[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3316]
[[Page Unknown]]
[Federal Register: February 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20059; File No. 812-8686]
Transamerica Occidental Life Insurance Co., et al.; Application
for Exemption
February 7, 1994.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``1940 Act'').
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APPLICANTS: Transamerica Occidental Life Insurance Company
(``Transamerica'' or the ``Company''), Separate Account VA-5 of
Transamerica Occidental Life Insurance Company (the ``Separate
Account''), and Charles Schwab & Co., Inc., (``Schwab'') (collectively
referred to herein as ``Applicants'').
RELEVANT 1940 ACT SECTION: Order requested under section 6(c) of the
1940 Act for exemptions from sections 26(a)(2)(C) and 27(c)(2) thereof.
SUMMARY OF APPLICATION: Applicants seek an order permitting the
deduction from the assets of the Separate Account of a mortality and
expense risk charge imposed under certain individual and group flexible
purchase payment deferred variable annuity contracts (the
``Contracts'').
FILING DATE: The application was filed on November 17, 1993 and amended
on January 31, 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 Commission's Secretary
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 March 4, 1994, and should be accompanied by a proof of service on
the 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 the date of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549. Applicants, c/o James W. Dederer,
Esq., Transamerica Life Insurance Company, 1150 South Olive, Los
Angeles, CA 90015.
FOR FURTHER INFORMATION CONTACT:
Joyce M. Pickholz, Senior Attorney, or Wendell M. Faria, Deputy Chief,
at (202) 272-2060, 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. Transamerica is a stock life insurance company incorporated
under the laws of California in 1906.
2. The Separate Account was established by Transamerica on
September 28, 1993. Schwab will serve as the distributor and principal
underwriter of the Contracts.
3. The Contract is a flexible purchase payment deferred variable
annuity which can be purchased on a non-tax qualified basis or used as
a funding vehicle in connection with certain retirement plans which
qualify for favorable income tax treatment. Purchase payments under the
Contracts will be allocated to one or more sub-accounts of the Separate
Account. The initial purchase payment under a Contract must be at least
$5,000. Additional purchase payments of at least $1,000 each may be
made at any time before the annuity date.
4. Each Contract contains death benefit provisions that provide a
benefit equal to the greatest of (a) the sum of all purchase payments,
less the sum of all withdrawals and any applicable premium or similar
taxes, or (b) the account value, as of the end of the valuation period
during which the later of (1) due proof of death is received and (2)
the receipt of a written notice of the method of settlement elected by
the beneficiary.
5. A Transfer fee of $10 will be deducted under the Contract for
each transfer in excess of 10 per Contract year. Transamerica will also
deduct an annual Contract charge of $25 for each Contract at the end of
each Contract Year for administrative services. While Transamerica does
not currently impose an Administrative Expense Charge, it reserves the
right to deduct such a charge on a daily basis in the future from the
assets of the Separate Account. However, the Administrative Expense
Charge is guaranteed not to exceed an effective annual rate of 0.15% of
the average net assets held in each sub-account. Transamerica does not
anticipate any profit from these charges. Transamerica will deduct the
administrative charges in reliance upon and in compliance with Rule
26a-1 under the 1940 Act.
6. Transamerica will deduct any premium taxes related to a
particular Contract from purchase payments, upon surrender, or upon
annuitization, in reliance on Rule 26a-2 under the 1940 Act. No charges
are currently made for federal, state, or local taxes other than
premium taxes. However, Transamerica may deduct such taxes in the
future.
7. There are no charges or deductions for sales load from purchase
payments, Separate Account assets, or upon withdrawal or surrender of a
Contract. Transamerica will incur expenses relating to the sale of the
Contracts which will be paid from its general assets.
8. For assuming certain mortality and expenses risks under the
Contracts, Transamerica will assess a mortality and expense risk charge
at an annual rate of 0.85% of the value of net assets in the Separate
Account. Of this amount, approximately 0.30% represents mortality risk
and approximately 0.55% is estimated to be attributable to expense
risks. This charge will not increase. If the mortality and expense risk
charge is insufficient to cover actual costs and assumed risks, the
loss will fall on Transamerica. Conversely, if the charge is more than
sufficient to cover costs, any excess will be profit to Transamerica.
Transamerica currently anticipates a profit from this charge. According
to Applicants, the mortality risk borne by Transamerica arises from its
contractual obligation to make annuity payments (determined in
accordance with the annuity tables and other provisions contained in
the Contract) regardless of how long all annuitants or any individual
annuitant may live. This undertaking assures that neither an
annuitant's own longevity, nor an improvement in general life
expectancy, will adversely affect the periodic annuity payments.
Transamerica also assumes a risk in connection with the payment of
death benefits, since the death benefit could be higher than the
account value. The expense risk assumed by Transamerica is the risk
that administrative costs will be greater than anticipated, or exceed
the amount recovered through the administrative charges.
Applicants' Legal Analysis
1. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act require that
all payments received under a periodic payment plan certificate be held
by a qualified trustee or a custodian and held under arrangements which
prohibit any payment to the depositor or principal underwriter except
for the payment of a fee, not exceeding such reasonable amount as the
Commission may prescribe, for bookkeeping and other administrative
services. Applicants request exemptions from those Sections to the
extent necessary to permit the assessment of the charge for mortality
and expenses risks in the manner described in the application.
2. Applicants submit that Transamerica is entitled to reasonable
compensation for its assumption of mortality and expense risks.
Applicants represent that the mortality and expense risk charge under
the Contracts is consistent with the protection of investors because it
is a reasonable and proper insurance charge. As described above, in
return for this amount Transamerica assumes certain risks under the
Contracts. The mortality and expense risk charge is a reasonable charge
to compensate Transamerica for the risk that annuitants under the
Contracts will live longer than has been anticipated in setting the
annuity rates guaranteed in the Contracts, for the risk that death
benefit proceeds will be greater than the Account Value, and for the
risk that administrative expenses will be greater than anticipated or
exceed amounts derived from the administrative charges.
3. Transamerica represents that the mortality and expense risk
charge is within the range of industry practice for comparable annuity
products. Applicants state that this representation is based upon
Transamerica's analysis of publicly available information about similar
industry products, taking into consideration such factors as current
charge levels, the existence of charge level guarantees, death benefit
guarantees, guaranteed annuity rates and other policy options.
Transamerica will maintain at its administrative offices, available to
the Commission, a memorandum setting forth in detail the products
analyzed in the course of, and the methodology and results of, its
comparative survey.
4. Applicants acknowledge that, if a profit is realized from the
mortality and expense risk charge, all or a portion of such profit may
be viewed as being offset by distribution expenses. Transamerica
represents that there is a reasonable likelihood that the proposed
distribution financing arrangements will benefit the Separate Account
and the Contract owners. Applicants also represent that the basis for
this conclusion is set forth in a memorandum which will be maintained
by Transamerica at its administrative offices and will be available to
the Commission.
5. Transamerica represents that the Separate Account will only
invest in management investment companies which undertake, in the event
any such company adopts a plan under Rule 12b-1 to finance distribution
expenses, to have a board of directors (or trustees), a majority of
whom are not interested persons of the company, formulate and approve
any such plan under Rule 12b-1.
Conclusion
Applicants submit that for the reasons and upon the facts set forth
above, their request for exemptions from sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act 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.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3316 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M
