[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Notices]
[Pages 40258-40260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19565]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22103; No. 812-9692]
ITT Hartford Life and Annuity Insurance Company, et. al.
July 26, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of Application for an Order pursuant to the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: ITT Hartford Life and Annuity Insurance Company (``ITT
Hartford''), Separate Account VL I of ITT Hartford Life and Annuity
Insurance Company (the ``Account''), and Hartford Equity Sales Company
(``HESCO'').
RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 6(c) of
the 1940 Act granting exemptions from Section 27(a)(3) thereof and
Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit ITT
Hartford, through the Account, to issue certain flexible premium
variable life insurance contracts (``Contracts'') that provide for a
front-end sales loan on premium payments in any given contract year up
to a maximum amount (``Maximum Sales Load Premium'') and no sales load
on premiums in excess of such Maximum Sales Load Premium (``Excess
Premiums'') in any given contract year. Applicants also request
exemptive relief to permit ITT Hartford, though separate accounts it
establishes in the future, to issue flexible premium variable life
insurance contracts that are materially similar to the Contracts.
FILING DATE: The application was filed on July 26, 1995, and amended on
June 6, 1996.
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 by writing to the Secretary of the
Commission 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 August 20, 1996, and must 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 may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, N.W., Washington, D.C. 20549. Applicants, c/o Scott K.
Richardson, Assistant Counsel, ITT Hartford Insurance Companies, P.O.
Box 2999, Hartford, Connecticut 06104-2999.
FOR FURTHER INFORMATION CONTACT:
Kevin M. Kirchoff, Senior Counsel, or Patrice M. Pitts, Special
Counsel, Office of Insurance Products (Division of Investment
Management), at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the Public
Reference Branch of the Commission.
Applicants' Representations
1. ITT Hartford is a stock life insurance company engaged in the
business of writing annuities and both individual and group life
insurance in the District of Columbia and all states except New York.
ITT Hartford is a wholly-owned subsidiary of Hartford Life Insurance
Company.
2. The Account was established as a separate account of ITT
Hartford on June 8, 1995, pursuant to the insurance law of the State of
Connecticut. The Account is registered with the Commission pursuant to
the 1940 Act as a unit investment trust. The Account presently consists
of twenty-two subaccounts (``Subaccounts''), each of which will invest
exclusively in certain open-end management investment companies.
3. HESCO, the principal underwriter for the Contracts, is
registered as a broker-dealer pursuant to the Securities Exchange Act
of 1934, and is a member of the National Association of Securities
Dealers, Inc.
4. The Contracts are flexible premium variable life insurance
policies. Contract owners choose the amount of premiums
[[Page 40259]]
they intend to pay (``Scheduled Premiums'') within a range determined
by ITT Hartford based on a variety of factors, including the face
amount of the Contract, the insured's sex (except where unisex rates
apply), age at issue, and risk classification. Contract owners also may
pay other premiums at any time (``Unscheduled Premiums''), subject to
certain restrictions. The cash value under a Contract will, and the
death benefit may, increase or decrease depending on the investment
experience of the Subaccounts to which the premium payments have been
allocated.
5. The Guideline Annual Premium, as provided by Rule 6e-
3(T)(c)(8)(i), is the level annual premium necessary to provide the
future benefits under the Contract through maturity, based on certain
specified assumptions, which include mortality charges based on the
1980 Commissioners' Standard Ordinary Mortality Smoker or Non-Smoker
Table, age last birthday, and assured annual net rate of return of at
least 5 percent per year, and a reduction of the guaranteed fees and
changes specified in the policy.
6. During a period which begins on the date the Contract is
effective and continues for one to ten years as selected by the
Contract owner (``Guarantee Period''), ITT Hartford will guarantee that
the Contract will not lapse, regardless of the investment experience of
the Subaccounts, if the Contract owner pays the Scheduled Premiums when
due. In addition, Unscheduled Premiums will be allowed during the
Guarantee Period. If the Contract owner does not pay all Scheduled
Premiums during the Guarantee period, the Contract will stay in force
as long as an amount calculated under the Contract exceeds the
indebtedness under the Contract.
7. The Contracts provide for the payment of a death benefit to the
beneficiary when the insured dies. The death benefit equals the death
benefit less any indebtedness under the Contract and any due and unpaid
monthly deduction amount occurring during a grace period.
