ We estimate that each insurance company that chooses to rely on rule 498A with regards to a non-variable
  annuity will incur a one-time collective external cost burden of $10,000 per registration statement to prepare
  both a new initial summary prospectus and a new updating summary prospectus for offerings on Form N-4. We also
  estimate an on-going collective burden of $2,500 per registration statement during each subsequent year to
  prepare updates to these materials. The three-year average cost of these estimates is $5,000.
\7\ Represents initial burden estimates annualized over a three-year period plus two hours of ongoing annual
  burden hours ((2 hours/3 = approximately 1 hour) + 2 hours = approximately 3 hours).
\8\ This estimate is based on the number of insurance companies issuing non-variable annuities. See supra
  footnote 725. The proposal reflected an estimate of the number of RILA s, as opposed to the number of
  insurance companies issuing RILAs. We have updated this approach to better reflect the way that the burden for
  rule 498A has historically been calculated (reflecting the number of variable annuity separate accounts
  relying on rule 498A--thus, reflecting the registrants that rely on the rule, not the number of contracts with
  summary prospectuses under the rule).
\9\ Costs associated with printing and mailing for separate account registrants are already accounted for in the
  currently approved burdens for rule 498A. Estimates for non-variable annuity issuers printing and mailing
  costs are based on the currently approved burdens for printing and mailing costs under rule 498A
  (approximately $1,500 per registrant for initial summary prospectuses and approximately $12,000 per registrant
  for updating summary prospectuses).
\10\ The estimated number of new responses is based on the total of the number of non-variable annuity responses
  under the proposed amendments (38 responses) and the difference between the number of responses for registered
  separate accounts under the current aggregate annual burden estimate (419 responses) and the final additional
  annual burden estimates (416 responses). (38 non-variable annuity issuer responses subtracted by 3 registered
  separate account responses).

B. Form N-4

    Under the final amendments, insurance companies will register non-
variable and variable annuity contract offerings on Form N-4, as 
amended, to address the features and risks of non-variable annuities, 
including RILAs and registered MVA annuities. In addition, we are 
adopting other amendments to Form N-4 that will apply to all issuers 
that use that form. For example, the final amendments will switch the 
order of the Key Information Table and Overview of the Contract items, 
require issuers to present information in the KIT in a Q&A format, and 
to require more specific principal risk disclosures. These amendments 
will result in a change in our current estimate of the burdens 
associated with this collection of information, specifically to account 
for these additional requirements for issuers that use Form N-4 
currently and to add non-variable annuities to the estimates.
    The Commission received no comments specifically addressing the 
estimated PRA burdens for the proposed amendments to Form N-4. Rather, 
as discussed above, the Commission received comments supporting the 
ability of non-variable annuities to register on Form N-4.\857\ Those 
commenters generally suggested that the current burdens on insurance 
companies that register non-variable annuities on Form S-1 or S-3 may 
be lessened by having such contracts register on Form N-4.\858\
---------------------------------------------------------------------------

    \857\ See supra sections II.A. and II.B.
    \858\ Id.
---------------------------------------------------------------------------

    As discussed in the proposal, Form N-4 generally imposes two types 
of reporting burdens on issuers that use the form: (1) the burden of 
preparing and filing the initial registration statement; and (2) the 
burden of preparing and filing post-effective amendments to a 
previously effective registration statement. In our most recent 
Paperwork Reduction Act submission for Form N-4, we estimated for Form 
N-4 a total aggregate annual hour burden of 292,487 hours, and a total 
aggregate annual external cost burden of $33,348,866.\859\ Compliance 
with the disclosure requirements of Form N-4 is mandatory, and the 
responses to the disclosure requirements will not be kept confidential. 
The respondents to these collections of information will be non-
variable annuity issuers and registered variable annuity separate 
accounts. The purpose of the information collection requirements on 
Form N-4 is to meet the filing and disclosure requirements of the 
Securities Act and Investment Company Act, as applicable, and to 
provide investors with information necessary to evaluate an investment 
in an offering of securities registered on the form.
---------------------------------------------------------------------------

    \859\ On Oct. 26, 2021, the Office of Management and Budget 
approved without change this burden estimate.
---------------------------------------------------------------------------

    At proposal, we presented our information collection estimates by 
the product type that would be registered on Form N-4. Our proposed 
information collection estimates addressed RILAs and the initial 
burdens that a RILA issuer would incur to register a non-variable 
annuity on Form N-4 and file post-effective amendments; these estimates 
were the majority of the burden associated with the proposed amendments 
to rule 498A. We also included information collection estimates that 
would apply to variable annuity issuers that currently register their 
offerings on Form N-4, which were more incremental in nature. For each 
of these proposed information collection estimates--those associated 
with RILAs and those associated with variable annuities--we based our 
proposed information collection estimates on average burdens that we 
anticipated issuers would incur.
    We are adopting amendments that require not only issuers of 
variable annuities and RILAs, as proposed, to register offerings of 
these annuity products on Form N-4, but also require issuers of 
registered MVA annuities to register offerings of these annuities on 
Form N-4. Accordingly, our final information collection estimates 
reflect these additional registrants as well as updated data since the 
proposal.

[[Page 60076]]

Specifically, our final information collection estimates reflect that 
the number of entities and responses have been modified from the 
proposal to include issuers of registered MVA annuities, and also to 
reflect that the estimated number post-effective amendments filed by 
issuers of variable annuities have declined from January 1, 2021 to 
December 31, 2023.
    Our final information collection estimates reflect that our per-
entity and per-response estimates have not changed from our proposed 
information collection estimates. This is because we received no 
comments specifically addressing the estimated PRA burdens for the 
proposed amendments to Form N-4, and also we do not anticipate that any 
of the changes from the proposal we are adopting will make any 
substantive modifications to the per-entity and per-response estimates 
or impose any additional substantive recordkeeping or information 
collection requirements within the meaning of the PRA compared to the 
proposal. Our final information collection estimates, like our proposed 
information collection estimates, are based on average burdens that we 
anticipate issuers will incur in registering annuity offerings and 
filing post-effective amendments on Form N-4. For ease of 
administration and in a change from the proposed approach to 
calculating these estimates, our final information collection estimates 
do not separately address the Form N-4 burdens that issuers of 
different types of annuities (e.g., RILAs, registered MVA annuities, 
variable annuities) would incur. Instead, the final estimates include 
average estimates that any Form N-4 issuer would incur.
    We estimate that there will be 1,235 responses that will be subject 
to collection of information requirements under the final amendments to 
Form N-4.\860\ The tables below summarize our PRA initial and ongoing 
annual burden estimates associated with the final amendments to Form N-
4.
---------------------------------------------------------------------------

    \860\ This includes the number of initial filings plus post-
effective amendments that we estimate below. See Table 14. Certain 
disclosure required by Form N-4 may not be applicable to insurance 
companies that register the offerings of non-variable annuities. 
Further, insurance companies that register RILA contracts, may post 
the current limit on index gains for each index-linked option on a 
website. For the ease of administering this collection, the 
information collection estimates are average estimates reflecting 
that different registrants could, in practice, incur different 
burdens regarding the Form N-4 disclosure requirements depending on 
the type of product being registered. For both variable and non-
variable annuity registrants, this estimate is based on a review of 
annuity registration statements filed with the Commission from 
January 1, 2021 through December 31, 2023.

                                                    Table 12--Form N-4 Initial Filings--PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Internal        Internal                                                                 Annual
                                                      initial     annual  burden               Wage rate                 Internal time    external  cost
                                                   burden hours        hours                                                 costs            burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   PROPOSED ESTIMATES
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Separate Account Registrants
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Amendments.............................              12              14  $406 (blended rate for compliance               $5,684  ..............
                                                                                   attorney and senior programmer).
Estimated number of annual responses............  ..............            x 42  ..................................                x 42  ..............
Total new annual burden.........................  ..............             588  ..................................            $238,728  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      RILA Issuers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed amendments to Form N-4.................             300          390.89  $406 (blended rate for compliance          $158,701.34         $40,000
                                                                                   attorney and senior programmer).
Website availability requirement................  ..............             0.5  $286 (webmaster)..................                $143  ..............
Estimated number of annual responses............  ..............            x 20  ..................................                x 20            x 20
Total new annual burden.........................  ..............        7,827.80  ..................................       $3,176,886.80        $800,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Total Proposed Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Responses     Internal hour                                      Internal hour cost   External cost
                                                                     estimate                                              estimate          estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current aggregate annual burden estimates.......              30           8,427  ..................................          $2,494,716        $754,740
Aggregate proposed additional annual burden                 + 32      + 8,416.80  ..................................     + $3,416,614.80      + $800,000
 estimates.
Revised aggregate annual burden estimates.......            = 62     = 16,843.80  ..................................     = $5,911,330.80    = $1,554,740
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 FINAL ESTIMATED BURDENS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Internal        Internal                Wage rate \2\            Internal time cost      Annual
                                                  initial burden   annual burden                                                           external cost
                                                       hours         hours \1\                                                                burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Final Amendments to Form N-4 \3\................             300         \3\ 380  $420 (blended rate for compliance             $159,600     \6\ $40,000
                                                                                   attorney and senior programmer)
                                                                                   \5\.
Estimated number of annual responses \6\........  ..............           x 101  ..................................               x 101           x 101
Total estimated annual new burden...............  ..............          38,380  ..................................         $16,119,600      $4,040,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Final Total Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Responses     Internal hour                                      Internal hour cost   External cost
                                                                     estimate                                              estimate          estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current aggregate annual burden estimates.......              30           8,427  ..................................          $2,494,716        $754,740
Aggregate additional annual burden estimate 7 8.            + 71        + 29,953  ..................................       + $13,624,884    + $3,285,260
Revised aggregate annual burden estimates.......           = 101        = 38,380  ..................................       = $16,119,600    = $4,040,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:

[[Page 60077]]

 
\1\ This estimate includes the initial burden estimates annualized over a three-year period, plus the estimate of ongoing annual burden hours.
\2\ The Commission's estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage figures are modified by Commission
  staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to
  account for the effects of inflation.
\3\ This estimated burden applies to an issuer of any annuity registered on Form N-4.
\4\ The final estimate includes the initial burden estimates annualized over a three-year period (300 hours/3 = 100 hours), plus 280 hours of ongoing
  annual burden hours (the estimate of ongoing internal hours associated with post-effective amendments (which will be filed in the year following an
  initial registration statement), as referenced in Table 13 infra). The final amendments will permit issuers of RILA contracts to incorporate
  information about current contract limits on gains by reference into their prospectuses from a website. See Item final Form N-4, Item 6. Because this
  incorporation by reference approach is permitted but not required, burdens associated with this permissible website disclosure are reflected in the
  burden estimate for the final amendments to Form N-4. For purposes of this information collection, we estimate that 100% of issuers of RILAs would
  incur burdens associated with website disclosure.
\5\ The $420 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($440) and a senior programmer ($399).
  $420 is based on the following calculation: ($440 + $399)/2 = $420 rounded to the nearest whole dollar.
\6\ We estimate that the external cost to prepare and file an initial registration statement on Form N-4 is $40,000 per filing. This estimate is based
  on the currently approved external cost estimate for Form N-4 filings, adjusted to reflect staff experience of the costs associated with drafting and
  filing a registration statement on Form N-4, such as the cost of outside legal services.
\7\ The estimate of the annual number of registration statements filed on Form N-4 is based on the average annual number of annuity filings (variable
  annuity, RILA, and registered MVA annuities) received by the Commission over the past three years (Jan. 1, 2021 to Dec. 31, 2023) on Forms N-4, S-1,
  and S-3. In its most recently approved PRA submission, the Commission estimated that insurance companies that issue variable annuities will make
  approximately 30 initial registration statement filings per year. For the estimated burden of the amendments to Form N-4, we have taken into account
  updated data regarding the number of initial annuity filings on Forms N-4, S-1 and S-3.
\8\ The estimated number of new responses, 71 responses, is based on the total of the number of responses under the final amendments, 101 responses,
  less 30 responses which represents the number of responses for registered separate accounts under the current aggregate annual burden estimate.
  Similarly, the estimated additional internal hours figure reflects the total estimated annual new burden (38,380 hours) and subtracts the current
  internal hour estimate (8,427 hours) to avoid double counting the current burden that is applicable to registered separate accounts; the estimated
  additional internal hour cost figure reflects the total estimated annual new internal hour cost estimate ($16,119,600) and subtracts the current
  internal hour cost estimate ($2,494,716) to avoid double counting current internal hour cost applicable to registered separate accounts; and the
  estimated additional external cost figure reflects the total estimated annual new external cost ($4,040,000) and subtracts the current external cost
  estimate ($754,740) to avoid double counting current external costs applicable to registered separate accounts.


