Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to amplify sections
3907.15 and
3911.01 of the Revised Code to
provide for the regulation of fixed premium and flexible premium variable life
insurance policies.
(B)
Authority
This rule is promulgated pursuant to the authority vested in
the superintendent under section
3901.041 of the Revised
Code.
(C) Definitions
(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 any
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 with a variable line of authority.
(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) "Control" (including
the terms "controlling," "controlled by" and "under common control with") means
the possession, direct or indirect, of 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 non-management services, or otherwise, unless the power is the
result of an official position with or corporate office held by the person.
Control
is presumed to exist if any person, directly or
indirectly, owns, controls, holds with the power to vote, or holds proxies
representing more than ten per cent of the voting securities of any other
person. This presumption may be rebutted by a showing made to the satisfaction
of the superintendent that control does not exist in fact. The superintendent
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.
(6) "Flexible premium
policy" means any variable life insurance policy other than a scheduled premium
policy as specified in paragraph (C)(14) of this rule.
(7) "General account" means all assets of the
insurer other than assets in separate accounts established pursuant to section
3907.15 of the Revised Code, 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.
(8) "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.
(9) "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.
(10)
"Net investment return" means the rate of investment return in a separate
account to be applied to the benefit base.
(11) "Person" means an
individual, corporation, partnership, association, trust, or fund.
(12)
"Policy processing day" means the day on which charges authorized in the policy
are deducted from the policy's cash value.
(13) "Scheduled
premium policy" means any variable life insurance policy under which both the
amount and timing of premium payments are fixed by the insurer.
(14)
"Separate account" means a separate account established pursuant to section
3907.15 of the Revised Code or
pursuant to the corresponding section of the insurance laws of the state of
domicile of a foreign or alien insurer.
(15) "Superintendent"
means the insurance superintendent of Ohio.
(16) "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.
(17) "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 section
3907.15 of the Revised Code, or
pursuant to the corresponding section of the insurance laws of the state of
domicile of a foreign or alien insurer.
(D) 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 policy 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 superintendent for the issuance of variable life insurance
policies in this state. The superintendent shall grant such written approval
only after he or she has found that:
(i) The
plan of operation for the issuance of variable life insurance policies is not
unsound;
(ii) 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
(iii) 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 superintendent 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 laws and 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
is
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 superintendent may, at his or her discretion, require that
an insurer, before it delivers or issues for delivery any variable life
insurance policy in this state, file with this department the following
information for the consideration of the superintendent in making the
determination required by paragraph (D)(1)(b) of this rule:
(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
distribution 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 services contemplated as required by paragraph (G)(10) of
this rule;
(e) A copy of the
statutes and 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" biographical affidavit; 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 recommendations 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 to 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 superintendent
with any information or reports in connection with such services which the
superintendent may request in order to ascertain whether the variable life
insurance operations of the insurer are being conducted in a manner consistent
with this chapter and any other applicable laws or rules.
(6) Reports to the superintendent.
Any insurer authorized to transact the business of variable
life insurance in this state shall submit to the superintendent, in addition to
any other materials which may be required by this rule or any other applicable
laws or rules:
(a) An annual statement
of the business of its separate account or accounts in such form as may be
prescribed by the "National Association of Insurance Commissioners;"
and
(b) Prior to the use in this
state, any information furnished to applicants as provided for in paragraph (H)
of this rule; and
(c) Prior to the
use in this state, the form of any of the reports to policyholders as provided
for in paragraph (J) of this rule; and
(d) Such additional information concerning
its variable life insurance operations or its separate accounts as the
superintendent
deems necessary.
Any material submitted to the superintendent under paragraph
(D)(6) of this rule shall be disapproved if it is found to be false,
misleading, deceptive, or inaccurate in any material respect and, if previously
distributed, the superintendent shall require the distribution of amended
material.
(7)
Authority of superintendent to disapprove.
Any material required to be filed with and approved by the
superintendent
is subject to disapproval if at any time it is
found by him or her not to comply with the standards established by this
rule.
(E)
Insurance policy requirements
Policy qualification. The superintendent shall not approve any
variable life insurance form filed pursuant to this rule unless it conforms to
the requirements of paragraph (E) of this rule.
(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 and
made a part of the policy and which relate to the variable nature of the
policy, shall be filed with the superintendent and approved by him or her 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 rule, the same as those otherwise applicable to other life insurance
policies.
(b) The superintendent
may approve variable life insurance policies and related forms with provisions
the superintendent deems to be not less favorable to the policyholder and the
beneficiary than those required by this rule.
(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
are borne by the insurer. The mortality and
expense charges
are subject to the maximums stated in the
contract.
(b) For scheduled premium
policies, a minimum death benefit
is 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 paragraph (E)(4) of this rule.