8. ITT Hartford deducts a sales load from premium payments prior to
allocating them to the account value of a Contract. The amount of the
deduction is calculated using a percentage of the premiums paid during
each Contract year, as specified in the Contract. The amount of the
front-end sales load will be based on the amount of the Scheduled
Premiums for the Contract, the Guarantee Period, and any Unscheduled
Premiums paid. The maximum front-end sales load applied to any premium
in the first Contract year will be 50 percent of the amount of premiums
paid during the first Contract year, subject to the limits described
below. Also subject to certain limits, the maximum front-end sales load
in a Contract year will be 11 percent of premiums paid during Contract
years two through ten and 3 percent of premiums paid in Contract years
eleven and beyond.
9. No front-end sales load in excess of the Guideline Annual
Premium will be imposed under the Contracts on premium payments in any
Contract year. In the first Contract year, no sales load will be
imposed on premiums that exceed the Scheduled Premium, if it is less
than the Guideline Annual Premium. The maximum amount of a premium
payment subject to a front-end sales load is the ``Maximum Sales Load
Premium.''
10. A contingent deferred sales charge will be assessed against the
account value of a Contract prior to a lapse or surrender if the
Contract lapses or is surrendered within the first nine years
(``Surrender Charge''). The amount of the Surrender Charge applicable
to the first Contract year under a Contract will be established by ITT
Hartford and will decrease by an equal amount each Contract year until
it reaches zero during the tenth year. Generally, the shorter the
Guarantee Period under a Contract, the lower the Surrender Charge that
will apply to the Contract.
11. The aggregate of the front-end sales load and Surrender Charge
assessed will not exceed 180 percent of the Guideline Annual Premium,
or nine percent of the sum of the Guideline Annual Premium that would
be paid over a twenty year period. In cases where the anticipated life
expectancy of the insured named in the Contract is less than twenty
years, the total sales load will be reduced to nine percent of the sum
of the Guideline Annual Premium for the shorter period.
12. If a Contract is surrendered during the first two Contract
years, the Contract owner may be entitled to a refund of some of the
front-end sales load or Surrender Charge assessed. The refund will be
equal to the excess, if any, of the actual front-end sales load and
Surrender Charge assessed under the Contract over:
(a) the sum of 30 percent of the aggregate premium payments less
than or equal to one Guideline Annual Premium plus 10 percent of such
payments greater than one, but not more than two, Guideline Annual
Premium(s); and
(b) 9 percent of each premium payment exceeding two Guideline
Annual Premiums.
13. On a designated date each month, ITT Hartford will deduct from
the account value, from the fixed account and each of the Subaccounts
funding a Contract on a pro-rata basis, the following charges:
(a) a cost of insurance charge;
(b) a mortality and expense risk charge that varies proportionately
from .90 percent of account value annually for a Contract with a one-
year Guarantee Period to .60 percent for a Contract with a ten-year
Guarantee Period;
(c) an administrative charge of $8.33 per month initially,
guaranteed not to increase during the Guarantee Period, and guaranteed
not to exceed $12.00 per month after the Guarantee Period;
(d) during the first Contract year, a monthly charge for
underwriting and issuance costs of $8.33 per month, plus an amount that
varies based on the age of the insured and the initial face amount of
the Contract;
(e) a percentage of each premium to pay premium taxes, varying by
locale, depending on tax rates in effect; \1\
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\1\ Currently, no charge is assessed for Federal, state and
local income taxes attributable to premiums, however ITT Hartford
reserves the right to assess such a charge in the future.
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(f) if applicable, charges for additional benefits provided by
riders to the Contract; and
(g) if applicable, a charge for a special insurance class rating of
the insured.
Applicants' Legal Analysis
1. Pursuant to Section 6(c) of the 1940 Act, the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision or provisions
of the 1940 Act or from any rule or regulation thereunder, if and to
the extent that such exemption is necessary or 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.
2. Section 27(a)(3) of the 1940 Act provides, in effect, that the
amount of sales charge deducted from any of the first twelve monthly
payments on a periodic payment plan certificate by any registered
investment company issuing such certificates or any depositor or
underwriter for such company may not exceed proportionately the amount
deducted from any other such payment and that the amount deducted from
any subsequent payment may not exceed proportionately the amount
deducted from any other subsequent payment (``stair-step'' provisions).
