Variable Life Insurance

PURPOSE: This rule was adopted pursuant to the provisions of section 374.045, RSMo and implements and defines sections 376.309, 376.670 and 376.675, RSMo. (1) Definitions. (A) Affiliate of an insurer means any person, directly or indirectly, controlling, controlled by or under common control with the insurer; any person who regularly furnishes investment advice to that insurer with respect to its separate accounts for which a specific fee or commission is charged; or any director, officer, partner or employee of the insurer, controlling or controlled person or person providing investment advice or any member of the immediate family of the person. (B) Insurance producer means any person, corporation, partnership or legal entity which is licensed by this state as a life insurance producer. (C) Assumed investment rate means the rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses and mortality and expense guarantees to maintain the variable death benefit equal at all times to the amount of death benefit, other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account. (D) Benefit base means the amount to which the net investment return is applied. (E) Director means the insurance director of this state. (F) Control (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services or otherwise unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote or holds proxies representing more than ten percent (10%) of the voting securities of any other person. This presumption may be rebutted by a showing made to the satisfaction of the director that control does not exist in fact. The director may determine, after furnishing all persons in interest, notice and opportunity to be heard and making specific Findings of Fact to support the determination, that control exists in fact, notwithstanding the absence of a presumption to that effect. (G) Flexible premium policy means any variable life insurance policy other than a scheduled premium policy as specified in subsection (1)(O). (H) General account means all assets of the insurer other than assets in separate accounts established pursuant to section 376.309, RSMo (1986) of the insurance laws of this state, or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer, whether or not for variable life insurance. (I) Incidental insurance benefit means all insurance benefits in a variable life insurance policy, other than the variable death benefit and minimum death benefit, including, but not limited to, accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income or term riders. (J) May is permissive. (K) Minimum death benefit means the amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account. (L) Net investment return means the rate of investment return in a separate account to be applied to the benefit base. (M) Person means an individual, corporation, partnership, association, trust or fund. (N) Policy processing day means the day on which charges authorized in the policy are deducted from the policy’s cash value. (O) Scheduled premium policy means any variable life insurance policy under which both the amount and timing of premium payments are fixed by the insurer. (P) Separate account means a separate account established pursuant to section 376.309, RSMo or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer. (Q) Shall is mandatory. (R) Variable death benefit means the amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account, which the insurer would have to pay in the absence of any minimum death benefit. (S) Variable life insurance policy means any individual policy which provides for life insurance the amount or duration of which varies according to the investment experience of any separate account(s) established and maintained by the insurer as to the policy, pursuant to section 376.309, RSMo of the insurance laws of this state or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer. (2) Qualification of Insurer to Issue Variable Life Insurance. The following requirements are applicable to all insurers either seeking authority to issue variable life insurance in this state or which have authority to issue variable life insurance in this state: (A) Licensing and Approval to Do Business in This State. An insurer shall not deliver or issue for delivery in this state any variable life insurance policy unless— 1. The insurer is licensed or organized to do a life insurance business in this state; and 2. The insurer has obtained the written approval of the director for the issuance of variable life insurance policies in this state. The director shall grant this written approval only after s/he has found that— A. The plan of operation for the issuance of variable life insurance policies is not unsound; B. The general character, reputation and experience of the management and those persons or firms proposed to supply consulting, investment, administrative or custodial services to the insurer are such as to reasonably assure competent operation of the variable life insurance business of the insurer in this state; and C. The present and foreseeable financial condition of the insurer and its method of operation in connection with the issuance of these policies is not likely to render its operation hazardous to the public or its policyholders in this state. The director shall consider, among other things— (I) The history of operation and financial condition of the insurer; (II) The qualifications, fitness, character, responsibility, reputation and experience of the officers and directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative or custodial services to the insurer; (III) The applicable law and rules under which the insurer is authorized in its state of domicile to issue variable insurance policies. The state of entry of an alien insurer shall be deemed its state of domicile