[Federal Register Volume 60, Number 87 (Friday, May 5, 1995)]
[Notices]
[Pages 22420-22423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11131]
=======================================================================
-----------------------------------------------------------------------
[[Page 22421]]
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21035; File No. 812-9276]
Connecticut General Life Insurance Company, et al.
April 28, 1995.
agency: Securities and Exchange Commission (``SEC'' or the
``Commission'').
Action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``1940 Act'').
-----------------------------------------------------------------------
Applicants: Connecticut General Life Insurance Company (``CG Life''),
CG Variable Annuity Separate Account II (the ``Account''), certain
separate accounts that may be established by CG Life in the future to
support certain variable annuity contracts issued by CG Life (the
``Other Accounts'', collectively, with the Account, the ``Accounts'')
and Cigna Financial Advisors, Inc. (``Cigna'').\1\
\1\Applicants represent that they will file an amendment to the
application during the notice period and that such amendment will
reflect the Applicants.
---------------------------------------------------------------------------
Relevant 1940 Act Sections: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 2(a)(32), 26(a)(2)(C), 27(c)(1)
and 27(c)(2) of the 1940 Act and Rule 22c-1 thereunder.
Summary of Application: Applicants seek an order permitting CG Life to
deduct from the assets of the Accounts the mortality and expense risk
charge imposed under certain variable annuity contracts issued by CG
Life (the ``Existing Contracts'') and under any other variable annuity
contracts issued by CG Life which are materially similar to the
Existing Contracts and are offered through any of the Accounts (the
``Other Contracts'', together, with the Existing Contracts, the
``Contracts''). Additionally, where the Contract owner has selected an
optional death benefit, the order would permit applicants to deduct
from the value of the Contract an age and gender based charge for the
benefits selected. The charge would be deducted upon the occurrence of
one of the following events: upon the Contract anniversary; upon
annuitization of the Contract; upon surrender of the Contract; or upon
payment of the death benefit.
Filing Date: The application was filed on October 11, 1994, and amended
on December 19, 1994 and February 28, 1995.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on this application by writing to the
Secretary of the SEC and serving applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on May 23, 1995 and should be accompanied by
proof of service on applicants in the form of an affidavit or, for
lawyers, by certificate of service. Hearing requests should state the
nature of the interest, the reason for the request and the issues
contested. Persons may request notification of the date of a hearing by
writing to the Secretary of the SEC.
Addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Robert A. Picarello, Esq., S-321, Connecticut
General life Insurance Company, 900 Cottage Grove Road, Hartford,
Connecticut 06152.
For Further Information Contact: Barbara J. Whisler, Senior Counsel, or
Wendy Friedlander, Deputy Chief, both at (202) 942-0670, Office of
Insurance Products, Division of Investment Management.
Supplementary Information: Following is a summary of the application,
the complete application is available for a fee from the public
Reference Branch of the SEC.
Applicants' Representations
1. CG Life, a stock life insurance company domiciled in
Connecticut, is a wholly owned subsidiary of CIGNA Holdings, Inc.,
which is, in turn, wholly owned by CIGNA Corporation. The Account,
established January 25, 1994 under Connecticut law, is registered with
the Commission as a unit investment trust. The Account will fund the
Existing Contracts issued by CG Life.
2. Cigna will serve as the distributor of and the principal
underwriter for the Existing Contracts. The application states that
Cigna is also expected to serve as the distributor of and the principal
underwriter for the other Contracts. Cigna is a wholly owned subsidiary
of Connecticut General Corporation which, in turn, is a wholly owned
subsidiary of CIGNA Corporation. Cigna is a broker dealer registered
under the Securities Exchange Act of 1934, an investment advisor
registered under the Investment Advisers Act of 1940, and a member of
the National Association of Securities Dealers, Inc.
3. The Accounts are comprised of subaccounts (the ``Subaccounts'').
The assets of each Subaccount of an Account will be invested in a
corresponding portfolio of one of five investment companies (the
``Funds''). Currently, the Funds have seventeen portfolios available
for investment. Applicants state that each of the Funds is a
diversified, open-end management investment company. Applicants also
state that the number and identity of available Funds and investment
portfolios may change.
