Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.2-100,
304.7-240,
304.12-020,
304.12-030,
304.14-120,
304.15-115,
304.15-130,
304.15-390
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Commissioner of
Insurance may make reasonable administrative regulations necessary for or as an
aid to the effectuation of any provision of the Kentucky Insurance Code.
KRS
304.15-390 authorizes the Commissioner of
Insurance to make administrative regulations controlling the sale and issuance
of variable contracts. This administrative regulation establishes guidelines
for the sale and issuance of variable life insurance.
Section 1. Definitions. As used in this
administrative regulation:
(1) "Affiliate" of
an insurer means any person, directly or indirectly, controlling, controlled
by, or under common control with such insurer; any person who regularly
furnishes investment advice to such insurer with respect to its separate
accounts for which a specific fee or commission is charged; or any director,
officer, partner, or employee of such insurer, controlling or controlled
person, or person providing investment advice or any member of the immediate
family of such person.
(2) "Agent"
means any person, corporation, partnership, or other legal entity which is
licensed by this state as a life insurance agent.
(3) "Assumed investment rate" means the rate
of investment return which would be required to be credited to a variable life
insurance policy, after deduction of charges for taxes, investment expenses,
and mortality and expense guarantees to maintain the variable death benefit
equal at all times to the amount of death benefit, other than incidental
insurance benefits, which would be payable under the plan of insurance if the
death benefit did not vary according to the investment experience of the
separate account.
(4) "Benefit
base" means the amount to which the net investment return is applied.
(5) "Commissioner" is defined in
KRS
304.1-050(1).
(6) "Control" (including the terms
"controlling," "controlled by" and "under common control with") means the
possession, direct or indirect, or the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract other than a commercial contract for goods or
nonmanagement services, or otherwise, unless the power is the result of an
official position with or corporate office held by the person. Control shall be
presumed to exist if any person, directly or indirectly, owns, controls, holds
with the power to vote, or holds proxies representing more than ten (10)
percent of the voting securities of any other person. This presumption may be
rebutted by a showing made to the satisfaction of the commissioner that control
does not exist in fact. The commissioner may determine, after furnishing all
persons in interest notice and opportunity to be heard and making specific
findings of fact to support such determination, that control exists in fact,
notwithstanding the absence of a presumption to that effect.
(7) "Flexible premium policy" means any
variable life insurance policy other than a scheduled premium policy as
specified in subsection (15) of this section.
(8) "General account" means all assets of the
insurer other than assets in separate accounts established pursuant to
KRS
304.15-390 or pursuant to the corresponding
section of the insurance laws of the state of domicile of a foreign or alien
insurer, whether or not for variable life insurance.
(9) "Incidental insurance benefit" means all
insurance benefits in a variable life insurance policy, other than the variable
death benefit and the minimum death benefit, including but not limited to
accidental death and dismemberment benefits, disability benefits, guaranteed
insurability options, family income, or term riders.
(10) "May" is permissive.
(11) "Minimum death benefit" means the amount
of the guaranteed death benefit, other than incidental insurance benefits,
payable under a variable life insurance policy regardless of the investment
performance of the separate account.
(12) "Net investment return" means the rate
of investment return in a separate account to be applied to the benefit
base.
(13) "Person" has the meaning
specified in
KRS
304.1-020, and also includes a
fund.
(14) "Policy processing day"
means the day on which charges authorized in the policy are deducted from the
policy's cash value.
(15)
"Scheduled premium policy" means any variable life insurance policy under which
both the amount and timing of premium payments are fixed by the
insurer.
(16) "Separate account"
means a separate account established pursuant to
KRS
304.15-390 or pursuant to the corresponding
section of the insurance laws of the state of domicile of a foreign or alien
insurer.
(17) "Shall" is
mandatory.
(18) "Variable death
benefit" means the amount of the death benefit, other than incidental insurance
benefits, payable under a variable life insurance policy dependent on the
investment performance of the separate account, which the insurer would have to
pay in the absence of any minimum death benefit.
(19) "Variable life insurance policy" means
any individual policy which provides for life insurance the amount or duration
of which varies according to the investment experience of any separate account
or accounts established and maintained by the insurer as to such policy,
pursuant to
KRS
304.15-390 or pursuant to the corresponding
section of the insurance laws of the state of domicile of a foreign or alien
insurer.
Section 2.
Qualification of Insurer to Issue Variable Life Insurance. The following
requirements are applicable to all insurers either seeking authority to issue
variable life insurance in this state or having authority to issue variable
life insurance in this state.
(1) Licensing
and approval to do business in this state. An insurer shall not deliver or
issue for delivery in this state any variable life insurance policies unless:
(a) The insurer is licensed or organized to
do a life insurance business in this state;
(b) The insurer has obtained the written
approval of the executive director for the issuance of variable life insurance
policies in this state. The executive director shall grant such written
approval only after he has found that:
1. The
plan of operation for the issuance of variable life insurance policies is not
unsound;
2. The general character,
reputation, and experience of the management and those persons or firms
proposed to supply consulting, investment, administrative, or custodial
services to the insurer are such as to reasonably assure competent operation of
the variable life insurance business of the insurer in this state;
and
3. The present and foreseeable
future financial condition of the insurer and its method of operation in
connection with the issuance of such policies is not likely to render its
operation hazardous to the public or its policyholders in this state. The
commissioner shall consider, among other things:
a. The history of operation and financial
condition of the insurer;
b. The
qualifications, fitness, character, responsibility, reputation and experience
of the officers and directors and other management of the insurer and those
persons or firms proposed to supply consulting, investment, administrative, or
custodial services to the insurer;
c. The applicable law and administrative
regulations under which the insurer is authorized in its state of domicile to
issue variable life insurance policies. The state of entry of an alien insurer
shall be deemed its state of domicile for this purpose; and
d. If the insurer is a subsidiary of, or is
affiliated by common management or ownership with another company, its
relationship to such other company and the degree to which the requesting
insurer, as well as the other company, meets these standards.
