[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24953-24955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11444]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21039; File No. 812-9288]
Companion Life Insurance Company, et al.
May 3, 1995.
AGENCY: U.S. Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Companion Life Insurance Company (``Companion Life''),
Companion Life Separate Account C (the ``Separate Account'') and Mutual
of Omaha Investor Services, Inc. (``Mutual of Omaha'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2)(C) and 27(c)(2).
SUMMARY OF APPLICATION: An order is sought exempting Applicants and
principal underwriters of certain flexible payment deferred variable
annuity contracts (the ``Policies'') to the extent necessary to permit
the payment to Companion Life of a mortality and expense risk charge
from the assets of the Separate Account under the Policies.
FILING DATE: The application was filed on October 17, 1994 and amended
and restated on April 4, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 30, 1995,
and should be accompanied by proof of service on Applicants in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549; Applicants, Companion Life Insurance Company, 401 Theodore Fremd
Avenue, Rye, New York 10580-1493.
FOR FURTHER INFORMATION CONTACT:
Edward P. Macdonald, Staff Attorney, or Wendy Friedlander, Deputy
Chief, 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 SEC's Public
Reference Branch.
Applicant's Representations
1. Companion life is a stock life insurance company, incorporated
under the laws of the State of New York on June 3, 1949, and engaged in
the sale of life insurance and annuity policies in New York State. It
is also licensed in New Jersey and Connecticut but does not currently
do business in these states. Companion Life, a wholly-owned subsidiary
of United of Omaha Life Insurance Company, is the depositor of the
Separate Account.
2. The Separate Account was established by Companion Life as a
separate investment account, on February 18, 1994, under the laws of
the State of New York to serve as the funding medium for the Policies.
The Separate Account currently has nine subaccounts (the
``Subaccounts'') and is registered under the Act as a unit investment
trust. Each Subaccount invests in a corresponding portfolio of an
underlying management investment company (``Fund''). Each Fund is
registered under the Act as an open-end, management investment company
and its shares are registered under the Securities Act of 1933.
3. Mutual of Omaha serves as distributor and principal underwriter
for the Policies. It is registered with the SEC as a broker-dealer and
is a member of the National Association of Securities Dealers, Inc.
(``NASD''). Broker-dealers other than Mutual of Omaha may also serve as
distributors and principal underwriters of the Policies, to the extent
the Policies are sold through alternate distribution channels. Any
[[Page 24954]] such other broker-dealer will be registered under the
Securities Exchange Act of 1934 as a broker-dealer and will be a member
of the NASD.
4. The Policies may be purchased on a non-tax qualified basis
(``Non-Qualified Policies'') or they may be purchased and used in
connection with retirement plans that qualify for special federal tax
treatment under Sections 401, 403, 408 or 457 of the Internal Revenue
Code (``Qualified Policies''). The Policies require a minimum initial
purchase payment of at least $5,000, and subsequent purchase payments
must be at least $500. An owner can allocate purchase payments to one
or more Subaccounts or to a fixed account option. which is part of
Companion Life's general account.
5. An owner can transfer accumulation value from one Subaccount of
the Separate Account to another, or from the Separate Account to the
fixed account within certain limits. The minimum amount which may be
transferred is the lesser of $500 or the entire Subaccount value. If
the Subaccount value remaining after a transfer is less than $500,
Companion Life reserves the right, at its discretion, either to deny
the transfer request or to include that amount as part of the transfer.
Transfers out of a Subaccount currently may be made as often as the
owner wishes, subject to the mimimum amount specified above. Companion
Life reserves the right to otherwise limit or restrict transfers in the
future or to eliminate the transfer privilege. Companion Life also
reserves the right to restrict transfers from the Separate Account to
the fixed account of amounts previously transferred from the fixed
account, for a period of time determined by Companion Life.
6. A death benefit is available under the Policy. If an owner dies
prior to age 76, the death benefit will equal the greatest of (a) the
accumulation value (without deduction of a withdrawal charge) as of the
end of the valuation period during which due proof of death and an
election of payout option is received by Companion Life's service
office, less any charge for applicable premium taxes; (b) the sum of
net purchase payments less partial withdrawals; or (c) in the eighth
Policy year and later, the accumulation value as of the most recent 7-
year Policy anniversary, less any amounts subsequently withdrawn and
less any charge for applicable premium taxes. If any owner dies upon,
or after age 76, the death benefit will equal the larger of (a) and (b)
above.