4. The Existing Contracts are combination fixed and variable
annuity contracts issued on an individual basis. The Existing Contracts
may be purchased on a nonqualified basis or with the proceeds from
certain plans qualifying for favorable tax treatment under the Internal
Revenue Code of 1986, as amended (the ``Code''). The minimum initial
premium is $2,500 and the minimum for subsequent premiums is $100. A
minimum initial premium of $2,000 will be permitted for an Individual
Retirement Annuity under Section 408 of the Code.
5. The Existing Contracts provide for certain guaranteed death
benefits at no charge if an optional death benefit is not selected. The
guaranteed death benefit is the value of the Account plus the value of
the fixed account as of the date CG Life receives due proof of death
and a payment election. If the owner of a Contract dies prior to the
annuity date, the death benefit will be paid to the beneficiary.
6. CG Life imposes an annual administrative fee of $35 on Contracts
having a Contract value of less than $100,000. Until the earlier of the
annuity date or a surrender of the Contract, the fee will be deducted
pro rata from all of the Subaccounts of the Account in which the owner
of the Contract invests. Where a variable payout has been selected
after the annuity date, the fee will be deducted proportionately and in
installments from the annuity payments. Applicants state that the
annual administrative fee partially compensates CG Life for
administrative services associated with the Contracts and the Account.
7. CG Life also deducts a daily administrative expense charge equal
annually to .10% of the average daily net asset value of the Account.
Applicants represent that CG Life does not anticipate a profit from
either the annual administrative charge or from the daily
administrative charge. Applicants also state that the charges are
guaranteed not to increase for a Contract once that Contract has been
issued. Finally, Applicants state that CG Life will rely upon and
comply with Rule 26a-1 under the 1940 Act in deducting both
administrative charges.
8. A contingent deferred sales charge (the ``Sales Charge'') of up
to 7% may be assessed by CG Life upon withdrawal [[Page 22422]] of a
portion of the Account's value or upon surrender of the Contract within
the first seven years of the Contract. The Sales Charge is a percentage
of the amount withdrawn and is assessed against the balance remaining
in the Account after withdrawal. The percentage declines depending upon
how many years have passed since the withdrawn premium was originally
made by the Contract owner. Applicants state that CG Life guarantees
that aggregate withdrawal charges under a Contract will not exceed 8.5%
of total premiums paid.
9. CG Life will impose a daily charge equal to an annual effective
rate of 1.20% of the value of the net assets of the Account to
compensate CG Life for assuming certain mortality and expense risks in
connection with the Contracts. Applicants state that approximately .70%
of the 1.20% charge is attributable to mortality risk while
approximately .50% is attributable to expense risk. The mortality and
expense risk charge is guaranteed not to increase for a Contract once
that Contract has been issued. If the mortality and expense risk charge
is insufficient to cover actual costs of the risks assumed, CG Life
will bear the loss. Conversely, if the charge exceeds costs, this
excess will be profit to CG Life and will be available for any
corporate purpose, including payment of expenses relating to the
distribution of the Contracts. Applicants state that CG Life expects a
profit from the mortality and expense risk charge.
10. Applicants state that the mortality risk borne by CG Life
arises from: (a) the contractual obligation of CG Life to make annuity
payments regardless of how long all annuitants or any individual
annuitant may live; and (b) the guarantee of a death benefit.
Applicants state that the expense risk assumed by CG Life under the
Contracts is the risk that the administrative charges assessed under
the Contracts may be insufficient to cover actual administrative
expenses incurred by CG Life.
11. When an application for a Contract is made, one or more
optional death benefits may be selected by the Contract owner. The
morality and expense risks charge does not compensate for the
anticipated costs of providing the optional death benefits. There is,
therefore, an additional charge for these benefits. Applicants describe
four optional death benefits. Once election is completed, the optional
death benefits chosen remain in effect for the life of the Contract
absent a written request by the owner of the Contract for termination.
