Life Bureau Filing Guidance Note

Filing Guidance on the use of Variable Material for Individual Annuity Contracts and Life Insurance Policy Forms

Guidance Date: 08/08/2008; Updated 11/01/2010

The use of variable material in individual annuity and life insurance policy forms is limited.  Insurers should comply with the following guidelines when filing for approval individual annuity and life insurance policy forms that include variable material.

Please note that effective April 15, 2008 all fund changes will need to be filed for approval.  We will no longer accept informational filings for fund changes after that date.  See Section II. B. 11 below.

  1. General Guidance

    A. Prior Approval

    The Memorandum of Variable Material reflecting the variable material needs to be submitted for approval.  Please refer to the guidance currently available on the Department website entitled “New Procedure and Filing Guidance for Approval of Memorandum of Variable Material.”

    B.  Bracketing/Underlining of Variable Material

    1. All variable material needs to be bracketed, underlined or boxed to denote variability.  Shading of material to denote variability is not acceptable.  The Memorandum of Variable Material must indicate how variable material is denoted.
    2. Each item of variable material, together with a detailed explanation of how and when the item may vary, needs to be set forth in the Memorandum of Variable Material.  See section I. F. below.
    3. If brackets are used, there needs to be a beginning and ending bracket for each variable item.  It is permissible to show variations within variations.  For example, an outer set of brackets may indicate that the provision may either appear or be omitted.  Inside these brackets may be another set of brackets that indicates that there may be some specified variation within the provision when it appears.  For denoting this variable material there should be two beginning brackets and two ending brackets.
    4. Other methods of denoting variable material may be used only if such method is found acceptable by the Department prior to use.

    C.  Caption of Memorandum of Variable Material

    1. The Memorandum of Variable Material needs to contain a caption at the top of the first page which indicates by form number each form to which it applies.  (The use of “et al.” to reference forms in the caption is not acceptable.)
    2. The Memorandum needs to contain a current date (the revision date) in the caption to distinguish it from past or future versions.
    3. The Memorandum needs to also set forth the company name in or above the caption.

    D.  No Form Number

    The Memorandum of Variable Material does not have its own Department form number.  If you choose to give the Memorandum its own form number the Department will consider it to be only for your internal use.  Any form number you choose to give to the Memorandum must not appear in the lower left corner.

    E.   Hypothetical “John or Jane Doe” material.

    Hypothetical “John or Jane Doe” material does not require a Memorandum of Variable Material to be submitted for prior approval because this information is considered illustrative.  However, such illustrative material needs to still be bracketed or underlined in the policy form.  Examples of illustrative material include the name of insured, name of owner, face amount, premium amount, issue age, issue date, and policy date.  The actual numbers in the table of cash values or the actual guaranteed cost of insurance rates shown which are particular to the hypothetical insured’s issue age and classification in the policy are considered to be illustrative and also need to be bracketed.

    F.   Contents of the Memorandum of Variable Material

    1. The Memorandum of Variable Material must be drafted in sufficient detail to determine the nature and scope of variation for each variable item.  Where text is variable, the memorandum should include the exact language of any alternate text and/or an explanation of when the bracketed text will be omitted from the form.  Similarly, variable numerical items should include the range (i.e. minimum and maximum) of variation.  All ranges must be reasonable.  Identification of the variable field is not sufficient.  It should be clear which explanation in the memorandum corresponds to which variable item in the form.  One recommended option would be to number the explanations in the memorandum and place the number of the explanation next to the corresponding variable item in the form.

      If variable items are related, then the Memorandum of Variable Material needs to detail their interaction.  For example, annuity contracts may have different guarantee periods each with a different surrender charge schedule.  The Memorandum of Variable Material needs to explain which set of surrender charges would be applicable to each guarantee period.

    2. A statement in a Memorandum of Variable Material that a variable item or language required by federal law may change in the future to comply with federal requirements is not acceptable unless the explanation also provides that any such change will be submitted to the Department for prior approval in a revised Memorandum of Variable Material and that any such change will apply to all new issues of the policy or contract form as applicable.
    3. A statement in a Memorandum of Variable Material that a variable item may be modified, restructured or changed is not acceptable unless the explanation also provides that any such change will be submitted to the Department for prior approval in a revised Memorandum of Variable Material and that any such change will apply to all new issues of the policy or contract form as applicable.