for this purpose; and (IV) If the insurer is a subsidiary of, or is affiliated by common management or ownership with another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meets these standards; (B) Filing for Approval to Do Business in This State. The director, at his/her discretion, may require that an insurer, before it delivers or issues for delivery any variable life insurance policy in this state, file with this department the following information for the consideration of the director in making the determination required by paragraph (2)(A)2.: 1. Copies of and a general description of the variable life insurance policies it intends to issue; 2. A general description of the methods of operation of the variable life insurance business of the insurer, including methods of distribution of policies and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial or distributive services to the insurer; 3. With respect to any separate account maintained by an insurer for any variable life insurance policy, a statement of the investment policy the insurer intends to follow for the investment of the assets held in the separate account, and a statement of procedures for changing the investment policy. The statement of investment policy shall include a description of the investment objectives intended for the separate account; 4. A description of any investment advisory services contemplated as required by subsection (5)(I); 5. A copy of the statutes and rules of the state of domicile of the insurer under which it is authorized to issue variable life insurance policies; 6. Biographical data with respect to officers and directors of the insurer on the National Association of Insurance Commissioners (NAIC) Uniform Biographical Data Form; and 7. A statement of the insurer’s actuary describing the mortality and expense risks which the insurer will bear under the policy; (C) Standards of Suitability. Every insurer seeking approval to enter into the variable life insurance business in this state shall establish and maintain a written statement specifying the Standards of Suitability to be used by the insurer. These Standards of Suitability shall specify that no recommendation shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of the policy is not unsuitable for the applicant on the basis of information furnished after reasonable inquiry of the applicant concerning the applicant’s insurance and investment objectives, financial situation and needs, and any other information known to the insurer or the insurance producer making the recommendation; (D) Use of Sales Materials. An insurer authorized to transact variable life insurance business in this state shall not use any sales material, advertising material or descriptive literature or other materials of any kind in connection with its variable life insurance business in this state which is false, misleading, deceptive or inaccurate. Variable life insurance sales material, advertising material and descriptive literature shall be subject to the additional requirements of 20 CSR 4005.100; (E) Requirements Applicable to Contractual Services. Any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of these services shall furnish the director with any information or reports in connection with these services which the director may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with these rules and any other applicable law or rules; (F) Reports to the Director. 1. Any insurer authorized to transact the business of variable life insurance in this state shall submit to the director, in addition to any other materials which may be required by this rule or any other applicable laws or rules— A. An annual statement of the business of its separate account(s) in such forms as may be prescribed by the NAIC; B. Prior to the use in this state, any information furnished to applicants as provided for in section (6); C. Prior to the use in this state, the form of any of the Reports to Policyholders as provided for in section (8); and D. Additional information concerning its variable life insurance operations or its separate accounts as the director shall deem necessary. 2. Any material submitted to the director under subsection (2)(F) shall be disapproved if it is found to be false, misleading, deceptive or inaccurate in any material respect and, if previously distributed, the director shall require the distribution of amended material; and (G) Authority of Director to Disapprove. Any material required to be filed with, and approved by the director, shall be subject to disapproval if at any time it is found by him/her not to comply with the standards established in this rule. (3) Insurance Policy Requirements—Policy Qualification. The director shall not approve any variable life insurance form filed pursuant to this regulation unless it conforms to the requirements of this section. (A) Filing of Variable Life Insurance Policies. All variable life insurance policies and all riders, endorsements, applications and other documents which are to be attached, to be made a part of the policy and which relate to the variable nature of the policy shall be filed with the director and approved by him/her prior to delivery or issuance for delivery in this state. 1. The procedures and requirements for this filing and approval shall be, to the extent appropriate and not inconsistent with this rule, the same as those otherwise applicable to other life insurance policies. 