Only one request for termination may be given. Optional death benefits
must be selected at the time of application, and can not be added at a
later date. The optional death benefits provide for the payment of a
certain amount as the death benefit if the value of the contract is
less than that amount when the death benefit is paid.
12. On each anniversary of a Contract, a charge will be made for
any optional death benefit in effect for the Contract year just ended.
If the charge is applicable, it will be computed in accordance with
mortality tables which are made a part of the Contract and reflect the
age and the gender of the owner of the Contract. The charge is based
upon the ``amount at risk.'' The amount at risk is the excess of the
death benefit which would be payable at the end of a Contract month
over the Account value. There is no deduction made from the Account
value until the Contract anniversary. At the Contract anniversary, the
sum of any charges accrued at the end of each Contract month during the
previous year is deducted. If the owner or the annuitant, as
applicable, were to die on other than a Contract anniversary, all
charges accrued will be deducted from the death benefit payable, the
surrender proceeds or from the amount applied to provide annuity
benefits.
13. Applicants state that CG Life expects to derive a profit from
the optional death benefit charge. Applicants also represent that the
table of charges in the application, which sets forth the charges for
the optional death benefits, is guaranteed not to change for any
Contract once that Contract is issued.
14. CG Life may incur premium taxes relating to the Contracts and
CG Life will deduct these taxes upon withdrawal, annuitization or
payment of the death benefit. CG Life reserves the right to deduct
charges made for federal, state or local taxes incurred by CG Life in
the future.
Applicants' Legal Analysis and Conditions
1. Applicants request that the Commission, pursuant to Section 6(c)
of the 1940 Act, grant exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act in connection with Applicants' assessment of
the daily charge for the mortality and expense risks under the
Contracts and for Applicants' assessment, where applicable, of the
optional death benefit charge. Applicants state that the requested
extension of relief to the Other Accounts and the Other Contracts is
appropriate in the public interest. Applicants assert that the relief
would promote competitiveness in the variable annuity market by
eliminating the need to file redundant exemptive applications and
would, therefore, reduce administrative expenses and maximize efficient
use of resources. Applicants argue that the delay and expense involved
in having to repeatedly seek exemptive relief would impair the ability
of CG Life to take advantage effectively of business opportunities as
those opportunities arise. Applicants assert that the requested relief
is consistent with the purposes of the 1940 Act and the protection of
investors for the same reasons. Finally, Applicants state that were CG
Life required to seek repeated exemptive relief with respect to the
issues addressed in the application, no additional benefit or
protection would be provided to investors through the redundant
filings.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent
part, prohibit a registered unit investment trust and any depositor
thereof or underwriter therefor from selling periodic payment plan
certificates unless the proceeds of all payments (other than sales
load) are deposited with a qualified bank as trustee or custodian and
held under arrangements which prohibit any payment to the depositor or
principal underwriter except a fee, not exceeding such reasonable
amount as the Commission may prescribe, for performing bookkeeping and
other administrative services of a character normally performed by the
bank itself.
3. Applicants assert that the charge for morality and expense risks
and the charge for the optional death benefit are reasonable in elation
to the risks assumed by CG Life under the Contracts.
4. Applicants represent that the morality and expense risk charge
is within the range of industry practice with respect to comparable
annuity products. Applicants state that this representation is based
upon Applicants' analysis of a survey of comparable contracts issued by
a large number of insurance companies taking into consideration such
factors as: current charge levels; benefits provided; charge level
guarantees; and guaranteed annuity rates. Applicants represent that CG
Life will maintain at its home office, available to the Commission, a
memorandum setting forth in detail the methodology and the results of
the comparative survey analyzed by Applicants.
5. Applicants represent that the charge for the optional death
benefit is determined by multiplying, at the end of each Contract
month, the actual [[Page 22423]] amounts at risk under the benefit or
benefits selected by the cost per $1,000 of the amount at risk.
Applicants also represent that the amounts at risk used will be actual
figures, and that the determination of the figures on a monthly basis
is reasonable. Applicants state that the cost per $1,000 of amount at
risk, i.e., the cost of insurance charge, was determined using
assumptions regarding the expected mortality of the Contract owners.