  2. Permissible Variable Material

    A.  Cover Page (Both Annuity Contract and Life Policy)

    1. Home Office, Administrative Office and Service Office Address. (Please refer to the guidance currently available on the Department website entitled “Filing Guidance for Making Address Changes, Name Changes and Merger/Name Changes.”)  Changes to the bracketed or underlined Home Office, Administrative or Service Office addresses require only an informational filing with the Department in accordance with the filing guidance available on the Department website.  Please note additional requirements in the filing guidance for in-force business when there is a home office address change.  Telephone numbers should be bracketed to denote that such numbers may change in the future but such changes do not need to be filed for informational purposes.
    2. Officer’s Titles and Signatures.  To avoid having to submit new forms for approval to the Department in the event of a change of officers, we suggest that the name, title and signature of the officer signing the form be bracketed or underlined as variable.  The Memorandum of Variable Material should provide the narrative description that in the event the title of an officer signing the policy or contract form changes, any new title utilized will be the title of an officer of the company.  Any change to the title, name or signature of a particular company officer will not require the filing of  either a revised Memorandum of Variability for approval or an informational filing.
    3. Company logos.  Company logos do not need to be bracketed.  Company logos will be deemed to be variable material.  If a company logo is going to change the insurer must notify the Department prior to its use.  The Department will respond with an acknowledgement letter.  The “Re” of the submission letter needs to state “Company Logo Change Only”..  The submission letter needs to identify the policy forms that will utilize the new logo or indicate that it will appear on all policy forms in the Company’s portfolio and confirm that the logo is not misleading ( see Section 3201 (c)(1)), no unlicensed insurer’s name appears in or as part of the logo and the name of the insurer will always be displayed more prominently than any logo that may be added.
    4. The free look period of 60 days for replacement situations may be bracketed.  The Memorandum of Variable Material will need to state that the free look period of 60 days will appear only when there is a replacement situation.

    B.  Specification or Data Pages

    Please note the guaranteed minimum interest rate for life insurance policies may not be variable.

    1. The form should not denote the entire specification or data page or entire sections of the specification or data page as variable.  While policy specific information may be denoted as variable, the section of the data page for inclusion of that information should not be denoted as variable.
    2. Current interest rate.  The Memorandum of Variable Material must reflect that this rate will change but it is not necessary to provide a numerical range.
    3. Guaranteed minimum interest rate for annuities.  The Memorandum of Variable Material may either:
      1. set forth the formula for determining the guaranteed minimum interest rate in accordance with Insurance Law §4223; or
      2. indicate that the guaranteed minimum interest rate is based on a formula filed with the Insurance Department.
    4. Guaranteed Periods.  The Memorandum of Variable Material will need to set forth all the guaranteed periods (e.g., 1-year, 3-year, 5-year) that could appear on the specification or data page.
    5. Variable loan interest rate.  The Memorandum of Variable Material will need to indicate that the rate will change in accordance with the language in the policy loan provision.
    6. Persistency enhancement amount and duration.  The Memorandum of Variable Material will need to set forth the reasonable ranges for the amount and the durations that will be made available.
    7. Choice of premium guideline test or cash value accumulation test.  The Memorandum of Variable Material will need to indicate that one or the other will appear depending on the applicant’s choice.
    8. No-lapse feature.  The Memorandum of Variable Material will need to indicate when the feature will appear or how and when terms related to the feature such as number of years will change.
    9. Death Benefit Options  The Memorandum of Variable Material will need to indicate all the death benefit options that are available.  The Memorandum of Variable Material will need to indicate when each of the options will appear.
    10. The following numerical items may be denoted as variable subject to the Memorandum of Variable Material providing the minimum and maximum amounts:
       
      1. Expense Charges
      2. Mortality and expense charges (M&E risk charges on variable products)
      3. Contract or policy credits
      4. Rider charges
      5. Bonus amounts
      6. DCA enhancement amount
      7. Contract or policy fees
      8. Number of permissible transfers
      9. Amount of permissible increases or decreases in the face amount of a life insurance policy
      10. Number of partial withdrawals
      11. Partial withdrawal amounts
      12. Minimum and maximum premiums amounts or contributions permissible under a policy or contract.
      13. Issue ages
      14. Benefit percentages for guaranteed living benefits
      15. Percentage of withdrawal amount not subject to a surrender charge
      16. Any other numerical items determined by the Department.  Please contact the Department prior to submission for such determination.

    11. Variable subaccounts.

      The variable subaccounts available under a life insurance policy or annuity contract may be designated as variable text. When this is done a separate memorandum of variable material is required, that deals exclusively with the variable funds and related material. Related material would be such things as the names of fund families and identifying numbers for funds. This memorandum of variable material will need to be identified as a "List of Funds" for purposes of the "Re" of the cover letter and any applicable certifications. This memorandum must reference all the policy forms including applications that reflect the variable subaccounts. This list will allow changes to be made to the variable subaccounts without having to re-file the entire Memorandum of Variable Material that pertains to other provisions of the policy forms including applications. The List of Funds will need to indicate that any change in the subaccounts will be submitted for informational purposes in a revised List of Funds. The fixed account may not be bracketed unless your company is restricting the availability of the fixed account in accordance with the guidance provided on the Department website. If that is the case, then the submission letter for the annuity product will need to provide a complete explanation and reference such guidance.

