[Federal Register Volume 61, Number 151 (Monday, August 5, 1996)]
[Notices]
[Pages 40676-40679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19841]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22109; File No. 812-9672]
Allstate Life Insurance Company of New York, et al.
July 30, 1996.
AGENCY: Securities and Exchange Commission (``SEC'' or the
``Commission'').
ACTION: Notice of Application for Exemptions under the Investment
Company Act of 1940 (the ``1940 Act'').
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APPLICANTS: Allstate Life Insurance Company of New York (the
``Company''), Allstate Life of New York Separate Account A (the
``Variable Account''), and Allstate Life Financial Services, Inc.
(``ALFS'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act for exemptions from Sections 26(a)(2)(C) and 27(c)(2) of the
1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order permitting the Company
to deduct a mortality and expense risk charge from: (i) the assets of
the Variable Account in connection with the offer and sale of certain
flexible premium deferred variable annuity certificates (the
``Contracts'') and any contracts offered in the future (``Future
Contracts'') by the Company which are materially similar to the
Contracts; and (ii) the assets of any other variable accounts
established in the future (``Future Accounts'') by the Company, in
connection with the offer and sale of Future Contracts. Applicants
propose that the order extend to any broker-dealer (``Other Broker-
Dealers'') which may serve in the future as principal underwriter with
respect to the Contracts or Future Contracts.
FILING DATE: The application was filed June 7, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be
[[Page 40677]]
issued unless the Commission orders a hearing. Interested persons may
request a hearing on this application by writing to the Secretary of
the SEC 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 August 26, 1996, and should be accompanied by proof of service
on Applicants in the form of an affidavit or, for lawyers, by
certificate of service. Hearing requests should state the nature of the
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 SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC
20549. Applicants, c/o David E. Stone, Esq., Allstate Life Insurance
Company of New York, 3100 Sanders Road, Northbrook, Illinois 60062.
FOR FURTHER INFORMATION CONTACT:
Peter R. Marcin, Law Clerk, or Wendy Finck Friedlander, Deputy Chief,
Office of Insurance Products, Division of Investment Management, at
(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 SEC.
Applicants' Representations
1. The Company, a stock life insurance company incorporated in New
York, is a wholly-owned subsidiary of Allstate Life Insurance Company
(``Allstate Life''), a stock life insurance company incorporated in
Illinois, which is wholly owned by Allstate Insurance Company
(``Allstate''), a stock property-liability insurance company
incorporated under the laws of Illinois.
2. The Company established the Variable Account under New York law
on December 22, 1995 to fund variable annuity contracts. The Variable
Account is registered under the 1940 Act as a unit investment trust.
3. The Variable Account is currently divided into nine sub-
accounts. Each sub-account will invest exclusively in the shares of a
designated investment portfolio (each, a ``Portfolio'') of AIM Variable
Insurance Funds, Inc. (the ``Fund''). The Company, in the future, may
establish additional sub-accounts to invest in other Portfolios of the
Fund or in other funds. The Company also may establish Future Accounts
to support Future Contracts.
4. ALFS, a wholly owned subsidiary of Allstate Life, will serve as
the distributor and principal underwriter for the Contracts. ALFS is
registered with the Commission under the Securities Exchange Act of
1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
5. The Contracts are designed for use by individuals in retirement
plans that qualify for special federal income tax treatment under
Sections 401, 403, 408, or 457 of the Internal Revenue Code
(``Qualified Plans'') and in retirement plans that do not qualify for
special tax treatment under those sections.
Contract owners may allocate premium payments to one or more sub-
accounts of the Variable Account or to the Company's general account
(``Fixed Account''). The Contracts require a minimum initial premium
payment of $5,000 ($2,000 in the case of a Qualified Plan). Subsequent
premium payments must be at least $500 and may be made at any time
prior to the date on which income payments begin (``Payout Start
Date''). Under an automatic additions program, however, the minimum
purchase payment for allocation to the Variable Account is $100 and,
for allocation to the Fixed Account, the minimum purchase payment is
$500.
