Current through Register Vol. 51, No. 19, September 20, 2024
A. Any domestic life insurer specifically authorized by the Commissioner to issue contracts on a variable basis and any foreign or alien life insurer specifically authorized by the Commissioner to deliver these contracts in Maryland may establish and operate one or, upon express approval by the Commissioner, more than one, segregated asset accounts to be known as variable contract accounts. An insurer which has established a separate investment account as defined in Insurance Article, §
5-512, Annotated Code of Maryland, may, upon express approval by the Commissioner, use the same segregated asset account as both a separate investment account and a variable contract account.
B. Except as may be otherwise specifically provided by the contract, all amounts received in connection with any contract on a variable basis shall be placed in the appropriate variable contract account, and all the liabilities of the contract shall be set up in that account.
C. The investments and liabilities of a variable contract account at all times shall be clearly identifiable and distinguishable in the books or other records of the insurer from the other investments and liabilities of the insurer. An insurer may not hypothecate any of the assets of any variable contract account or borrow on the security of these assets. An investment, other than cash, in any variable contract account, in any separate account, or in the insurer's general investment account may not be transferred by sale, exchange, substitution, or otherwise from one account to another except with the Commissioner's approval.
D. Assets allocated to a variable contract account shall be owned by the insurer and the insurer may not be, or hold itself out to be, a trustee with respect to these assets.
E. An insurer issuing a contract on a variable basis shall, annually on or before March first, submit to the Commissioner a true statement for the business of its variable contract accounts. This statement shall be in such form and content as is approved or adopted for current use by the National Association of Insurance Commissioners or its successor organization and as supplemented for additional information required by the Commissioner and shall include details as to all of the income, disbursements, assets, and liability items associated with the variable contract accounts.
F. The valuation of variable contract account assets for all purposes, including annual statements of the insurer to the Commissioner, shall be determined in accordance with the market value of the assets notwithstanding the application of other valuation methods to assets of the insurer other than the assets of the variable contract accounts. The valuation may be made as of such valuation dates as the insurer shall establish from time to time, except as otherwise required for the annual statements to the Commissioner. To accomplish the valuation at market value any equity security purchased for variable contract account shall be a security:
(1) Which is listed or admitted to trading on a securities exchange located in the United States of America or Canada; or
(2) Which is publicly held and traded in the over-the-counter market as defined by the Commissioner and as to which market quotations have been available.
G. The reserve liability for contracts on a variable basis shall be established by the Commissioner pursuant to the requirements of Insurance Article, Title 5, Subtitle 3, Annotated Code of Maryland, and in accordance with actuarial procedures that recognize the variable nature of the benefits provided.
H. Investments.
(1) An insurer may not invest more than $10,000 or 5 percent of any one variable contract account, whichever is greater, in the stock or shares of any one corporation, mutual fund, or investment company, except that during the first year of operation of a variable contract account having total assets of less than one million dollars, the insurer may invest up to 10 percent of the account, or $10,000 if greater, in these stock or shares provided the account is not a segregated asset account which also serves as a separate investment account as defined in Insurance Article, §
5-512, Annotated Code of Maryland. However, with express approval of the Commissioner, an insurer may invest a greater proportion of the assets of a variable contract account which does not serve as a separate investment account in the shares of a nonaffiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended (an open-end diversified management investment company so registered being hereinafter sometimes referred to as "management company"), if the investment policy of the nonaffiliated management company conforms to the investment requirements of this chapter. The term "affiliated" or "affiliate" as used in this chapter, except in Regulation .09 of this chapter, means an "affiliated person" as defined in the federal Investment Company Act of 1940, as amended.
(2) An insurer may not purchase for a variable contract account common stock or shares of any corporation in excess of 5 percent of the total issued and outstanding common stock or shares of that corporation. However, with express approval of the Commissioner, an insurer may purchase in excess of 5 percent of the total number of outstanding shares of an open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended.
(3) An insurer may not purchase for a variable contract account common stock or shares of any corporation unless investment in the common stock or shares of any corporation is authorized as a permissible investment under Insurance Article, 16-601-----16-603, Annotated Code of Maryland.
(4) An insurer may not purchase for a variable contract account any securities of a corporation which is a subsidiary or affiliate of the insurer or in which a subsidiary or affiliate of the insurer or a director or officer of the insurer owns 3 percent or more of the common stock or shares.
(5) An insurer may purchase securities or other investments for its variable contract accounts through licensed brokers or by direct placement, but these purchases may not be made directly or indirectly from a director, officer, subsidiary, or affiliate of the insurer.