7. On the last evaluation date of each Policy year prior to the
annuity starting date and upon a complete surrender, Companion Life
deducts from the accumulation value an annual fee of $30 to reimburse
it for administrative expenses relating to the Policies. The fee will
be deducted from each Subaccount based on the proportion that the
accumulation value in each account bears to the total accumulation
value. This charge is guaranteed not to increase for the duration of
the Policy. Applicants represent that this charge will be deducted in
reliance on Rule 26a-1 under the Act and represents reimbursement only
for administrative costs expected to be incurred over the life of the
Policy. Companion Life does not anticipate any profit from this charge.
8. Companion Life does not deduct a sales charge at the time of
investment. However, a withdrawal charge may be deducted upon surrender
or partial withdrawal of purchase payments. A withdrawal charge also
may be deducted upon the election of certain annuity options.
Withdrawal charges are not deducted upon the payment of a death benefit
or, under Qualified Policies, any refund of contributions paid in
excess of the owner's deductible amounts. The withdrawal charge equals
a specified percentage of the purchase payment withdrawn. The
withdrawal charge is calculated by multiplying the percentages
specified in the table below by the amount of purchase payments
withdrawn. The number of years since the date of the purchase payment
being withdrawn will determine the withdrawal charge percentage that
will apply to that purchase payment.
------------------------------------------------------------------------
Applicable
withdrawal
Years since receipt of purchase payment charge
percentage
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1........................................................... 7
2........................................................... 6
3........................................................... 5
4........................................................... 4
5........................................................... 3
6........................................................... 2
7........................................................... 1
8 and later................................................. 0
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Each Policy year, up to 10% of all purchase payments, less any
prior withdrawals, may be withdrawn without the imposition of the
withdrawal charge. Purchase payments surrendered or withdrawn in excess
of this 10% amount will be assessed the withdrawal charge.
9. Companion Life does not anticipate that the withdrawal charge
will generate sufficient revenues to pay the cost of distributing the
Policies. If these charges are insufficient to cover the expenses of
distributing the Policies, the deficiency will be met from the general
account assets of Companion Life, which may include amounts derived
from the charge for mortality and expense risks.
10. Companion Life deducts a daily administrative charge to
compensate it for expenses it incurs in the administration of the
Policies and the separate Account. The charge is deducted from the
assets of the Separate Account at an annual rate of 0.15%, and is
guaranteed not to increase. Companion Life represents that this charge
will be deducted to reliance on Rule 26a-1 under the Act and represents
reimbursement only for administrative costs expected to be incurred
over the life of the Policy. Companion Policy does not expect to make a
profit from this charge.
11. Companion Life imposes an annual charge of 1.25% on the net
assets of the Separate Account to compensate it for bearing certain
mortality and expense risks in connection with the Policies. Of that
amount .95% is attributable to the mortality risk, and .30%\1\ is
attributable to the expense risk. Companion Life guarantees that this
charge will never exceed an annual rate of 1.25%. If the morality and
expense risk charges under the Policies are insufficient to cover
actual costs and assumed risks, the loss will be borne by Companion
Life. Conversely, if the charge is more than sufficient to cover such
costs, any excess will be profit to Companion Life. Companion Life
currently anticipates a profit from this charge.
\1\Applicants will file an amendment during the notice period to
add these numbers.
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12. The mortality risk borne by Companion Life arises from its
contractual obligation to make annuity payments regardless of how long
all annuitants or any individual annuitant may live. This undertaking
assures that neither an annuitant's own longevity, nor an improvement
in general life expectancy, will adversely affect the periodic annuity
payments that a payee will receive under a Policy. Companion Life also
incurs a mortality risk in connection with the death benefit guarantee.
There is no extra charge for this guarantee.
13. The expense risk assumed by Companion Life is the risk that its
actual administrative costs will exceed the amount recovered from the
administrative charge, the transfer fee (if imposed), the processing
fee (if imposed) and the annual Policy fee.
14. Companion Life will deduct a charge for premium taxes,
currently [[Page 24955]] ranging up to 3.5% on annuity policies issued
by insurance companies. In addition, other government units within a
state may levy such taxes.