(2) Filing
for approval to do business in this state. The commissioner may, at his
discretion, require that an insurer, before it delivers or issues for delivery
any variable life insurance policy in this state, file with the commissioner
the following information for the consideration of the commissioner in making
the determination required by subsection (1) of this section:
(a) Copies of and a general description of
the variable life insurance policies it intends to issue;
(b) A general description of the methods of
operation of the variable life insurance business of the insurer, including
methods of distribution of policies and the names of those persons or firms
proposed to supply consulting, investment, administrative, custodial, or
distributive services to the insurer;
(c) With respect to any separate account
maintained by an insurer for any variable life insurance policy, a statement of
the investment policy the issuer intends to follow for the investment of the
assets held in such separate account, and a statement of procedures for
changing such investment policy. The statement of investment policy shall
include a description of the investment objectives intended for the separate
account;
(d) A description of any
investment advisory service contemplated as required by Section 5(10) of this
administrative regulation;
(e) A
copy of the statutes and administrative regulations of the state of domicile of
the insurer under which it is authorized to issue variable life insurance
policies;
(f) Biographical data
with respect to officers and directors of the insurer on the National
Association of Insurance Commissioners Uniform Biographical Data Form;
and
(g) A statement of the
insurer's actuary describing the mortality and expense risks which the insurer
will bear under the policy.
(3) Standards of suitability. Every insurer
seeking approval to enter into the variable life insurance business in this
state shall establish and maintain a written statement specifying the standards
of suitability to be used by the insurer. Such standards of suitability shall
specify that no recommendation shall be made to an applicant to purchase a
variable life insurance policy and that no variable life insurance policy shall
be issued in the absence of reasonable grounds to believe that the purchase of
such policy is not unsuitable for such applicant on the basis of information
furnished after reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs, and any
other information known to the insurer or the agent making the
recommendation.
(4) Use of sales
materials. An insurer authorized to transact variable life insurance business
in this state shall not use any sales material, advertising material, or
descriptive literature or other materials of any kind in connection with its
variable life insurance business in this state which is false, misleading,
deceptive, or inaccurate.
(5)
Requirements applicable to contractual services. Any material contract between
an insurer and suppliers of consulting, investment, administrative, sales,
marketing, custodial, or other services with respect to variable life insurance
operations shall be in writing and provide that the supplier of such services
shall furnish the commissioner with any information or reports in connection
with such services which the commissioner may request in order to ascertain
whether the variable life insurance operations of the insurer are being
conducted in a manner consistent with these administrative regulations, and any
other applicable law or administrative regulations.
(6) Reports to the commissioner. Any insurer
authorized to transact the business of variable life insurance in this state
shall submit to the commissioner, in addition to any other materials which may
be required by this administrative regulation or any other applicable laws or
administrative regulations:
(a) An annual
statement of the business of its separate account or accounts in such forms as
may be prescribed by the National Association of Insurance Commissioners;
and
(b) Prior to use in this state
any information furnished to applicants as provided for in Section 6 of this
administrative regulation; and
(c)
Prior to use in this state the form of any of the reports to policyholders as
provided for in Section 8 of this administrative regulation; and
(d) Such additional information concerning
its variable life insurance operations or its separate accounts as the
commissioner may deem necessary. Any material submitted to the commissioner
under this section shall be disapproved if it is found to be false, misleading,
deceptive, or inaccurate in any material respect and, if previously
distributed, the commissioner shall require the distribution of amended
material.
(7) Authority
of commissioner to disapprove. Any material required to be filed with and
approved by the commissioner shall be subject to disapproval if at any time it
is found by him not to comply with the standards established in this
administrative regulation.
Section
3. Insurance Policy Requirements. The commissioner shall not
approve any variable life insurance form filed pursuant to this administrative
regulation unless it conforms to the requirements of this administrative
regulation.
(1) Filing of variable life
insurance policies. All variable life insurance policies, and all riders,
endorsements, applications and other documents which are to be attached to be
made a part of the policy and which relate to the variable nature of the
policy, shall be filed with the commissioner and approved by him prior to
delivery or issuance for delivery in this state.
(a) The procedures and requirements for such
filing and approval shall be, to the extent appropriate and not inconsistent
with this administrative regulation, the same as those otherwise applicable to
other life insurance policies.
(b)
The commissioner may approve variable life insurance policies and related forms
with provisions the commissioner deems to be not less favorable to the
policyholder and the beneficiary than those required by this administrative
regulation.
