Article I :
Authority.
Section 1. Authority.
Part B of this Regulation, applicable to variable life insurance,
is promulgated under the authority of S. C. Code Section
38-67-40
(1976).
Article
II : Definitions.
As used in Part B of this Regulation:
Section 1. Affiliate.
"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.
Section 2. Agent.
"Agent" means any individual licensed by the Commissioner as a
life insurance agent.
Section
3. Assumed Investment Rate.
"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.
Section 4. Benefit Base.
"Benefit base" means the amount to which the net investment
return is applied.
Section
5. Commissioner.
"Commissioner" means the Chief Insurance Commissioner of South
Carolina.
Section 6.
Control.
"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 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.
Section 7.
Flexible Premium Policy.
"Flexible premium policy" means any variable life insurance
policy other than a scheduled premium policy as defined in this Article.
Section 8. General Account.
"General account" means all assets of the insurer other than
assets in separate accounts established pursuant to S. C. Code Section
38-67-10
(1976) 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.
Section 9.
Incidental Insurance Benefit.
"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.
Section
10. May.
"May" is permissive.
Section 11. Minimum Death Benefit.
"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.
Section 12. Net
Investment Return.
"Net Investment Return" means the rate of investment return in a
separate account to be applied to the benefit base.
Section 13. Person.
"Person" means an individual, corporation, partnership,
association, trust, or fund.
Section
14. Policy Processing Day.
"Policy processing day" means the day on which charges authorized
in the policy are deducted from the policy's cash value.
Section 15. Scheduled Premium Policy.
"Scheduled premium policy" means any variable life insurance
policy under which both the amount and timing of premium payments are fixed by
the insurer.
Section 16.
Separate Account.
"Separate account" means a separate account established pursuant
to S. C. Code Section
38-67-10
(1976), or pursuant to the corresponding section of the insurance laws of the
state of domicile of a foreign or alien insurer.
Section 17. Shall.
"Shall" is mandatory.
Section 18. Variable Death Benefit.
"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.
Section 19.
Variable Life Insurance Policy.
"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 S. C.
Code Section
38-67-10
(1976), or pursuant to the corresponding section of the insurance laws of the
state of domicile of a foreign or alien insurer.
Article III : 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.
Section 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 Commissioner for the issuance of variable life insurance
policies in this state. The Commissioner 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 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.
Section 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 this Department the following information for the
consideration of the Commissioner in making the determination required by
Section 1, subsection (b) of this Article:
(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 services contemplated as required by Section 10 of Article
VI;
(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 forms approved by the Commissioner;
and
(g) a statement of the
insurer's actuary describing the mortality and expense risks which the insurer
will bear under the policy.
Section
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.
Section 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.
Section
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 regulations, and any other applicable law or regulations.
Section 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 regulation or any other
applicable laws or regulations:
(a) an
Annual Statement of the business of its separate account or accounts in such
forms as may be approved by the Commissioner; and
(b) prior to its use in this state, any
information furnished to applicants as provided for in Article VII; and
(c) prior to its use in this
state, the form of any of the Reports to Policyholders as provided for in
Article IX; and
(d) such
additional information concerning its variable life insurance operations or its
separate accounts as the Commissioner shall 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.
Section 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 regulation.
Article IV : Insurance
Policy Requirements.
Policy Qualification. The Commissioner shall not approve any
variable life insurance form filed pursuant to this regulation unless it
conforms to the requirements of this Article.
Section 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 and
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 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 regulation.
Section 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(b) of this Article];
(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 non-forfeiture 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 the 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 Chapter 63 of Title 38 of the 1976 Code (the Standard Nonforfeiture
Law for Life Insurance) for a general account policy with such premiums and
benefits. The assumed investment rate shall not exceed the maximum interest
rate permitted under the Standard Nonforfeiture Law of this state. If the
policy does not contain an assumed investment rate, this demonstration shall be
based on the maximum interest rate permitted under the Standard Nonforfeiture
Law. The method of computation may disregard incidental minimum guarantees as
to the dollar amounts payable. Incidental minimum guarantees include, 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.