15. Companion Life imposes a $10 transfer fee to any transfer in
excess of 12 per Policy year. Companion Life deducts the transfer fee
from the amount transferred. No charge will be imposed on transfers
from the fixed account and transfers made in connection with the dollar
cost averaging program do not count toward the 12 free transfers per
year limit. Applicants represent that this charge will be deducted in
reliance on Rule 26a-1 and represents reimbursement only for
administrative costs expected to be incurred in processing transfers
over the life of the Policies. Companion Life does not anticipate any
profit from this charge.
Applicant's Legal Analysis
1.Section 6(c) of the Act authorizes the Commission to grant an
exemption from any provision, rule or regulation of the Act to the
extent that it is necessary or appropriate in the public interest and
consist with the protection of investors and the purposes fairly
intended by the Policy and provisions of the Act. Sections 26(a)(2)(C)
and 27(c)(2) of the Act, in relevant part, prohibit a registered unit
investment trust, its depositor or principal underwriter, from selling
periodic payment plan certificates unless the proceeds of all payments,
other than sales loads, are deposited with a qualified bank and held
under arrangements which prohibit any payment to the depositor or
principal underwriter except a reasonable fee, as the Commission may
prescribe, for performing bookkeeping and other administrative duties
normally performed by the bank itself.
2. Applicants request exemptions from Sections 25(a)(2)(C) and
27(c)(2) of the Act to the extent necessary to permit the deduction of
a charge of 1.25% from the assets of the Separate Account to compensate
Companion Life for the assumption of mortality and expense risks.
Applicants assert that the requested exemptions are necessary 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 Act.
3. Applicants request that the relief sought herein also apply to a
class consisting of broker-dealers who may, in the future, act as
principal underwriters of the Policies. Applicants believe that the
terms of the relief requested with respect to future underwriters
issuing the Policies are consistent with the standards enumerated in
Section 6(c) of the Act. The requested relief would promote
competitiveness in the variable annuity market by eliminating the need
for Companion Life to file redundant exemptive applications for each
new principal underwriter that distributes the Policies it issues,
thereby reducing its administrative expenses and maximizing the
efficient use of its resources. The delay and expense involved in
having to repeatedly seek exemptive relief would impair Companion
Life's ability to effectively take advantage of business opportunities
as they arise and investors would not receive any benefit or additional
protection thereby. Indeed, they might be disadvantaged as a result of
Companion Life's increased overhead expenses. Thus, Applicants believe
that the requested exemption is appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act.
4. Applicants submit that Companion Life is entitled to reasonable
compensation for its assumption of mortality and expense risks.
Applicants represent that the charge of 1.25% on an annual basis under
the Policies made for mortality and expense risks is consistent with
the protection of investors because it is a reasonable and proper
insurance charge. Companion Life represents that the charge of 1.25%
for mortality and expense risks is within the range of industry
practice with respect to comparable annuity products. This
representation is based upon an analysis of publicly available
information about similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level
guarantees, guaranteed annuity rates. Companion Life will maintain at
its administrative office, available to the Commission, a memorandum
setting forth in detail the products analyzed in the course of, and the
methodology and results of, the comparative survey.
5. Applicants acknowledge that the proceeds of the withdrawal
charges may be insufficient to cover all costs relating to the
distribution of the Policies. Applicants also acknowledge that, if a
profit is realized from the mortality and expense risk charge, all or a
portion of such profit may be viewed by the Commission as being offset
by distribution expenses not reimbursed by the sales charge. Companion
Life has concluded that there is a reasonable likelihood that the
proposed distribution financing arrangements will benefit the Separate
Account and the Policy owners. The basis for such conclusion is set
forth in a memorandum which will be maintained by Companion Life at its
administrative offices and will be available to the Commission.
Companion Life also represents that the Separate Account will only
invest in management investment companies which undertake, in the event
any such company adopts a plan under Rule 12b-1 to finance distribution
expenses, to have a board of directors (or trustees), a majority of
whom are not interested persons of the company as defined in the Act,
formulate and approve any such plan under Rule 12b-1.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and purposes
fairly intended by the Policy and provisions of the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 95-11444 Filed 5-9-95; 8:45 am]
BILLING CODE 8010-01-M