(2)
Mandatory policy benefit and design requirements. Variable life insurance
policies delivered or issued for delivery in this state shall comply with the
following minimum requirements:
(a) Mortality
and expense risks shall be borne by the insurer. The mortality and expense
charges shall be subject to the maximums stated in the contract.
(b) For scheduled premium policies, a minimum
death benefit shall be provided in an amount at least equal to the initial face
amount of the policy so long as premiums are duly paid (subject to the
provisions of Section 4(4)(b) of this administrative regulation);
(c) The policy shall reflect the investment
experience of one or more separate accounts established and maintained by the
insurer. The insurer must demonstrate that the reflection of investment
experience in the variable life insurance policy is actuarially
sound.
(d) Each variable life
insurance policy shall be credited with the full amount of the net investment
return applied to the benefit base.
(e) Any changes in variable death benefits of
each variable life insurance policy shall be determined at least
annually.
(f) The cash value of
each variable life insurance policy shall be determined at least monthly. The
method of computation of cash values and other nonforfeiture benefits, as
described either in the policy or in a statement filed with the commissioner of
the state in which the policy is delivered, or issued for delivery, shall be in
accordance with actuarial procedures that recognize the variable nature of the
policy. If the policy does not contain an assumed investment rate this
demonstration shall be based on the maximum interest rate permitted under the
standard valuation law. The method of computation may disregard incidental
minimum guarantees as to the dollar amounts payable. Incidental minimum
guarantees include, for example, but are not limited to, a guarantee that the
amount payable at death or maturity shall be at least equal to the amount that
otherwise would have been payable if the net investment return credited to the
policy at all times from the date of issue had been equal to the assumed
investment rate.
(g) The
computation of values required for each variable life insurance policy may be
based upon such reasonable and necessary approximations as are acceptable to
the commissioner.
(3)
Mandatory policy provisions. Every variable life insurance policy filed for
approval in this state shall contain at least the following:
(a) The cover page or pages corresponding to
the cover page of each such policy shall contain:
1. A prominent statement in either
contrasting color or in boldface type that the amount or duration of death
benefit may be variable or fixed under specified conditions;
2. A prominent statement in either
contrasting color or in boldface type that cash values may increase or decrease
in accordance with the experience of the separate account subject to any
specified minimum guarantees;
3. A
statement describing any minimum death benefit required pursuant to subsection
(2)(b) of this section;
4. The
method, or a reference to the policy provision which describes the method, for
determining the amount of insurance payable at death;
5. To the extent permitted by state law, a
captioned provision that the policyholder may return the variable life
insurance policy within ten (10) days of receipt of the policy by the
policyholder, and receive a refund equal to the sum of:
a. The difference between the premiums paid
including any policy fees or other charges and the amounts allocated to any
separate accounts under the policy; and
b. The value of the amounts allocated to any
separate accounts under the policy, on the date the returned policy is received
by the insurer or its agent. Until such time as state law authorizes the return
of payments as calculated in the preceding sentence, the amount of the refund
shall be the total of all premium payments for such policy.
6. Such other items as are
currently required for fixed benefit life insurance policies and which are not
inconsistent with this administrative regulation.
(b)
1. For
scheduled premium policies, a provision for a grace period of not less than
thirty-one (31) days from the premium due date which shall provide that when
the premium is paid within the grace period, policy values will be the same,
except for the deduction of any overdue premium, as if the premium were paid on
or before the due date.
2. For
flexible premium policies, a provision for a grace period beginning on the
policy processing day when the total charges authorized by the policy that are
necessary to keep the policy in force until the next policy processing day
exceed the amounts available under the policy to pay such charges in accordance
with the terms of the policy. Such grace period shall end on a date not less
than sixty-one (61) days after the mailing date of the report to policyholders
required by Section 8(3) of this administrative regulation. The death benefit
payable during the grace period will equal the death benefit in effect
immediately prior to such period less any overdue charges. If the policy
processing days occur monthly, the insurer may require the payment of not more
than three (3) times the charges which were due on the policy processing day on
which the amounts available under the policy were insufficient to pay all
charges authorized by the policy that are necessary to keep such policy in
force until the next policy processing day.
(c) For scheduled premium policies, a
provision that the policy will be reinstated at any time within two (2) years
from the date of default upon the written application of the insured and
evidence of insurability, including good health, satisfactory to the insurer,
unless the cash surrender value has been paid or the period of extended
insurance has expired, upon the payment of any outstanding indebtedness arising
subsequent to the end of the grace period following the date of default
together with accrued interest thereon to the date of reinstatement and payment
of an amount not exceeding the greater of:
1.
All overdue premiums with interest at a rate not exceeding that specified in
the contract and any indebtedness in effect at the end of the grace period
following the date of default with interest at a rate not exceeding that
specified in the contract; or
2.
110 percent of the increase in cash value resulting from reinstatement plus all
overdue premiums for incidental insurance benefits with interest at a rate not
exceeding that specified in the contract. However, when making the calculations
required by subparagraphs 1 and 2 of this paragraph, any indebtedness which is
a policy loan must be repaid at interest charged in conformity with
KRS
304.15-115.
(d) A full description of the benefit base
and of the method of calculation and application of any factors used to adjust
variable benefits under the policy;
(e) A provision designating the separate
account to be used and stating that:
1. The
assets of such separate account shall be available to cover the liabilities of
the general account of the insurer only to the extent that the assets of the
separate account exceed the liabilities of the separate account arising under
the variable life insurance policies supported by the separate
account.
