[Federal Register Volume 59, Number 196 (Wednesday, October 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25187]
[[Page Unknown]]
[Federal Register: October 12, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20601; File No. 812-9162]
First ING Life Insurance Company of New York et al.
October 5, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' of ``Commission'').
ACTION: Notice of Application for Exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: First ING Life Insurance Company of New York (``First ING
Life''), First ING of New York Separate Account Al (the ``Account''),
any other separate account established by First ING Life in the future
to support certain deferred variable annuity contracts issued by First
ING Life (``Other Account''; together with the Account, the ``Separate
Account,'' unless the context otherwise requires), and SLD Equities,
Inc. (``SLD Equities'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) for
exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to permit the
deduction of a mortality and expense risk charge from the assets of the
Account in connection with the offering of certain deferred variable
annuity contracts issued by First ING Life through the Account (the
``Account Contracts''). Applicants also seek an order to permit the
deduction of a mortality and expense risk charge from the assets of the
Account and of any Other Account in connection with the offering of
deferred variable annuity contracts issued by First ING Life through
the Account or any Other Account, respectively, which contracts are
offered on a basis that is similar in all material respects to the
basis on which the Account Contracts are offered (the ``Other
Contracts''; together with the Account Contracts, the ``Contracts,''
unless the context otherwise requires).
FILING DATE: The application was filed on August 15, 1994.
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 SEC's Secretary and
serving Applicants with a copy of the request, personally or by mail.
Hearing requests must be received by the SEC by 5:30 p.m. on October
31, 1994 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
reasons for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street NW., Washington, DC 20549. Applicants, 225 Broadway, Suite 1901,
New York, New York 10017.
FOR FURTHER INFORMATION CONTACT:
C. Christopher Sprague, Senior Counsel, at (202) 942-0670, or Brenda D.
Sneed, Assistant Director, at (202) 942-0670, Office of Insurance
Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application is available for a fee from the
Commission's Public Reference Branch.
Applicants' Representations
1. First ING Life is a stock life insurance company organized under
the laws of New York, and is the depositor and sponsor of the Account.
First ING Life may establish one or more Other Accounts in the future,
for which it will serve as sponsor and depositor.
2. First ING Life established the Account on March 15, 1994 under
the laws of New York pursuant to a resolution of its Board of
Directors. The Account is a segregated asset account of First ING Life,
and is registered under the 1940 Act as a unit investment trust. The
underlying investment media for the Account will be Neuberger & Berman
Advisers Management Trust, Van Eck Investment Trust, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II,
Alger American Fund and INVESCO Variable Investment Funds (each, a
``Fund''). Each Fund is registered under the 1940 Act as an open-end
management investment company.
3. SLD Equities, a registered broker-dealer, will be the principal
underwriter of the Account Contracts. SLD Equities may act as a
principal underwriter for any Other Contracts issued by First ING Life
in the future.
4. The Contracts provide retirement payments or other long-term
benefits for persons covered under plans qualified for federal income
tax advantages available under the Internal Revenue Code of 1986 and
for persons desiring such benefits who do not qualify for such tax
advantages. Holders of the Contracts will direct purchase payments to
one of several Divisions of the Separate Account or to the Guaranteed
Interest Division (which is part of First ING Life's general account).
Payments directed to the Separate Account then will be invested by the
Divisions in shares of corresponding portfolios of the Funds.
5. The minimum initial purchase payment for a Contract is $5,000
for a non-qualified Contract and $1,000 for a qualified Contract. The
minimum additional purchase payment is $500 for a non-qualified
Contract, $250 for a qualified Contract, and $90 for a qualified
Contract on a monthly program of purchase payments.