                       Table 13--Form N-4 Post-Effective Amendment Filings--PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                  Internal        Internal                                            Annual
                                   initial     annual  burden     Wage rate       Internal time    external cost
                                burden hours        hours                             costs           burden
----------------------------------------------------------------------------------------------------------------
                                               PROPOSED ESTIMATES
----------------------------------------------------------------------------------------------------------------
                                          Separate Account Registrants
----------------------------------------------------------------------------------------------------------------
Proposed Amendments..........              12               6  $406 (blended              $2,436  ..............
                                                                rate for
                                                                compliance
                                                                attorney and
                                                                senior
                                                                programmer).
Estimated number of annual     ..............         x 1,016  ...............           x 1,016  ..............
 responses.
Total new annual burden......  ..............           6,096  ...............        $2,474,976  ..............
----------------------------------------------------------------------------------------------------------------
                                                  RILA Issuers
----------------------------------------------------------------------------------------------------------------
Proposed amendments to Form N-            210          279.95  $406 (blended         $113,659.70         $24,000
 4.                                                             rate for
                                                                compliance
                                                                attorney and
                                                                senior
                                                                programmer).
Website availability           ..............             0.5  $286                         $143  ..............
 requirement.                                                   (webmaster).
Estimated number of annual     ..............            x 90  ...............              x 90            x 90
 responses.
Total new annual burden......  ..............       25,240.50  ...............        10,242,243      $2,160,000
----------------------------------------------------------------------------------------------------------------
                                                  Total Burdens
----------------------------------------------------------------------------------------------------------------
                                    Responses   Internal hour                      Internal hour   External cost
                                                     estimate                      cost estimate        estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual                1,366       + 284,060  ...............       $84,100,454   + $32,594,126
 burden estimates.
Aggregate proposed additional            -260     + 31,336.50  ...............     + $12,717,219    + $2,160,000
 annual burden estimates.
Revised aggregate annual              = 1,106    = 315,369.50  ...............      = 96,817,673   = $34,754,126
 burden estimates.
----------------------------------------------------------------------------------------------------------------
                                             FINAL ESTIMATED BURDENS
----------------------------------------------------------------------------------------------------------------
                                     Internal        Internal  Wage rate \1\..          Internal          Annual
                               initial burden   annual burden                         time costs        external
                                        hours           hours                                        cost burden
----------------------------------------------------------------------------------------------------------------
Final Amendments to Form N-4              210         2 3 280  $420 (blended            $117,600     \5\ $24,000
 \2\.                                                           rate for
                                                                compliance
                                                                attorney and
                                                                senior
                                                                programmer)
                                                                \4\.
Estimated number of annual     ..............         x 1,164  ...............           x 1,164         x 1,164
 responses \5\.
Total new annual burden......  ..............         325,920  ...............      $136,886,400     $27,936,000
----------------------------------------------------------------------------------------------------------------
                                               FINAL TOTAL BURDENS
----------------------------------------------------------------------------------------------------------------
                                    Responses   Internal hour                      Internal hour   External cost
                                                     estimate                           estimate        estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual                1,366         284,060  ...............       $84,100,454     $32,594,126
 burden estimates.
Aggregate additional annual              -202        + 41,860  ...............     + $52,785,946     $-4,658,126
 burden estimates \6\.
Revised aggregate annual              = 1,164       = 325,920  ...............    = $136,886,400   = $27,936,000
 burden estimates.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ The Commission's estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage
  figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to
  account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of
  inflation.
\2\ This estimated burden applies to an issuer of any annuity registered on Form N-4.

[[Page 60078]]

 
\3\ The final estimate includes the initial burden estimates annualized over a three-year period, plus 208 hours
  of ongoing annual burden hours ((210 hours/3 = 70 hours ) + 208 hours = 278 hours (rounded up to 280 hours)).
  The ongoing annual burden is estimated to be equal to the currently approved ongoing annual burden for initial
  filings on Form N-4 plus an addition 2 hours of ongoing annual burden hours. The final amendments will permit
  issuers of RILA contracts to incorporate information about current contract limits on gains by reference into
  their prospectuses from their website. See final Form N-4, Item 6. Because this incorporation by reference
  approach is permitted but not required, burdens associated with this permissible website disclosure
  requirement are reflected in the burden estimate for the final amendments to Form N-4. For purposes of this
  information collection, we estimate that 100% of issuers of RILAs would incur burdens associated with website
  disclosure.
\4\ The $420 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney
  ($440) and a senior programmer ($399). $420 is based on the following calculation: ($440 + $399)/2 = $420
  rounded to the nearest whole dollar.
\5\ We estimate that the external cost to prepare and file a post-effective registration statement on Form N-4
  is approximately $24,000 per filing.
\6\ The estimate of the average annual number of post-effective amendments to annuity filings (variable annuity,
  RILA, and registered MVA annuities) received by the Commission over the past three years (Jan. 1, 2021 to Dec.
  31, 2023) on Forms N-4, S-1, and S-3. In its most recently approved PRA submission, the Commission estimated
  that insurance companies that issue variable annuities will make approximately 1,336 post-effective amendments
  per year. For the estimated burden of the amendments to Form N-4, we have taken into account updated data
  regarding the number of post-effective amendments for annuities on Forms N-4, S-1 and S-3. The estimate of
  annual the annual number of post-effective amendments to annuity filings reflects that the average number of
  post-effective amendments filed by separate account registrants with the Commission has declined over the past
  three years. See infra note 6.
\7\ The aggregate final additional annual burden estimate reflects that the average number of post-effective
  amendments over the past three years (Jan. 1, 2021 to Dec. 31, 2023) by separate account registrants (1,088)
  has declined from the current aggregate annual burden estimate (1,366). The aggregate additional burden
  estimate takes 1,088 (the average number of post-effective amendments over the past three years by separate
  account registrant) and deducts 1,366 (the current aggregate burden estimate) which equals -278 and then adds
  75 (the average number of post-effective amendments filed by insurance companies that issue RILA and
  registered MVA contracts over the past three years) which equals -202, as adjusted for rounding. Similarly,
  the estimated additional internal hours figure reflects the total estimated annual new burden (325,920) and
  subtracts the current internal hour estimate (284,060) to avoid double counting the current burden that is
  applicable to registered separate accounts; the estimated additional internal hour cost figure reflects the
  total estimated annual new internal hour cost estimate ($137,061,000) and subtracts the current internal hour
  cost estimate ($84,100,454) to avoid double counting current internal hour cost applicable to registered
  separate accounts; and the estimated additional external cost figure reflects the total estimated annual new
  external cost ($27,936,000) and subtracts the current external cost estimate ($32,594,126) to avoid double
  counting current external costs applicable to registered separate accounts.


                                 Table 14--Form N-4 Total Burden--PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                                               Internal
                                               Responses     annual burden     Internal time     Annual external
                                                               hours \1\         costs \2\         cost burden
----------------------------------------------------------------------------------------------------------------
                                   TOTAL BURDEN ESTIMATES INCLUDING AMENDMENTS
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Current aggregate annual burden estimates.           1,366         292,487         $86,595,170       $33,348,866
Aggregate proposed additional annual                  -228     + 39,753.30    + $16,133,833.80      + $2,914,740
 burden estimates.........................
Revised proposed aggregate annual burden           = 1,168    = 332,240.30      = $102,729,004     = $36,263,606
 hours....................................
----------------------------------------------------------------------------------------------------------------
                                                 Final Estimates
----------------------------------------------------------------------------------------------------------------
Current aggregate annual burden estimates.           1,366         292,487         $86,595,170       $33,348,866
Aggregate final additional annual burden          \3\ -131      \4\ 71,813     \5\ $66,410,830   \6\ $-1,372,886
 estimates................................
Revised aggregate annual burden hours.....           1,235         364,300        $153,006,000       $31,975,980
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ This estimate includes the initial burden estimates annualized over a three-year period.
\2\ This estimate is based on the Commission's estimates of relevant wage rates based on the SIFMA Wage Report.
  The estimated wage figures are modified by Commission staff to account for an 1,800-hour work-year and
  multiplied by 5.35 to account for bonuses, firm size, employee benefits, overhead, and adjusted to account for
  the effects of inflation. The particular wage rates that were considered are discussed in Table 12 and Table
  13 above.
\3\ The aggregate final additional annual burden estimates reflect that the average number of post-effective
  amendments over the past three years (Jan. 1, 2021 to Dec. 31, 2023) by separate account registrants (1,088)
  has declined from the current aggregate annual burden estimate (1,366). The aggregate final additional annual
  burden estimate for responses adds 71 (the aggregate annual additional burden estimate for initial
  registration statements) and -202 (the aggregate annual additional burden estimate for post-effective
  amendments) = -131.
\4\ The aggregate final additional annual burden estimate for the internal annual burden hours adds 29,953 (the
  aggregate annual additional burden estimate for initial registration statements) and 41,860 (the aggregate
  annual additional burden estimate for post-effective amendments) = 71,813.
\5\ The aggregate final additional annual burden estimate for internal time costs adds $13,624,884 (the
  aggregate annual additional burden estimate for initial registration statements) and $52,785,946 (the
  aggregate annual additional burden estimate for post-effective amendments) = $66,410,830.
\6\ The aggregate final additional annual burden estimate for the annual external cost burden adds $3,285,260
  (the aggregate annual additional burden estimate for initial registration statements) and $-4,658,126 (the
  aggregate annual additional burden estimate for post-effective amendments) = $-1,372,886.

C. Form 24F-2

    Under the amendments, insurance companies will be required to pay 
applicable securities registration fees relating to non-variable 
annuities in arrears on Form 24F-2. Consistent with the other elements 
of this rulemaking, these amendments are designed to require insurance 
companies to use the same framework to pay securities registration fees 
for non-variable annuities that they do for variable annuities. Form 
24F-2 is the annual notice of securities sold by certain funds that 
accompanies the payment of registration fees with respect to the 
securities sold during the fiscal year, net of securities redeemed or 
repurchased during the year. Compliance with Form 24F-2 is mandatory. 
Responses to this form are not kept confidential.
    The Commission did not receive public comments regarding the PRA 
estimates for Form 24F-2 in the Proposing Release. Commenters generally 
supported the proposal to require insurance companies to pay fees in 
arrears on Form 24F-2 and did not indicate that they found this fee 
payment method burdensome.\861\ As discussed above, in a change from 
the proposal, we are requiring insurance companies to pay fees for 
registered MVA annuities via Form 24F-2. We have adjusted our numbers 
to account for the fact that more insurance companies than originally 
anticipated will pay fees with Form 24F-2.
---------------------------------------------------------------------------

    \861\ See CAI Comment Letter; IRI Comment Letter; Gainbridge 
Comment Letter.
---------------------------------------------------------------------------

    In our most recent Paperwork Reduction Act submission for Form 24F-
2, we estimated for Form 24F-2 a total aggregate annual hour burden of 
20,464 hours, and a total aggregate annual external cost burden of 
$0.\862\ The likely respondents to the proposed amendments will include 
non-variable annuity issuers and current Form 24F-2 filers, which open-
end investment companies, unit investment trusts, registered closed-end 
investment companies that make periodic repurchase offers under 17 CFR 
270.23c-3, and face-amount certificate companies. We estimate that 38 
non-variable annuity issuers will be subject to these final amendments 
and will file

[[Page 60079]]

one Form 24F-2 filing each per year.\863\ The table below summarizes 
our PRA initial and ongoing annual burden estimates associated with the 
final amendments to Form 24F-2.
---------------------------------------------------------------------------

    \862\ On April 17, 2024, the Office of Management and Budget 
approved this burden estimate. Before that, the Office of Management 
and Budget approved a burden estimate for Form 24F-2 on November 13, 
2020. The 2020 OMB-approved burden estimate was cited in the 
Proposing Release.
    \863\ This estimate is based on a review of non-variable annuity 
registration statements filed with the Commission as of May 2024. 
See supra footnote 725. We do not believe that the amendments to 
Form 24F-2 will affect the estimated burdens associated with current 
Form 24F-2 filers. We have not amended the currently approved 
burdens for current Form 24F-2 filers with more recent data for the 
purposes of this PRA estimate.

                                       Table 15--Form 24F-2--PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                 Internal        Internal
                                  initial     annual  burden     Wage rate      Internal time   Annual external
                               burden hours        hours                            costs         cost burden
----------------------------------------------------------------------------------------------------------------
                                               PROPOSED ESTIMATES
----------------------------------------------------------------------------------------------------------------
Clerical work to file Form                 3               3  $82 (compliance            $246                 $0
 24F-2.                                                        clerk).
Submission in a structured                 3               3  $316                       $948                 $0
 data format.                                                  (programmer).
Total annual burden per       ..............               6  ...............          $1,194  .................
 response.
Number of annual responses..  ..............            x 90  ...............            x 90               x 90
Total new annual burden.....  ..............             540  ...............        $107,460                 $0
----------------------------------------------------------------------------------------------------------------
                              TOTAL ESTIMATED PROPOSED BURDENS INCLUDING AMENDMENTS
----------------------------------------------------------------------------------------------------------------
                                   Responses        Internal                    Internal time    Annual external
                                                      annual                            costs        cost burden
                                                burden hours
----------------------------------------------------------------------------------------------------------------
Current aggregate annual               6,794          27,176  ...............      $4,633,508                 $0
 burden.
Aggregate proposed                      + 90           + 540  ...............      + $107,460               + $0
 additional annual burden
 estimates.
Revised aggregate burden             = 6,884        = 27,716  ...............    = $4,140,968               = $0
 estimates.
----------------------------------------------------------------------------------------------------------------
                                    Internal        Internal  Wage rate \2\..   Internal time    Annual external
                              initial burden   annual burden                            costs        cost burden
                                       hours           hours
----------------------------------------------------------------------------------------------------------------
                                                 FINAL ESTIMATES
----------------------------------------------------------------------------------------------------------------
Clerical work to file Form                 3           \1\ 3  $82 (compliance            $246                 $0
 24F-2.                                                        clerk) \2\.
Submission in a structured                 3           \1\ 3  $316                       $948                 $0
 data format.                                                  (programmer)
                                                               \2\.
Total annual burden per       ..............               6  ...............          $1,194  .................
 response.
Number of annual responses    ..............            x 38  ...............            x 38  .................
 \3\.
Total new annual burden.....  ..............             228  ...............         $45,372                 $0
----------------------------------------------------------------------------------------------------------------
                               TOTAL ESTIMATED FINAL BURDENS INCLUDING AMENDMENTS
----------------------------------------------------------------------------------------------------------------
                                   Responses        Internal                    Internal time    Annual external
                                                      annual                            costs        cost burden
                                                burden hours
----------------------------------------------------------------------------------------------------------------
Current aggregate annual               5,116          20,464  ...............      $4,072,336                 $0
 burden.
Aggregate final additional              + 38           + 228  ...............       + $45,372               + $0
 annual burden estimates.
Revised aggregate final              = 5,154        = 20,692  ...............    = $4,117,708               = $0
 burden estimates.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ The estimate includes the initial burden estimates annualized over a three-year period (3 hours/3 = 1 hour),
  plus 2 hours of ongoing annual burden hours.
\2\ The Commission's estimates of the relevant wage rates are based on the SIFMA Wage Report. The estimated wage
  figures are modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to
  account for bonuses, firm size, employee benefits, overhead, and adjusted to account for the effects of
  inflation.
\3\ This estimate is based on the number of insurance companies issuing non-variable annuities. See supra
  footnote 725. The proposal reflected an estimate of the number of RILAs, as opposed to the number of insurance
  companies issuing RILAs. We have updated this approach to better reflect the way that the burden for Form 24F-
  2 has historically been calculated.

