[Federal Register Volume 60, Number 216 (Wednesday, November 8, 1995)]
[Notices]
[Pages 56381-56384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27652]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21469; File No. 812-9664]
Glenbrook Life and Annuity Company, et al.
November 2, 1995.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``1940 Act'').
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APPLICANTS: Glenbrook Life and Annuity Company (``Glenbrook'' or the
``Company''), Glenbrook Life and Annuity Company Separate Account A
(the ``Variable Account''), and Allstate Life Financial Services, Inc.
(``Allstate'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act granting exemptions from the provisions of Sections 26(a)(2(C)
and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction of a mortality and expensive risk charge from the assets of
the Variable Account and other separate accounts established by
Glenbrook in the future (``Other Separate Accounts'') in connection
with the issuance and sale of certain deferred variable annuity
contracts (``Contracts'') and/or any contracts that are similar in all
material respects to the Contracts (``Other Contracts''). Applicants
also respect that the exemptive relief extend to certain other broker-
dealers which may serve in the future as a principal underwriter of the
Contracts or Other Contracts (``Future Underwriters'').
FILING DATE: The application was filed on July 13, 1995, and amended on
October 16, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on November 27, 1995, and should be accompanied
by proof of service on Applicants in the form of a affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the requester'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, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, David E. Stone, Esq., Glenbrook Life and Annuity
Company, 3100 Sanders Road, Northbrook, Illinois 20062.
FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Patrice M. Pitts, Special Counsel, Office
of Insurance Products (Division of Investment Management), or (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.
[[Page 56382]]
Applicant's Representations
1. Glenbrook, incorporated as a stock life insurance company is
1992, is organized under the laws of Illinois. The Company is a wholly-
owned subsidiary of Allstate Life Insurance Company, which is a wholly-
owned subsidiary of Allstate Insurance Company. Glenbrook sells
individual and group annuities and life insurance.
2. The Variable Account was established by Glenbrook as a
segregated investment account pursuant to a resolution of the Board of
Directors, and serves as a funding medium for variable annuity
contracts issued through the Variable Account. The Variable Account is
divided into sub-accounts, each of which invests solely in shares of a
registered open-end management investment company (the ``Fund'').
3. Allstate, a wholly-owned subsidiary of Allstate Life Insurance
Company, will serve as the principal underwriter for the Contracts.
Allstate is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
4. The Contracts are individual and group flexible premium deferred
annuity contracts which may be sold on a non-tax qualified basis
(``Non-Qualified Contracts'') or offered in connection with retirement
plans which qualify for favorable federal income tax treatment
(``Qualified Contracts'').\1\ The Contracts provide for, among other
things: (a) minimum initial purchase payments of $5,000 ($2,000 in the
case of Qualified Contracts) and minimum subsequent purchase payments
of $500; (b) several annuity payment options beginning on the payout
start date; and (c) if the annuitant dies during the accumulation
phase, the payment of a death benefit equal to the greatest of (1) the
Contract value on the date the Company receives a complete request for
payment of the death benefit, (2) the amount that would have been
payable in the event of a full withdrawal of the Contract value on the
date the Company receives a complete request for payment of the death
benefit, or (3) the Contract value on the death benefit anniversary
immediately preceding the date the Company determines the death benefit
adjusted by any purchase payments, withdrawals and charges made between
such death benefit anniversary and the date the Company determines the
death benefit. The death benefit anniversary is every seventh Contract
anniversary beginning with the issue date.
\1\ Applicants state that a registration statement on Form N-4
was filed with the Commission to register the investment interest in
the Contracts with the SEC (File No. 33-62203).
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5. Applicants state that, upon purchase of the Contract, the
Contract owner can also select one of the following death benefit
options: (a) the greatest of the anniversary values as of the date
Glenbrook determines that the death benefit (where the anniversary
value, which is calculated each Contract anniversary prior to the
deceased's attained age 75 or 5 years after the date the Contract was
issued, if later, is equal to the Contract value on a Contract
anniversary, increased by purchase payments made since that anniversary
and reduced by the amount of any partial withdrawals since that
anniversary); or (b) total purchase payments minus the sum of all
partial withdrawals (where each purchase payment and each partial
withdrawal accumulates daily at a rate equivalent to 5% per year until
the first day of the month following the deceased's 75th birthday or 5
years after the date the Contract was issued, if later).