Section 3. Mandatory Policy
Provisions.
Every variable life insurance policy filed for approval in this
state shall contain at least the following:
(a) The coverage 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 Section
2(b) of this Article;
(4) The
method, or a reference to the policy provision which describes the method, for
determining the amount of insurance payable at death;
(5) A captioned provision that the
policyholder may return the variable life insurance policy within 10 days of
receipt of the policy by the policyholder, and receive a refund of premiums.
Unless otherwise provided by state law, the policy may provide that the refund
shall equal the total of all premium payments for the policy, or shall equal
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.
(6) Such other items as
are currently required for fixed benefit life insurance policies and which are
not inconsistent with this regulation.
(b)
(1) For
scheduled premium policies, a provision for a grace period of not less than
thirty-one 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 61 days after the mailing date of the Report to Policyholders required by
Section 3 of Article IX.
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 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 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 the policy loan interest rate in effect for the period
during and after the lapse of the policy and any indebtedness in effect at the
end of the grace period following the date of default with interest at a rate
not exceeding the policy loan interest rate in effect for the period during and
after the lapse of the policy; or
(2) 110% of the increase in cash value
resulting from reinstatement plus all overdue premiums for incidental insurance
benefits with interest at a rate not exceeding the policy loan interest at a
rate not exceeding the policy loan interest rate in effect for the period
during and after the lapse of the policy.
(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 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 two years from the date of
issue, 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, shall be incontestable after two 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
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 provisions 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
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 regulation;
(s) Such other
items as are currently required for fixed benefit life insurance policies and
are not inconsistent with this 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.
Section 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) A provision
for policy loans after the policy has been in force for three (3) full years
which provides the following:
(1) At least
75% of the policy's cash surrender value may be borrowed.
(2) The amount borrowed shall bear interest
at a rate not to exceed that permitted by state insurance law.
(3) Any indebtedness shall be deducted from
the proceeds payable on death.
(4)
Any indebtedness shall be deducted from the cash surrender value upon surrender
or in determining any nonforfeiture benefit.
(5) 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 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 3 or Article IX.
(6) 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
110% of the corresponding increase in cash value and by furnishing such
evidence of insurability as the insurer may request.
(7) 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.
(8) No policy loan provision is required if
the policy is under the extended insurance nonforfeiture option.
(9) 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.
(10) 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.
Section 5. Other Policy Provisions.
The following provision 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 also 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-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 Section 4 of this Article, except that a restriction may be imposed that
no more than two consecutive premiums can be paid under this provision.
(e) A provision allowing the
policyholder to make partial withdrawals;
(f) Any other policy provision approved by
the Commissioner.
Article
V : Reserve Liabilities for Variable Life Insurance.
(1) Reserve liabilities for variable life
insurance policies shall be established under S. C. Code Section
38-9-180
(1976) (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 full year from the valuation
date, of the guarantee 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" 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 Paragraph (1), 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 (2) below.
(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 Article 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 Paragraph (1), 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 minimum reserves
described in (a) and (b) above 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) 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 provided for in the guarantee
not otherwise provided for by the reserves held in the separate account
assuming an immediate one-third depreciation in the current value of the assets
of the separate account followed by a net investment return equal to the
valuation interest rate.
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.
Article VI :
Separate Accounts.
The following requirements apply to the establishment and
administration of variable life insurance separate accounts by any domestic
insurer:
Section 1. Establishment and
Administration of Separate Accounts.
Any domestic insurer issuing variable life insurance shall
establish one or more separate accounts pursuant to S. C. Code Section
38-67-10
(1976).
(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 Commissioner shall have
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 in connection with
the handling of separate account assets any person who:
(1) 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 Sections 1341, 1342 or 1343 of Title 18,
United States Code; or
(2) 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
(3) 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 such
amounts as the Commissioner may in his discretion prescribe.
(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.
Section
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.
Section 3.
Investments by the Separate Account.
(a) No
sale, exchange, or other transfer of assets may be made by any 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:
(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.