D. Investment Company Interactive Data

    The Investment Company Interactive Data collection of information 
references current requirements for certain registered investment 
companies and BDCs to submit to the Commission in Inline XBRL certain 
information provided in response to specified form and rule 
requirements included in their registration statements and Exchange Act 
reports. We are amending Form N-4, as well as rule 405 of Regulation S-
T, that will require certain new structured data reporting requirements 
for insurance companies that register offerings of non-variable 
annuities.\864\ The amendments will require insurance companies that 
issue non-variable annuities to tag specified information in 
registration statements filed on Form N-4 or post-effective amendments 
thereto, as well as in forms of prospectuses filed pursuant to rule 
497(c) or 497(e) under the Securities Act that include information that 
varies from the registration statement using Inline XBRL.\865\ The 
purpose of the information collection is to make information regarding 
non-variable annuities and variable annuities easier for investors to 
analyze and to help automate regulatory filings and business 
information processing, and to improve consistency across all types of 
investment products offered on Form N-4 with respect to the 
accessibility of information they provide to the market.
---------------------------------------------------------------------------

    \864\ The Investment Company Interactive Data collection of 
information do not impose any separate burden aside from that 
described in our discussion of the burden estimates for this 
collection of information.
    \865\ See supra Section II.C.10.
---------------------------------------------------------------------------

    Insurance companies that use Form N-4 to register variable 
annuities are currently required to tag certain registration statement 
disclosure items using Inline XBRL.\866\ For the insurance companies 
that will now be registering non-variable annuities, including 
registered MVA annuities, on Form N-4, our amended data tagging 
requirements would represent new burdens. Nevertheless, non-variable 
annuity issuers generally do have prior experience submitting filings 
to the Commission in Inline XBRL. The vast majority of insurance 
companies that

[[Page 60080]]

currently register non-variable annuities on Forms S-1 and S-3 also 
separately file Form N-4 to register variable annuities and variable 
life insurance products or currently tag their non-variable annuity 
registration statements and are thus familiar with the current Form N-4 
tagging requirements.\867\ In addition, insurance companies that 
register non-variable annuities on Forms S-1 and S-3 that file GAAP 
financial statements must tag them using Inline XBRL.\868\ Given this 
prior experience, we do not expect the tagging requirements to be as 
burdensome to many insurance companies that issue non-variable 
annuities as it will be for issuers that will be going through the 
Inline XBRL tagging and submission process for the first time.
---------------------------------------------------------------------------

    \866\ See General Instruction C.3(h) of current Form N-4. As 
discussed above, some of the amended items will also require certain 
variable annuity issuers to provide a few additional disclosures, 
which though relatively minor, will also have to be tagged.
    \867\ Based on analysis of Forms S-1, S-3, and POS AM filed by 
insurance companies that issue non-variable annuities, 32 of the 38 
insurance companies that issue RILAs and registered MVA annuities 
also offer variable products registered on Forms N-3, N-4, or N-6, 
all of which are currently structured, or otherwise have experience 
tagging registration statements.
    \868\ See Inline XBRL Filing of Tagged Data, Securities Act 
Release No. 10514 (June 28, 2018) [83 FR 40846 (Aug. 16, 2018)].
---------------------------------------------------------------------------

    The Commission did not receive public comments regarding the PRA 
estimates associated with the Investment Company Interactive Data 
requirements in the Proposing Release. Commenters who referenced this 
aspect of our proposal did not mention the hourly or monetary cost 
burden of the interactive data requirement.\869\ As discussed above, in 
a change from the proposal, we are requiring insurance companies that 
offer registered MVA annuities to use amended Form N-4, which includes 
additional interactive data requirements. However, as mentioned above, 
insurance companies that issue registered MVA annuities currently do so 
with Form S-1 or S-3, which also have structuring requirements, thereby 
reducing the likelihood that these insurance companies will lack 
familiarity with structured data requirements. We are updating our 
estimated number of insurance companies and related filings that likely 
would be impacted by the amended interactive data requirements on Form 
N-4 to accommodate the requirement that registered MVA annuities use 
the form. The Commission recognizes that certain RILAs and registered 
MVA annuities will be subject to different interactive data 
requirements given that they will be subject to different aspects of 
Form N-4 and its accompanying disclosure requirements. Although certain 
structured disclosure requirements in Form N-4 might not be applicable 
to some contracts, depending on the type of annuity being registered, 
the information collection estimates are average estimates reflecting 
that different filers could in practice incur different burdens 
relating to the Form N-4 disclosure requirements that are applicable to 
particular annuities.
---------------------------------------------------------------------------

    \869\ See supra footnote 496 and accompanying text.
---------------------------------------------------------------------------

    In our most recent Paperwork Reduction Act submission for the 
Investment Company Interactive Data collection of information, we 
estimated a total annual hour burden of 327,571 hours, and a total 
annual external cost burden of $16,791,000.\870\ Compliance with the 
interactive data requirements is mandatory, and the responses will not 
be confidential.
---------------------------------------------------------------------------

    \870\ This estimate is based on the last time the PRA renewal 
for the Investment Company Interactive Data information collection 
was approved, on January 23, 2024. See ICR Reference No. 202212-
3235-007, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202212-3235-007.
---------------------------------------------------------------------------

    The table below summarizes our PRA estimates for the burdens 
associated with the tagging requirements that would apply to non-
variable annuities that file with the Commission on Form N-4.

                          Table 16--Investment Company Interactive Data--PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                 Internal        Internal
                              initial burden   annual burden     Wage rate      Internal time   Annual external
                                   hours           hours                            costs         cost burden
----------------------------------------------------------------------------------------------------------------
                                                Proposed Burdens
----------------------------------------------------------------------------------------------------------------
Proposed disclosures for                   1               1  $406 (blended              $406                $50
 current N-4 filers.                                           rate for
                                                               compliance
                                                               attorney and
                                                               senior
                                                               programmer).
Number of current N-4 filers  ..............           x 400  ...............           x 400              x 400
Total proposed new burden     ..............             400  ...............        $162,400            $20,000
 estimates for current N-4
 filers.
Proposed Form N-4                          9               4  $406 (blended            $1,624               $700
 disclosures for RILAs.                                        rate for
                                                               compliance
                                                               attorney and
                                                               senior
                                                               programmer).
Number of RILAs.............  ..............            x 90  ...............            x 90               x 90
Total proposed new burden     ..............             360  ...............        $146,160            $63,000
 estimates for RILAs.
Total proposed new aggregate  ..............             760  ...............        $308,560            $63,000
 annual burden.
----------------------------------------------------------------------------------------------------------------
                              Total Proposed Estimated Burdens Including Amendments
----------------------------------------------------------------------------------------------------------------
                                 Responses     Internal hour                    Internal hour    External cost
                                                 estimate                       cost estimate       estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual              14,702         323,724  ...............     $27,066,240        $16,041,450
 burden estimates.
Proposed additional annual              + 90           + 760  ...............      + $308,560          + $63,000
 burdens.
Revised aggregate annual              14,792         324,484  ...............     $27,374,800        $16,124,450
 burden estimates.
----------------------------------------------------------------------------------------------------------------
                                             Final Estimated Burdens
----------------------------------------------------------------------------------------------------------------
                                 Internal        Internal      Wage rate \2\    Internal time   Annual external
                              initial burden   annual burden                        costs         cost burden
                                   hours         hours \1\
----------------------------------------------------------------------------------------------------------------
Final disclosures for                      1           \4\ 1  $406 (blended              $406            \5\ $50
 current N-4 filers \3\.                                       rate for
                                                               compliance
                                                               attorney and
                                                               senior
                                                               programmer).
Number of current N-4 filers  ..............           x 416  ...............           x 416              x 416
 \6\.
Total final new burden        ..............             416  ...............        $168,896            $20,800
 estimates for current N-4
 filers.

[[Page 60081]]

 
Final Form N-4 disclosures                 9     \8\ 4 hours  $406 (blended            $1,624           \9\ $700
 for non-variable annuity                                      rate for
 issuers \7\.                                                  compliance
                                                               attorney and
                                                               senior
                                                               programmer).
Number of non-variable        ..............       \11\ x 38  ...............            x 38               x 38
 annuity issuers \10\.
Total final new burden        ..............             152  ...............         $61,712            $26,600
 estimates for non-variable
 annuity issuers.
Total final new aggregate     ..............        \12\ 568  ...............   \13\ $230,608       \14\ $47,400
 annual burden.
----------------------------------------------------------------------------------------------------------------
                               Total Final Estimated Burdens Including Amendments
----------------------------------------------------------------------------------------------------------------
                                 Responses     Internal hour                    Internal hour    External cost
                                                 estimate                       cost estimate       estimate
----------------------------------------------------------------------------------------------------------------
Current aggregate annual              15,498         327,571  ...............     $28,628,918        $16,791,000
 burden estimates.
Final additional annual                 + 38           + 568  ...............      + $230,608          + $47,400
 burdens.
Revised final aggregate               15,536         328,139  ...............     $28,859,526        $16,838,400
 annual burden estimates.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Includes initial burden estimates annualized over a 3-year period.
\2\ The PRA estimates assume that the types of professionals that will be involved in complying with the new
  interactive data requirements. The Commission's estimates of the relevant wage rates are based on the SIFMA
  Wage Report. The $406 wage rate reflects current estimates of the blended hourly rate for an in-house
  compliance attorney ($425) and a senior programmer ($386). $406 is based on the following calculation: ($425 +
  $386)/2 = $406. This estimate represents the average burden for a filer on Form N-4 that is currently subject
  to interactive data requirements.
\3\ Estimated incremental burden for a variable annuity Form N-4 filer that is subject to the form's current
  interactive data requirements.
\4\ Includes initial burden estimates annualized over a three-year period, plus 0.67 hour of ongoing annual
  burden hours. The estimate of 1 hour is based on the following calculation: ((1 initial hour/3) + 0.67 hour of
  additional ongoing burden hours) = 1 hour.
\5\ Estimated incremental external cost for Form N-4 variable annuity registrants that already submit certain
  information using Inline XBRL.
\6\ Based on a review of Form N-CEN reports through December 31, 2023, we estimate that 416 variable annuity
  registrants file on Form N-4.
\7\ Estimated average burden for a RILA that files on Form N-4 that is currently subject to interactive data
  requirements on other Commission forms.
\8\ Includes initial burden estimates annualized over a three-year period, plus 1 hour of ongoing annual
  burdens. The estimate of 4 hours is based on the following calculation: ((9 initial hours/3 = 3 hours) + 1
  hour of additional ongoing burden hours) = 4 hours.
\9\ We estimate an incremental external cost for RILAs that would be newly filing on Form N-4 of $700 to reflect
  one-time compliance and initial set-up costs. This estimate is based on past estimates of costs--including
  costs of outside legal services and other service providers--relating to issuers that are newly required to
  submit certain disclosures in Inline XBRL format. Because RILAs are currently subject to Inline XBRL tagging
  requirements on other forms, we do not estimate any burdens related to one-time costs associated with becoming
  familiar with structured data requirements (e.g., the acquisition of new software or the services of
  consultants).
\10\ This estimate is based on the number of insurance companies issuing non-variable annuities. See supra
  footnote 725. The proposal reflected an estimate of the number of RILAs, as opposed to the number of insurance
  companies issuing RILAs. We have updated this approach to better reflect the way that the burden for
  Investment Company Interactive Data has historically been calculated.
\11\ In connection with variable and non-variable annuity products, insurance companies only need to tag filings
  for annuities that are offered to new investors. See VASP Adopting Release at Section II.D. As a result, many
  non-variable annuity issuers do not--and will not--need to tag their disclosures because their annuities are
  no longer offered to new investors. Here, because we are not distinguishing between filings associated with
  annuities offered to new investors and those that are not, we likely are over-estimating the burden.
\12\ 568 hours = 416 hours + 152 hours.
\13\ $230,608 internal time cost = $168,896 + $61,712.
\14\ $47,400 annual external cost = $20,800 + $26,600.