Applicants state that these assumptions reflect that the Contracts are
both insurance and investment vehicles and could appeal to a different
group than would a traditional annuity. CG Life represents that there
could be less self selection of this product by healthy individuals
than a traditional annuity. Applicants further state that, because of
the optional death benefits provided under the Contracts without health
underwriting, there could be self selection by unhealthy individuals
who would not ordinarily quality for traditional life insurance. CG
Life asserts that the foregoing mortality assumptions are reasonable.
Applicants state the CG Life undertakes to maintain, at its home office
and available to the Commission, a memorandum detailing the methodology
used in determining that the optional death benefit charge is
reasonable in relation to the risks assumed by CG Life under the
Contracts.
6. Applicants acknowledge that the Sales Charge will likely be
insufficient to cover all costs relating to the distribution of the
Contracts. To the extent distribution costs are not covered by the
Sales Charge, CG Life will recover its distribution costs from the
assets of the general account. These assets may include that portion of
the mortality and expense risk charge which is profit to CG Life, and
that portion of the optional death benefit charge that is profit.
Applicants represent that CG Life has concluded that there is a
reasonable likelihood that the proposed distribution financing
arrangement will benefit the Account, the Other Accounts and the owners
of the Contracts. The basis for this conclusion is set forth in a
memorandum which will be maintained by CG Life at its home office and
will be made available to the Commission.
7. CG Life also represents that the Accounts will invest only in
open-end management investment companies which undertake, in the event
such company adopts a plan under Rule 12b-1 of the 1940 Act to finance
distribution expenses, to have such plan formulated and approved by
either the company's board of directors or the board of trustees, as
applicable, a majority of whom are not interested persons of such
company within the meaning of the 1940 Act.
8. Applicants also request an order under Section 6(c) granting
exemptions from Sections 2(a)(32) and 27(c)(1) of the 1940 Act and Rule
22c-1 thereunder to the extent necessary to permit the deduction from
Account values of the optional death benefit charges at the following
times: upon surrender; upon anuitization; and upon payment of a death
benefit.
9. Section 27(c)(1) requires that periodic payment plan
certificates, such as the Contracts, be redeemable securities. Section
2(a)(32) defines a ``redeemable security'' as one which, upon
presentation to the issuer, entitles the holder to receive
``approximately his proportionate share of the issuer's current net
assets, or the cash equivalent thereof.'' Rule 22c-1 under the 1940 Act
prohibits redemptions ``except at a price based on the current net
asset value of such security which is next computed * * *.'' Applicants
concede that where the optional death benefit charge is imposed upon
annuitization, surrender or payment of the death benefit, the net
dollar amount paid upon surrender or in the form of a death benefit, or
applied to the purchase of annuity units under the Contract, will be
less than the full accumulation unit value of the variable portion of
the Contract. Applicants state, however, that the gross proceeds will
equal the full net asset value of the variable portion of the Contract.
Applicants represent that the difference between the gross proceeds and
the net dollar amount paid or applied will be equal to the unpaid
aggregate charges for the optional death benefit that have accrued
since the most recent Contract anniversary, Applicants state that if
the cost for the optional death benefit were deducted from the value of
the Contract upon accrual, there would be no difference between the
gross proceeds and the net amount paid or applied. Applicants argue
that payment of the accrued but unpaid charges out of the gross
proceeds of redemption, annuitization or a death benefit should be
viewed as a delayed deduction of otherwise permitted charges.
Applicants assert that the prohibitions of Sections 2(a)(32) and
27(c)(1) and Rule 22c-1 are designed to prevent diminution or dilution
of investment company assets and should not, therefore, be applied to a
transaction that, but for its timing, would be otherwise permissible.
Conclusion
Applicants assert that the resons and upon the facts set forth
above, the requested exemptions from Sections 2(a)(32), 26(a)(2)(C) and
27(c)(2) of the 1940 Act and Rule 22c-1 thereunder are unnecessary and
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.
For the Commission, by the Division Investment Management,
pursuant to delegated authority.
[FR Doc. 95-11131 Filed 5-4-95; 8:45 am]
BILLING CODE 8010-01-M