2. The director may approve variable life insurance policies and related forms with provisions the director deems to be not less favorable to the policyholder and the beneficiary than those required by this rule. (B) Mandatory Policy Benefit and Design Requirements. Variable life insurance policies delivered or issued for delivery in this state shall comply with the following minimum requirements: 1. Mortality and expense risks shall be borne by the insurer. The mortality and expense charges shall be subject to the maximums stated in the contract; 2. For scheduled premium policies, a minimum death benefit shall be provided in an amount at least equal to the initial face amount of the policy so long as premiums are duly paid (subject to the provisions of subsection (3)(D)); 3. The policy shall reflect the investment experience of one (1) or more separate accounts established and maintained by the insurer. The insurer must demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound; 4. Each variable life insurance policy shall be credited with the full amount of the net-investment return applied to the benefit base; 5. Any changes in variable death benefits of each variable life insurance policy shall be determined at least annually; 6. The cash value of each variable life insurance policy shall be determined at least monthly. The method of computation of cash values and other nonforfeiture benefits, as described either in the policy or in a statement filed with the director of the state in which the policy is delivered, or issued for delivery, shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that, if the net-investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, then the resulting cash values and other nonforfeiture benefits must be at least equal to the minimum values by section 376.670, RSMo, for a general account policy with those premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under the Standard Nonforfeiture Law of this state. If the policy does not contain an assumed investment rate, this demonstration shall be based on the maximum interest rate permitted under the Standard Nonforfeiture Law. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not limited to, a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net-investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate; and 7. The computation of values required for each variable life insurance policy may be based upon reasonable and necessary approximations as are acceptable to the director. (C) Mandatory Policy Provisions. Every variable life insurance policy filed for approval in this state shall contain at least the following: 1. The cover page(s) corresponding to the cover page of each policy shall contain— A. A prominent statement in either contrasting color or in boldface type that the amount or duration of death benefit may be variable or fixed under specified conditions; B. A prominent statement in either contrasting color or in boldface type that cash values may increase or decrease in accordance with the experience of the separate account subject to any specified minimum guarantees; C. A statement describing any minimum death benefit required pursuant to paragraph (3)(B)2.; D. The method, or a reference to the policy provision, which describes the method for determining the amount of insurance payable at death; E. To the extent permitted by state law, a captioned provision that the policyholder may return the variable life insurance policy within ten (10) days of receipt of the policy by the policyholder and receive a refund equal to the sum of— (I) The difference between the premiums paid including any policy fees or other charges and the amounts allocated to any separate accounts under the policy; and (II) The value of the amounts allocated to any separate accounts under the policy, on the date the returned policy is received by the insurer or its agent. Until a time as state law authorizes the return of payments as calculated in the preceding sentence, the amount of the refund shall be the total of all premium payments for the policy; and F. Other items as are currently required for fixed benefit life insurance policies and which are not inconsistent with this rule; 2. For scheduled premium policies, a provision for a grace period of not less than thirty-one (31) days from the premium due date which shall provide that when the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date; 3. For flexible premium policies, a provision for a grace period beginning on the policy processing day when the total charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay these charges in accordance with the terms of the policy. This grace period shall end on a date not less than sixty-one (61) days after the mailing date of the Report to Policyholders required by subsection (8)(C); 4. The death benefit payable during the grace period will equal the death benefit in effect immediately prior to this period less any overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three (3) times the charges which were due on the policy processing day on which the amounts available under the policy were insufficient to pay all charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day; 5. For scheduled premium policies, a provision that the policy will be reinstated at any time within five (5) years from the date of default upon the written application of the insured and evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired, upon the payment of any outstanding indebtedness arising subsequent to the end of the grace period following the date of default together with accrued interest to the date of reinstatement and payment of an amount not exceeding the greater of— A. All overdue premiums with interest at a rate not exceeding that permitted by state law compounded annually and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate not exceeding that permitted by state law compounded annually; or B. One hundred ten percent (110%) of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate not exceeding that permitted by state law compounded annually; 6. A full description of the benefit base and of the method of calculation and application of any factors