VI. Regulatory Flexibility Act Certification

    The Commission certified, pursuant to section 605(b) of the 
Regulatory Flexibility Act of 1980 (``Regulatory Flexibility Act'') 
\871\ that, if adopted, the proposed amendments to Forms N-4 and 24F-2, 
rules 313 and 405 of Regulation S-T, and rules 156, 172, 405, 415, 424, 
456, 457, 485, 497, and 498A under the Securities Act, would not, if 
adopted, have a significant economic impact on a substantial number of 
small entities. The Commission included this certification in Section V 
of the Proposing Release. Commenters did not respond to the 
Commission's requests for comment regarding the Commission's 
certification, and we continue to believe that there will not be a 
significant economic impact of the amendments on a substantial number 
of small entities. As discussed in the Proposing Release, RILA issuers 
are not investment companies and based on a review of EDGAR filings of 
existing RILA issuers, we do not expect any RILA issuers will be 
treated as small entities.\872\ Similarly, while the analysis is 
different for existing N-4 filers (i.e., variable annuity issuers) 
because the insurance company separate accounts registering variable 
annuities are deemed to be investment companies, we expect few, if any, 
separate account to be treated as small entities.\873\
---------------------------------------------------------------------------

    \871\ 5 U.S.C. 605(b).
    \872\ For purposes of the Securities Act and the Regulatory 
Flexibility Act, generally, an issuer, other than an investment 
company, will be considered a small entity if it has net assets of 
$5 million or less as of the end of its most recent fiscal year, and 
the issuer's offering does not exceed $5 million. 5 U.S.C. 601 
(defining ``small entity'' to mean ``small business,'' ``small 
organization,'' or ``small governmental jurisdiction''); 17 CFR 
230.157 (defining ``small business'' or ``small organization'' under 
the Securities Act for purposes of the Regulatory Flexibility Act).
    \873\ Generally, for purposes of the Investment Company Act and 
the Regulatory Flexibility Act, an investment company is a small 
entity if, together with other investment companies in the same 
group of related investment companies, it has net assets of $50 
million or less as of the end of its most recent fiscal year. 17 CFR 
270.0-10(a). Because State law generally treats separate account 
assets as the property of the sponsoring insurance company, rule 0-
10 aggregates each separate account's assets with the assets of the 
sponsoring insurance company, together with assets held in other 
sponsored separate accounts. 17 CFR 270.0-10(b).
---------------------------------------------------------------------------

    While the final amendments include some modifications to the 
Commission's proposal, we do not believe that these modifications alter 
the basis upon which the certification in the Proposing Release was 
made. With regard to the specific changes from the proposal regarding 
registered MVA annuities, we do not believe these modifications alter 
the basis upon which the certification in the Proposing Release was 
made either, as we do not expect any insurance companies that issue 
registered MVA annuities to be treated as small entities. Similarly, 
because we do not expect any insurance companies that issue registered 
MVA annuities or RILAs to be treated as small entities, and the 
amendments to rule 433 will affect only a subset of those insurance 
companies, the amendments to rule 433 do not change the basis upon 
which the certification in the Proposing Release was made. Accordingly, 
we certify that

[[Page 60082]]

the final amendments will not have a significant impact on a 
substantial number of small entities.

Statutory Authority

    The amendments contained in this Release are being adopted under 
the authority set forth in the Securities Act, particularly sections 6, 
7, 8, 10, 19, and 28 thereof [15 U.S.C. 77a et seq.]; the Exchange Act, 
particularly sections 3, 4, 10, 12, 13, 14, 15, 17, 23, 35A, and 36 
thereof [15 U.S.C. 78a et seq.]; the Investment Company Act, 
particularly, Sections 8, 30, and 38 thereof, and the RILA Act, 
particularly section 101 thereof [Pub. L. 117-328, div. AA, title I, 
136 Stat. 4459 (2022)].

List of Subjects

17 CFR Part 230

    Advertising, Confidential business information, Investment 
companies, Reporting and recordkeeping requirements, Securities.

17 CFR Part 232

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 239

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of Rule and Form Amendments

    For reasons set forth in the preamble, we are amending title 17, 
chapter II of the Code of Federal Regulations as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
    Sec. 230.457 also issued under secs. 6 and 7, 15 U.S.C. 77f and 
77g.
* * * * *

0
2. Revise Sec.  230.156 to read as follows:


Sec.  230.156  Investment company and registered non-variable annuity 
sales literature.

    (a) Under the Federal securities laws, including section 17(a) of 
the Securities Act of 1933 (15 U.S.C. 77q(a)) and section 10(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78j(b)) and Sec.  240.10b-5 
of this chapter (Rule 10b-5) thereunder, it is unlawful for any person, 
directly or indirectly, by the use of any means or instrumentality of 
interstate commerce or of the mails, to use sales literature which is 
materially misleading in connection with the offer or sale of 
registered non-variable annuity securities or securities issued by an 
investment company. Under these provisions, sales literature is 
materially misleading if it:
    (1) Contains an untrue statement of a material fact; or
    (2) Omits to state a material fact necessary in order to make a 
statement made, in the light of the circumstances of its use, not 
misleading.
    (b) Whether or not a particular description, representation, 
illustration, or other statement involving a material fact is 
misleading depends on evaluation of the context in which it is made. In 
considering whether a particular statement involving a material fact is 
or might be misleading, weight should be given to all pertinent 
factors, including, but not limited to, those listed below.
    (1) A statement could be misleading because of:
    (i) Other statements being made in connection with the offer of 
sale or sale of the securities in question;
    (ii) The absence of explanations, qualifications, limitations or 
other statements necessary or appropriate to make such statement not 
misleading; or
    (iii) General economic or financial conditions or circumstances.
    (2) Representations about past or future investment performance 
could be misleading because of statements or omissions made involving a 
material fact, including situations where:
    (i) Portrayals of past income, gain, or growth of assets convey an 
impression of the net investment results achieved by an actual or 
hypothetical investment which would not be justified under the 
circumstances, including portrayals that omit explanations, 
qualifications, limitations, or other statements necessary or 
appropriate to make the portrayals not misleading; and
    (ii) Representations, whether express or implied, about future 
investment performance, including:
    (A) Representations, as to security of capital, possible future 
gains or income, or expenses associated with an investment;
    (B) Representations implying that future gains or income may be 
inferred from or predicted based on past investment performance; or
    (C) Portrayals of past performance, made in a manner which would 
imply that gains or income realized in the past would be repeated in 
the future.
    (3) A statement involving a material fact about the characteristics 
or attributes of an investment company or registered non-variable 
annuity could be misleading because of:
    (i) Statements about possible benefits connected with or resulting 
from services to be provided or methods of operation which do not give 
equal prominence to discussion of any risks or limitations associated 
therewith;
    (ii) Exaggerated or unsubstantiated claims about management skill 
or techniques, characteristics of the investment company or registered 
non-variable annuity or an investment in such company or securities, 
services, security of investment or funds, effects of government 
supervision, or other attributes; and
    (iii) Unwarranted or incompletely explained comparisons to other 
investment vehicles or to indexes.
    (4) Representations about the fees or expenses associated with an 
investment in the fund or registered non-variable annuity could be 
misleading because of statements or omissions made involving a material 
fact, including situations where portrayals of the fees and expenses 
associated with an investment in the fund or registered non-variable 
annuity omit explanations, qualifications, limitations, or other 
statements necessary or appropriate to make the portrayals not 
misleading.
    (c) For purposes of this section, the term sales literature shall 
be deemed to include any communication (whether in writing, by radio, 
or by television) used by any person to offer to sell or induce the 
sale of securities of any investment company or registered non-variable 
annuity. Communications between issuers, underwriters and dealers are 
included in this definition of sales literature if such communications, 
or the information contained therein, can be reasonably expected to be 
communicated to prospective investors in the offer or sale of 
securities or are designed to be employed in either written or oral 
form in the offer or sale of securities.
    (d) Nothing in this section may be construed to prevent a business 
development company or a registered closed-end investment company from

[[Page 60083]]

qualifying for an exemption under Sec.  230.168 or Sec.  230.169.

0
3. Amend Sec.  230.172 by revising paragraph (d) to read as follows:


Sec.  230.172  Delivery of prospectuses.

* * * * *
    (d) Exclusions. This section shall not apply to any:
    (1) Offering of any investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), other than a 
registered closed-end investment company;
    (2) A business combination transaction as defined in Sec.  
230.165(f)(1);
    (3) Offering registered on Form S-8 (Sec.  239.16b of this 
chapter); or
    (4) Offering of any registered non-variable annuity securities.

0
4. Amend Sec.  230.405 by adding in alphabetical order definitions for 
``Form available solely to investment companies registered under the 
Investment Company Act of 1940,'' ``Registered index-linked annuity,'' 
``Registered market value adjustment annuity,'' and ``Registered non-
variable annuity'' to read as follows:


Sec.  230.405  Definitions of terms.

* * * * *
    Form available solely to investment companies registered under the 
Investment Company Act of 1940. A form available solely to investment 
companies registered under the Investment Company Act of 1940 includes 
the form used to register the offering of securities of a registered 
non-variable annuity for purposes of the Securities Act of 1933.
* * * * *
    Registered index-linked annuity. The term registered index-linked 
annuity means an annuity or an option available under an annuity:
    (1) That is deemed a security;
    (2) That is offered or sold in a registered offering;
    (3) That is issued by an insurance company that is the subject to 
the supervision of either the insurance commissioner or bank 
commissioner of any State or any agency or officer performing like 
functions as such commissioner;
    (4) That is not issued by an investment company; and
    (5) Whose contract value, either during the accumulation period or 
after annuitization or both, will earn positive or negative interest 
based, in part, on the performance of any index, rate, or benchmark.
* * * * *
    Registered market value adjustment annuity. The term registered 
market value adjustment annuity means an annuity or an option available 
under an annuity, that is not a registered index-linked annuity, and:
    (1) That is deemed a security;
    (2) That is offered or sold in a registered offering;
    (3) That is issued by an insurance company that is subject to the 
supervision of either the insurance commissioner or bank commissioner 
of any State or any agency or officer performing like functions as such 
commissioner;
    (4) That is not issued by an investment company; and
    (5) Whose contract value may reflect a positive or negative 
adjustment (based on calculations using a predetermined formula, a 
change in interest rates, or some other factor or benchmark) if amounts 
are withdrawn before the end of a specified period.
* * * * *
    Registered non-variable annuity. The term registered non-variable 
annuity means any registered index-linked annuity or registered market 
value adjustment annuity.
* * * * *

0
5. Amend Sec.  230.415 by revising paragraph (b) to read as follows:


Sec.  230.415  Delayed or continuous offering and sale of securities.

* * * * *
    (b) This section shall not apply to any registration statement 
pertaining to a registered non-variable annuity, securities issued by a 
face-amount certificate company, or redeemable securities issued by an 
open-end management company or unit investment trust under the 
Investment Company Act of 1940 or any registration statement filed by 
any foreign government or political subdivision thereof.

0
6. Amend Sec.  230.424 by revising paragraph (f) to read as follows:


Sec.  230.424  Filing of prospectuses, number of copies.

* * * * *
    (f) This section shall not apply with respect to prospectuses of an 
investment company registered under the Investment Company Act of 1940 
(other than a registered closed-end investment company) or prospectuses 
that pertain to a registered non-variable annuity. References to ``form 
of prospectus'' in paragraphs (a), (b), and (c) of this section shall 
be deemed also to refer to the form of Statement of Additional 
Information.
* * * * *

0
7. Amend Sec.  230.433 by revising paragraph (b)(1) as follows:


Sec.  230.433  Conditions to permissible post-filing free writing 
prospectuses.

* * * * *
    (b) * * *
    (1) Eligibility and prospectus conditions for seasoned issuers, 
well-known seasoned issuers, and offerings of registered non-variable 
annuity securities. Subject to the provisions of Rule 164(e), (f), and 
(g), the issuer or any other offering participant may use a free 
writing prospectus in the following offerings after a registration 
statement relating to the offering has been filed that includes a 
prospectus that, other than by reason of this section or Rule 431, 
satisfies the requirements of section 10 of the Act:
    (i) Offerings of securities registered on Form S-3 (Sec.  239.13 of 
this chapter) pursuant to General Instruction I.B.1, I.B.2, I.C., or 
I.D. thereof or on Form SF-3 (Sec.  239.45 of this chapter) or on Form 
N-2 (Sec. Sec.  239.14 and 274.11a-1 of this chapter) pursuant to 
General Instruction A.2 with respect to the same transactions;
    (ii) Offerings of securities registered on Form F-3 (Sec.  239.33 
of this chapter) pursuant to General Instruction I.A.5, I.B.1, I.B.2, 
or I.C. thereof;
    (iii) Any other offering not excluded from reliance on this section 
and Rule 164 of securities of a well-known seasoned issuer;
    (iv) Any other offering not excluded from reliance on this section 
and Rule 164 of securities of an issuer eligible to use Form S-3 or 
Form F-3 for primary offerings pursuant to General Instruction I.B.1 of 
such Forms or an issuer eligible to use General Instruction A.2 of Form 
N-2 to register a primary offering described in General Instruction 
I.B.1 of Form S-3; and
    (v) Offerings of registered non-variable annuity securities 
registered on Form N-4 (Sec.  239.17b of this chapter) where the issuer 
would otherwise be eligible to use Form S-3 (Sec.  239.13 of this 
chapter) pursuant to General Instruction I.B.1, I.B.2, I.C, or I.D.
* * * * *

0
8. Amend Sec.  230.456 by adding paragraph (e) to read as follows:


Sec.  230.456  Date of filing; timing of fee payment.