(c) The policy
reflects 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
is
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
are
determined at least annually.
(f)
The cash value of each variable life insurance policy
is
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 superintendent of the state in which the policy is delivered, or
issued for delivery,
is in accordance with actuarial procedures that
recognize the variable nature of the policy. The method of computation must be
such that, if the net investment return credited to the policy at all times
from the date of issue should be equal to the assumed investment rate with
premiums and benefits determined accordingly under the terms of the policy,
then the resulting cash values and other non-forfeiture benefits must be at
least equal to the minimum values required by section
3915.07 of the Revised Code
(standard non-forfeiture law) for a general account policy with such premiums
and benefits. The assumed investment rate
is not
to exceed the maximum interest rate permitted
under the standard non-forfeiture law of this state. If the policy does not
contain an assumed investment rate, this demonstration
is
based on the maximum interest rate permitted under the standard non-forfeiture
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 to be limited to, a guarantee that the amount payable at
death or maturity
is 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
superintendent.
(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 pages of each such policy shall contain:
(i) A prominent statement in either
contrasting color or in boldface type that the amount or duration of death
benefits may be variable or fixed under specified conditions;
(ii) 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;
(iii)
A statement describing any minimum death benefit required pursuant to paragraph
(E)(2)(b) of this rule;
(iv) The
method, or a reference to the policy provision which describes the method, for
determining the amount of insurance payable at death;
(v) To the extent permitted by state law, a
captioned provision that the policyholder may return the variable life
insurance policy within ten 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
is the total of all premium payments for such
policy;
(vi) Such other items as
are currently required for fixed benefit life insurance policies and which are
not inconsistent with this rule.
(b)
(i) For
scheduled premium policies, a provision for a grace period of not less than
thirty-one days from the premium due date which
provides that where 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.
(ii) 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
ends on a date not less than sixty-one days after
the mailing date of the report to policyholders required by paragraph (J)(3) of
this rule.
(iii) 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 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 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:
(i) All overdue
premiums and any indebtedness in effect at the end of the grace period
following the date of default with interest as provided in section
3915.051 of the Revised
Code.
(ii) One hundred ten per cent
of the increase in cash value resulting from reinstatement plus all overdue
premiums for incidental insurance benefits using an interest rate provided in
section 3915.051 of the Revised
Code.
(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:
(i) 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.
(ii) 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,
are
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
is incontestable by the insurer after it has been in
force for two years during the lifetime of the insured; provided, however, that
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,
is
incontestable after any such increase has been in force, during the lifetime of
the insured, for two years from the date of issue of such increase;
(m) A provision stating that the investment
policy of the separate account
will not be changed without the approval of the
insurance superintendent of the state of domicile of the insurer, and that the
approval process is on file with the superintendent 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:
(i) For up to six
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
(ii) 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
provided will be on a fixed basis only;
(p) A description of the basis for computing
the cash value and the surrender value under the policy
;
(q) Premiums or charges for incidental
insurance benefits
are stated separately;
(r) Any other policy provision required by
this rule;
(s) Such other items as
are currently required for fixed benefit life insurance policies and are not
inconsistent with this rule; and
(t) A provision for non-forfeiture insurance
benefits. The insurer may establish a reasonable minimum cash value below which
any non-forfeiture 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 a provision for policy loans after the policy has been in force for two
full years which provides the following:
(a) At least seventy-five per cent of the
policy's cash surrender value may be borrowed.
(b) The amount borrowed
bears interest at a rate not to exceed that permitted
by state insurance law.
(c) Any
indebtedness
is deducted from the proceeds payable on
death.
(d) Any indebtedness
is
deducted from the cash surrender value upon surrender or in determining any
non-forfeiture benefit.
(e) For
scheduled premium policies, whenever the indebtedness exceeds the cash
surrender value, the insurer
will give notice of any intent to cancel the
policy if the excess indebtedness is not repaid within thirty-one 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 paragraph (J)(3) of this
rule.
(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 policyholder 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 one hundred ten per cent 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
does
not apply to any automatic premium loan provision.
(h) No policy loan provision is required if
the policy is under extended insurance non-forfeiture option.
(i) The policy loan provisions
are
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 provision 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 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 years of any increase in death benefits
which results 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:
(i) The
amount of the dividend may be credited against premium payments;
(ii) The amount of the dividend may be
applied to provide amounts of additional fixed or variable benefit life
insurance;
(iii) The amount of the
dividend may be deposited in the general account at a specified minimum rate of
interest;
(iv) The amount of the
dividend may be applied to provide paid-up amounts of fixed benefit one-year
term insurance;
(v) 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 paragraph (E)(4) of this rule, except
that a restriction that no more than two consecutive premiums can be paid under
this provision may be imposed;
(e)
A provision allowing the policyholder to make partial withdrawals;
and
(f) Any other policy provision
approved by the superintendent.