2. The assets of such
separate account shall be valued at least as often as any policy benefits vary
but at least monthly.
(f) A provision specifying what documents
constitute the entire insurance contract under state law;
(g) A designation of the officers who are
empowered to make an agreement or representation on behalf of the insurer and
an indication that statements by the insured, or on his behalf, shall be
considered as representations and not warranties;
(h) An identification of the owner of the
insurance contract;
(i) A provision
setting forth conditions or requirements as to the designation, or change of
designation, of a beneficiary and a provision for disbursement of benefits in
the absence of a beneficiary designation;
(j) A statement of any conditions or
requirements concerning the assignment of the policy;
(k) A description of any adjustments in
policy values to be made in the event of misstatement of age or sex of the
insured;
(l) A provision that the
policy shall be incontestable by the insurer after it has been in force for two
(2) years during the lifetime of the insured, but any increase in the amount of
the policy's death benefits subsequent to the policy issue date, which increase
occurred upon a new application or request of the owner and was subject to
satisfactory proof of the insured's insurability, shall be incontestable after
any such increase has been in force, during the lifetime of the insured, for
two (2) years from the date of issue of such increase;
(m) A provision stating that the investment
policy of the separate account shall not be changed without the approval of the
insurance commissioner of the state of domicile of the insurer, and that the
approval process is on file with the commissioner of this state;
(n) A provision that payment of variable
death benefits in excess of any minimum death benefits, cash values, policy
loans, or partial withdrawals (except when used to pay premiums) or partial
surrenders may be deferred:
1. For up to six
(6) months from the date of request, if such payments are based on policy
values which do not depend on the investment performance of the separate
account; or
2. Otherwise, for any
period during which the New York Stock Exchange is closed for trading (except
for normal holiday closing) or when the Securities and Exchange Commission has
determined that a state of emergency exists which may make such payment
impractical.
(o) If
settlement options are provided, at least one such option shall be provided on
a fixed basis only;
(p) A
description of the basis for computing the cash value and the surrender value
under the policy shall be included;
(q) Premiums or charges for incidental
insurance benefits shall be stated separately;
(r) Any other policy provision required by
this administrative regulation;
(s)
Such other items as are currently required for fixed benefit life insurance
policies and are not inconsistent with this administrative
regulation;
(t) A provision for
nonforfeiture insurance benefits. The insurer may establish a reasonable
minimum cash value below which any nonforfeiture insurance options will not be
available.
(4) Policy
loan provisions. Every variable life insurance policy, other than term
insurance policies and pure endowment policies, delivered or issued for
delivery in this state shall contain provisions which are not less favorable to
the policyholder than the following: a provision for policy loans after the
policy has been in force for three (3) full years which provides the following:
(a) At least seventy-five (75) percent of the
policy's cash surrender value may be borrowed.
(b) The amount borrowed shall bear interest
at a rate not to exceed that permitted by
KRS
304.15-115.
(c) Any indebtedness shall be deducted from
the proceeds payable on death.
(d)
Any indebtedness shall be deducted from the cash surrender value upon surrender
or in determining any nonforfeiture benefit.
(e) For scheduled premium policies, whenever
the indebtedness exceeds the cash surrender value, the insurer shall give
notice of any intent to cancel the policy if the excess indebtedness is not
repaid within thirty-one (31) days after the date of mailing of such notice.
For flexible premium policies, whenever the total charges authorized by the
policy that are necessary to keep the policy in force until the next following
policy processing day exceed the amounts available under the policy to pay such
charges, a report must be sent to the policyholder containing the information
specified by Section 8(3) of this administrative regulation.
(f) The policy may provide that if, at any
time, so long as premiums are duly paid, the variable death benefit is less
than it would have been if no loan or withdrawal had ever been made, the
poli-cyholder may increase such variable death benefit up to what it would have
been if there had been no loan or withdrawal by paying an amount not exceeding
110 percent of the corresponding increase in cash value and by furnishing such
evidence of insurability as the insurer may request.
(g) The policy may specify a reasonable
minimum amount which may be borrowed at any time but such minimum shall not
apply to any automatic premium loan provision.
(h) No policy loan provision is required if
the policy is under extended insurance nonforfeiture option.
(i) The policy loan provisions shall be
constructed so that variable life insurance policyholders who have not
exercised such provisions are not disadvantaged by the exercise
thereof.
(j) Amounts paid to the
policyholders upon the exercise of any policy loan provisions shall be
withdrawn from the separate account and shall be returned to the separate
account upon repayment except that a stock insurer may provide the amounts for
policy loans from the general account.
(5) Other policy provisions. The following
provisions may in substance be included in a variable life insurance policy or
related form delivered or issued for delivery in this state:
(a) An exclusion for suicide within two (2)
years of the issue date of the policy; provided, however, that to the extent of
the increased death benefits only, the policy may provide an exclusion for
suicide within two (2) years of any increase in death benefits which result
from an application of the owner subsequent to the policy issue date;
(b) Incidental insurance benefits may be
offered on a fixed or variable basis;
(c) Policies issued on a participating basis
shall offer to pay dividend amounts in cash. In addition, such policies may
offer the following dividend options:
1. The
amount of the dividend may be credited against premium payments;
2. The amount of the dividend may be applied
to provide amounts of additional fixed or variable benefit life
insurance;
3. The amount of the
dividend may be deposited in the general account at a specified minimum rate of
interest;
4. The amount of the
dividend may be applied to provide paid-up amounts of fixed benefit one (1)
year term insurance;
5. The amount
of the dividend may be deposited as a variable deposit in a separate
account.