6. Various fees and charges are deducted under the Contracts. An
annual contract maintenance fee of $35 will be deducted from Contract
value to reimburse Glenbrook for certain administrative expenses
incurred in maintaining each Contract and the Variable Account. A daily
asset-based administrative expense charge equal to an effective annual
rate of 0.10% of the daily net assets in the Variable Account will be
deducted to cover actual administrative expenses which exceed the
revenues from the contract maintenance charge. These administrative
fees are guaranteed not to increase for the duration of the Contract.
Applicants state that the Company does not intend to profit from either
of these charges.
7. Applicants state that the Company intends to deduct premium
taxes either (a) at the payout start date, or (b) when a total
withdrawal occurs. Glenbrook reserves the right to deduct such taxes
when incurred. Premium taxes currently range from 0% to 3.5%.
8. Certain full or partial surrenders will be subject to a
contingent deferred sales charge (``Withdrawal Charge'') during the
first sic Contract years as follows:
------------------------------------------------------------------------
Applicable
No. of complete years since purchase payment being withdrawal
withdrawn was made charge
percentage
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0 years.................................................... 6
1 years.................................................... 6
2 years.................................................... 5
3 years.................................................... 5
4 years.................................................... 4
5 years.................................................... 4
6 years.................................................... 3
7 years or more............................................ 0
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For purposes of calculating the Withdrawal Charge, withdrawals are
deemed to come from purchase payments first, beginning with the oldest
purchase payment. Withdrawals made after all purchase payments have
been withdrawn will not be subject to a Withdrawal Charge. In any
Contract year, a Contract owner may withdraw 10% of the Contract value
as of the date of the first withdrawal in the Contract year without
incurring a Withdrawal Charge.
9. Proceeds from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated
with the marketing of the Contracts. Applicants state that the
Withdrawal Charge may be insufficient to cover all costs relating to
the distribution of the Contracts. To the extent that the Withdrawal
Charge is insufficient to cover all distribution expenses, the
deficiency will be met from Glenbrook's general account, which may
include profits derived from the mortality and expense risk charge.
10. Applicants state that Glenbrook will assess a $10 charge on
each transfer or other reallocation of Contract value among the sub-
accounts in excess of 12 per Contract year.
11. Applicants state that shares of the Fund are sold to the
Variable Account at net asset value. The Fund will impose certain
expenses, such as an investment advisory fee, which Contract owners
will bear indirectly.
12. A daily charge equal to an effective annual rate of 1.35% of
the assets in the Variable Account will be deducted to compensate
Glenbrook for bearing certain mortality and expense risks under the
Contracts. Of that amount, approximately 0.95% is for mortality risks
(0.85% for the standard death benefit and 0.10% for the enhanced death
benefit) and approximately 0.40% is for the expense risk. The mortality
risk arises from Glenbrook's guarantee to cover all death benefits and
to make income payments in accordance with the annuity tables contained
in the Contracts, thereby relieving the annuitants of the risk of
outliving funds accumulated for retirement. The expense risk assumed by
Glenbrook is the risk that its actual administrative costs will exceed
the amount recovered through the
[[Page 56383]]
administrative expense and contract maintenance charges. Applicants
guarantee that the level of this charge will not increase for the
duration of the Contract. If the mortality and expense risk charge is
insufficient to cover the actual mortality costs and excess expenses,
Glenbrook will bear the loss.
Applicant's Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission to grant
an exemption from any provision, rule or regulation of the 1940 Act to
the extent that it 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. Sections
26(a)(2)(C) and 27(c)(2) of the 1940 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 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent necessary to permit the
deduction of a 1.35% charge from the assets of the Variable Account to
compensate Glenbrook for the assumption of mortality and expense risks
under the Contracts. Applicants also request that such exemptive relief
extend to any Other Contracts which may be issued in the future by the
Variable Account or any Other Separate Account established by the
Company. Applicants further request that the exemptive relief extend to
Future Underwriters, certain other broker-dealers which may serve in
the future as a principal underwriter of the Contracts or Other
Contracts. 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 1940 Act.