      Any changes in subaccounts should be filed on an informational basis only. A paper submission that involves only fund changes should include the wording "FUND CHANGES ONLY" in bold in the RE of the submission letter. A SERFF submission that involves only fund changes should select a requested Filing Mode of "Other" and then indicate "Fund Changes Only". A certification is not required to be submitted for a "Fund Changes Only" submission.

    12. Surrender Charge Schedules.  The Memorandum of Variable Material for annuity contracts will need to set forth the complete surrender charge schedules that may appear in the policy form and explain when each would be used.  For example, offering the applicant the choice between a 5 year and a 7 year surrender charge schedule.  In making such variations available in an individual product we draw your attention to Section 4224 of the Insurance Law.

      For life insurance policies surrender charges that vary due to such things as issue and rate class, do not need a complete set of surrender charges to appear in the Memorandum of Variable Material.  Instead the Memorandum should indicate that  basis for the variation (e.g. issue Age, underwriting class).  However when the applicant is given the choice between different surrender charge schedules, then this must be reflected in Memorandum of Variable Material.  Again, we draw your attention to Section 4224 of the Insurance Law.

    13. The payout option, if elected at time of application.
    14. Premium payment modes.

    C.  Applications

    1. Types of insurance.  The Memorandum of Variable Material will need to set forth all the policies or contracts that could appear on the application form and explain when they will appear (e.g., Ten Year Term policy will appear only for direct response market).
    2. Amounts of insurance.  The Memorandum of Variable Material will need to set forth all the amounts or range of amounts that could appear on the form and explain when they will appear.
    3. Guaranteed Periods. See guidance in Specification or Data Page section.
    4. Riders or other features.  The Memorandum of Variable Material will need to set forth all the riders currently available that could appear on the application and explain when they will appear.  The Memorandum of Variable Material will need to indicate that any addition of riders will be reflected in a revised Memorandum of Variable Material submitted for approval.
    5. Choice of Payment Methods.
    6. Credit Card Options.
    7. Special disclosure language for features such as bonuses.  The Memorandum of Variable Material will need to indicate that this language will appear only when the bonus is offered.
    8. Subaccounts.  See guidance in Specification or Data Page section.
    9. Company Logos.  See guidance in Cover Page section.
    10. Marketing names.  If a marketing name is bracketed on the application form to reflect a future change and you do not know what the marketing name may be the Memorandum of Variable Material needs to indicate that any change in the marketing name will be submitted in a revised Memorandum of Variable Material for prior approval.
  3. Designation as Variable Text Is Not Permissible For The Following:
    1. The basis for guaranteed maximum cost of insurance rates.  The C.S.O Mortality Table and related information may not be variable.  However standard variations of a particular C.S.O. table may be variable.  For example the four combinations of the 2001 C.S.O. table for Male & Female and Non-Smoker & Smoker may be treated as variable.
    2. Guaranteed minimum interest rate in a life insurance policy.
    3. The company name.
    4. The form number in the lower left hand corner of the policy form.
    5. Certain plans of insurance for the policy form, e.g., a whole life plan cannot be bracketed so that the policy can be used for a term insurance plan.  However, you can bracket plans within a whole life policy, e.g., Life Paid Up at 85, Life Paid Up at 95, Whole Life as long as a separate set of schedule pages reflecting each available plan with each schedule page bearing an unique form number is submitted for approval.  Term policies or riders which offer a choice of term plans such as 10 year term, 15 year term or 20 year term require a separate set of schedule pages reflecting each available plan with each schedule page bearing a unique form number.
    6. None of the text in the contract provisions in annuities or life insurance policy forms, including riders, may be designated as variable material except as provided in Section I F.2.
    7. All other variations not addressed herein, unless otherwise expressly permitted by the Department.  The Department will review requests from insurers for the use of variable material for circumstances not addressed in this guidance.  Such requests should include an explanation of the purpose of the variable material and a demonstration that the variable material is not in violation of law or detrimental to policyholders.
  4. The use of variations other than those that appear in the Memorandum of Variability would be considered the use of an unapproved policy form.

  5. Informational Filings:

    An informational filing should be identified in the Re of the submission letter.  All informational filings will be acknowledged by the Department indicating that the information submitted has been placed on file with the Department for informational purposes only.  You will need to wait for the acknowledgement from the Department that the information has been filed prior to its use.

  6. Variable Material VIA SERFF:

    When submitting variable material via SERFF the variable material needs to be submitted under the “Forms Schedule” tab.  It should not be submitted under the “Supporting Documentation” tab.  Please see the SERFF General instruction.