(d) A provision
allowing the policyholder to elect in writing in the application for the policy
or thereafter an automatic premium loan on a basis not less favorable than that
required of policy loans under subsection (4) of this section, except that a
restriction that no more than two (2) consecutive premiums can be paid under
this provision may be imposed;
(e)
A provision allowing the policyholder to make partial withdrawals;
(f) Any other policy provision approved by
the commissioner.
Section
4. Reserve Liabilities for Variable Life Insurance.
(1) Reserve liabilities for variable life
insurance policies shall be established under the standard valuation law in
accordance with actuarial procedures that recognize the variable nature of the
benefits provided and any mortality guarantees.
(2) For scheduled premium policies, reserve
liabilities for the guaranteed minimum death benefit shall be the reserve
needed to provide for the contingency of death occurring when the guaranteed
minimum death benefit exceeds the death benefit that would be paid in the
absence of the guarantee, and shall be maintained in the general account of the
insurer and shall not be less than the greater of the following minimum
reserve:
(a) The aggregate total of the term
costs, if any, covering a period of one (1) full year from the valuation date,
of the guarantee on each variable life insurance contract, assuming an
immediate one-third (1/3) depreciation in the current value of the assets in
the separate account followed by a net investment return equal to the assumed
investment rate; or
(b) The
aggregate total of the "attained age level" reserved on each variable life
insurance contract. The "attained age level" reserve on each variable life
insurance contract shall not be less than zero and shall equal the "residue,"
as described in subparagraph 1 of this paragraph, of the prior year's "attained
age level" reserve on the contract, with any such "residue" increased or
decreased by a payment computed on an attained age basis as described in
subparagraph 2 of this paragraph.
1. The
"residue" of the prior year's "attained age level" reserve on each variable
life insurance contract shall not be less than zero and shall be determined by
adding interest at the valuation interest rate to such prior year's reserve,
deducting the tabular claims based on the "excess," if any, of the guaranteed
minimum death benefit over the death benefit that would be payable in the
absence of such guarantee, and dividing the net result by the tabular
probability of survival. The "excess" referred to in the preceding sentence
shall be based on the actual level of death benefits that would have been in
effect during the preceding year in the absence of the guarantee, taking
appropriate account of the reserve assumptions regarding the distribution of
death claim payments over the year.
2. The payment referred to in subsection
(2)(b) of this section shall be computed so that the present value of a level
payment of that amount each year over the future premium paying period of the
contract is equal to (A) minus (B) minus (C), where (A) is the present value of
the future guaranteed minimum death benefits, (B) is the present value of the
future death benefits that would be payable in the absence of such guarantee,
and (C) is any "residue" as described in subparagraph 1 of this paragraph, of
the prior year's "attained age level" reserve on such variable life insurance
contract. If the contract is paid-up, the payment shall equal (A) minus (B)
minus (C). The amounts of the future death benefits referred to in (B) shall be
computed assuming a net investment return of the separate account which may
differ from the assumed investment rate and/or the valuation interest but in no
event may exceed the maximum interest rate permitted for the valuation of life
contracts.
(c) The
valuation interest rate and mortality table used in computing the two (2)
minimum reserves described in paragraphs (a) and (b) of this subsection shall
conform to permissible standards for the valuation of life insurance contracts.
In determining such minimum reserve, the company may employ suitable
approximations and estimates, including but not limited to groupings and
averages.
(3)
(a) For flexible premium policies, reserve
liabilities for any guaranteed minimum death benefit shall be maintained in the
general account of the insurer and shall not be less than the aggregate total
of the term costs, if any, covering the period for in the guarantee not
otherwise provided for by the reserves held in the separate account assuming an
immediate one-third (1/3) depreciation in the current value of the assets of
the separate account followed by a net investment return equal to the valuation
interest rate.
(b) The valuation
interest rate and mortality table used in computing this additional reserve, if
any, shall conform to permissible standards for the valuation of life insurance
contracts. In determining such minimum reserve, the company may employ suitable
approximations and estimates, including but not limited to groupings and
averages.
(4) Reserve
liabilities for all fixed incidental insurance benefits and any guarantees
associated with variable accidental insurance benefits shall be maintained in
the general account and reserve liabilities for all variable aspects of the
variable incidental insurance benefits shall be maintained in a separate
account, in amounts determined in accordance with the actuarial procedures
appropriate to such benefit.
Section
5. Separate Accounts. The following requirements apply to the
establishment and administration of variable life insurance separate accounts
by any domestic insurer:
(1) Establishment
and administration of separate accounts. Any domestic insurer issuing variable
life insurance shall establish one or more separate accounts pursuant to
KRS
304.15-390.
(a) If no law or other administrative
regulation provides for the custody of separate account assets and if such
insurer is not the custodian of such separate account assets, all contracts for
custody of such assets shall be in writing and the commissioner shall have the
authority to review and approve of both the terms of any such contract and the
proposed custodian prior to the transfer of custody.