(F) Reserve liabilities for variable life
insurance
(1) Reserve liabilities for variable
life insurance policies shall be established under
sections
3903.721 and
3903.728
of the Revised
Code in accordance with actuarial procedures that recognize the variable nature
of the benefits provided and any mortality guarantees.
(2) 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
not be less than the greater of the following minimum
reserves:
(a) The aggregate total of the term
costs, if any, covering a period of one full year from the valuation date or,
if less, covering the period provided for in the guarantee not otherwise
provided for by the reserves held in the separate account, on each variable
life insurance contract, assuming an immediate one-third 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" reserves 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 paragraph (F)(2)(b)(i) of
this rule, 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 paragraph (F)(2)(b)(ii) of this rule.
(i) 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.
(ii) The payment referred to in paragraph
(F)(2)(b) of this rule shall be computed so that the present value of a level
payment of that amount each year over the future period for which charges for
this risk will be collected under 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 paragraph (F)(2)(b)(i) of this rule, of the prior year's "attained
age level" reserve on such variable life insurance contract. If no future
charges for this risk will be collected under the contract, the payment shall
equal (A) minus (B) minus (C). The amounts of 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 or the valuation
interest rate, 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 minimum reserves described in paragraphs
(F)(2)(a) and (F)(2)(b) of this rule 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) Reserve liabilities for all fixed
incidental insurance benefits and any guarantees associated with variable
incidental 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.
(G) 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 section
3907.15 of the Revised
Code.
(a) If no law or other
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 superintendent
has
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 the prior
written approval of the superintendent, employ in any material connection with
the handling of separate account asset any person who:
(i) Within the last ten 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 section 1341, 1342, or 1343 of Title 18,
United States Code; or
(ii) Within
the last ten 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
(iii) Within the last ten 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 the following amounts:
|
Total Assets
Under $100,000 |
|
More than: |
But not more than: |
|
$ 100,000 |
$ 600,000 |
|
600,000 |
1,200,000 |
|
1,200,000 |
3,200,000 |
|
3,200,000 |
4,450,000 |
|
4,450,000 |
6,450,000 |
|
6,450,000 |
90,450,000 |
|
90,450,000 |
350,450,000 |
|
350,450,000 |
1,070,450,000 |
|
1,070,450,000 | |
|
Minimum Amount of Bond
$10,000 |
|
$ 10,000 plus |
4% of assets over |
$ 100,000 |
|
30,000 plus |
3 1/3% of assets over |
600,000 |
|
50,000 plus |
2 1/2% of assets over |
1,200,000 |
|
100,000 plus |
2% of assets over |
3,200,000 |
|
125,000 plus |
1 1/4% of assets over |
4,450,000 |
|
150,000 plus |
5/8% of assets over |
6,450,000 |
|
675,000 plus |
3/8% of assets over |
90,450,000 |
|
1,625,000 plus |
3/16% of assets over |
350,450,000 |
|
3,075,000 plus |
3/32% of assets over
|
1,070,450,000
|
|
Until total bond equals |
$5,000,000. |
(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 or more of its separate accounts unless:
(i) In case of a 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
(ii) 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 superintendent 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 this rule, would exceed ten per cent of the value of the
assets of the separate account. To the extent permitted by state law, the
superintendent may waive this limitation in writing if he or she 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 per cent of the total issued and outstanding voting securities of
such issuer. To the extent permitted by state law, the superintendent may waive
this limitation in writing if he or she believes such waiver will not render
the operation of the separate account hazardous to the public or the
policyholders in this state, or jeopardize the independent operation of the
issuer of such securities.
(c) The
percentage limitation specified in paragraph (G)(4)(a) of this rule, 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 paragraph (G)(3) of this rule and other
applicable portions of this rule.
(5) Valuation of separate account assets.
Investments of the separate account
are 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 paragraph (D)(2)(c) of this rule shall not be
changed without first filing such change with the insurance
superintendent.
(a) Any change filed
pursuant to this paragraph
is effective sixty days after the date it was
filed with the superintendent, unless the superintendent notifies the insurer
before the end of such sixty-day period of his or her disapproval of the
proposed change. At any time the superintendent may, after notice and public
hearing, disapprove any change that has become effective pursuant to this
paragraph.
(b) The superintendent
may disapprove the change if he or she determines that the change would be
detrimental to the interests of the policyholders participating in such
separate account.
(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 determine 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
are
binding on the insurer and those to whom it refers. A code or codes of ethics
meeting the requirements of section 17j under the Investment Company Act of
1940 and its applicable rules and regulations thereunder
satisfies the provisions of this paragraph.
