Section 1551.10  Authority (Repealed)

 

(Source:  Repealed at 44 Ill. Reg. 3896, effective March 2, 2020)

 

Section 1551.20  Definitions

 

"Annuity 2000 Mortality Table" means the mortality table developed by the Society of Actuaries Committee on Life Insurance Research and adopted as a recognized mortality table for annuities in December 1996 by the National Association of Insurance Commissioners (NAIC), as published in the Transactions of the Society of Actuaries, Vol. XLVII, p. 240.

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Company" means a stock or mutual legal reserve life insurance company or a fraternal benefit company that operates on a legal reserve basis.  It does not include an assessment legal reserve company, or any other company as that term is defined in Section 2(e) of the Code.

 

"Department" means the Department of Insurance.

 

"Director" means the Director of the Illinois Department of Insurance.

 

"Producer" means any person who is licensed as a life insurance producer under the Code.  The term producer also includes any person who represents a fraternal benefit company, operating on a legal reserve basis, and who solicits, negotiates or effects, for or on behalf of the fraternal benefit company, policies or contracts for insurance covering risks in this State.

 

"Securities Examination" means the Financial Industry Regulatory Authority (FINRA) Series 6 or Series 7 Qualification Examinations or any superseding FINRA examination that grants a person authority to sell variable contracts.

 

"Variable Contract" means any policy or contract that provides for life insurance or annuity benefits that vary according to the investment experience of any separate account or accounts maintained by the insurer as to that policy or contract, as provided for in Section 245.21 of the Code; or any policy or contract that is registered under the Securities Act of 1933, as amended (15 USC 77a et seq.), and that provides for benefits that vary according to the performance of an index, when the funds are not guaranteed as to principal or a stated rate of interest and in which the supporting assets are held and reported in a noninsulated separate account in which changes in asset values substantially match changes in contractual benefits from inception of the contract.

 

"Variable Contract Producer" means a producer who sells or offers to sell any variable contract.

 

(Source:  Amended at 44 Ill. Reg. 3896, effective March 2, 2020)

 

Section 1551.30  Qualification of Insurance Companies to Issue Variable Contracts

 

a)         Before any company shall deliver or issue for delivery variable contracts within this State it shall submit to the Director:

 

1)         A general description of the kinds of variable contracts it intends to issue in this State;

 

2)         If requested by the Director, a copy of the statutes and regulations of its state of domicile under which it is authorized to issue variable contracts; and

 

3)         If requested by the Director, biographical affidavits with respect to officers and directors of the company. The biographical affidavits shall include, but not be limited to, the following information:  identifying and contact information; educational, residential and employment history; professional, business and technical licenses and memberships; a complete history of fidelity bonding; criminal charges and convictions; civil, regulatory, administrative and disciplinary actions; a complete history of bankruptcy, insolvency, liens and foreclosures; affiant's consent to release background reports to the Department and consent for third parties to cooperate in the gathering of background information and confirmation; and the individual's, and his or her immediate family's, equity holdings in any entity subject to insurance regulation. The Department will accept the biographical affidavit, and any supplement to that affidavit.  The affidavit is available on the website of the NAIC or the Department.

 

b)         The Director may require additional information to be filed prior to authorizing a company to transact a variable contract business.

 

c)         The Director shall notify the company, in writing, that it is authorized to transact a variable contract business in this State.

 

(Source:  Amended at 44 Ill. Reg. 3896, effective March 2, 2020)

 

Section 1551.40  Separate Accounts

 

A domestic company issuing variable contracts shall establish one or more separate accounts pursuant to Section 245.21 of the Code, subject to the following provisions of this Section:

 

a)         Reserves for:

 

1)         benefits guaranteed as to dollar amount and duration, and

 

2)         funds guaranteed as to principal amount or stated rate of interest, which may be maintained in a separate account if a portion of the assets of such separate account at least equal to such reserve liability is invested in accordance with the laws and regulations of this State governing the investments of life insurance companies.  Such portion of the assets also shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company.  If a variable contract includes incidental minimum guarantees as referred to in Section 1551.60(c)(3)(B) of this Part, this subsection (a)(2) shall apply only to the reserves for any excess of such minimum guarantees over the reserves for the benefits that would be payable under the contract if there were no such minimum guarantees.

 

b)         The company shall maintain in each 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 Director.

 

c)         All provisions of the Illinois Insurance Code and any administrative regulations issued thereunder 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.

 

d)         Any insurance company which issues or delivers variable contracts shall establish such administrative and accounting procedures as are necessary to properly identify the one or more separate accounts of the company derived from or in relation to contributions, premiums or considerations received by it under such contracts and which meet the standards specified in Section 133(1) of the Illinois Insurance Code [215 ILCS 5/133(1)].

 

(Source:  Amended at 25 Ill. Reg. 4208, effective March 5, 2001)

 

Section 1551.50  Filing of Contracts

 

a)         The filing requirements applicable to variable contracts shall be those filing requirements otherwise applicable under existing statutes and regulations of this State with respect to individual and group life insurance and annuity contract form filings, to the extent appropriate as determined by the Director.

 

b)         Individual contracts which provide for both fixed and variable benefits (which are specified at the time of the sale of such contracts) shall show, separately, the consideration to be paid for the fixed benefits and for the variable benefits.