(b) Such insurer shall not without prior
written approval of the commissioner employ in any material connection with the
handling of separate account assets any person who:
1. Within the last ten (10) years has been
convicted of any felony or a misdemeanor arising out of such person's conduct
involving embezzlement, fraudulent conversion, or misappropriation of funds or
securities or involving violation of Sections 1341, 1342, or 1343 of Title 18,
United States Code; or
2. Within
the last ten (10) years has been found by any state regulatory authority to
have violated or has acknowledged violation of any provision of any state
insurance law involving fraud, deceit, or knowing misrepresentation;
or
3. Within the last ten (10)
years has been found by federal or state regulatory authorities to have
violated or has acknowledged violation of any provision of federal or state
securities laws involving fraud, deceit, or knowing
misrepresentation.
(c)
All persons with access to the cash, securities, or other assets of the
separate account shall be under bond in the amount of not less than:
Total Assets Under $100,000
|
Minimum Amount of Bond
$10,000 |
More Than:
|
But Not More Than:
|
|
$100,000
|
$600,000
|
$10,000 plus
|
4% of assets over
|
$100,000
|
600,000
|
1,200,000
|
30,000 plus
|
3 1/3% of assets over
|
600,000
|
1,200,000
|
3,200,000
|
50,000 plus
|
3 1/2% of assets over
|
1,200,000
|
3,200,000
|
4,450,000
|
100,000 plus
|
2% of assets over
|
3,200,000
|
4,450,000
|
6,450,000
|
125,000 plus
|
1 1/4% of assets over
|
4,450,000
|
6,450,000
|
90,450,000
|
150,000 plus
|
5/8% of assets over
|
6,450,000
|
90,450,000
|
350,450,000
|
675,000 plus
|
3/8% of assets over
|
90,450,000
|
350,450,000
|
1,070,450,000
|
1,625,000 plus
|
3/16% of assets over
|
350,450,00 0
|
1,070,450,00 0
|
3,075,000 plus
|
3/32% of assets over
|
1,070,450, 000
|
(d) The
assets of such separate accounts shall be valued at least as often as variable
benefits are determined but in any event at least monthly.
(2) Amounts in the separate account. The
insurer shall maintain in each separate account assets with a value at least
equal to the greater of the valuation reserves for the variable portion of the
variable life insurance policies or the benefit base for such
policies.
(3) Investments by the
separate account.
(a) No sale, exchange, or
other transfer of assets may be made by an insurer or any of its affiliates
between any of its separate accounts or between any other investment account
and one (1) or more of its separate accounts unless:
1. In case of transfer into a separate
account, such transfer is made solely to establish the account or to support
the operation of the policies with respect to the separate account to which the
transfer is made; and
2. Such
transfer, whether into or from a separate account, is made by a transfer of
cash; but other assets may be transferred if approved by the commissioner in
advance.
(b) The
separate account shall have sufficient net investment income and readily
marketable assets to meet anticipated withdrawals under policies funded by the
account.
(4) Limitations
on ownership.
(a) A separate account shall
not purchase or otherwise acquire the securities of any issuer, other than
securities issued or guaranteed as to principal and interest by the United
States, if immediately after such purchase or acquisition the value of such
investment, together with prior investments of such account in such security
valued as required by these administrative regulations, would exceed ten (10)
percent of the value of the assets of the separate account. The commissioner
may waive this limitation in writing if he believes such waiver will not render
the operation of the separate account hazardous to the public or the
policyholders in this state.
(b) No
separate account shall purchase or otherwise acquire the voting securities of
any issuer if as a result of such acquisition the insurer and its separate
accounts in the aggregate, will own more than ten (10) percent of the total
issued and outstanding voting securities of such issuer. The commissioner may
waive this limitation in writing if he believes such waiver will not render the
operation of the separate account hazardous to the public or the policyhold-ers
in this state or jeopardize the independent operation of the issuer of such
securities.
(c) The percentage
limitation specified in paragraph (a) of this subsection shall not be construed
to preclude the investment of the assets of separate accounts in shares of
investment companies registered pursuant to the Investment Company Act of 1940
or other pools of investment assets if the investments and investment policies
of such investment companies or asset pools comply substantially with the
provisions of subsection (3) of this section and other applicable portions of
the administrative regulation.
(5) Valuation of separate account assets.
Investments of the separate account shall be valued at their market value on
the date of valuation, or at amortized cost if it approximates market
value.
(6) Separate account
investment policy. The investment policy of a separate account operated by a
domestic insurer filed under Section 2(2) of this administrative regulation
shall not be changed without first filing such change with the commissioner.
(a) Any change filed pursuant to this section
shall be effective sixty (60) days after the date it was filed with the
commissioner, unless the commissioner notifies the insurer before the end of
such sixty (60) day period of his disapproval of the proposed change. At any
time the commissioner may, after notice and public hearing, disapprove any
change that has become effective pursuant to this section.
(b) The commissioner may disapprove the
change if he determines that the change would be detrimental to the interests
of the policyhold-ers participating in such separate accounts.
