Administrative Code

Virginia Administrative Code
Title 14. Insurance
Agency 5. State Corporation Commission, Bureau of Insurance
1/27/2020

Chapter 20. Variable Contract Regulations

Article I
Definitions

14VAC5-20-10. Definitions.

The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise:

"Agent", when used in this chapter (14VAC5-20-10 et seq.) means any individual, partnership or corporation which under the laws of this State is licensed as a life insurance agent, or nonresident life insurance broker.

"Commission", when used in this chapter (14VAC5-20-10 et seq.) means the State Corporation Commission.

"Contract on a variable basis" or "variable contract", when used in this chapter (14VAC5-20-10 et seq.) means any policy or contract which provides for insurance or annuity benefits which may vary according to the investment experience of any separate account or accounts maintained by the insurer as to such policy or contract, as provided for in § 38.2-3113 of the Code of Virginia.

"Satisfactory alternative examination" to Part I of the written examination called for by subsection C of 14VAC5-20-80 shall include any securities examination which is declared by the Commission to be an equivalent examination on the basis of content and administration. The following examinations are deemed to be a satisfactory alternative examination:

1. A state securities sales examination acceptable to the Securities and Exchange Commission;

2. The National Association of Securities Dealers, Inc. Examination for Principals, or Examination for Qualification as a Registered Representative;

3. The various securities examinations required by the New York Stock Exchange, the American Stock Exchange, Pacific Stock Exchange, or any other registered national securities exchange;

4. The Securities and Exchange Commission test given pursuant to Section 15(b) (8) of the Securities Exchange Act of 1934 (15 USC § 78a et seq.);

5. The examination recommended for the testing of variable contract agents by the National Association of Insurance Commissioners, when adopted by the Insurance Department of any State or Territory of the United States and approved for use by such Department by the Securities and Exchange Commission.

"Variable contract agent", when used in this chapter (14VAC5-20-10 et seq.) means an agent who shall sell or offer to sell any contract on a variable basis.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623, § 2, eff. March 1, 1969.

Article II
Qualification of Insurance Companies to Issue "Variable Contracts"

14VAC5-20-20. Delivery of variable contracts.

A. No company shall deliver or issue for delivery variable contracts within this Commonwealth unless (i) it is licensed to do a life insurance or annuity business in this Commonwealth; and (ii) the Commission is satisfied that its condition or method of operation in connection with the issuance of such contracts will not render its operation hazardous to the public or its policyholders in this Commonwealth. In this connection, the Commission shall consider among other things:

1. The history and financial condition of the company;

2. The character, responsibility and fitness of the officers and directors of the company; and

3. The law and regulation under which the company is authorized in the state of domicile to issue variable contracts.

B. If the company is a subsidiary of an admitted life insurance company or affiliated with such company by common management or ownership, it may be deemed by the Commission to have satisfied the provisions of subdivision (ii) of subsection A hereof if either it or such admitted life company satisfies the aforementioned provisions; provided, further, that companies licensed and having a satisfactory record of doing business in this Commonwealth for a period of at least three years may be deemed to have satisfied the Commission with respect to subdivision (ii) of subsection A.

C. Before any company shall deliver or issue for delivery variable contracts within this Commonwealth, it shall submit to the Commission (i) a general description of the kinds of variable contracts it intends to issue; (ii) if requested by the Commission, a copy of the statutes and regulations of its state of domicile under which it is authorized to issue variable contracts and (iii) if requested by the Commission, biographical data with respect to officers and directors of the company on the NAIC uniform biographical data form.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623, § 3, eff. March 1, 1969.

Article III
Separate Account or Separate Accounts

14VAC5-20-30. Separate accounts; provisions.

A domestic company issuing variable contracts shall establish one or more separate accounts pursuant to § 38.2-3113 of the Code of Virginia of the insurance laws of this Commonwealth, subject to the following provisions of this article:

1. Unless otherwise approved by the Commission assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account.

2. No sale, exchange or other transfer of assets may be made by a company between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such transfer, whether into or from a separate account is made (i) by a transfer of cash, or (ii) by a transfer of securities having a valuation which could be readily determined in the marketplace, provided that such transfer of securities is approved by the Commission. The Commission may authorize other transfers among such accounts if, in its opinion, such transfers would not be inequitable.

3. The company shall maintain in each such separate account assets with a value at least equal to the reserves and other contract liabilities with respect to such account, except as may otherwise be approved by the Commission.

