[Federal Register Volume 59, Number 157 (Tuesday, August 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19960]
[[Page Unknown]]
[Federal Register: August 16, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20462; 812-9070]
Hartford Life Insurance Company et al.
August 9, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'' or
``Commission'').
ACTION: Notice of Application for Exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Hartford Life Insurance Company (``Hartford Life''),
Hartford Life Insurance Company/Separate Account Three (the ``Separate
Account''), and Hartford Equity Sales Company, Inc. (``HESCO'').
RELEVANT 1940 ACT SECTIONS: Exemptions requested under Section 6(c)
from 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 expense risk charge from the assets of the
Separate Account, which funds certain deferred variable annuity
contracts called the Hartford Life Variable Annuity Contract (the
``Contracts'').
FILING DATE: The Application was filed on June 24, 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 September 6, 1994, and
must be accompanied by proof of service on the Applicants in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests must state the nature of the writer's interest, the reason for
the request, and the issues contested. Persons may request notification
of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street, NW., Washington, DC 20549. Applicants, c/o Rodney J. Vessels,
Counsel, Hartford Life Insurance Companies, 200 Hopmeadow Street,
Simsbury, Connecticut 06070.
FOR FURTHER INFORMATION CONTACT:
C. Christopher Sprague, Senior Staff Attorney, or Michael V. Wible,
Special Counsel, both 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.
Applicant's Representations
1. Hartford Life was originally incorporated under the laws of
Massachusetts on June 5, 1902, and subsequently was redomiciled in
Connecticut. Hartford Life is a stock life insurance company engaged in
the business of writing health and life insurance, both ordinary and
group, in all States of the United States and in the District of
Columbia.
2. On June 13, 1994, the Board of Directors of Hartford Life passed
a corporate resolution establishing the Separate Account under
Connecticut law. On June 23, 1994, the Separate Account registered as a
unit investment trust under the 1940 Act. The Contracts will be offered
for sale by HESCO, the designated principal underwriter for the
Contracts. HESCO is a broker-dealer registered with the Commission
under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.
3. The Contract Owner has the right to allocate purchase payments
to several sub-accounts of the Separate Account, each of which invests
in a corresponding series of Dean Witter Select Dimensions Investment
Series, and open-end diversified investment company. A Contract Owner
also may allocate purchase payments to Hartford Life's Fixed Account.
The Contract offers a death benefit that is applicable prior to the
annuity commencement date as well as four annuity options, including an
annuity payable during the lifetime of the annuitant.
4. The Contract Owner will not pay a sales charge at the time of a
premium payment, although a contingent deferred sales charge may be
assessed against Contract values upon surrender. The length of time
from receipt of a premium payment to the time of surrender determines
the contingent deferred sales charge. Specifically, the contingent
deferred sales charge equals 6% of a premium payment surrendered in the
payment's first year, 6% during the second year, 5% during the third
year, 5% during the fourth year, 4% during the fifth year, 3% during
the sixth year, 2% during the seventh year, and 0% for all older
premium payments.
5. During the first seven Contract years, on a non-cumulative
basis, a Contract Owner may make a partial surrender of Contract values
of up to 10% of the aggregate premium payments made to the Contract (as
determined on the date of the requested withdrawal) without the
application of the contingent deferred sales charge. After the seventh
Contract year, the Contract Owner may make a partial surrender of the
greater of 10% of premium payments made during the seven years prior to
the surrender or 100% of the Contract value less the premium payments
made during the seven years prior to the surrender without the
application of the contingent deferred sales charge.
6. Each Contract anniversary, Hartford Life will deduct a $30
maintenance fee from each Contract Owner's Contract value to reimburse
it for expenses relating to administration and maintenance of the
Contract and the sub-accounts of the Separate Account. There is no
annual maintenance fee with respect to Contracts with more than $50,000
of Contract value on the Contract anniversary. In addition, Hartford
Life will make a daily charge at the rate of .15% per annum against the
assets of the Separate Account during both the accumulation and annuity
phases of the Contracts for administration expenses. Neither of these
charges may be increased during the life of the Contracts. Total
revenues from all administrative charges under the Contracts are not
expected to exceed Hartford Life's average expected costs of
administering the Contracts.