(7) Charges against separate
account. The insurer must disclose in writing, prior to or contemporaneously
with delivery of the policy, all charges that may be made against the separate
account, including but not limited to the following:
(a) Taxes or reserves for taxes attributable
to investment gains and income of the separate account;
(b) Actual cost of reasonable brokerage fees
and similar direct acquisition and sale costs incurred in the purchase or sale
of separate account assets;
(c)
Actuarially determined costs of insurance (tabular costs) and the release of
separate account liabilities;
(d)
Charges for administrative expenses and investment management expenses,
including internal costs attributable to the investment management of assets of
the separate account;
(e) A charge,
at a rate specified in the policy, for mortality and expense
guarantees;
(f) Any amounts in
excess of those required to be held in the separate accounts;
(g) Charges for incidental insurance
benefits.
(8) Standards
of conduct. Every insurer seeking approval to enter into the variable life
insurance business in this state shall adopt by formal action of its board of
directors a written statement specifying the standards of conduct of the
insurer, its officers, directors, employees, and affiliates with respect to the
purchase or sale of investments of separate accounts. Such standards of conduct
shall be binding on the insurer and those to whom it refers. A code or codes of
ethics meeting the requirements of Section 17(j) under the Investment Company
Act of 1940 and applicable rules and regulations thereunder shall satisfy the
provisions of this section.
(9)
Conflicts of interest. Rules under any provision of the insurance laws of this
state or any administrative regulation applicable to the officers and directors
of insurance companies with respect to conflicts of interest shall also apply
to members of any separate account's committee or other similar body.
(10) Investment advisory services to a
separate account. An insurer shall not enter into a contract under which any
person undertakes, for a fee, to regularly furnish investment advice to such
insurer with respect to its separate account maintained for variable life
insurance policies unless:
(a) The person
providing such advice is registered as an investment advisor under the
Investment Advisor Act of 1940; or
(b) The person providing such advice is an
investment manager under the Employee Retirement Income Security Act of 1974
with respect to the assets of each employee benefit plan allocated to the
separate account; or
(c) The
insurer has filed with the commissioner and continues to file annually the
following information and statements concerning the proposed advisor:
1. The name and form of organization, state
of organization, and its principal place of business;
2. The names and addresses of its partners,
officers, directors, and persons performing similar functions or, if such an
investment advisor be an individual, of such individual;
3. A written standard of conduct complying in
substance with the requirements of subsection (8) of this section which has
been adopted by the investment advisor and is applicable to the investment
advisor, its officers, directors, and affiliates;
4. A statement provided by the proposed
advisor as to whether the advisor or any person associated therewith:
a. Has been convicted within ten (10) years
of any felony or misdemeanor arising out of such person's conduct as an
employee, salesman, officer or director of an insurance company, a banker, an
insurance agent, a securities broker, or an investment advisor involving
embezzlement, fraudulent conversion, or misappropriation of funds or
securities, or involving the violation of Sections 1341, 1342, or 1343 of Title
18 of United States Code;
b. Has
been permanently or temporarily enjoined by an order, judgment, or decree of
any court of competent jurisdiction from acting as an investment advisor,
underwriter, broker, or dealer, or as an affiliated person or as an employee of
any investment company, bank, or insurance company, or from engaging in or
continuing any conduct or practice in connection with any such
activity;
c. Has been found by
federal or state regulatory authorities to have willfully violated or have
acknowledged willful violation of any provision of federal or state securities
laws or state insurance laws or of any rule or regulation under any such laws;
or
d. Has been censured, denied an
investment advisor registration, had a registration as an investment advisor
revoked or suspended, or been barred or suspended from being associated with an
investment advisor by order of federal or state regulatory authorities;
and
(d) Such
investment advisory contract shall be in writing and provide that it may be
terminated by the insurer without penalty to the insurer or the separate
account upon no more than sixty (60) days' written notice to the investment
advisor.
(e) The commissioner may,
after notice and opportunity for hearing, by order require such investment
advisory contract to be terminated if he deems continued operation thereunder
to be hazardous to the public or the insurer's policyholders.
Section 6. Information
Furnished to Applicants. An insurer delivering or issuing for delivery in this
state any variable life insurance policies shall deliver to the applicant for
such policy, and obtain a written acknowledgment of receipt from such applicant
coincident with or prior to the execution of the application, the following
information. The requirements of this section shall be deemed to have been
satisfied to the extent that a disclosure containing information required by
this section is delivered, either in the form of: a prospectus included in the
requirements of the Securities Act of 1933 and which was declared effective by
the Securities and Exchange Commission; or all information and reports required
by the Employee Retirement Income Security Act of 1974 if the policies are
exempted from the registration requirements of the Securities Act of 1933
pursuant to Section 3(a)(2)thereof.
(1) A
summary explanation, in nontechnical terms, of the principal features of the
policy, including a description of the manner in which the variable benefits
will reflect the investment experience of the separate account and the factors
which affect such variation. Such explanation must include notices of the
provision required by Section 3(3)(a)5 and (f) of this administrative
regulation.
(2) A statement of the
investment policy of the separate account, including:
(a) A description of the investment
objectives intended for the separate account and the principal types of
investments intended to be made; and
(b) Any restrictions or limitations on the
manner in which the operations of the separate account are intended to be
conducted.
(3) A
statement of the net investment return of the separate account for each of the
last ten (10) years or such lesser period as the separate account has been in
existence.
(4) A statement of the
charges levied against the separate account during the previous year.