3. Glenbrook represents that the 1.25% mortality and expense risk
charge (excluding the 0.10% risk charge for the enhanced death benefit)
is reasonable in relation to the risks assumed by the Company under the
Contracts and reasonable in amount as determined by industry practice
with respect to comparable annuity products. Applicants state that
these representations are based upon Glenbrook's analysis of publicly
available information about comparable industry products, taking into
consideration such factors as current charge levels and benefits
provided, the existence of expense charge guarantees and guaranteed
annuity rates. Glenbrook represents that it will maintain at its home
office, a memorandum, available to the Commission, setting forth in
detail the products analyzed in the course of, and the methodology and
results of, its comparative review.
4. Applicants represent that the mortality risk charge of 0.10% for
the enhanced death benefit is reasonable in relation to the risks
assumed by the Company under the Contracts. Applicants state that in
making this determination, Glenbrook conducted a large number of trials
at various issue ages to determine the expected cost of the enhanced
death benefit. Hypothetical asset returns were projected using
generally accepted actuarial simulation methods. For each asset return
pattern generated, hypothetical accumulated values were calculated by
applying the projected asset returns to the initial value in a
hypothetical account. Each accumulated value so calculated was then
compared to the amount of the enhanced death benefit payable in the
event of the hypothetical owner's death during the year in question. By
analyzing the results of several such simulations, Applicants state
that Glenbrook was able to determine actuarially the level cost of
providing the enhanced death benefit. Based on this analysis, Glenbrook
determined that a 0.10% mortality risk charge was reasonable for
providing the enhanced death benefit. Glenbrook represents that the
basis for this determination will be set forth in a memorandum which
will be maintained at its home office and will be available to the
Commission upon request.
5. Prior to issuing any Other Contracts, Applicants will determine
that the aggregate mortality and expense risk charge under any Other
Contracts is reasonable in relation to the risks assumed by Glenbrook
and/or reasonable in amount as determined by industry practice with
respect to comparable annuity products. Applicants represent that the
basis for this conclusion will be set forth in a memorandum which will
be maintained at Glenbrook's home office and will be available to the
Commission upon request.
6. Applicants state that, if a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be available to pay distribution expenses not reimbursed by the
Withdrawal Charge. The Company represents that there is a reasonable
likelihood that the proposed distribution financing arrangements under
the Contracts will benefit the Variable Account and Contract owners.
Glenbrook represents that the basis for that conclusion is set forth in
a memorandum which will be maintained at its home office and will be
available to the Commission upon request.
7. Prior to issuing any Other Contracts, Applicants will determine
that there is a reasonable likelihood that the proposed distribution
financing arrangement under any Other Contracts will benefit the
Variable Account or any Other Separate Account and Other Contract
owners. Glenbrook represents that the basis for this conclusion will be
set forth in a memorandum which will be maintained at its home office
and will be available to the Commission upon request.
8. Applicants assert that the terms of the future relief request
with respect to Other Separate Accounts, Other Contracts and Future
Underwriters are consistent with the standards set forth in Section
6(c) of the 1940 Act. Applicants submit that, if Glenbrook were to seek
exemptive relief repeatedly with respect to the issues addressed in
this application, investors would not receive additional protection or
benefit. Applicants assert that the requested relief will promote
competitiveness in the variable annuity market by eliminating the need
for the filing of redundant exemptive applications, thereby reducing
administrative expenses and maximizing efficient use of resources.
Applicants represent that both the delay and the expense of repeatedly
seeking exemptive relief would impair the Company's ability to
effectively take advantage of business opportunities as they arise.
9. Glenbrook also represents that the Variable Account or any Other
Separate Accounts will invest only in management investment companies
which undertake, in the event they should adopt a plan under Rule 12b-1
of the 1940 Act to finance distribution expenses, to have a board of
directors or trustees, a majority of whom are not ``interested
persons'' of the company within the meaning of Section 2(a)(19) of the
1940 Act, formulate and approve any such plan.
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
[[Page 56384]]
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. 95-27652 Filed 11-7-95; 8:45 am]
BILLING CODE 8010-01-M