used to adjust variable benefits under the policy; 7. A provision designating the separate account to be used and stating that— A. The assets of this separate account shall be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account; and B. The assets of the separate account shall be valued at least as often as any policy benefits vary but at least monthly; 8. A provision specifying what documents constitute the entire insurance contract under state law; 9. A designation of the officers who are empowered to make an agreement or representation on behalf of the insurer and an indication that statements by the insured, or on his/her behalf, shall be considered as representations and not warranties; 10. An identification of the owner of the insurance contract; 11. A provision setting forth conditions or requirements as to the designation, or change of designation, of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation; 12. A statement of any condition or requirements concerning the assignment of the policy; 13. A description of any adjustments in policy values to be made in the event of misstatement of age or sex of the insured; 14. A provision that the policy shall be incontestable by the insurer after it has been in force for two (2) years during the lifetime of the insured; provided, however, that any increase in the amount of the policy’s death benefits subsequent to the policy issue date, which increase occurred upon a new application or request of the owner and was subject to satisfactory proof of the insured’s insurability, shall be incontestable after the increase has been in force, during the lifetime of the insured, for two (2) years from the date of issue of the increase; 15. A provision stating that the investment policy of the separate account shall not be changed without the approval of the insurance director of the state of domicile of the insurer and that the approval process is on file with the director of this state; 16. A provision that payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans or partial withdrawals (except when used to pay premiums) or partial surrenders may be deferred— A. For up to six (6) months from the date of request, if these payments are based on policy values which do not depend on the investment performance of the separate account; or B. Otherwise, for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closing) or when the Securities and Exchange Commission has determined that a state of emergency exists which may make the payment impractical; 17. If settlement options are provided, at least one (1) such option shall be provided on a fixed basis only; 18. A description of the basis for computing the cash value and the surrender value under the policy shall be included; 19. Premiums or charges for incidental insurance benefits shall be stated separately; 20. Any other policy provision required by this regulation; 21. Other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this rule; and 22. A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available. (D) Policy Loan Provisions. Every variable life insurance policy, other than term insurance policies and pure endowment policies, delivered or issued for delivery in this state shall contain provisions which are not less favorable to the policyholder than the following: 1. A provision for policy loans after the policy has been in force for one (1) full year which provides the following: A. At least seventy-five percent (75%) of the policy’s cash surrender value may be borrowed; B. The amount borrowed shall bear interest at a rate not to exceed that permitted by state insurance law; C. Any indebtedness shall be deducted from the proceeds payable on death; D. Any indebtedness shall be deducted from the cash surrender value upon surrender or in determining any nonforfeiture benefit; E. For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer shall give notice of any intent to cancel the policy if the excess indebtedness is not repaid within thirty-one (31) days after the date of mailing of the notice. For flexible premium policies, when ever the total charges authorized by the policy that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay these charges, a report must be sent to the policyholder containing the information specified by subsection (8)(C); F. The policy may provide that if, at any time, so long as premiums are duly paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder may increase the variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding one hundred ten percent (110%) of the corresponding increase in cash value and by furnishing evidence of insurability as the insurer may request; G. The policy may specify a reasonable minimum amount which may be borrowed at any time but this minimum shall not apply to any automatic premium loan provision; H. No policy loan provision is required if the policy is under extended insurance nonforfeiture option; I. The policy loan provisions shall be constructed so that variable life insurance policyholders who have not exercised such provisions are not disadvantaged by the exercise thereof; and J. Amounts paid to the policyholders upon the exercise of any policy loan provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment except that a stock insurer may provide the amounts for policy loans from the general account. (E) Other Policy Provisions. The following provision in substance may be included in a variable life insurance policy or related form delivered or issued for delivery in this state: 1. Incidental insurance benefits may be offered on a fixed or variable basis; 2. Policies issued on a participating basis shall offer to pay dividend amounts in cash. In addition, these policies may offer the following dividend options: A. The amount of the dividend may be credited against premium