(9) Conflicts of interest.
Rules under any provision of the insurance laws of this state
or any rule applicable to the officers and directors of insurance companies
with respect to conflicts of interest
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 accounts maintained for variable life
insurance policies unless:
(a) The
person providing such advice is registered as an investment adviser under the
Investment Advisers 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 superintendent and continues to file annually the
following information and statements concerning the proposed adviser:
(i) The name and form of organization, state
of organization, and its principal place of business;
(ii) 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;
(iii) A written standard of conduct complying
in substance with the requirements of paragraph (G)(8) of this rule which has
been adopted by the investment adviser and is applicable to the investment
adviser, his officers, directors, and affiliates;
(iv) A statement provided by the proposed
adviser as to whether the adviser or any person associated therewith:
(a) Has been convicted within ten 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 adviser involving embezzlement,
fraudulent conversion, or misappropriation of funds or securities, or involving
the violation of section 1341, 1342, or 1343 of Title 18 of the United States
Code;
(b) Has been permanently or
temporarily enjoined by order, judgment, or decree of any court of competent
jurisdiction from acting as an investment adviser, 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
adviser registration, had a registration as an investment adviser revoked or
suspended, or been barred or suspended from being associated with an investment
adviser 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 days' written notice to the investment adviser.
The superintendent may, after notice and opportunity for
hearing, by order require such investment advisory contract to be terminated if
he or she deems continued operation thereunder to be hazardous to the public or
the insurer's policyholders.
(H) Information furnished to applicants
An insurer delivering or issuing for delivery in this state any
variable life insurance policies shall deliver the following to the applicant
for the policy, and obtain a written acknowledgment of receipt from such
applicant coincident with or prior to the execution of the application. The
requirements of this paragraph
are deemed to have been satisfied to the extent
that a disclosure containing information required by this paragraph 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 non-technical 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 paragraphs (E)(3)(a)(v) and (E)(3)(f) of this
rule;
(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 restriction 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 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.
(I) 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.
(J) 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 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 paragraph (E)(4) of this rule under the
policy computed as of the policy anniversary date. Provided, however, that such
statement may be furnished within thirty 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 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 benefits may increase
or decrease, and shall prominently identify any value described therein which
may be recomputed prior to the next statement required by this paragraph. 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 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 investment
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 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 superintendent;
(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 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
superintendent;
(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 adviser of
the separate account.
(3)
For flexible premium policies, a report must be sent to the policyholder if 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.
(K) Foreign
companies
If the law or 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 this rule, the
superintendent, to the extent deemed appropriate by the superintendent in his
or her discretion, may consider compliance with such law or regulation as
compliance with this rule.
(L) Qualifications of agents for the sale of
variable life insurance
(1) Qualification to
sell variable life insurance.
(a) No person
may sell or offer for sale in this state any variable life insurance policy
unless such person is an agent and has filed with the superintendent, in a form
satisfactory to the superintendent, evidence that such person holds any license
or authorization which may be required for the solicitation or sale of variable
life insurance.
(b) Any examination
administered by the department for the purpose of determining the eligibility
of any person for licensing as an agent shall, after the effective date of this
rule, include such questions concerning the history, purpose, regulation, and
sale of variable life insurance as the superintendent deems
appropriate.
(2) Reports
of disciplinary actions.
Any person qualified in this state under this rule to sell or
offer to sell variable life insurance shall immediately report to the
superintendent:
(a) Any suspension or
revocation of his agent's license in any other state or territory of the
"United States";
(b) The imposition
of any disciplinary sanction, including suspension or expulsion from
membership, suspension, or revocation of or denial of registration, imposed
upon him by any national securities exchange, or national securities
association, or any federal, state, or territorial agency with jurisdiction
over securities or variable life insurance;
(c) Any judgment or injunction entered
against him on the basis of conduct deemed to have involved fraud, deceit,
misrepresentation, or violation of any insurance or securities law or
regulation.
(3) Refusal
to qualify agent to sell variable life insurance; suspension, revocation, or
nonrenewal of qualification:
The superintendent may reject any application or suspend or
revoke or refuse to renew any agent's qualification under this rule to sell or
offer to sell variable life insurance upon any ground that would bar such
applicant or such agent from being licensed to sell other life insurance
contracts in this state. The rules governing any proceeding relating to the
suspension or revocation of an agent's license shall also govern any proceeding
for suspension or revocation of an agent's qualification to sell or to offer to
sell variable life insurance.
(M) Severability
If any portion of this rule
or the application thereof to any person or circumstance is held invalid, the
invalidity does not affect other provisions or applications of the rule or
related rules which can be given effect without the invalid portion or
application, and to this end the provisions of this rule are
severable.
