Current through Reg. 50, No. 13; March 28, 2025
The following requirements apply to the establishment and
administration of variable life insurance separate accounts by any domestic
insurer.
(1) Establishment of separate
accounts. Any domestic life insurance company issuing variable life contracts
must establish one or more separate accounts pursuant to Insurance Code Chapter
1152.
(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 must be in writing and the commissioner has authority to review and
approve of both the terms of any such contract and the proposed custodian prior
to the transfer of custody.
(B) In
connection with the handling of separate account assets, such insurer may not
without prior written approval of the commissioner, employ in any material
manner any person who:
(i) within the last 10
years has been convicted of any felony or a misdemeanor arising out of such
person's conduct involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities or involving violation of
18 United States Code
§§1341,
1342,
or
1343,
as amended; or
(ii) within the last
10 years had 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 10 years has been found
by federal or state regulatory authorities to have violated or has acknowledged
violation of any provision of federal or state laws involving fraud, deceit, or
knowing misrepresentation.
(C) All persons with access to the cash,
securities, or other assets allocated to or held by the separate account must
be under bond in the amount of not less than $100,000.
(2) Amounts in the separate account. The
insurer must 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 contracts or the benefit base for such
contracts.
(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 contracts 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 commissioner in
advance.
(B) The
separate account must have sufficient net investment income and readily
marketable assets to meet anticipated withdrawals under contracts funded by the
account.
(4) Limitations
on ownership.
(A) A separate account may 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 investment of such account in such security
valued as required by these rules, would exceed 10% of the value of the assets
of the separate account. Upon appropriate documentation by the company, which
evidences that a waiver of this limitation will not render the operation of the
separate account hazardous to the public or contractholders in this state, the
commissioner may in writing waive this limitation.
(B) No separate account may 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. Upon appropriate documentation by the company, which evidences that a
waiver of this limitation will not render the operation of the separate account
hazardous to the public or the contractholders in this state, the commissioner
may in writing waive this limitation.
(C) The percentage limitations specified in
subparagraph (A) of this paragraph may not be construed to preclude the
investment of the assets of separate accounts in shares of investment companies
registered pursuant to 15 United States Code §§ 80b -1
- 80b-21, as
amended, 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 (3) of this section and other applicable portions
of this regulation.
(5)
Valuation of separate account assets. Investments of the separate account must
be valued at their market value on the date of valuation, or at amortized cost
if it approximates market value.
(6) Separate account investment policy. The
investment policy of a separate account operated by a domestic insurer filed
under §
3.803(2)(C) of
this title (relating to Qualification of Insurer to Issue Variable Life
Insurance) may not be changed without first filing such change with the
commissioner.
(A) Any change filed pursuant
to this paragraph will be effective 60 days after the date it was filed with
the commissioner, unless the commissioner notifies the insurer before the end
of such 60-day period of the commissioner's 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 paragraph.
(B) The commissioner may disapprove the
change if the commissioner determines that the change would be detrimental to
the interests of the contractholders participating in such separate
accounts.
(7) Charges
against separate account. The insurer must disclose in writing, prior to or
contemporaneously with delivery of the contract, all charges that may be made
against the separate account, including, but not limited to, the following:
(A) taxes or reserves for taxes attributable
to investment gains and income of the separate account;
(B) actual cost of reasonable brokerage fees
and similar direct acquisition and sale costs incurred in the purchase or sale
of separate account assets;
(C)
actuarially determined costs of insurance (tabular costs) and the release of
separate account liabilities. The tabular costs of insurance may not exceed the
mortality rate for the attained age of the insured in the table specified for
the calculation of cash surrender values in Insurance Code Chapter 1105,
provided, for insurance issued on a substandard basis, the charge for mortality
may be the mortality rate for the attained age of the insured in such other
table as may be specified by the company and approved by the Texas Department
of Insurance;
(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 contract, 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 must 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 of ethics
meeting the requirements of
15
United States Code §
80a-17, as amended,
and applicable rules and regulations thereunder satisfies the provisions of
this paragraph.
(9) Conflicts of
interest. Rules under any provision of the Insurance Code or any regulation
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 may 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 contracts unless:
(A) the person providing such advice is
registered as an investment advisor under 15 United States Code §§
80b -
1
- 80b -
21, as
amended;
(B) the person providing
such advice is an investment manager under
29 United States
Code §1001, et seq., as amended, with
respect to the assets of each employee benefit plan allocated to the separate
account; or
(C) the insurer has
filed with the commissioner and continues to file annually the following
information and statements concerning the proposed advisor:
(i) the name and form of the 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 requirements of paragraph (8) of this section which has been
adopted by the investment advisor and is applicable to the investment advisor,
its officers, directors, and affiliates;
(iv) a statement provided by the proposed
advisor as to whether the advisor or any person associated therewith:
(I) has been convicted within 10 years of any
felony or misdemeanor arising out of such person's conduct as an employee,
salesman, officer or director of an insurance company, a banker, an insurance
agent, a securities broker, or an investment advisor involving embezzlement,
fraudulent conversion, or misappropriation of funds or securities, or involving
the violation of 18 United States Codes §§1341, 1342, or 1343, as
amended;
(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 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 such laws;
or
(IV) has been censored, denied
an investment advisor registration, had a registration as an investment advisor
revoked or suspended, or been barred or suspended from being associated with an
investment advisor by order of federal or state regulatory authorities;
and
(D) such
investment advisory contract must 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 60 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 the commissioner
deems continued operation thereunder to be hazardous to the public or the
insurer's contractholders.