* * * * *
    (e)(1) Notwithstanding paragraph (a) of this section, where a 
registration statement relates to an offering of registered non-
variable annuity securities, an issuer shall be deemed to register an 
offering of an indeterminate amount of such securities and shall, not 
later than 90 days after the end of any fiscal year during which it has 
publicly offered such securities, pay a

[[Page 60084]]

registration fee to the Commission calculated in accordance with Sec.  
230.457(u) (Rule 457(u)) and file Form 24F-2 (referenced in 17 CFR 
274.24) with the Commission.
    Instruction 1 to paragraph (e)(1): To determine the date on which 
the registration fee must be paid, the first day of the 90-day period 
is the first calendar day of the fiscal year following the fiscal year 
for which the registration fee is to be paid. If the last day of the 
90-day period falls on a Saturday, Sunday, or Federal holiday, the 
registration fee is due on the first business day thereafter.
    (2) When registering an offering of an indeterminate amount of 
registered non-variable annuity securities pursuant to paragraph (e)(1) 
of this section, the securities sold will be considered registered, for 
purposes of section 6(a) of the Act, if the registration fee has been 
paid and the issuer has filed a Form 24F-2 filing pursuant to paragraph 
(e)(1) of this section not later than the end of the 90-day period.
    (3) A registration statement filed in accordance with the 
registration fee payment provisions of paragraph (e)(1) of this section 
will be considered filed as to the securities identified in the 
registration statement for purposes of this section and section 5 of 
the Act when it is received by the Commission, if it complies with all 
other requirements under the Act, including this part.
    (4) For purposes of this section, if an issuer ceases operations, 
the date the issuer ceases operations will be deemed to be the end of 
its fiscal year. In the case of a liquidation, merger, or sale of all 
or substantially all of the assets (``merger'') of the issuer, the 
issuer will be deemed to have ceased operations for the purposes of 
this section on the date the merger is consummated; provided, however, 
that in the case of a merger of an issuer or a series of an issuer 
(``Predecessor'') with another issuer or a series of an issuer 
(``Successor''), the Predecessor will not be deemed to have ceased 
operations and the Successor will assume the obligations, fees, and 
redemption credits of the Predecessor incurred pursuant to this section 
if the Successor:
    (i) Had no assets or liabilities, other than nominal assets or 
liabilities, and no operating history immediately prior to the merger;
    (ii) Acquired substantially all of the assets and assumed 
substantially all of the liabilities and obligations of the 
Predecessor; and
    (iii) The merger is not designed to result in the Predecessor 
merging with, or substantially all of its assets being acquired by, an 
issuer (or a series of an issuer) that would not meet the conditions of 
paragraph (e)(4)(i) of this section.
    (5) An issuer paying the fee required by paragraph (e)(1) of this 
section or any portion thereof more than 90 days after the end of the 
fiscal year of the issuer shall pay to the Commission interest on 
unpaid amounts, calculated based on the interest rate in effect at the 
time of the interest payment by reference to the ``current value of 
funds rate'' on the Treasury Department's Bureau of Fiscal Service 
internet site at https://fiscal.treasury.gov/, or by calling (202) 874-
6995, and using the following formula: I = (X) (Y) (Z/365), where: I = 
Amount of interest due; X = Amount of registration fee due; Y = 
Applicable interest rate, expressed as a fraction; Z = Number of days 
by which the registration fee payment is late. The payment of interest 
pursuant to this paragraph (e)(5) shall not preclude the Commission 
from bringing an action to enforce the requirements of this paragraph 
(e).
    (6) An immaterial or unintentional failure to comply with a 
requirement of this paragraph (e) will not result in a violation of 
section 6(a) of the Act (15 U.S.C. 77f(a)), so long as:
    (i) A good faith and reasonable effort was made to comply with the 
requirement; and
    (ii) In the case of a late payment of a registration fee, the 
issuer pays the registration fee and any interest due thereon as soon 
as practicable after discovery of the failure to pay the registration 
fee.

0
9. Amend Sec.  230.457 by revising paragraph (u) to read as follows:


Sec.  230.457  Computation of fee.

* * * * *
    (u) Where an issuer elects or is required to register an offering 
of an indeterminate amount of exchange-traded vehicle securities in 
accordance with Sec.  230.456(d) (Rule 456(d)) or registered non-
variable annuity securities in accordance with Sec.  230.456(e) (Rule 
456(e)), the registration fee is to be calculated in the following 
manner:
    (1) Determine the aggregate sale price of such securities sold 
during the fiscal year.
    (2) Determine the sum of:
    (i) The aggregate redemption or repurchase price of such securities 
redeemed or repurchased during the fiscal year; and
    (ii) The aggregate redemption or repurchase price of such 
securities redeemed or repurchased during a prior fiscal year that were 
not used previously to reduce registration fees payable to the 
Commission, if the prior fiscal year ended no earlier than August 1, 
2021 in the case of exchange traded vehicle securities, or September 
23, 2024 in the case of registered non-variable annuity securities.
    (3) Subtract the amount in paragraph (u)(2) of this section from 
the amount in paragraph (u)(1) of this section. If the resulting amount 
is positive, the amount is the net sales amount. If the resulting 
amount is negative, it is the amount of redemption credits available 
for use in future years to offset sales.
    (4) The registration fee is calculated by multiplying the net sales 
amount by the fee payment rate in effect on the date of the fee 
payment. If the issuer determines that it had net redemptions or 
repurchases for the fiscal year, no registration fee is due.

0
10. Amend Sec.  230.485 by revising the section heading and paragraphs 
(a)(1) and (b) introductory text to read as follows:


Sec.  230.485  Effective date of post-effective amendments filed by 
certain registered investment companies or issuers offering registered 
non-variable annuities.

    (a) * * *
    (1) Except as otherwise provided in this section, a post-effective 
amendment to a registration statement filed by a registered open-end 
management investment company, unit investment trust or, separate 
account as defined in section 2(a)(37) of the Investment Company Act of 
1940 [15 U.S.C. 80a-2(a)(37)] or to register an offering of a 
registered non-variable annuity securities shall become effective on 
the sixtieth day after the filing thereof, or a later date designated 
by the registrant on the facing sheet of the amendment, which date 
shall be no later than eighty days after the date on which the 
amendment is filed.
* * * * *
    (b) Immediate effectiveness. Except as otherwise provided in this 
section, a post-effective amendment to a registration statement filed 
by a registered open-end management investment company, unit investment 
trust or separate account as defined in section 2(a)(37) of the 
Investment Company Act of 1940 [15 U.S.C. 80a-2(a)(37)] or to register 
an offering of a registered non-variable annuity securities shall 
become effective on the date upon which it is filed with the 
Commission, or a later date designated by the registrant on the facing 
sheet of the amendment, which date shall be not later than thirty days 
after the date on which the amendment is filed, except that a post-
effective amendment

[[Page 60085]]

including a designation of a new effective date pursuant to paragraph 
(b)(1)(iii) of this section shall become effective on the new effective 
date designated therein, Provided, that the following conditions are 
met:
* * * * *

0
11. Amend Sec.  230.497 by revising the section heading and paragraphs 
(c) and (e) to read as follows:


Sec.  230.497  Filing of investment company or registered non-variable 
annuity prospectuses--number of copies

* * * * *
    (c) For investment companies filing on Sec. Sec.  239.15A and 
274.11A of this chapter (Form N-1A), Sec. Sec.  239.17a and 274.11b of 
this chapter (Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter 
(Form N-4), or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-
6), or an offering of registered non-variable annuities being filed on 
Form N-4, within five days after the effective date of a registration 
statement or the commencement of a public offering after the effective 
date of a registration statement, whichever occurs later, 10 copies of 
each form of prospectus and form of Statement of Additional Information 
used after the effective date in connection with such offering shall be 
filed with the Commission in the exact form in which it was used. 
Investment companies filing on Forms N-1A, N-3, N-4, or N-6 and issuers 
of registered non-variable annuities filing on Form N-4 must, if 
applicable pursuant to General Instruction C.3.(g) of Form N-1A, 
General Instruction C.3.(h) of Form N-3, General Instruction C.3.(h) of 
Form N-4, or General Instruction C.3.(h) of Form N-6, submit an 
Interactive Data File (as defined in Sec.  232.11 of this chapter).
* * * * *
    (e) For investment companies filing on Sec. Sec.  239.15A and 
274.11A of this chapter (Form N-1A), Sec. Sec.  239.17a and 274.11b of 
this chapter (Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter 
(Form N-4), or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-
6), or an offering of registered non-variable annuities being filed on 
Form N-4, after the effective date of a registration statement, no 
prospectus that purports to comply with Section 10 of the Act (15 
U.S.C. 77j) or Statement of Additional Information that varies from any 
form of prospectus or form of Statement of Additional Information filed 
pursuant to paragraph (c) of this section shall be used until five 
copies thereof have been filed with, or mailed for filing to the 
Commission. Investment companies filing on Forms N-1A, N-3, N-4, or N-6 
and issuers of registered non-variable annuities filing on Form N-4 
must, if applicable pursuant to General Instruction C.3.(g) of Form N-
1A, General Instruction C.3.(h) of Form N-3, General Instruction 
C.3.(h) of Form N-4, or General Instruction C.3.(h) of Form N-6, submit 
an Interactive Data File (as defined in Sec.  232.11 of this chapter).
* * * * *

0
12. Revise Sec.  230.498A to read as follows:


Sec.  230.498A  Summary prospectuses for separate accounts offering 
variable annuity and variable life insurance contracts and for offering 
registered non-variable annuity contracts.

    (a) Definitions. For purposes of this section:
    Class means a class of a Contract that varies principally with 
respect to distribution-related fees and expenses.
    Contract means a Variable Annuity Contract, a Variable Life 
Insurance Contract, a RILA Contract, or a Registered Market Value 
Adjustment Annuity Contract as defined in this section, respectively, 
as well as any Contract that offers a combination of Index-Linked 
Options, Variable Options, and/or Fixed Options (including Fixed 
Options subject to a Contract Adjustment).
    Contract Adjustment means a positive or negative adjustment made to 
the value of the Contract by the Insurance Company if amounts are 
withdrawn from an Investment Option or from the Contract before the end 
of a specified period. This adjustment may be based on calculations 
using a predetermined formula, or a change in interest rates, or some 
other factor or benchmark.
    Fixed Option means an Investment Option under a Contract pursuant 
to which the value of the Contract (for a Form N-3 or Form N-4 
Registrant, either during an accumulation period or after 
annuitization, or both) will earn interest at a rate specified by the 
Company, subject to a minimum guaranteed rate under the Contract. The 
term Fixed Option includes Fixed Options that are subject to a Contract 
Adjustment.
    Index-Linked Option means an Investment Option offered under a 
Contract, pursuant to which the value of the Contract, either during an 
accumulation period or after annuitization, or both, will earn positive 
or negative interest based, in part, on the performance of a specified 
index, rate, or benchmark (such as a registered exchange-traded fund 
that tracks an index).
    Initial Summary Prospectus means the initial summary prospectus 
described in paragraph (b) of this section.
    Insurance Company means the insurance company issuing the Contract, 
which company is subject to State supervision. The Insurance Company 
may also be the depositor or sponsor of any Registered Separate Account 
in which the Contract participates.
    Investment Option means a Fixed Option, an Index-Linked Option, 
and/or a Variable Option, as applicable.
    Portfolio Company means any company in which a Registrant on Form 
N-4 or Form N-6 invests and which may be selected as a Variable Option 
by the investor.
    Portfolio Company Prospectus means the Statutory Prospectus of a 
Portfolio Company and a summary prospectus of a Portfolio Company 
permitted by Sec.  230.498.
    Registered Market Value Adjustment Annuity Contract means a 
registered market value adjustment annuity contract, any portion 
thereof, or any unit of interest or participation therein, issued by an 
Insurance Company.
    Registered Separate Account means a separate account (as defined in 
section 2(a)(14) of the Securities Act (15 U.S.C. 77b(a)(14)) that has 
an effective registration statement on Sec. Sec.  239.17a and 274.11b 
of this chapter (Form N-3), Sec. Sec.  239.17b and 274.11c of this 
chapter (Form N-4), or Sec. Sec.  239.17c and 274.11d of this chapter 
(Form N-6) and that has a current prospectus that satisfies the 
requirements of section 10(a) of the Act (15 U.S.C. 77j(a)).
    Registrant means, as applicable, a Registered Separate Account or 
the Insurance Company.
    RILA Contract means any registered index-linked annuity contract, 
any portion thereof, or any unit of interest or participation therein, 
issued by an Insurance Company, that offers Index-Linked Options.
    Statement of Additional Information means the statement of 
additional information required by Part B of Form N-1A, Form N-3, Form 
N-4, or Form N-6.
    Statutory Prospectus means a prospectus that satisfies the 
requirements of section 10(a) of the Act (15 U.S.C. 77j(a)).
    Summary Prospectus refers to both the Initial Summary Prospectus 
and the Updating Summary Prospectus.
    Updating Summary Prospectus means the updating summary prospectus 
described in paragraph (c) of this section.