6. No front-end sales charge will be imposed when purchase payments
are applied under the Contracts. However, a surrender charge will be
assessed if the Contract is surrendered or partial withdrawals
exceeding certain amounts are taken during the six year period from the
date First ING Life receives and accepts each purchase payment. The
surrender charge is determined by the number of Contract anniversaries
that have passed since the purchase payment that is being withdrawn was
made. The charge is 7% if no Contract anniversary has passed with
respect to the payment. 6% if one Contract Anniversary has passed, and
declines by 1% per year thereafter. No surrender charge applies to a
purchase payment that has been held for 6 Contract anniversaries or
more. In no event is the surrender charge greater than the amount
withdrawn. Proceeds from the surrender charge may not cover the
expected costs of distributing the Contracts. Any shortfall will be
recovered from First ING Life's general assets, which may include
revenue from the proposed mortality and expense risk charge.
7. The administrative charges to be assessed will be (a) an annual
administrative charge of $30 per Contract year, during the accumulation
period only, if total purchase payments paid in the first Contract year
are less than $100,000, and (b) a daily asset charge, at an annual
effective rate of 0.15% assessed against each Division of the Separate
Account, during both the accumulation and annuity periods. First ING
Life guarantees that it will not raise these administrative charges for
the duration of the Contracts. First ING Life also represents that it
does not expect that the total revenues from the administrative charges
will be greater than the total expected cost of administering the
Contracts, on average, excluding costs that are properly categorized as
distribution expenses, over the period that the Contracts are in force.
8. If more than one demand partial withdrawal occurs during a
Contract year, there will be a charge of the lesser of $25 or 2% of the
amount withdrawn for each additional demand partial withdrawal. In
addition, each transfer in excess of 12 in a Contract year will be
subject to a charge of $25. Applicants indicate that the partial
withdrawal transaction charge and excess transfer charge will meet the
``at cost'' requirement of Rule 26a-1 under the 1940 Act.
9. First ING Life will assume certain risks, described below, in
connection with its sale of the Contracts. Accordingly, First ING Life
proposes to receive compensation for assuming these risks by deducting,
from the assets of the Separate Account, a daily asset charge for
mortality and expense risks.
10. First ING Life will assume several mortality risks under the
Contracts. First, First ING Life will assume a mortality risk by its
contractual obligation to pay a death benefit to the beneficiary if the
Owner dies prior to the annuity date. The Contracts provide a death
benefit that is the greater of: (a) the accumulation value at the time
of death and (b) the step-up benefit plus purchase payments made, less
partial withdrawals and any surrender and partial withdrawal
transaction charges taken since the last step-up anniversary. Second,
First ING Life assumes a mortality risk arising from the fact that the
Contract does not impose any surrender charge on the death benefit.
Third, First ING Life assumes an additional mortality risk by its
contractual obligation to continue to make annuity payments for the
entire life of the Annuitant under annuity options involving life
contingencies. This assures each Annuitant that neither the Annuitant's
own longevity nor an improvement in life expectancy generally will have
an adverse effect on the annuity payments received under a Contract.
This relieves the Annuitant from the risk of outliving the amounts
accumulated for retirement. At the same time, First ING Life assumes
the risk that Annuitants as a group would live a longer time than First
ING Life's annuity tables predict, which would require First ING Life
to pay out more in annuity income than planned. The Contracts contain
annuity tables that are based on the 1983a Individual Annuity Mortality
Table and, for variable annuity options, alternative net investment
factors of 3% or 5% and, for fixed annuity options, and interest rate
of 3%. First ING Life guarantees these annuity tables for the life of a
Contract.
11. In addition to mortality risks, First ING life will assume an
expense risk under the Contracts. This is because the administrative
charges under outstanding Contracts, which cannot be raised, may be
insufficient to cover actual administrative expenses.
12. In order to receive compensation for assuming these mortality
and expense risks, First ING Life will assess the Separate Account with
a daily charge for mortality and expense risks at an annual aggregate
rate of 1.25% Approximately 0.90% of this annual charge is allocated to
the mortality risks that First ING Life will assume, and 0.35% is
allocated to the expense risks that First ING Life will assume.