Section 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 regulations, would exceed 10% 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 10% 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 policyholders in this state or
jeopardize the independent operation of the issuer of such securities.
(c) The percentage limitation
specified in Subsection (a) of this Section 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
Section 3 of this Article and other applicable portions of this regulation.
Section 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.
Section 6.
Separate Account Investment Policy.
The investment policy of a separate account operated by a
domestic insurer filed under Section 2(c) of Article II shall not be changed
without first filing such change with the Commissioner.
(1) Any change filed pursuant to this Section
shall be effective sixty days after the date it was filed with the
Commissioner, unless the Commissioner notifies the insurer before the end of
such sixty-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.
(2) The Commissioner may disapprove the
change if he determines that the change would be detrimental to the interests
of the policyholders participating in such separate accounts.
Section 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:
(1) taxes or reserves for
taxes attributable to investment gains and income of the separate account;
(2) actual cost of reasonable
brokerage fees and similar direct acquisition and sale costs incurred in the
purchase or sale of separate account assets;
(3) actuarially determined costs of insurance
(tabular costs) and the release of separate account liabilities;
(4) charges for administrative expenses and
investment management expenses, including internal costs attributable to the
investment management of assets of the separate account;
(5) a charge, at a rate specified in the
policy, for mortality and expense guarantees;
(6) any amounts in excess of those required
to be held in the separate accounts;
(7) charges for incidental insurance
benefits.
Section 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.
Section 9. Conflicts of Interest.
Rules under any provision of the insurance laws of this state or
any 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.
Section 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:
(1) the person
providing such advice is registered as an investment adviser under the
Investment Advice Act of 1940; or
(2) 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
(3) the
insurer has filed with the Commissioner and continues to file annually the
following information and statements concerning the proposed advisor:
(a) the name and form of organization, state
of organization, and its principal place of business;
(b) the names and addresses of its partners,
officers, directors, and persons performing similar functions or, if such an
investment advisory be an individual, of such individual;
(c) a written Standard of Conduct complying
in substance with the requirements of Section B of this Article which has been
adopted by the investment advisor and is applicable to the investment advisor,
its officers, directors, and affiliates;
(d) a statement provided by the proposed
advisor as to whether the advisor or any person associated therewith:
(i) 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 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;
(ii) 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;
(iii) has been found by federal or state
regulatory authorities to have violated or have acknowledged 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
(iv) 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
(4) 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 advisor.
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.
Article VII : 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 Article shall be deemed to have been
satisfied to the extent that a disclosure containing information required by
this Article is delivered, either in the form of (1) a prospectus included in
the requirements of the Securities Act of 1933 and which was declared effective
by the Securities Exchange Commission; or (2) 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 Article IV,
Sections
3(a)(5) and 3(f).
(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 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
investments 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.
Article VIII :
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);
(3) questions designed to elicit information
which enables the insurer to determine the suitability of variable life
insurance for the applicant.
Article
IX : 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 Section (4) of Article IV 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 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 year from the end of the period
covered by the report assuming that:
(i)
planned periodic premiums, if any, are paid as scheduled;
(ii) guaranteed costs of insurance are
deducted; and
(iii) 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 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 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 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.
Article X : 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 these regulations, the
Commissioner to the extent deemed appropriate by him in his discretion, may
consider compliance with such law or regulation as compliance with these
regulations.
Article XI :
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 Commissioner, in a form satisfactory to the
Commissioner, 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 required by
the Commissioner for the purpose of determining the eligibility of any person
for licensing as an agent shall, after the effective date of this regulation,
include such questions concerning the history, purpose, regulation, and sale of
variable life insurance as the Commissioner deems appropriate.
(2) Reports of
Disciplinary Actions. Any person qualified in this state under this Article to
sell or offer to sell variable life insurance shall immediately report to the
Commissioner:
(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 Non-renewal of Qualification. The
Commissioner may reject any application or suspend or revoke or refuse to renew
any agent's qualification under this Article to sell or offer to sell variable
life insurance or impose monetary penalties upon any ground that would warrant
similar disciplinary arising out of the agent's sale of 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 offer to
sell variable life insurance.