[[Page 60086]]

    Variable Annuity Contract means any accumulation contract or 
annuity contract, any portion thereof, or any unit of interest or 
participation therein, issued by an Insurance Company, pursuant to 
which the value of the contract, either during an accumulation period 
or after annuitization, or both, varies according to the investment 
experience of a Portfolio Company.
    Variable Life Insurance Contract means a life insurance contract, 
issued by an Insurance Company, that provides for death benefits and 
cash values that may vary with the investment performance of any 
separate account.
    Variable Option means:
    (i) In the context of a Registrant on Form N-4 or Form N-6, an 
Investment Option under any Contract pursuant to which the value of the 
Contract (for a Form N-4 Registrant, either during an accumulation 
period or after annuitization, or both) varies according to the 
investment experience of a Portfolio Company;
    (ii) In the context of a Registrant on Form N-3, any portfolio of 
investments in which a Registrant on Form N-3 invests and which may be 
selected as an option by the investor.
    (b) General Requirements for Initial Summary Prospectus. An Initial 
Summary Prospectus that complies with this paragraph (b) will be deemed 
to be a prospectus that is authorized under section 10(b) of the Act 
(15 U.S.C. 77j(b)) and section 24(g) of the Investment Company Act (15 
U.S.C. 80a-24(g)) for the purposes of section 5(b)(1) of the Act (15 
U.S.C. 77e(b)(1)).
    (1) Scope of Initial Summary Prospectus. An Initial Summary 
Prospectus may only describe a single Contract (but may describe more 
than one Class of the Contract) currently offered by the Registrant 
under the Statutory Prospectus to which the Initial Summary Prospectus 
relates.
    (2) Cover Page or Beginning of Initial Summary Prospectus. Include 
on the front cover page or the beginning of the Initial Summary 
Prospectus:
    (i) The Insurance Company's name;
    (ii) The name of the Contract, and the Class or Classes if any, to 
which the Initial Summary Prospectus relates;
    (iii) A statement identifying the document as a ``Summary 
Prospectus for New Investors'';
    (iv) The approximate date of the first use of the Initial Summary 
Prospectus;
    (v) The following legend, which for Initial Summary Prospectuses of 
Contracts registered on Form N-4 would be included along with the 
statements described in Item 1(a)(6) through (8) of Form N-4:
    This Summary Prospectus summarizes key features of the [Contract].
    Before you invest, you should also review the prospectus for the 
[Contract], which contains more information about the [Contract's] 
features, benefits, and risks. You can find this document and other 
information about the [Contract] online at [___]. You can also obtain 
this information at no cost by calling [___] or by sending an email 
request to [___].
    You may cancel your [Contract] within 10 days of receiving it 
without paying fees or penalties [although we will apply the Contract 
Adjustment]. In some States, this cancellation period may be longer. 
Upon cancellation, you will receive either a full refund of the amount 
you paid with your application or your total contract value. You should 
review the prospectus, or consult with your investment professional, 
for additional information about the specific cancellation terms that 
apply.
    Additional information about certain investment products, including 
[type of Contract], has been prepared by the Securities and Exchange 
Commission's staff and is available at Investor.gov.
    (A) A Registrant may modify the legend so long as the modified 
legend contains comparable information.
    (B) The legend must provide a website address, other than the 
address of the Commission's electronic filing system; toll-free 
telephone number; and email address that investors can use to obtain 
the Statutory Prospectus and other materials, request other information 
about the Contract, and make investor inquiries. The website address 
must be specific enough to lead investors directly to the Statutory 
Prospectus and other materials that are required to be accessible under 
paragraph (h)(1) of this section, rather than to the home page or other 
section of the website on which the materials are posted. The website 
could be a central site with prominent links to each document. The 
legend may indicate, if applicable, that the Statutory Prospectus and 
other information are available from a financial intermediary (such as 
a broker-dealer) through which the Contract may be purchased or sold. 
If a Registered Separate Account that has an effective registration 
statement on Form N-3 relies on Sec.  270.30e-3 of this chapter to 
transmit a report, the legend must also include the website address 
required by Sec.  270.30e-3(c)(1)(iii) of this chapter if different 
from the website address required by this paragraph (b)(2)(v)(B).
    (C) The paragraph of the legend regarding cancellation of the 
Contract may be omitted if not applicable. If this paragraph is 
included in the legend, the paragraph must be presented in a manner 
reasonably calculated to draw investor attention to that paragraph.
    (D) The legend may include instructions describing how a 
shareholder can elect to receive prospectuses or other documents and 
communications by electronic delivery.
    (vi) For a RILA Contract and any Contract that offers Index-Linked 
Options along with other Investment Options, the statement required by 
rule 481(b)(1) under the Securities Act [17 CFR 230.481(b)(1)].
    (3) Back Cover Page or Last Page of Initial Summary Prospectus. (i) 
If a Registrant incorporates any information by reference into the 
Summary Prospectus, include a legend identifying the type of document 
(e.g., Statutory Prospectus) from which the information is incorporated 
and the date of the document. If a Registrant incorporates by reference 
a part of a document, the legend must clearly identify the part by 
page, paragraph, caption, or otherwise. If information is incorporated 
from a source other than the Statutory Prospectus, the legend must 
explain that the incorporated information may be obtained, free of 
charge, in the same manner as the Statutory Prospectus.
    (ii) Include on the bottom of the back cover page or the last page 
of the Initial Summary Prospectus the EDGAR contract identifier for the 
contract in type size smaller than that generally used in the 
prospectus (e.g., 8-point modern type).
    (4) Table of Contents. An Initial Summary Prospectus may include a 
table of contents meeting the requirements of Sec.  230.481(c).
    (5) Contents of Initial Summary Prospectus. An Initial Summary 
Prospectus must contain the information required by this paragraph 
(b)(5) with respect to the applicable registration form, and only the 
information required by this paragraph (b)(5), in the order provided in 
paragraphs (b)(5)(i) through (ix) of this section, except that, for an 
Initial Summary Prospectus related to a Contract registered on Form N-
4, provide the information provided in paragraph (b)(5)(ii) before the 
information provided by paragraph (b)(5)(i).
    (i) Under the heading ``Important Information You Should Consider 
About the [Contract],'' the information required by Item 2 of Form N-3, 
Item 3 of Form N-4, or Item 2 of Form N-6.
    (ii) Under the heading ``Overview of the [Contract],'' the 
information required by Item 3 of Form N-3, Item 2 of Form N-4, or Item 
3 of Form N-6.

[[Page 60087]]

    (iii) Under the heading ``Standard Death Benefits,'' the 
information required by Item 10(a) of Form N-6.
    (iv) Under the heading ``Benefits Available Under the [Contract],'' 
the information required by Item 11(a) of Form N-3 or Item 10(a) of 
Form N-4. Under the heading ``Other Benefits Available Under the 
[Contract],'' the information required by Item 11(a) of Form N-6.
    (v) Under the heading ``Buying the [Contract],'' the information 
required by Item 12(a) of Form N-3, Item 11(a) of Form N-4, or Item 
9(a) through (c) of Form N-6.
    (vi) Under the heading ``How Your [Contract] Can Lapse,'' the 
information required by Item 14(a) through (c) of Form N-6.
    (vii) Under the heading ``Making Withdrawals: Accessing the Money 
in Your [Contract],'' the information required by Item 13(a) of Form N-
3, Item 12(a) of Form N-4, or Item 12(a) of Form N-6.
    (viii) Under the heading ``Additional Information About Fees,'' the 
information required by Item 4 of Form N-3, Item 4 of Form N-4, or Item 
4 of Form N-6.
    (ix) Under the heading ``Appendix: [Portfolio Companies][Investment 
Options] Available Under the Contract,'' include as an appendix the 
information required by Item 18 of Form N-3, Item 17 of Form N-4, or 
Item 18 of Form N-6. Alternatively, an Initial Summary Prospectus for a 
Contract registered on Form N-3 may include the information required by 
Item 19 of Form N-3, under the heading ``Additional Information About 
Investment Options Available Under the Contract.''
    (c) General Requirements for Updating Summary Prospectus. An 
Updating Summary Prospectus that complies with this paragraph (c) will 
be deemed to be a prospectus that is authorized under section 10(b) of 
the Act (15 U.S.C. 77j(b)) and section 24(g) of the Investment Company 
Act (15 U.S.C. 80a-24(g)) for the purposes of section 5(b)(1) of the 
Act (15 U.S.C. 77e(b)(1)).
    (1) Use of Updating Summary Prospectus. A Registrant may only use 
an Updating Summary Prospectus if the Registrant uses an Initial 
Summary Prospectus for each currently offered Contract described under 
the Statutory Prospectus to which the Updating Summary Prospectus 
relates.
    (2) Scope of Updating Summary Prospectus. An Updating Summary 
Prospectus may describe one or more Contracts (and more than one Class) 
described under the Statutory Prospectus to which the Updating Summary 
Prospectus relates.
    (3) Cover Page or Beginning of Updating Summary Prospectus. Include 
on the front cover page or at the beginning of the Updating Summary 
Prospectus:
    (i) The Insurance Company's name;
    (ii) The name of the Contract(s) and the Class or Classes, if any, 
to which the Updating Summary Prospectus relates;
    (iii) A statement identifying the document as an ``Updating Summary 
Prospectus'';
    (iv) The approximate date of the first use of the Updating Summary 
Prospectus; and
    (v) The following legend, which must meet the requirements of 
paragraphs (b)(2)(v)(A), (B), and (D) of this section, as applicable, 
and for Updating Summary Prospectuses of Contracts registered on Form 
N-4 would be included along with the statements described in Item 
1(a)(6) through (8) of Form N-4:
    The prospectus for the [Contract] contains more information about 
the [Contract], including its features, benefits, and risks. You can 
find the current prospectus and other information about the [Contract] 
online at [___]. You can also obtain this information at no cost by 
calling [___] or by sending an email request to [___].
    Additional information about certain investment products, including 
[type of Contract], has been prepared by the Securities and Exchange 
Commission's staff and is available at Investor.gov.
    (vi) For a RILA Contract and any Contract that offers Index-Linked 
Options along with other Investment Options, the statement required by 
rule 481(b)(1) under the Securities Act [17 CFR 230.481(b)(1)].
    (4) Back Cover Page or Last Page of Updating Summary Prospectus. 
Include on the bottom of the back cover page or the last page of the 
Updating Summary Prospectus:
    (i) The legend required by paragraph (b)(3)(i) of this section; and
    (ii) The EDGAR contract identifier(s) for each contract in type 
size smaller than that generally used in the prospectus (e.g., 8-point 
modern type).
    (5) Table of Contents. An Updating Summary Prospectus may include a 
table of contents meeting the requirements of Sec.  230.481(c).
    (6) Contents of Updating Summary Prospectus. An Updating Summary 
Prospectus must contain the information required by this paragraph 
(c)(6) with respect to the applicable registration form, in the order 
provided in paragraphs (c)(6)(i) through (iv) of this section.
    (i) If any changes have been made with respect to the Contract 
after the date of the most recent Updating Summary Prospectus or 
Statutory Prospectus that was sent or given to investors with respect 
to the availability of Investment Options (for Registrants on Form N-3 
and Form N-4) or Portfolio Companies (for Registrants on Form N-6) 
under the Contract (including, for RILA Contracts, a change to any of 
the features of the Index-Linked Options disclosed in the table that 
Item 17(b)(1) of Form N-4 requires, and for Contracts that offer Fixed 
Options, a change to any of the features of the Fixed Options disclosed 
in the table that Item 17(c) of Form N-4 requires), or the disclosure 
that the Registrant included in response to Item 2 (Key Information), 
Item 3 (Overview of the Contract), Item 4 (Fee Table), Item 11 
(Benefits Available Under the Contract), Item 12 (Purchases and 
Contract Value), or Item 13 (Surrenders and Withdrawals) of Form N-3; 
Item 2 (Overview of the Contract), Item 3 (Key Information), Item 4 
(Fee Table), Item 10 (Benefits Available Under the Contract), Item 11 
(Purchases and Contract Value), or Item 12 (Surrenders and Withdrawals) 
of Form N-4; and Item 2 (Key Information), Item 3 (Overview of the 
Contract), Item 4 (Fee Table), Item 9 (Premiums), Item 10 (Standard 
Death Benefits), Item 11 (Other Benefits Available Under the Contract), 
Item 12 (Surrenders and Withdrawals), or Item 14 (Lapse and 
Reinstatement) of Form N-6, include the following as applicable, under 
the heading ``Updated Information About Your [Contract]'':
    (A) The following legend: ``The information in this Updating 
Summary Prospectus is a summary of certain [Contract] features that 
have changed since the Updating Summary Prospectus dated [date]. This 
may not reflect all of the changes that have occurred since you entered 
into your [Contract].''
    (B) As applicable, provide a concise description of each change 
specified in paragraph (c)(6)(i) of this section. Provide enough detail 
to allow investors to understand the change and how it will affect 
investors, including indicating whether the change only applies to 
certain Contracts described in the Updating Summary Prospectus.
    (ii) In addition to the changes specified in paragraph (c)(6)(i) of 
this section, a Registrant may provide a concise description of any 
other information relevant to the Contract within the time period that 
paragraph (c)(6)(i) of this section specifies, under the heading 
``Updated Information

[[Page 60088]]