6. The Contracts provide for a guaranteed death benefit. If the
Contract owner dies before the annuity date, the Company will pay a
death benefit to the beneficiary, upon receipt of due proof of death
and a payment election. The death benefit is based on the largest of
the following amounts: (a) the Contract value on the date the Company
determines the death benefit; (b) the amount that would have been
payable in the event of a full withdrawal of the Contract value on the
date the Company determines the death benefit; (c) the Contract value
on every seventh Contract anniversary beginning on the date the
Contract was issued 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; or (d) an enhanced
death benefit equal to the greatest of the anniversary values as of the
date the Company determines the death benefit. The anniversary value 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. Anniversary values
will be calculated for each Contract anniversary prior to the earlier
of (i) the date the death benefit is determined and (ii) the date the
deceased attained age 75 or 5 years after the date the Contract was
established, if later.
7. The Company reserves the right to assess a $10 charge on each
transfer in excess of twelve per Contract year, excluding transfers
through dollar cost averaging \1\ and automatic fund rebalancing.\2\
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\1\ Dollar cost averaging permits the Owner to transfer a
specified amount every month from the one year guarantee period sub-
account of the Fixed Account to any sub-account of the Variable
Account. Dollar cost averaging cannot be used to transfer amounts to
the Fixed Account.
\2\ Automatice fund rebalancing allows all of the money
allocated to sub-accounts of the Variable Account to be rebalanced
to the desired allocation on a quarterly basis, determined from the
first date that the owner decides to rebalance. Each quarter, money
will be transferred among sub-accounts of the Variable Account to
achieve the desired allocation.
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8. The Company will deduct an administrative expense charge from
the assets of the Separate Account that is equal, on an annual basis,
to 0.10% of the daily net assets allocated to the sub-accounts of the
Variable Account.
9. An annual Contract maintenance charge of $35 per Contract year
will be charged when Contract value is less than $50,000 at the time of
the deduction.
10. Applicants represent that the administrative expense charge and
the annual Contract maintenance charge will not increase. In addition,
Applicants represent that these charges are deducted in reliance on
Rule 26a-1 under the 1940 Act.
11. No deductions are made from purchase payments. There are no
withdrawal charges on amounts withdrawn up to 10% of the amount of
purchase payments per Contract year, but amounts withdrawn in excess of
this may be subject to a withdrawal charge, depending on the payment
year in which the withdrawal is made, at a maximum rate of 7% of
purchase payments withdrawn, declining at a rate of 1% per year until
the eighth year when the rate is 0%.
12. The Company will deduct a mortality and expense risk charge
that is equal, on an annual basis, to 1.35% (including 0.10% for the
enhanced death benefit) of the daily net assets allocated to the sub-
accounts of the Variable Account. Applicants state that approximately
0.95% of the 1.35% charge is attributable to mortality risk, and
approximately 0.40% is attributable to expense risk. The mortality and
expense risk charge is guaranteed not to increase over the life of the
Contract.
13. The mortality risk arises from the Company's guarantee to cover
all death benefits and to make income payments in accordance with the
income plan
[[Page 40678]]
selected and income payment tables in the Contract. The expense risk
arises from the possibility that the Contract maintenance and
administrative expense charges will be insufficient to cover actual
administrative expenses.
14. If the mortality and expense risk charge is insufficient to
cover the actual costs of the risks assumed, the Company will bear the
loss. If the charge exceeds actual costs, this excess will be profit to
the Company and will be available for any corporate purpose, including
payment of expenses relating to the distribution of the Contracts. The
Company expects a profit from the mortality and expense risk charge.
15. The Company may incur premium taxes relating to the Contracts,
currently ranging up to 3.5%, and will deduct these taxes either at the
Payout Start Date or upon surrender of the Contract.
Applicants' Legal Analysis and Conditions
1. Section 6(c) of the 1940 Act authorizes the Commission to exempt
any person, security or transaction, or any class or classes of
persons, securities or transaction, from the provisions of the 1940 Act
and the rules promulgated thereunder if and to the extent that such
exemption 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.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940 Act, in pertinent
part, prohibit a registered unit investment trust and any depositor
thereof or underwriter therefor from selling periodic payment plan
certificates unless the proceeds of all payments (other than sales
load) are deposited with a qualified bank as trustee or custodian and
held under arrangements which prohibit any payment to the depositor or
principal underwriter except a fee, not exceeding such reasonable
amount as the Commission may prescribe, for performing bookkeeping and
other administrative services of a character normally performed by the
bank itself.