4. Rules under any provision of the insurance laws of this Commonwealth or any regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate account's committee, board or other similar body. No officer or director of such company nor any member of the committee, board or body of a separate account shall receive directly or indirectly any commission or any other compensation with respect to the purchase or sale of assets of such separate account.

5. A company may with respect to any separate account registered with the Securities and Exchange Commission as a unit investment trust exercise voting rights in connection with any securities of a regulated investment company registered under the Investment Company Act of 1940 (15 USC § 80a-1 et seq.) and held in such separate accounts in accordance with instructions from persons having interests in such accounts ratably as determined by the company.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623, § 4, eff. March 1, 1969.

Article IV
Filing of Contracts

14VAC5-20-40. Filing of contracts.

The filing requirements applicable to variable contracts shall be those filing requirements otherwise applicable under existing statutes and regulations of this Commonwealth with respect to individual and group life insurance and annuity form filings, to the extent appropriate.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623, § 5, eff. March 1, 1969.

Article V
Contracts Providing for Variable Benefits

14VAC5-20-50. Procedures.

A. Any variable contract providing benefits payable in variable amounts delivered or issued for delivery in this Commonwealth shall contain a statement of the essential features of the procedures to be followed by the insurance company in determining the dollar amount of such variable benefits. Any such contract, including a group contract and any certificate issued thereunder, shall state that such dollar amount will vary to reflect investment experience and shall contain on its first page a clear statement to the effect that the benefits thereunder are on a variable basis.

B. Illustrations of benefits payable under any contract providing benefits payable in variable amounts shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided that nothing contained herein is intended to prohibit use of hypothetical assumed rates of return to illustrate possible levels of annuity payments.

C. Any individual variable annuity contract delivered or issued for delivery in this Commonwealth shall stipulate the expense, mortality, and investment increment factors to be used in computing the dollar amount of variable benefits or other contractual payments or values thereunder, and may guarantee that expense and/or mortality results shall not adversely affect such dollar amounts.

In computing the dollar amount of variable benefits or other contractual payments or values under an individual variable annuity contract:

1. The annual net investment increment assumption shall not exceed 5.0%, except with the approval of the Commission;

2. To the extent that the level of benefits may be affected by mortality results, the mortality factor shall be determined from the Annuity Mortality Table for 1949, Ultimate, or any modification of that table not having a higher mortality rate at any age, or, if approved by the Commission, from another table.

"Expense", as used in this subdivision, may exclude some or all taxes, as stipulated in the contract.

D. The reserve liability for variable annuities shall be established pursuant to the requirements of the standard valuation law in accordance with actuarial procedures that recognize the variable nature of the benefits provided.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623, § 6, eff. March 1, 1969.

Article VI
Required Reports

14VAC5-20-60. Required reports.

A. Any company issuing individual variable contracts providing benefits in variable amounts shall mail to the contractholder at least once in each contract year after the first at his last address known to the company, a statement or statements reporting the investments held in the separate account and, in the case of contracts under which payments have not yet commenced, a statement reporting as of a date not more than four months previous to the date of mailing, (i) the number of accumulation units credited to such contracts and the dollar value of a unit, or (ii) the value of the contractholder's account.

B. The company shall submit annually to the Commission a statement of the business of its separate account or accounts in such form as may be prescribed by the National Association of Insurance Commissioners.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.

Article VII
Foreign Companies

14VAC5-20-70. Foreign companies.

If the law or regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially equal to that provided by this chapter, the Commission, to the extent deemed appropriate by it in its discretion, may consider compliance with such law or regulation as compliance with this chapter.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.

Article VIII
Qualification and Examination of Agents

14VAC5-20-80. Agents.

A.1. No agent shall be eligible to sell or offer for sale a contract on a variable basis unless prior to making solicitation or sale of such a contract, he also be licensed as a variable contract agent.

2. Any agent who participates only in the sale or offering for sale of variable contracts that are not registered under the federal Securities Act of 1933 (15 USC § 77a et seq.) need not be licensed as a variable contract agent.

B. Any agent applying for a license as a variable contract agent shall do so by filing with the Commission the required application.