payments; B. The amount of the dividend may be applied to provide amounts of additional fixed or variable benefit life insurance; C. The amount of the dividend may be deposited in the general account at a specified minimum rate of interest; D. The amount of the dividend may be applied to provide paid-up amounts of fixed benefit one (1)-year term insurance; and E. The amount of the dividend may be deposited as a variable deposit in a separate account; 3. A provision allowing the policyholder to elect in writing in the application for the policy or thereafter an automatic premium loan on a basis not less favorable than that required of policy loans under subsection (3)(D), except that a restriction that no more than two (2) consecutive premiums can be paid under this provision may be imposed; 4. A provision allowing the policyholder to make partial withdrawals; and 5. Any other policy provision approved by the director. (4) Reserve Liabilities for Variable Life Insurance. (A) Reserve liabilities for variable life insurance policies shall be established under the Standard Valuation Law in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees. (B) For scheduled premium policies, reserve liabilities for the guaranteed minimum death benefit shall be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of the guarantee, and shall be maintained in the general account of the insurer and shall not be less than the greater of the following minimum reserve: 1. The aggregate total of the term costs, if any, covering a period of one (1) full year from the valuation date, of the guarantee on each variable life insurance contract, assuming an immediate one-third (1/3) depreciation in the current value of the assets of the separate account followed by a net-investment return equal to the assumed investment rate; 2. The aggregate total of the attained age level reserve on each variable life insurance contract. The attained age level reserve on each variable life insurance contract shall not be less than zero (0) and shall equal the residue, as described in subparagraph (4)(B)2.A., of the prior year’s attained age level reserve in the contract, with any such residue increased or decreased by a payment computed on an attained age basis as described in subparagraph (4)(B)2.B. A. The residue of the prior year’s attained age level reserve on each variable life insurance contract shall not be less than zero (0) and shall be determined by adding interest at the valuation interest rate to the prior year’s reserve, deducting the tabular claims based on the excess, if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of the guarantee and dividing the net result by the tabular probability of survival. The excess referred to in the preceding sentence shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death claim payments over the year. B. The payment referred to in paragraph (4)(B)2. shall be computed so that the present value of a level payment of that amount each year over the future premium paying period of the contract is equal to A minus B minus C, where— (I) A is the present value of the future guaranteed minimum death benefits; (II) B is the present value of the future death benefits that would be payable in the absence of the guarantee; and (III) C is any residue, as described in subparagraph (4)(B)2.A. prior year’s attained age level reserve on the valuable life insurance contract. If the contract is paid up, the payment shall equal A minus B minus C. The amounts of future death benefits referred to in B shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate, the valuation interest, or both, but in no event may exceed the maximum interest rate permitted for the valuation of life contracts; and 3. The valuation interest rate and mortality table used in computing the two (2) minimum reserves described in paragraphs (4)(B)1. and 2. shall conform to permissible standards for the valuation of life insurance contracts. In determination of the minimum reserve, the company may employ suitable approximations and estimates including, but not limited to, groupings and averages. (C) For flexible premium policies, reserve liabilities for any guaranteed minimum death benefit shall be maintained in the general account of the insurer and shall not be less than the aggregate total of the term costs, if any, covering the period in the guarantee not otherwise provided for by the reserves held in the separate account assuming an immediate one-third (1/3) depreciation in the current value of the assets of the separate account followed by a net-investment return equal to the valuation interest rate. (D) The valuation interest rate and mortality table used in computing this additional reserve, if any, shall conform to permissible standards for the valuation of life insurance contracts. In determining the minimum reserve, the company may employ suitable approximations and estimates including, but not limited to, groupings and averages. (E) Reserve liabilities for all fixed incidental insurance benefits and any guarantees associated with variable accident insurance benefits shall be maintained in the general account and reserve liabilities for all variable aspects of the variable incidental insurance benefits shall be maintained in a separate account in amounts determined in accordance with the actuarial procedures appropriate to the benefit. (5) Separate Accounts. The following requirements apply to the establishment and administration of variable life insurance separate accounts by any domestic insurer: (A) Establishment and Administration of Separate Accounts. An insurer issuing variable life insurance shall establish one (1) or more separate accounts pursuant to section 376.309, RSMo. 1. If no law or other rule provides for the custody of separate account assets and if the insurer is not the custodian of these separate account assets, all contracts for custody of these assets shall be in writing and the director shall have authority to review and approve of both the terms of this contract and the proposed custodian prior to the transfer of custody. 