(5) A summary of the method to be used in
valuing assets held by the separate account.
(6) A summary of the federal income tax
aspects of the policy applicable to the insured, the policyholder and the
beneficiary.
(7) Illustrations of
benefits payable under the variable life insurance contract. Such illustrations
shall be prepared by the insurer and shall not include projections of past
investment experience into the future or attempted predictions of future
investment experience, provided that nothing contained herein prohibits use of
hypothetical assumed rates of return to illustrate possible levels of benefits
if it is made clear that such assumed rates are hypothetical only.
Section 7. Applications. The
application for a variable life insurance policy shall contain:
(1) A prominent statement that the death
benefit may be variable or fixed under specified conditions;
(2) A prominent statement that cash values
may increase or decrease in accordance with the experience of the separate
account (subject to any specified minimum guarantees); and
(3) Questions designed to elicit information
which enables the insurer to determine the suitability of variable life
insurance for the applicant.
Section
8. Reports to Policyholders. Any insurer delivering or issuing for
delivery in this state any variable life insurance policies shall mail to each
variable life insurance policyholder at his or her last known address the
following reports:
(1) Within thirty (30)
days after each anniversary of the policy, a statement or statements of the
cash surrender value, death benefit, any partial withdrawal or policy loan, any
interest charge, any optional payments allowed pursuant to Section 3(4) of this
administrative regulation under the policy computed as of the policy
anniversary date. Provided, however, that such statement may be furnished
within thirty (30) days after a specified date in each policy year so long as
the information contained therein is computed as of a date not more than sixty
(60) days prior to the mailing of such notice. This statement shall state that,
in accordance with the investment experience of the separate account, the cash
values and the variable death benefit may increase or decrease, and shall
prominently identify any value described therein which may be recomputed prior
to the next statement required by this section. If the policy guarantees that
the variable death benefit on the next policy anniversary date will not be less
than the variable death benefit specified in such statement, the statement
shall be modified to so indicate. For flexible premium policies, the report
must contain a reconciliation of the change since the previous report in cash
value and cash surrender value, if different, because of payments made (less
deductions for expense charges), withdrawals, investment experience, insurance
charges, and any other charges made against the cash value. In addition, the
report must show the projected cash value and cash surrender value, if
different, as of one (1) year from the end of the period covered by the report
assuming that:
(a) Planned periodic premiums,
if any, are paid as scheduled;
(b)
Guaranteed costs of insurance are deducted; and
(c) The net return is equal to the guaranteed
rate or, in the absence of a guaranteed rate, is not greater than zero. If the
projected value is less than zero, a warning message must be included that
states that the policy may be in danger of terminating without value in the
next twelve (12) months unless additional premium is paid.
(2) Annually, a statement or statements
including:
(a) A summary of the financial
statement of the separate account based on the annual statement last filed with
the commissioner;
(b) The net
investment return of the separate account for the last year and, for each year
after the first, a comparison of the investment rate of the separate account
during the last year with the investment rate during prior years, up to a total
of not less than five (5) years when available;
(c) A list of investments held by the
separate account as of a date not earlier than the end of the last year for
which an annual statement was filed with the commissioner;
(d) Any charges levied against the separate
account during the previous year;
(e) A statement of any change, since the last
report, in the investment objective and orientation of the separate account, in
any investment restriction or material quantitative or qualitative investment
requirement applicable to the separate account or in the investment advisor of
the separate account.
(3) For flexible premium policies, a report
must be sent to the policyholder in the amounts available under the policy on
any policy processing day to pay the charges authorized by the policy are less
than the amount necessary to keep the policy in force until the next following
policy processing day. The report must indicate the minimum payment required
under the terms of the policy to keep it in force and the length of the grace
period for payment of such amount.
Section 9. Foreign Companies. If the law or
administrative regulation in the place of domicile of a foreign company
provides a degree of protection to the policyholders and the public which is
substantially similar to that provided by these administrative regulations, the
commissioner to the extent deemed appropriate by him in his discretion, may
consider compliance with such law or administrative regulation as compliance
with this administrative regulation.
Section
10.
(1) Qualifications of Agents
for the Sale of Variable Life Insurance. No person shall be or act as an agent
for the solicitation or sale of variable life insurance except while duly
appointed and licensed under the Kentucky Insurance Code as a life insurance
agent with respect to the insurer, and while meeting federal law requirements
for dealing in securities.
(2) Any
person doing business as agent under this section shall immediately report to
the commissioner:
(a) The imposition of any
disciplinary sanction (including but not limited to suspension or revocation of
membership, suspension, revocation, or denial of registration) imposed upon
such person by any national securities exchange, national securities
association, or any federal, state, or territorial agency with jurisdiction
over securities, variable annuities, or variable life insurance.
(b) Any judgment or injunction entered
against such person on the basis of conduct deemed to have involved unfair,
false, misleading, or deceptive practices, or violation of any securities law
(whether statute or administrative regulation).
Section 11. Severability. If any provision of
this administrative regulation or the application thereof to any person or
circumstance is for any reason held to be invalid, the remainder of the
administrative regulation and the application of such provision to other
persons or circumstances shall not be affected thereby.
Section 12. Effective Date. This
administrative regulation shall become effective upon completion of its review
pursuant to KRS Chapter 13A.
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110,
304.15-390