7. The Contracts will provide for the deduction of a 1.25% annual
asset charge that will be paid to Hartford Life on a daily basis for
providing mortality and expense guarantees with respect to the
Contracts. Hartford Life estimates that this charge will be composed of
a .90% mortality risk component and a .35% expense risk component. The
mortality undertaking provided by Hartford Life, assuming the selection
of one of the forms of life annuities, is to make monthly annuity
payments (determined in accordance with the 1983(a) Individual Annuity
Mortality Table with ages set back one year and other provisions
contained in the Contract) to Contract Owners regardless of how long an
annuitant may live, and regardless of how long all annuitants as a
group may live. Hartford Life also incurs a mortality risk because of
its liability to pay a minimum death benefit under the Contract.
Hartford Life may experience a profit or a loss on the mortality
component of the charge, depending on the actual mortality experience
of Contract owners and Contract annuitants. The expense risk assumed by
Hartford Life is the risk that the administrative fees may be
insufficient to cover actual expenses. The rate of the mortality and
expense risk charge cannot be increased. If the charge is insufficient
to cover the actual cost of the expense risk undertaking, Hartford Life
will bear the loss. Conversely, if the charge proves more than
sufficient, the excess will be surplus to Hartford Life and will be
available for any proper corporate purpose. Hartford Life expects a
reasonable profit from the mortality and expense risk charge.
8. Applicants ask that the requested order apply to the Separate
Account and to future separate accounts issuing contracts that are
substantially similar to the Contracts.
Applicants' Legal Analysis
1. Applicants request an order under Section 6(c) of the 1940 Act
granting 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. 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 a fee,
not exceeding such reasonable amount as the Commission may prescribe,
for bookkeeping and other administrative services. Applicants' proposed
mortality and expense risk charge would not be considered a bookkeeping
and administrative expense.
2. Applicants have consented that the requested exemptions from
Sections 26(a)(2)(C) and 27(c)(2) may be made subject to the following
representations:
(a) The mortality and expense risk charge is reasonable in relation
to the risks assumed by Hartford Life under the Contracts.
(b) The mortality and expense risk charge is within the range of
industry practice for comparable annuity contracts as determined by a
survey of comparable contracts issued by a large number of other
insurance companies. Applicants' Contract is comparable to the
contracts of other insurance companies in that (i) current charge
levels are approximately the same; (ii) all provide minimum death
benefit guarantees the same as or lower than Applicants' Contract;
(iii) all have guaranteed annuity purchase rates; (iv) all have the
same special accounting system for separate account unit value
administration; and (v) all are offered in the same market. Hartford
Life undertakes to maintain at its Home Office available to the
Commission upon request a memorandum setting forth in detail the
methodology and contracts of other insurance companies underlying this
representation.
(c) There is the likelihood that the proceeds from explicit sales
loads will be insufficient to cover the expected costs of distributing
the Contracts. Any shortfall will be covered from the assets of the
general account, which may include profit from the mortality and
expense risk charge. Therefore, Hartford Life has concluded that there
is a reasonable likelihood that the Separate Account's distribution
financing arrangement will benefit the Separate Account and Contract
Owners. Hartford Life undertakes to maintain at its Home Office and
make available to the Commission upon request a memorandum setting
forth the basis for this representation; and
(d) The Separate Account will invest only in open-end management
companies which have undertaken to have a board of directors, a
majority of whom are not interested persons of the open-end management
company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
Applicants' Conclusion
Applicants request exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act in order that they may offer and sell the
Contracts subject to the charge for mortality and expense guarantees
described above. Applicants submit that, for all of the reasons stated
herein, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2)
meet the standards set out in Section 6(c) of the 1940 Act. Applicants
assert that the requested exemptions 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,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19960 Filed 8-15-94; 8:45 am]
BILLING CODE 8010-01-M