2. This insurer, without the prior written approval of the director, shall not employ in any material connection with the handling of separate account assets any person who— A. Within the last ten (10) years, has been convicted of any felony arising out of that person’s conduct involving embezzlement, fraudulent conversion or misappropriation of funds or securities or involving violation of Section 1341, 1342 or 1343 of Title 18, United States Code; B. Within the last ten (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 ten (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 securities laws involving fraud, deceit or knowing misrepresentation. 3. All persons with access to the cash, securities or other assets of the separate account shall be under bond in an amount of not less than five hundred thousand dollars ($500,000). 4. The assets of the separate accounts shall be valued at least as often as variable benefits are determined but in any event at least monthly; (B) Amounts in the Separate Account. The insurer shall 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 policies or the benefit base for these policies; (C) Investments by the Separate Account. 1. 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 (1) or more of its separate accounts except as provided in section 376.309, RSMo. 2. The separate account shall have sufficient net-investment income and readily marketable assets to meet anticipated withdrawals under policies funded by the account; (D) Limitations on Ownership. 1. A separate account shall 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 the purchase or acquisition the value of the investment, together with prior investments of the separate account in the security valued as required by these rules, would exceed ten percent (10%) of the value of the assets of the separate account. The director may waive this limitation in writing if s/he believes this waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state. 2. No separate account shall purchase or otherwise acquire the voting securities of any issuer if, as a result of this acquisition, the insurer and its separate accounts, in the aggregate, will own more than ten percent (10%) of the total issued and outstanding voting securities of the issuer. The director may waive this limitation in writing if s/he believes the waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state or jeopardize the independent operation of the issuer of such securities. 3. The percentage limitation specified in paragraph (5)(D)1. shall not be construed to preclude the investment of the assets of separate accounts in shares of investment companies registered pursuant to the Investment Company Act of 1940 or other pools of investment assets if the investments and investment policies of the investment companies or asset pools comply substantially with the provisions of subsection (5)(C) and other applicable portions of this rule; (E) Valuation of Separate Account Assets. Investments of the separate account shall 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 paragraph (2)(B)3. shall not be changed without first filing the change with the insurance director. 1. Any change filed pursuant to this section shall be effective sixty (60) days after the date it was filed with the director, unless the director notifies the insurer before the end of the sixty (60)-day period of his/her disapproval of the proposed change. At any time the director, after notice and public hearing, may disapprove any change that has become effective pursuant to this section. 2. The director may disapprove the change if s/he determines that the change would be detrimental to the interests of the policyholders participating in separate accounts; (G) Charges Against Separate Account. The insurer must disclose in writing, prior to or contemporaneously with delivery of the policy, 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 sales costs incurred in the purchase of sale of separate account assets; 3. Actuarially determined cost of insurance (tabular costs) and the release of separate account liabilities; 4. Charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account; 5. A charge at a rate specified in the policy for mortality and expense guarantees; 6. Any amounts in excess of those required to be held in the separate account; and 7. Charges for incidental insurance benefits; (H) Standards of Conduct. Every insurer seeking approval to enter into the variable life insurance business in this state shall 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. These standards of conduct shall be binding on the insurer and those to whom it refers. A code(s) of ethics meeting the requirements of Section 17, under the Investment Company Act of 1940 and its applicable rules shall satisfy the provisions of this section; (I) Conflicts of Interest. Rules under any provision of insurance laws of this state or any rules applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate account’s committee or other similar body; and (J) Investment Advisory Services to a Separate Account. An insurer shall not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to the insurer with respect to its separate accounts maintained for variable life insurance policies unless— 1. The person providing the advice is registered as an investment advisor under the Investment Advisor’s Act of 1940; 2. The person providing the advice is an investment manager under the Employee Retirement Income Security Act of 1974 with respect to the assets of each employee benefit plan allocated to the