(6) Assets of a variable contract account may be sold for cash in a bona fide sale made directly to the purchasers or through licensed brokers but these sales may not be made directly or indirectly to any director, officer, subsidiary, or affiliate of the insurer.
(7) An insurer may not purchase or sell any of the investments of a variable contract account through a broker who is a director or officer of the insurer or of an affiliate or subsidiary of the insurer.
(8) To the extent approved by the Commissioner, the restrictions of §H(4), (5), (6), and (7) of this regulation are not applicable to investments in the shares of an affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended, which management company has been approved by the Commissioner for the variable contract account in accordance with §I of this regulation.
I. With the express approval of the Commissioner, an insurer may invest all or any portion of the assets of a variable contract account which does not serve as a separate investment account in the shares of an affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended, if the insurer, the affiliated management company, and the sponsor and/or holding company, as the case may be, of the insurer and the affiliated management company agree that:
(1) The investments to be made by the affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, will conform to the requirements of §H of this regulation, which, except for the provisions of the insurer, would otherwise be required to observe had the investments been made for a variable contract account of the insurer;
(2) An investment, other than cash, may not be transferred by sale, exchange, substitution, or otherwise between the insurer, the affiliated management company, and any sponsor, parent, or holding company except with the Commissioner's approval;
(3) In determining compliance with the provisions of Regulation .05B(3) of this chapter, the sales load and other charges, if any, to be made by the affiliated management company shall be added to any charges made in the variable annuity contract of the insurer;
(4) The Commissioner may at any time conduct such examination of the affiliated management company and of the sponsor, parent, or holding company as he deems necessary, the cost of which is to be borne by the insurer in accordance with Insurance Article, §
2-208, Annotated Code of Maryland; and
(5) The insurer and the affiliated management company will establish such additional procedures and restrictions as the Commissioner deems necessary to safeguard the interests of contract holders.
(6) Approval under this section shall, to the extent permitted by the Commissioner, supersede the restrictions contained in §H of this regulation. Any approval under this section may be withdrawn by the Commissioner upon 30 days written notice to the insurer, which notice shall specify the reason for the withdrawal. At any time during the 30-day period, the Commissioner may suspend approval under this section by written notice or by telegram, the suspension to become effective immediately upon receipt of the communication from the Commissioner. During suspension of approval, or following withdrawal of approval, the insurer may make no further investments in the affiliated management company unless approval is reinstated.
J. While serving as an elected or appointed officer or as a director or trustee of an insurer authorized to issue contracts on a variable basis, a person may not receive directly or indirectly any commission on the business transactions of the insurer.
K. In connection with the allocation of investment expenses, or in any other respect, an insurer may not discriminate unfairly between variable contract accounts, separate accounts, and the insurer's general investment account, but this provision does not require the insurer to follow uniform investment policies for all its accounts.
L. Maximum Asset Deduction Charge.
(1) The maximum asset deduction charge which an insurer may make against a variable contract account that applies to individual variable contracts for investment expenses and annuity mortality guarantees may not exceed 1-1/2 percent in the aggregate. This maximum charge shall be reduced by the amount of any asset deduction charge for investment expenses made by an affiliated open-end diversified management investment company in which the assets of the variable contract account are invested in accordance with the provisions of § 1 of this regulation.
(2) The maximum asset deduction charge referred to in §L(1) of this regulation may be increased by the amount of any reasonable additional charge made for guaranteeing the asset values of individual accounts as of specified dates.
(3) The maximum charges allowable under §L(1) of this regulation shall be reduced to reasonably reflect any charges for annuity mortality guarantees made by the insurer by means of deductions from the gross premiums or contributions paid under the contract, if the deductions are not allocated to the variable contract account.
M. For each contract on a variable basis, the insurer shall maintain a history record card, a ledger sheet or a comparable record, showing in addition to the usual stipulated payment or contract consideration information, each net annuity consideration applied and the increment and accumulated balance on either a unit or dollar value basis.
N. Right to Vote.
(1) Variable annuity contract owners shall have the right to vote with respect to the following matters affecting the variable contract account:
(a) The election of members to the variable contract committee or board;
(b) Amendments to the investment policies or objectives of the variable contract account required to be submitted to a vote of contract owners in accordance with the federal Investment Company Act of 1940 as amended or under any other statute;
(c) The selection of auditors for the variable contract account; and
(d) Any other matters required or determined to be submitted to contract owners for approval or disapproval.
(2) Notice of the voting rights of each contract owner shall be given by furnishing him with a prospectus containing the information or by other proper written notice.