3. Applicants request an order of the Commission 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 a mortality and expense risk charge from: (i) the assets
of the Variable Account in connection with the offer and sale of
Contracts and Future Contracts; and (ii) the assets of any Future
Account, in connection with the officer and sale of Future Contracts.
Applicants propose that the order extend to Other Broker-Dealers which
may serve in the future as principal underwriter for the Contracts or
Future Contracts. Applicants assert that the requested exemptions are
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.
4. Applicants assert that the relief would promote competitiveness
in the variable annuity market by eliminating the need to file
redundant exemptive applications, thereby reducing administrative
expenses and maximizing efficient use of resources. Applicants submit
that the delay and expense involved in having to seek exemptive relief
repeatedly would impair the ability of the Company to take advantage
effectively of business opportunities as those opportunities arise, and
would not provide any additional benefit or protection to Contract
owners. Indeed, Contract owners may be disadvantaged as a result of
additional overhead costs incurred by the Applicants, any Future
Account, or Other Broker-Dealers.
5. Applicants assert that the 1.25% mortality and expense risks
charge (excluding the 0.10% risk charge for the enhanced death benefit)
to be assessed under the Contracts and Future Contracts is within the
range of industry practice for comparable variable annuity products.
Applicants represent that this determination is based upon Applicants'
analysis of publicly available information about similar industry
products, taking into consideration such factors as: annuity purchase
rate guarantees, death benefit guarantees, other contract charges, the
frequency of charges, the administrative services performed by the
company with respect to the contracts, the means of promotion, the
market for the contracts, investment options under the contracts,
purchase payment transfer, dollar cost averaging and portfolio
rebalancing features, and the tax status of the features. Applicants
represent that the Company will maintain at its home office, and make
available to the Commission upon request, a memorandum detailing the
methodology used in, and the results of, the Applicants' comparative
survey.
6. The Company also represents that the mortality risk charge of
0.10% imposed on the Contracts for the enhanced death benefit is
reasonable in relation to the risks assumed by the Company under the
Contracts. In arriving at this determination, the Company conducted a
large number of trials at various issue ages to determine the expected
cost of the enhanced death benefit.
First, hypothetical asset returns were projected using generally
accepted actuarial simulation methods. For each asset return pattern
thus 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 Contract owner's death during the year in
question. By analyzing the results of several thousand such
simulations, the Company was able to determine actuarially the level
cost of providing the enhanced death benefit. Based on this analysis,
the Company determined that a mortality risk charge of 0.10% was a
reasonable charge for providing the enhanced death benefit. Applicants
represent that the Company will maintain at its home office, and make
available to the Commission upon request, a memorandum detailing the
methodology used in, and the results of, the Applicants' comparative
survey.
7. Applicants acknowledge that the withdrawal charge may be
insufficient to cover all costs relating to the distribution of the
Contracts. To the extent distribution costs are not covered by the
withdrawal charge, the Company will recover its distribution costs from
the assets of the general account. Those assets may include that
portion of the mortality and expense risk charge which is profit to the
Company.
8. Applicants represent that the Company has concluded that there
is a reasonable likelihood that the distribution financing arrangement
proposed under the Contracts and Future Contracts will benefit the
Variable Account, the Future Accounts, Contract owners, and Future
Contract owners. The basis for these conclusions is set forth in a
memorandum which will be maintained by the Company at its home office
and will be made available to the Commission upon request.
9. The Company represents that the Variable Account and any Future
Account will invest only in open-end management investment companies
which undertake, in the event companies should adopt a plan for
financing distribution expenses pursuant to Rule 12b-1 under the 1940
Act, to have such plan formulated and approved by the company's board
of directors/trustees, a majority of whom are not interested persons of
the Company.
[[Page 40679]]
Conclusion
Applicants assert that for the reasons and upon the facts set forth
above, the requested exemptions from Sections 26(a)(2)(C) and 27(c)(2)
of the 1940 Act 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.
For the Commission, by the Division of Investment management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19841 Filed 8-2-96; 8:45 am]
BILLING CODE 8010-01-M