C. The licensing as a variable contract agent of any agent complying with subsection B shall not become effective until such agent shall have satisfactorily passed a written examination upon securities and variable contracts. Such examination shall be divided into two parts. Part I shall be on securities generally. Part II shall deal with variable contracts, and shall be composed of at least 15 questions, but not more than 50 questions, concerning the history, purpose, regulation, and sale of contracts on a variable basis.

D. The examination will be given in such places and at such times as the Commission shall from time to time designate. Upon application for license as a variable contract agent, the applicant shall be notified of the date of the next examination.

E. The examination recommended for the testing of variable contract agents by the National Association of Insurance Commissioners (NAIC) is hereby adopted for use in this State in its present form, or as it may be amended, and it shall be used in all tests given pursuant to this regulation.

F. Any applicant for license as a variable contract agent shall not be required to take Part I of the NAIC examination if, at the time of application, evidence is presented that the applicant (i) has previously passed a satisfactory alternative examination as that term is defined in 14VAC5-20-10, or (ii) is currently registered with the federal Securities and Exchange Commission as a broker-dealer, or is currently associated with a broker-dealer and has met qualification requirements with respect to such association.

G. Every applicant applying for license as a variable contract agent shall satisfactorily complete Part II of the examination required by subsection C with a grade of at least 70%, or shall present evidence of successful completion of either a variable contract examination given under the supervision of an insurance department of any State or Territory of the United States which has adopted Part II of the examination recommended for the testing of variable contract agents by the National Association of Insurance Commissioners or has been examined and licensed by any such department prior to its adoption of the National Association of Insurance Commissioners Model Regulation.

H.1. Any applicant who fails to pass Part I of the examination required by this subsection may not take Part I of the examination again until 30 days after initially taking it. After a second such failure, such applicant may not take the examination again until 60 days after taking the second examination. After a third and any subsequent such failure, such applicant may not take the examination again until 90 days after the third and any subsequent examinations.

2. Any applicant failing to pass Part II of the examination may take Part II again 30 days after the first and any subsequent examinations.

I. Every application for a license as a variable contract agent shall be accompanied by an examination fee of $5.00. A fee of $5.00 will be charged for each re-examination administered to an applicant.

J. Report of the results of any examination given pursuant to this regulation shall be made by the Bureau of Insurance on "Commissioner's Report of Examination".

K. Except as modified by this chapter, the regulations of the Bureau of Insurance governing the licensing of life insurance agents including examinations therefor shall apply hereto.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.

14VAC5-20-90. Examination of other persons.

Part I of the written examination provided for in subsection C of 14VAC5-20-80 shall also be administered to other persons who are not required to be licensed to sell life insurance in this Commonwealth upon their submission of the required application and payment of the examination fee.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.

14VAC5-20-100. Records of examination.

A. Results of the examination administered pursuant to subsection C of 14VAC5-20-80 will be reported by the Bureau of Insurance to the applicant's company. In addition, examination results will be reported by the Bureau of Insurance to any other State Insurance Department requesting confirmation of the examination grade, either upon request of such Department or upon request of the applicant or his company.

B. Records of the examination grade of each applicant upon an examination administered by the Bureau of Insurance, or upon an examination deemed to be a satisfactory alternative examination and administered by another agency or authority and reported to the Bureau of Insurance will be retained in the file pertaining to said applicant.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.

14VAC5-20-110. General.

A. Any person licensed in this Commonwealth as a variable contract agent shall immediately report to the Commission (i) any suspension or revocation of his variable contract agent's license or life insurance agent's license in any other state or territory of the United States, (ii) the imposition of any disciplinary sanction (including suspension or expulsion from membership, suspension or revocation of or denial of registration) imposed upon him by any national securities exchange, or national securities association, or any federal, or state or territorial agency with jurisdiction over securities or contracts on a variable basis; (iii) any judgment or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

B. The Commission may reject any application or suspend or revoke or refuse to renew any variable contract agent's license upon any ground that would bar such applicant or such agent from being licensed to sell life insurance contracts in this Commonwealth. The rules governing any proceeding relating to the suspension or revocation of a life insurance agent's license shall also govern any proceeding for suspension or revocation of a variable contract agent's license.

C. Renewal of a variable contract agent's license shall follow the same procedure established for renewal of an agent's license to sell life insurance contracts in this Commonwealth.

Statutory Authority

§ 38.2-3113 of the Code of Virginia.

Historical Notes

Derived from Regulation 3, Case No. 18623; December 19, 1968, eff. March 1, 1969.



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