13. If the administrative charges and the mortality and expense
risk charges are insufficient to cover the expenses and costs assumed,
the loss will be borne by First ING Life. Conversely, if the amounts
deducted prove more than sufficient, the excess will be profit to First
ING Life. First ING Life will likely earn a profit from the mortality
and expense risk charge.
Applicants' Legal Analysis
1. Applicants request exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent necessary to permit the
deduction of the mortality and expense risk charge from the assets of
the Separate Account under the Contracts. Applicants state that the
terms of the relief requested with respect to any Other Contracts
funded by the Account or any Other Account, in the future, are
consistent with the standards set forth in Section 6(c) of the 1940
Act. Applicants state that, without the requested relief, Applicants
would have to request and obtain exemptive relief in connection with
Other Contracts under certain circumstances. Any such additional
request for exemption would present no issues under the 1940 Act that
have not already been addressed in this application. Applicants submit
that the requested relief is appropriate in the public interest,
because it would promote competitiveness in the variable annuity
contract market by eliminating the need for First ING Life to file
redundant exemptive applications, 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 First ING Life's ability to effectively take advantage of
business opportunities as they arise. Applicants further submit that
the requested relief is consistent with the purposes of the 1940 Act
and the protection of investors for the same reasons. If First ING Life
were required to repeatedly seek exemptive relief with respect to the
same issues addressed in this application, investors would not receive
any benefit or additional protection thereby. Indeed, they might be
disadvantaged as a result of First ING Life's increased overhead
expenses. Thus, Applicants believe that the requested exemption id
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. Sections 26(a)(2)(C) and 27(c)(2) prohibit a registered unit
investment trust and any depositor or underwriter thereof from selling
periodic payment plan certificates unless the proceeds of all payments
are deposited with a trustee or custodian having the qualifications
prescribed by Section 26(a)(1) of the 1940 Act and are held under an
agreement that provides that no payment to the depositor or principal
underwriter shall be allowed except as a fee, not exceeding such
reasonable amount as the Commission may prescribe, for bookkeeping and
other administrative services.
3. Applicants have concluded that the mortality and expense risk
charge of 1.25% is reasonable in relation to the risks assumed by First
ING Life under the Contracts and reasonable in amount as determined by
industry practice with respect to comparable annuity products.
Applicants state that these determinations are based on their analysis
of publicly available information about similar industry practices, and
by taking into consideration such factors as current charge levels and
benefits provided, the existence of expense charge guarantees, and
guaranteed annuity rates. First ING Life undertakes to maintain at its
home office, and make available to the Commission and its staff upon
request, a memorandum setting forth in detail the methodology used in
making the foregoing determinations.
4. The surrender charge may be insufficient to cover all costs
relating to the distribution of the Contracts. In that event, if a
profit is realized from the mortality and expense risk charge, all or a
portion of such profit may be offset by distribution expenses not
reimbursed by the surrender charge. Notwithstanding the foregoing,
First ING Life has concluded that there is a reasonable likelihood that
the proposed distribution financing arrangements will benefit the
Separate Account and Owners. First ING Life also represents that it
will maintain at its home office, and make available on request to the
Commission and its staff, a memorandum setting out the basis for such
conclusion.
5. First ING Life also represents that the Separate Account will
invest only in an underlying mutual fund which undertakes, in the
event it should adopt any plan under Rule 12b-1 under the 1940 Act
to finance distribution expenses, to have such plan formulated and
approved by a board of directors, a majority of the members of which
are not ``interested persons'' of such fund within the meaning of
Section 2(a)(19) of the 1940 Act.
Applicants' Conclusion
Applicants submit that, for all of the reasons stated herein,the
requested exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the 1940
Act meet the standards set out in Section 6(c) of the 1940 Act.
Applicants assert that the exemptions requested are 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.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25187 Filed 10-11-94; 8:45 am]
BILLING CODE 8010-01-M