[[Page 40260]]
3. Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) provide
exemptions from Section 27(a)(3), provided that the proportionate
amount of sales charge deducted from any payment does not exceed the
proportionate amount deducted from any prior payment, unless an
increase is caused by reductions in the annual cost of insurance or
reductions in sales load for amounts transferred to a variable life
insurance contract from another plan of insurance.
4. Under the sales load structure of the Contracts, in any given
year no front-end sales load will be deducted from premiums paid in
excess of the Maximum Sales Load Premium. Thus, a Contract owner could
pay a premium in any given Contract year from which no front-end sales
load deduction is made (because cumulative premiums paid that year
exceeded the Maximum Sales Load Premium), then pay the initial premium
in the next Contract year from which a front-end sales load will be
deducted. The exemptions from Section 27(a)(3) of the 1940 Act provided
by Rules 6e-3(T)(b)(13)(ii) and 6e-3(T)(d)(1)(ii) do not appear to
provide relief under these circumstances. Accordingly, pursuant to
Section 6(c), Applicants request an exemption from the provisions of
Section 27(a)(3) of the 1940 Act and Rules 6e-3(T)(b)(13)(ii) and 6e-
3(T)(d)(1)(ii) thereunder to the extent necessary to permit them to
deduct sales charges from premiums paid pursuant to the Contracts in
the manner described above.
5. Applicants assert that the sales load structure in the Contracts
is designed to give Contract owners flexibility with respect to premium
payments while permitting ITT Hartford to deduct only those charges
deemed necessary to support the benefit guarantees under the Contracts.
The sales load structure was designed to reflect ITT Hartford's
operating expenses in connection with sales of the Contracts.
Applicants submit that the deduction of a front-end sales load on only
the premiums paid up to the Maximum Sales Load Premium does not
implicate the policy concerns that underlie the stair-step provisions
of Section 27(a)(3).
6. Applicants submit that ITT Hartford could avoid the stair-step
issue simply by imposing the higher front-end sales load equally on
premium payments up to the Maximum Sales Load Premium and on Excess
Premiums, subject to the maximum permissible limits. Applicants assert
that, while this sales load structure would qualify under the Rule 6e-
3(T)(b)(13)(ii) exemption from Section 27(a)(3), it would be to the
detriment of Contract owners, who benefit from the absence of a front-
end sales load in connection with Excess Premiums.
7. Applicants assert that, in two letters responding to requests
for no-action assurance, the Commission staff concluded that Section
27(a)(3), in conjunction with the other sales charge limitations in the
1940 Act, was designed to address the perceived abuse of periodic
payment plan certificates that deducted large amounts of front-end
sales charges so early in the life of the plan that investors redeeming
in the early periods would recoup little of their investments.
Applicants submit that the sales charge structure for the Contracts
would not have this effect. On the contrary, by not imposing a front-
end sales load on premiums paid in any Contract year in excess of the
Maximum Sales Load Premium, Applicants assert that a greater proportion
of the sales load charges will be deducted later than otherwise would
be the case.
8. Applicants submit that one purpose behind Section 27(h)(3) of
the 1940 Act, a provision similar to Section 27(a)(3), is to discourage
unduly complicated sales charges. This may also be deemed to be a
purpose of Section 27(a)(3) and Rule 6e-3(T)(b)(13)(ii). By limiting
front-end sales charges to premiums up to the Maximum Sales Load
Premium, Applicants submit that the sales charge structure under the
Contracts is not unduly complicated.
9. Applicants also request exemptive relief to permit ITT Hartford,
through separate accounts it establishes in the future, to issue
flexible premium variable life insurance contracts that are materially
similar to the Contracts. Applicants believe that, without such relief,
they would have to apply for and obtain orders granting exemptive
relief in connection with future contracts that are materially similar
to the Contracts under similar circumstances.
10. Applicants submit that their request for exemptive relief for
future separate accounts established by ITT Hartford would promote
competitiveness in the variable life insurance contract market by
eliminating the need for redundant exemptive applications, thereby
reducing Applicants' administrative expenses and maximizing the
efficient use of their resources. Applicants further submit that the
delay and expense involved in having repeatedly to seek exemptive
relief would impair their ability effectively to take advantage of
business opportunities as they arise. Further, if Applicants were
required repeatedly to seek exemptive relief with respect to the same
issues addressed in this application, investors would not receive any
benefit or additional protection.
Conclusion
For the reasons summarized above, Applicants represent that the
exemptions requested 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 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19565 Filed 7-31-96; 8:45 am]
BILLING CODE 8010-01-M