Current through Reg. 50, No. 13; March 28, 2025
(a) Establishment
of separate account. Any domestic life insurance company issuing variable
annuity contracts must establish one or more separate accounts under Insurance
Code Chapter 1152, concerning Separate Accounts, Variable Contracts, and
Related Products.
(1) 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 disapprove both the terms of any such contract and the proposed
custodian before the transfer of custody.
(2) 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:
(A) 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;
(B) within the last 10 years has been found
by any state regulatory authority to have violated or has acknowledged
violation of any provision of any state insurance law involving fraud, deceit,
or knowing misrepresentation; or
(C) 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.
(3) 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.
(b) Amounts in the separate account. The
insurer must maintain in each separate account assets with a value at least
equal to the valuation reserves for the variable portion of the variable
annuity insurance contracts and other contractual liabilities.
(c) Investments by the separate account. 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:
(1) 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
(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.
(d) Limitations
on ownership.
(1) 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 investments of such account in such security
valued as required by this subchapter, 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 the contract holders in this
state, the commissioner may in writing waive this limitation.
(2) 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 contract holders in this state, the commissioner
may in writing waive this limitation.
(3) The percentage limitation specified in
paragraph (1) of this subsection may not be construed to preclude the
investment of the assets of separate accounts in shares of investment companies
registered under 15 United
States Code §§
80b-1 to
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
subsection (c) of this section and other applicable portions of this
regulation.
(e) 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.
(f)
Separate account investment policy. The investment policy of a separate account
operated by a domestic insurer filed under §
4.2103(2)(C) of
this title (relating to Qualifications of Insurer to Issue Variable Annuities)
may not be changed without first filing such change with the commissioner.
(1) Any change filed under this subsection
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 disapproval of the proposed change. At any time, the commissioner
may, after notice and public hearing, disapprove any change that has become
effective under this subsection.
(2) The commissioner may disapprove the
change if the commissioner determines that the change would be detrimental to
the interest of the contract holders participating in such separate
account.
(g) Charges
against separate accounts. The insurer must disclose in writing, before or
contemporaneously with delivery of the contract, 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)
charges for administrative expenses and investment management expenses,
including internal costs attributable to the investment management of assets of
the separate account;
(4) a charge,
at a rate specified in the policy, for any mortality and expense
guarantees;
(5) any amounts in
excess of those required to be held in the separate account; and
(6) charges for incidental insurance
benefits.
(h) Standards
of conduct. Every insurer seeking approval to enter into the variable annuity
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 adopted under that section will satisfy the
provisions of this subsection.
(i)
Conflicts of interest. Rules adopted under any provisions of the Insurance Code
or any regulation applicable to the officers and directors of insurance
companies with respect to conflicts of interests also apply to members of any
separate account's committee or other similar body.
(j) 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 annuity
contracts unless:
(1) the person providing
such advice is registered as an investment advisor under
15 United States Code
§§
80b-1 to
80b-21, as amended;
(2) 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
(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, 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 advisor be an individual, the name and address of such
individual;
(C) a written standard
of conduct complying in substance with the requirements of subsection (h) of
this section that has been adopted by the investment advisor and is applicable
to the investment advisor, its officers, directors, and affiliates;
and
(D) 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 Code §§
1341,
1342, or
1343;
(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
(4) such investment
advisory contract must be in writing and provide that it is subject to review
and termination by the commissioner at any time, and 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 under the contract to be hazardous to the public or the insurer's
contract holders.