About Your [Contract].'' Any additional information included pursuant 
to this paragraph (c)(6)(ii) should not, by its nature, quantity, or 
manner of presentation, obscure or impede understanding of the 
information that paragraph (c)(6)(i) of this section requires.
    (iii) Under the heading ``Important Information You Should Consider 
About the [Contract],'' provide the information required by Item 2 of 
Form N-3, Item 3 of Form N-4, or Item 2 of Form N-6.
    (iv) Under the heading ``Appendix: [Portfolio Companies][Investment 
Options] Available Under the [Contract],'' include as an appendix the 
information required by Item 18 of Form N-3, Item 17 of Form N-4, or 
Item 18 of Form N-6. Alternatively, an Updating Summary Prospectus for 
a Contract registered on Form N-3 may include, under the heading 
``Additional Information About [Investment Options] Available Under the 
[Contract],'' the information required by Item 19 of Form N-3.
    (d) Incorporation by Reference into a Summary Prospectus. (1) 
Except as provided by paragraph (d)(2) of this section, information may 
not be incorporated by reference into a Summary Prospectus. Information 
that is incorporated by reference into a Summary Prospectus in 
accordance with paragraph (d)(2) of this section need not be sent or 
given with the Summary Prospectus.
    (2) A Registrant may incorporate by reference into a Summary 
Prospectus any or all of the information contained in the Registrant's 
Statutory Prospectus and Statement of Additional Information, and any 
information from the Registrant's reports under Sec.  270.30e-1 of this 
chapter that the Registrant has incorporated by reference into the 
Registrant's Statutory Prospectus, provided that:
    (i) The conditions of paragraphs (b)(2)(v)(B), (c)(3)(v), and (h) 
of this section are met;
    (ii) A Registrant may not incorporate by reference into a Summary 
Prospectus information that paragraphs (b) and (c) of this section 
require to be included in an Initial Summary Prospectus or Updating 
Summary Prospectus, respectively; and
    (iii) Information that is permitted to be incorporated by reference 
into the Summary Prospectus may be incorporated by reference into the 
Summary Prospectus only by reference to the specific document that 
contains the information, not by reference to another document that 
incorporates such information by reference.
    (3) For purposes of Sec.  230.159, information is conveyed to a 
person not later than the time that a Summary Prospectus is received by 
the person if the information is incorporated by reference into the 
Summary Prospectus in accordance with paragraph (d)(2) of this section.
    (e) Terms used in the Summary Prospectus. Define special terms used 
in the Initial Summary Prospectus and Updating Summary Prospectus using 
any presentation style that clearly conveys their meaning to investors, 
such as the use of a glossary or list of definitions.
    (f) Transfer of the Contract Security. Any obligation under section 
5(b)(2) of the Act (15 U.S.C. 77e(b)(2)) to have a Statutory Prospectus 
precede or accompany the carrying or delivery of a Contract security in 
an offering registered on Form N-3, Form N-4, or Form N-6 is satisfied 
if:
    (1) A Summary Prospectus is sent or given no later than the time of 
the carrying or delivery of the Contract security (an Initial Summary 
Prospectus in the case of a purchase of a new Contract, or an Updating 
Summary Prospectus in the case of additional purchase payments in an 
existing Contract);
    (2) The Summary Prospectus is not bound together with any materials 
except Portfolio Company Prospectuses for Portfolio Companies available 
as Variable Options under the Contract, provided that:
    (i) All of the Portfolio Companies are available as investment 
options to the person to whom such documents are sent or given; and
    (ii) A table of contents identifying each Portfolio Company 
Prospectus that is bound together, and the page number on which each 
document is found, is included at the beginning or immediately 
following a cover page of the bound materials.
    (3) The Summary Prospectus that is sent or given satisfies the 
requirements of paragraph (b) or (c) of this section, as applicable, at 
the time of the carrying or delivery of the Contract security; and
    (4) The conditions set forth in paragraph (h) of this section are 
satisfied.
    (g) Sending Communications. A communication relating to an offering 
registered on Form N-3, Form N-4, or Form N-6 sent or given after the 
effective date of a Contract's registration statement (other than a 
prospectus permitted or required under section 10 of the Act) shall not 
be deemed a prospectus under section 2(a)(10) of the Act (15 U.S.C. 
77b(a)(10)) if:
    (1) It is proved that prior to or at the same time with such 
communication a Summary Prospectus was sent or given to the person to 
whom the communication was made;
    (2) The Summary Prospectus is not bound together with any 
materials, except as permitted by paragraph (f)(2) of this section;
    (3) The Summary Prospectus that was sent or given satisfies the 
requirements of paragraph (b) or (c) of this section, as applicable, at 
the time of such communication; and
    (4) The conditions set forth in paragraph (h) of this section are 
satisfied.
    (h) Availability of the Statutory Prospectus and Certain Other 
Documents. (1) The current Initial Summary Prospectus, Updating Summary 
Prospectus, Statutory Prospectus, Statement of Additional Information, 
and in the case of a Registrant on Form N-3, the Registrant's most 
recent annual and semi-annual reports to shareholders under Sec.  
270.30e-1 of this chapter, are publicly accessible, free of charge, at 
the website address specified on the cover page or beginning of the 
Summary Prospectuses, on or before the time that the Summary 
Prospectuses are sent or given and current versions of those documents 
remain on the website through the date that is at least 90 days after:
    (i) In the case of reliance on paragraph (f) of this section, the 
date that the Contract security is carried or delivered; or
    (ii) In the case of reliance on paragraph (g) of this section, the 
date that the communication is sent or given.
    (2) The materials that are accessible in accordance with paragraph 
(h)(1) of this section must be presented on the website in a format, or 
formats, that:
    (i) Are human-readable and capable of being printed on paper in 
human-readable format;
    (ii) Permit persons accessing the Statutory Prospectus or Statement 
of Additional Information for the Contract to move directly back and 
forth between each section heading in a table of contents of such 
document and the section of the document referenced in that section 
heading; provided that, in the case of the Statutory Prospectus, the 
table of contents is either required by Sec.  230.481(c) or contains 
the same section headings as the table of contents required by Sec.  
230.481(c); and
    (iii) Permit persons accessing a Summary Prospectus to move 
directly back and forth between:
    (A) Each section of the Summary Prospectus and any section of the 
Statutory Prospectus and Contract

[[Page 60089]]

Statement of Additional Information that provides additional detail 
concerning that section of the Summary Prospectus; or
    (B) Links located at both the beginning and end of the Summary 
Prospectus, or that remain continuously visible to persons accessing 
the Summary Prospectus, and tables of contents of both the Statutory 
Prospectus and the Contract Statement of Additional Information that 
meet the requirements of paragraph (h)(2)(ii) of this section.
    (iv) Permit persons accessing the Summary Prospectus to view the 
definition of each special term used in the Summary Prospectus (as 
required by paragraph (e) of this section) upon command (e.g., by 
moving or ``hovering'' the computer's pointer or mouse over the term, 
or selecting the term on a mobile device); or permits persons accessing 
the Contract Summary Prospectus to move directly back and forth between 
each special term and the corresponding entry in any glossary or list 
of definitions in the Contract Summary Prospectus (as described in 
paragraph (e) of this section).
    (3) Persons accessing the materials specified in paragraph (h)(1) 
of this section must be able to permanently retain, free of charge, an 
electronic version of such materials in a format, or formats, that meet 
each of the requirements of paragraphs (h)(2)(i) and (ii) of this 
section.
    (4) The conditions set forth in paragraphs (h)(1) through (3) of 
this section shall be deemed to be met, notwithstanding the fact that 
the materials specified in paragraph (h)(1) of this section are not 
available for a time in the manner required by paragraphs (h)(1) 
through (3) of this section, provided that:
    (i) The Registrant has reasonable procedures in place to ensure 
that the specified materials are available in the manner required by 
paragraphs (h)(1) through (3) of this section; and
    (ii) The Registrant takes prompt action to ensure that the 
specified documents become available in the manner required by 
paragraphs (h) through (3) of this section, as soon as practicable 
following the earlier of the time at which it knows or reasonably 
should have known that the documents are not available in the manner 
required by paragraphs (h)(1) through (3) of this section.
    (i) Other Requirements (1) Delivery upon request. If paragraph (f) 
or (g) of this section is relied on with respect to a Contract, the 
Registrant (or a financial intermediary through which the Contract may 
be purchased) must send, at no cost to the requestor and by U.S. first 
class mail or other reasonably prompt means, a paper copy of the 
Contract Statutory Prospectus, Contract Statement of Additional 
Information, and in the case of a Registrant on Form N-3, the 
Registrant's most recent annual and semi-annual reports to shareholders 
under Sec.  270.30e-1 of this chapter, to any person requesting such a 
copy within three business days after receiving a request for a paper 
copy. If paragraph (f) or (g) of this section is relied on with respect 
to a Contract, the Registrant (or a financial intermediary through 
which Contract may be purchased) must send, at no cost to the 
requestor, and by email, an electronic copy of any of the documents 
listed in this paragraph (i)(1) to any person requesting a copy of such 
document within three business days after receiving a request for an 
electronic copy. The requirement to send an electronic copy of a 
document may be satisfied by sending a direct link to the online 
document; provided that a current version of the document is directly 
accessible through the link from the time that the email is sent 
through the date that is six months after the date that the email is 
sent and the email explains both how long the link will remain useable 
and that, if the recipient desires to retain a copy of the document, he 
or she should access and save the document.
    (2) Greater prominence. If paragraph (f) or (g) of this section is 
relied on with respect to a Contract, the Summary Prospectus shall be 
given greater prominence than any materials that accompany the Summary 
Prospectus.
    (3) Convenient for reading and printing. If paragraph (f) or (g) of 
this section is relied on with respect to a Contract:
    (i) The materials that are accessible in accordance with paragraph 
(h)(1) of this section must be presented on the website in a format, or 
formats, that are convenient for both reading online and printing on 
paper; and
    (ii) Persons accessing the materials that are accessible in 
accordance with paragraph (h)(1) of this section must be able to 
permanently retain, free of charge, an electronic version of such 
materials in a format, or formats, that are convenient for both reading 
online and printing on paper.
    (4) Website addresses. If paragraph (f) or (g) of this section is 
relied on with respect to a Contract, any website address that is 
included in an electronic version of the Summary Prospectus must 
include an active hyperlink or provide another means of facilitating 
access through equivalent methods or technologies that lead directly to 
the relevant website address. This paragraph (i)(4) does not apply to 
electronic versions of a Summary Prospectus that are filed on the EDGAR 
system.
    (5) Compliance with this paragraph (i) not a condition to reliance 
on paragraph (f) or (g) of this section. Compliance with this paragraph 
(i) is not a condition to the ability to rely on paragraph (f) or (g) 
of this section with respect to a Contract, and failure to comply with 
this paragraph (i) does not negate the ability to rely on paragraph (f) 
or (g) of this section.
    (j) Portfolio Company Prospectuses--(1) Transfer of the Portfolio 
Company security. Any obligation under section 5(b)(2) of the Act to 
have a Statutory Prospectus precede or accompany the carrying or 
delivery of a Portfolio Company security is satisfied if, and 
information contained in the documents referenced in paragraph 
(j)(1)(ii) of this section is conveyed for purposes of Sec.  230.159 
when:
    (i) An Initial Summary Prospectus is used for each currently 
offered Contract described under the related registration statement;
    (ii) A summary prospectus is used for the Portfolio Company (if the 
Portfolio Company is registered on Form N-1A); and
    (iii) The current summary prospectus, Statutory Prospectus, 
Statement of Additional Information, and most recent annual and semi-
annual reports to shareholders under Sec.  270.30e-1 of this chapter 
for the Portfolio Company are publicly accessible, free of charge, at 
the same website address referenced in paragraph (h)(1) of this 
section, and are accessible under the conditions set forth in 
paragraphs (h)(1), (h)(2)(i) and (ii), and (h)(3) and (4) of this 
section, with respect to the availability of documents relating to the 
Contract.
    (2) Communications. Any communication relating to a Portfolio 
Company (other than a prospectus permitted or required under section 10 
of the Act) shall not be deemed a prospectus under section 2(a)(10) of 
the Act (15 U.S.C. 77b(a)(10)) if the conditions set forth in paragraph 
(j)(1) of this section are satisfied.
    (3) Other requirements. The materials referenced in paragraph 
(j)(1)(iii) of this section must be delivered upon request, presented, 
and able to be retained under the conditions set forth in paragraphs 
(i)(1) and (3) of this section. Compliance with this paragraph (j)(3) 
is not a condition to the ability to rely on paragraph (j)(1) or (2) of 
this section, and failure to comply with this paragraph (j)(3) does not 
negate the

[[Page 60090]]

ability to rely on paragraph (j)(1) or (2) of this section.

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
13. The general authority citation for part 232 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78n-1, 78o(d), 78w(a), 78ll, 80a-
6(c), 80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *

0
14. Amend Sec.  232.313 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  232.313  Identification of investment company type and series 
and/or class (or contract).

    (a) Registered investment companies, business development 
companies, and offerings of registered non-variable annuities must 
indicate their investment company type, based on whether the 
registrant's last effective registration statement or amendment (other 
than a merger/proxy filing on Form N-14 (Sec.  239.23 of this chapter) 
was filed on Form N-1 (Sec. Sec.  239.15 and 274.11 of this chapter), 
Form N-1A (Sec. Sec.  239.15A and 274.11A of this chapter), Form N-2 
(Sec. Sec.  239.14 and 274.11a-1 of this chapter), Form N-3 (Sec. Sec.  
239.17A and 274.11b of this chapter), Form N-4 (Sec. Sec.  239.17b and 
274.11c of this chapter), Form N-5 (Sec. Sec.  239.24 and 274.5 of this 
chapter), Form N-6 (Sec. Sec.  239.17c and 274.11d of this chapter), 
Form S-1 (Sec.  239.11 of this chapter), Form S-3 (Sec.  239.13 of this 
chapter), or Form S-6 (Sec.  239.16 of this chapter) in those EDGAR 
submissions identified in the EDGAR Filer Manual.
    (b) Registered investment companies or offerings of registered non-
variable annuities whose last effective registration statement or 
amendment (other than a merger/proxy filing on Form N-14 (Sec.  239.23 
of this chapter) was filed on Form N-1A (Sec. Sec.  239.15A and 274.11A 
of this chapter), Form N-3 (Sec. Sec.  239.17A and 274.11b of this 
chapter), Form N-4 (Sec. Sec.  239.17b and 274.11c of this chapter), or 
Form N-6 (Sec. Sec.  239.17c and 274.11d of this chapter) must, under 
the procedures set forth in the EDGAR Filer Manual:
    (1) Provide electronically, and keep current, information 
concerning their existing and new series and/or classes (or contracts, 
in the case of separate accounts), including series and/or class 
(contract) name and ticker symbol, if any, and be issued series and/or 
class (or contract) identification numbers;
    (2) Deactivate for EDGAR purposes any series and/or class (or 
contract, in the case of separate accounts) that are no longer offered, 
go out of existence, or deregister following the last filing for that 
series and/or class (or contract, in the case of separate accounts), 
but the registrant must not deactivate the last remaining series unless 
the registrant deregisters; and
    (3) For those EDGAR submissions identified in the EDGAR Filer 
Manual, include all series and/or class (or contract) identifiers of 
each series and/or class (or contract) on behalf of which the filing is 
made.
* * * * *

0
15. Amend Sec.  232.405 by revising paragraphs (a)(3), (b)(1), (b)(2), 
and Note 1 to the section to read as follows:


Sec.  232.405  Interactive Data File Submissions.