separate account; or 3. The insurer has filed with the director and annually continues to file the following information and statements concerning the proposed advisor: A. The name and form of organization, state 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 an investment advisor is an individual, of this individual; C. A written standard of conduct complying in substance with the requirements of subsection (5)(H) which has been adopted by the investment advisor and is applicable to the investment advisor, its officers, directors and affiliates; D. A statement provided by the proposed advisor as to whether the advisor or any associated person(s)— (I) Has been convicted within ten (10) years of any felony or misdemeanor arising out of that 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 section 1341, 1342 or 1343 of Title 18 of the United States Code; (II) Has been permanently or temporarily enjoined by 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 this activity; (III) Has been found by federal or state regulatory authorities to have willfully violated or has acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule under these laws; or (IV) Has been censured, 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; E. The investment advisory contract shall 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 sixty (60) days’ written notice to the investment advisor; and F. The director, after notice and opportunity for hearing, by order may require the investment advisory contract to be terminated if s/he deems continued operation under the contract to be hazardous to the public or the insurance company’s policyholders. (6) Information Furnished to Applicants. (A) An insurer delivering or issuing for delivery in this state any variable life insurance policies shall deliver to the applicant for the policy and obtain a written acknowledgment of receipt from the applicant coincident with, or prior to the execution of, the application, the following information. The requirements of this section shall be deemed to have been satisfied to the extent that a disclosure containing information required by this section is delivered, either in the form of— 1. A prospectus included in the requirements of the Securities Act of 1933 and which was declared effective by the Securities and Exchange Commission; or 2. All information and reports required by the Employee Retirement Income Security Act of 1974 if the policies are exempted from the registration requirements of the Securities Act of 1933 pursuant to Section (3)(a)(2). (B) A summary explanation in nontechnical terms, of the principal features of the policy, including a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors which affect the variation. The explanation must include notices of the provision required by subparagraph (3)(C)1.E and paragraph (3)(C)8. (C) A statement of the investment policy of the separate account, including: 1. A description of the investment objectives intended for the separate account and the principal types of investments intended to be made; and 2. Any restrictions or limitations on the manner in which the operations of the separate account are intended to be conducted. (D) A statement of the net-investment return of the separate account for each of the last ten (10) years or a lesser period the statement separate account was in existence. (E) A statement of the charges levied against the separate account during the previous year. (F) A summary of the method to be used in valuing assets held by the separate account. (G) A summary of the federal income tax aspects of the policy applicable to the insured, the policyholder and the beneficiary. (H) Illustrations of benefits payable under the variable life insurance contract, these illustrations shall be prepared by the insurer and shall not include projections of past investment experience into the future or attempted predictions of future investment experience, provided that nothing contained in this rule prohibits use of hypothetical assumed rates of return to illustrate possible levels of benefits if it is made clear that the assumed rates are hypothetical only. (7) Applications. The application for a variable life insurance policy shall contain: (A) A prominent statement that the death benefit may be variable or fixed under specific conditions; (B) A prominent statement that cash values may increase or decrease in accordance with the experience of the separate account (subject to any specified minimum guarantees); and (C) Questions designed to elicit information which enables the insurer to determine the suitability of variable life insurance for the applicant. (8) Reports to Policyholders. Any insurer delivering or issuing for delivery in this state any variable life insurance policies shall mail to each variable life insurance policyholder at his/her last known address the following reports: (A) Within thirty (30) days after each anniversary of the policy, a statement(s) of the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge and any optional payment allowed pursuant to subsection (3)(D) under the policy computed as of the policy anniversary date. Provided, however, that this statement may be furnished within thirty (30) days after a specified date in each policy year so long as the information contained in the policy is computed as of a date not more than sixty (60) days prior to the mailing of the notice. This statement shall state that, in accordance with the investment experience of the separate account, the cash values and the variable death benefit may increase or decrease, and shall prominently identify any value described in the statement which may be recomputed prior to the next statement required by this section. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in the statement, the statement shall be modified to so indicate. For flexible premium policies the report must contain a reconciliation of the change since the premium report in cash value and cash surrender value, if different, because of payments made (less deductions for expense charges), withdrawals, investment experience, insurance charges and any other charges made against the cash value. In addition, the report must show the projected cash value and cash surrender value, if different, as of one (1) year from the end of the period covered by the report assuming that— 1. Planned periodic premiums, if any, as paid as scheduled; 2. Guaranteed costs of insurance are deducted; and 3. The net return is equal to the guaranteed rate or in the absence of a guaranteed rate, is not greater than zero (0). If the projected value is less than zero (0), a warning message must be included that states that the policy may be in danger of terminating without value in the next twelve (12) months unless additional premium is paid; (B) Annually, a statement(s) including: 1. A summary of the financial statement of the separate account based on the annual statement last filed with the director; 2. The net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with investment rate during prior years, up to a total of not less than five (5) years when available; 3. A list of investments held by the separate account as of a date not earlier than the end of the last year for which an annual statement was filed with the director; 4. Any charges levied against the separate account during the previous year; and 5. A statement of any change, since the last report, in the investment objective and orientation of the subject account, in any investment restriction or material quantitative or qualitative investment requirement applicable to the separate account or in the investment advisor of the separate account; and (C) For flexible premium policies, a report must be sent to the policyholder if the amount available under the policy on any policy processing day to pay the charges authorized by the policy are less than the amount necessary to keep the policy in force until the next following policy processing day. The report must indicate the minimum payment required under the terms of the policy to keep it in force and the length of the grace period for payment of that amount. (9) Foreign Companies. If the law or rule in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially similar to that provided by these rules, the director to the extent deemed appropriate by him/her in his/her discretion, may consider compliance with the law or rule as compliance with these rules. (10) Qualification of Insurance Producers for the Sale of Variable Life Insurance. (A) Qualification to Sell Variable Life Insurance. 1. No person may sell or offer for sale in this state any variable life insurance policy unless the person is an insurance producer and has filed with the director, in a form satisfactory to the director, evidence that the person holds any license or authorization which may be required for the solicitation or sale of variable life insurance. 2. Any examination administered by the department for the purpose of determining the eligibility of any person for licensing as an agent, after the effective date of this rule (April 11, 1985) shall include questions concerning the history, purpose, regulation and sale of variable life insurance as the director deems appropriate. (B) Reports of Disciplinary Actions. Any person qualified in this state under this section to sell or offer to sell variable life insurance shall immediately report to the director— 1. Any suspension or revocation of this agent’s license in any other state or territory of the United States; 2. The imposition of any disciplinary sanction, including suspension or expulsion from membership, suspension or revocation of or denial of registration, imposed upon him/her by any national securities exchange or national securities association or any federal, state or territorial agency with jurisdiction over securities or variable life insurance; and 3. Any judgment or injunction entered against him/her on the basis of conduct deemed to have involved fraud, deceit, misrepresentation or violation of any insurance or securities law or rule. (C) Refusal to Qualify Insurance Producer to Sell Variable Life Insurance, Suspension, Revocation or Nonrenewal of Qualification. The director may reject any application or suspend or revoke or refuse to renew any insurance producer’s qualification under this section to sell or offer to sell variable life insurance upon any ground that would bar the applicant or insurance producer from being licensed to sell other life insurance contracts in this state. The rules governing any proceeding relating to the suspension or revocation of an insurance producer’s license shall also govern any proceeding for suspension or revocation of an insurance producer’s qualification to sell or offer to sell variable life insurance. (11) Separability. If any provision of this rule or the application of this rule to any person or circumstance is for any reason held to be invalid, the remainder of the rule and the application of this provision to other persons or circumstances shall not be affected by it. AUTHORITY: sections 374.045, 376.309, 376.670, 376.675, RSMo 2000.* This rule was previously filed as 4 CSR 190-13.090. Original rule filed Aug. 5, 1974, effective Aug. 15, 1974. Amended: Filed Dec. 23, 1975, effective Jan. 2, 1976. Rescinded and readopted: Filed Nov. 8, 1984, effective April 11, 1985. Amended: Filed July 12, 2002, effective Jan. 30, 2003. *Original authority: 374.045, RSMo 1967 amended 1993, 1995; 376.309, RSMo 1963, amended 1969, 1983, 1992, 1993; 376.670, RSMo 1943, amended 1959, 1961, 1965, 1975, 1979, 1982; and 376.675, RSMo 1963, amended 1984.