* * * * *
    (a) * * *
    (3) Be submitted using Inline XBRL:
    (i) If the electronic filer is not a management investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), a separate account as defined in Section 2(a)(14) of the 
Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment 
Company Act of 1940, a registered non-variable annuity issuer as 
defined in Rule 405 under the Securities Act (17 CFR 230.405), a 
business development company as defined in Section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), a unit 
investment trust as defined in Section 4(2) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-4), a clearing agency that provides a 
central matching service, or is subject to Sec. Sec.  242.800 through 
242.835 (Regulation SE), and is not within one of the categories 
specified in paragraph (f)(1)(i) of this section, as partly embedded 
into a filing with the remainder simultaneously submitted as an exhibit 
to:
    (A) A filing that contains the disclosure this section requires to 
be tagged; or
    (B) An amendment to a filing that contains the disclosure this 
section requires to be tagged if the amendment is filed no more than 30 
days after the earlier of the due date or filing date of the filing and 
the Interactive Data File is the first Interactive Data File the 
electronic filer submits; or
    (ii) If the electronic filer is a management investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), a separate account (as defined in Section 2(a)(14) of the 
Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment 
Company Act of 1940, a registered non-variable annuity issuer as 
defined in Rule 405 under the Securities Act (17 CFR 230.405), a 
business development company as defined in Section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), a unit 
investment trust as defined in Section 4(2) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-4), a clearing agency that provides a 
central matching service, or is subject to Sec. Sec.  242.800 through 
242.835 (Regulation SE), and is not within one of the categories 
specified in paragraph (f)(1)(ii) of this section, as partly embedded 
into a filing with the remainder simultaneously submitted as an exhibit 
to a filing that contains the disclosure this section requires to be 
tagged; and
* * * * *
    (b) * * *
    (1) If the electronic filer is not a management investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), a separate account (as defined in Section 2(a)(14) of the 
Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment 
Company Act of 1940, a registered non-variable annuity issuer as 
defined in Rule 405 under the Securities Act (17 CFR 230.405), a 
business development company as defined in Section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), a unit 
investment trust as defined in Section 4(2) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-4), or a clearing agency that provides a 
central matching service, an Interactive Data File must consist of only 
a complete set of information for all periods required to be presented 
in the corresponding data in the Related Official Filing, no more and 
no less, from all of the following categories:
    (i) The complete set of the electronic filer's financial statements 
(which includes the face of the financial statements and all 
footnotes);
    (ii) As applicable, all schedules set forth in Article 6A of 
Regulation S-X (Sec. Sec.  210.6A-01-210.6A-05) and Article 12 of 
Regulation S-X (Sec. Sec.  210.12-01-210.12-29), and all schedules 
prepared by plans in accordance with the financial reporting 
requirements of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1001 et seq.) and filed with the Commission on Form 11-K (Sec.  
249.311); and
    (iii) The disclosure set forth in paragraph (b)(4) of this section.
    Note to paragraph (b)(1): It is not permissible for the Interactive 
Data File to present only partial face financial statements, such as by 
excluding

[[Page 60091]]

comparative financial information for prior periods.
    (2) If the electronic filer is an open-end management investment 
company registered under the Investment Company Act of 1940, a separate 
account (as defined in Section 2(a)(14) of the Securities Act) 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), a registered non-variable annuity issuer as defined in Rule 405 
under the Securities Act (17 CFR 230.405), a unit investment trust as 
defined in Section 4(2) of the Investment Company Act of 1940 (15 
U.S.C. 80a-4), or a clearing agency that provides a central matching 
service, an Interactive Data File must consist of only a complete set 
of information for all periods required to be presented in the 
corresponding data in the Related Official Filing, no more and no less, 
from the information set forth in:
    (i) Items 2, 3, and 4 of Sec. Sec.  239.15A and 274.11A of this 
chapter (Form N-1A), as well as any information provided in response to 
Item 27A(b)-(h) of Form N-1A included in any report to shareholders 
filed on Sec. Sec.  249.331 and 274.128 of this chapter (Form N-CSR);
    (ii) Items 2, 4, 5, 11, 18 and 19 of Sec. Sec.  239.17a and 274.11b 
of this chapter (Form N-3);
    (iii) Items 2(b)(2), 2(d), 3, 4, 5, 6(a) (instruction), 6(d), 6(e), 
7(e), 10, 17, 26(c), or 31A of Sec. Sec.  239.17b and 274.11c of this 
chapter (Form N-4);
    (iv) Items 2, 4, 5, 10, 11, and 18 of Sec. Sec.  239.17c and 
274.11d of this chapter (Form N-6);
    (v) Any disclosure provided in response to Item 18 of Sec. Sec.  
249.331 and 274.128 of this chapter (Form N-CSR), or
    (vi) Item 11 of Sec.  274.12 of this chapter (Form N-8B-2) pursuant 
to Instruction 2, including to the extent required by Sec.  239.16 of 
this chapter (Form S-6); as applicable.
* * * * *
    Note 1 to Sec.  232.405: Section 229.601(b)(101) of this chapter 
(Item 601(b)(101) of Regulation S-K) specifies the circumstances under 
which an Interactive Data File must be submitted and the circumstances 
under which it is permitted to be submitted, with respect to Sec. Sec.  
239.11 (Form S-1), 239.13 (Form S-3), 239.25 (Form S-4), 239.18 (Form 
S-11), 239.31 (Form F-1), 239.33 (Form F-3), 239.34 (Form F-4), 249.310 
(Form 10-K), 249.308a (Form 10-Q), and 249.308 (Form 8-K) of this 
chapter. General Instruction F of Sec.  249.311 of this chapter (Form 
11-K) specifies the circumstances under which an Interactive Data File 
must be submitted, and the 556 circumstances under which it is 
permitted to be submitted, with respect to Form 11-K. Paragraph (101) 
of Part II--Information not Required to be Delivered to Offerees or 
Purchasers of Sec.  239.40 of this chapter (Form F-10) specifies the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, with 
respect to Form F-10. Paragraph 101 of the Instructions as to Exhibits 
of Sec.  249.220f of this chapter (Form 20-F) specifies the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, with 
respect to Form 20-F. Paragraph B.(15) of the General Instructions to 
Sec.  249.240f of this chapter (Form 40-F) and Paragraph C.(6) of the 
General Instructions to Sec.  249.306 of this chapter (Form 6-K) 
specify the circumstances under which an Interactive Data File must be 
submitted and the circumstances under which it is permitted to be 
submitted, with respect to Sec. Sec.  249.240f (Form 40-F) and 249.306 
(Form 6-K) of this chapter. Section 240.17Ad-27(d) of this chapter 
(Rule 17Ad27(d) under the Exchange Act) specifies the circumstances 
under which an Interactive Data File must be submitted with respect to 
the reports required under Rule 17Ad-27. Note D.5 of Sec.  240.14a-101 
of this chapter (Schedule 14A) and Item 1 of Sec.  240.14c-101 of this 
chapter (Schedule 14C) specify the circumstances under which an 
Interactive Data File must be submitted with respect to Schedules 14A 
and 14C. General Instruction L of Sec.  240.14d-100 of this chapter 
(Schedule TO) specifies the circumstances under which an Interactive 
Data File must be submitted with respect to Schedule TO. Section 
240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act) and 
General Instruction I to Sec.  249.333 of this chapter (Form F-SR) 
specify the circumstances under which an Interactive Data File must be 
submitted, with respect to Form F-SR. Sec. Sec.  242.829 and 242.831 of 
this chapter (Rules 829 and 831 of Regulation SE) and the Registration 
Instructions to Sec.  249.1701 of this chapter (Form SBSEF), as 
applicable, specify 557 the circumstances under which an Interactive 
Data File must be submitted with respect to filings made under 
Regulation SE. Item 601(b)(101) of Regulation S-K, paragraph (101) of 
Part II--Information not Required to be Delivered to Offerees or 
Purchasers of Form F-10, paragraph 101 of the Instructions as to 
Exhibits of Form 20-F, paragraph B.(15) of the General Instructions to 
Form 40-F, and paragraph C.(6) of the General Instructions to Form 6-K 
all prohibit submission of an Interactive Data File by an issuer that 
prepares its financial statements in accordance with Sec. Sec.  210.6-
01 through 210.6-10 of this chapter (Article 6 of Regulation S-X). For 
an issuer that is a management investment company or separate account 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), a registered non-variable annuity issuer as defined in Rule 405 
under the Securities Act (17 CFR 230.405), a business development 
company as defined in Section 2(a)(48) of the Investment Company Act of 
1940 (15 U.S.C. 80a-2(a)(48)), or a unit investment trust as defined in 
Section 4(2) of the Investment Company Act of 1940 (15 U.S.C. 80a-4), 
General Instruction C.3.(g) of Form N-1A (Sec. Sec.  239.15A and 
274.11A of this chapter), General Instruction I of Form N-2 (Sec. Sec.  
239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of 
Form N-3 (Sec. Sec.  239.17a and 274.11b of this chapter), General 
Instruction C.3.(h) of Form N-4 (Sec. Sec.  239.17b and 274.11c of this 
chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec.  239.17c 
and 274.11d of this chapter), General Instruction 2.(l) of Form N-8B-2 
(Sec.  274.12 of this chapter), General Instruction 5 of Sec.  239.16 
of this chapter (Form S-6), and General Instruction C.4 of Sec. Sec.  
249.331 and 274.128 of this chapter (Form N-CSR), specify when 
electronic filers are required or permitted to submit an Interactive 
Data File (Sec.  232.11), as further described in note 1 to this 
section and General Instruction C.4 of Form N-CSR (Sec. Sec.  249.331 
and 274.128 of this chapter), as applicable, specifies the 
circumstances under which an Interactive Data File must be submitted.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
16. The general authority citation for part 239 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 
80a-26, 80a-29, 80a-30, 80a-37; and sec. 71003 and sec. 84001, Pub. 
L. 114-94, 129 Stat. 1321, unless otherwise noted.
* * * * *

0
17: Revise Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b).

    Note: Form N-3 is attached as Appendix B to this document. Form 
N-3 does not appear in the Code of Federal Regulations.


0
18. Revise Form N-4 (referenced in Sec. Sec.  239.17b and 274.11c).


[[Page 60092]]


    Note:  Form N-4 is attached as Appendix A to this document. Form 
N-4 does not appear in the Code of Federal Regulations.


0
19. Revise Form N-6 (referenced in Sec. Sec.  239.17c and 274.11d).

    Note:  Form N-6 is attached as Appendix C to this document. Form 
N-6 will not appear in the Code of Federal Regulations.


0
20. Add Sec.  239.66 to read as follows:


Sec.  239.66  Form 24F-2, annual filing of securities sold pursuant to 
registration of certain investment company securities and registered 
non-variable annuities.

    Form 24F-2 shall be used as the annual report filed by face amount 
certificate companies, open-end management companies, unit investment 
trusts, and registered non-variable annuities pursuant to Sec. Sec.  
230.456, 230.457, or 270.24f-2 of this chapter for reporting securities 
sold during the fiscal year.

0
21. Revise Form 24F-2 (referenced in Sec. Sec.  239.66 and 274.24).

    Note:  Form 24F-2 is attached as Appendix D to this document. 
Form 24F-2 will not appear in the Code of Federal Regulations.

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
22. The authority citation for part 274 continues to read as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78n-1, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and sec. 939A, 
Pub. L. 111-203, 124 Stat. 1376, unless otherwise noted.
* * * * *

0
23. Revise Sec.  274.24 to read as follows:


Sec.  274.24  Form 24F-2, annual filing of securities sold pursuant to 
registration of certain investment company securities and registered 
non-variable annuities.

    Form 24F-2 shall be used as the annual report filed by face amount 
certificate companies, open-end management companies, unit investment 
trusts, and registered non-variable annuities pursuant to Sec. Sec.  
230.456, 230.457, or 270.24f-2 of this chapter for reporting securities 
sold during the fiscal year.

    By the Commission.

    Dated: July 1, 2024.
Vanessa A. Countryman,
Secretary.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

BILLING CODE 8011-01-P

Appendix A--Form N-4

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BILLING CODE 8011-01-C

Appendix B--Form N-3

Form N-3

* * * * *

GENERAL INSTRUCTIONS

A. Definitions

* * * * *
    ``Summary Prospectus'' has the meaning provided by paragraph (a) 
of rule 498A under the Securities Act [17 CFR 230.498A(a)].

Appendix C--Form N-6

Form N-6

* * * * *

GENERAL INSTRUCTIONS

A. Definitions

* * * * *
    ``Summary Prospectus'' has the meaning provided by paragraph (a) 
of rule 498A under the Securities Act [17 CFR 230.498A(a)].
* * * * *
    Item 30. Exhibits
* * * * *

[[Page 60155]]

    Instructions.
* * * * *
    3. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraphs (g) and (j) of this Item 
if the Registrant customarily and actually treats that information 
as private. If it does so, the Registrant should mark the exhibit 
index to indicate that portions of the exhibit have been omitted and 
include a prominent statement on the first page of the redacted 
exhibit that certain identified information has been excluded from 
the exhibit because it is both not material and the type that the 
Registrant treats as private or confidential. The Registrant also 
must include brackets indicating where the information is omitted 
from the filed version of the exhibit.
    If requested by the Commission or its staff, the Registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the Registrant's supplemental materials, the 
Commission or its staff may require the Registrant to amend its 
filing to include in the exhibit any previously redacted information 
that is not adequately supported by the Registrant's analyses. The 
Registrant may request confidential treatment of the supplemental 
material submitted under this Instruction 3 pursuant to rule 83 of 
the Commission's Organizational Rules [17 CFR 200.83] while it is in 
the possession of the Commission or its staff. After completing its 
review of the supplemental information, the Commission or its staff 
will return or destroy it, if the Registrant complies with the 
procedures outlined in rule 418 under the Securities Act [17 CFR 
230.418].
* * * * *

Appendix D--Form 24F-2

BILLING CODE 8011-01-P

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[FR Doc. 2024-14925 Filed 7-23-24; 8:45 am]
BILLING CODE 8011-01-C

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