 

c)         In the sale of an individual variable contract, made in correlation with the sale of either a fixed life insurance policy or a fixed annuity contract, there shall be a disclosure to the prospective purchaser which shows the consideration to be paid for the variable contract separately from the other charges.  If any benefits or nonforfeiture values which may accrue prior to the death of the insured are involved in the presentation of such a correlated sale, the value of such fixed life insurance policy or such fixed annuity must be shown separately from any other values.

 

d)         Companies filing variable contracts shall include a certification by an officer of the company affirming that they will not sell the product subsequent to the Director's approval unless the Securities and Exchange Commission has provided an effective date for any securities registration required by federal law.

 

(Source:  Amended at 25 Ill. Reg. 4208, effective March 5, 2001)

 

Section 1551.60  Contracts Providing for Variable Benefits

 

a)         Illustrations of benefits payable under any variable contract shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided, however, that the form of illustration found in Appendix A of this Part may be utilized by companies in the sale of immediate variable annuities only.

 

b)         No individual variable annuity contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this State unless it contains in substance the following provisions or provisions which in the opinion of the Director are more favorable to the holders of such contracts:

 

1)         A provision that there shall be a period of grace of 30 days or of one month, within which any stipulated payment to the insurer falling due after the first may be made, during which period of grace the contract shall continue in force.  The contract may include a statement of the basis for determining the date as of which any such payment received during the period of grace shall be applied to produce the values under the contract arising therefrom;

 

2)         A provision that, at any time within 1 year from the date of default, in making periodic stipulated payments to the insurer during the life of the annuitant and unless the cash surrender value has been paid, the contract may be reinstated upon payment to the insurer of such overdue payments as required by the contract, and of all indebtedness to the insurer on the contract, including interest.  The contract may include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract arising therefrom;

 

3)         A provision specifying the options available in the event of default in a periodic stipulated payment. Those options may include an option to surrender the contract for a cash value as determined by the contract, and shall include an option to receive a paid-up annuity if the contract is not surrendered for cash, the amount of the paid-up annuity being determined by applying the value of the contract at the annuity commencement date in accordance with the terms of the contract.

 

c)         No individual variable life insurance policy shall be delivered or issued for delivery in this State unless it contains in substance the following provisions or provisions that, in the opinion of the Director, are more favorable to the holders of those policies:

 

1)         A provision that there shall be a period of grace of 30 days or of one month, within which payment of any premium after the first may be made, during which period of grace the policy shall continue in force, but if a claim arises under the policy during the period of grace before the overdue premiums or the deferred premiums of the current policy year, if any, are paid, the amount of those premiums, together with interest not in excess of 6% per annum, may be deducted from any amount payable under the policy in settlement.  The policy may contain a statement of the basis for determining any variation in benefits that may occur as a result of the payment of premium during the period of grace.

 

2)         A provision that the policy will be reinstated at any time within 3 years from the date of default, unless the cash surrender value has been paid or unless the period of extended insurance has expired, upon the application of the insured and the production of evidence of insurability, including good health, satisfactory to the insurer and the payment of an amount not exceeding the greater of:

 

A)        all overdue premiums and the payment of any other indebtedness to the insurer upon said policy with interest at a rate not exceeding 6% per annum compounded annually; or

 

B)        110% of the increase in cash surrender value resulting from reinstatement.

 

3)         A provision for cash surrender values and paid-up insurance benefits available as non-forfeiture options under the policy in the event of default in a premium payment after premiums have been paid for a specified period.

 

A)        If the policy does not include a table of figures for the options so available, the policy shall provide that the company will furnish at least once in each policy year a statement showing the cash value as of a date no earlier than the prior policy anniversary.

 

B)        The method of computation of cash values and other non-forfeiture benefits, as described either in the policy or in a statement filed with the Commissioner, Director or Superintendent of the jurisdiction in which the policy is delivered, shall be in accordance with actuarial procedures that recognize the variable nature of the policy.  The method of computation must be such that, if the net investment return credited to the contract at all times from the date of issue should be equal to the assumed investment increment factor if the contract provides for such a factor, or 3½% if not, with premiums and benefits determined accordingly under the terms of the policy, the resulting cash values and other non-forfeiture benefits would be at least equal to the minimum values required by Section 229.2 of the Code for a fixed dollar policy with those premiums and benefits.  The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable.  Incidental minimum guarantees include, for example, but are not to be limited to, a guarantee under a policy that provides for an assumed investment increment factor that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the contract at all times from the date of issue had been equal to that factor.

 

d)         Any variable annuity contract delivered or issued for delivery in this State shall stipulate the investment increment factors to be used in computing the dollar amount of variable benefits or other variable contractual payments or values thereunder, and may guarantee that expense and/or mortality results shall not adversely affect those dollar amounts.  In the case of an individual variable annuity contract under which the expense and mortality results may adversely affect the dollar amount of benefits, the expense and mortality factors shall be stipulated in the contract.

 

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

 

A)        The annual net investment increment assumption shall not exceed 5%, except with the approval of the Director;

 

B)        To the extent that the level of benefits may be affected by future mortality results, the mortality factor shall be determined from the Annuity 2000 Mortality Table, or any modification of that table not having a lower life expectancy at any age, or any annuity mortality table adopted after 1996 by NAIC that is approved by the Director.

 

2)         "Expense", as used in subsection (d), may exclude some or all taxes, as stipulated in the contract.

 

e)         Any individual variable life insurance policy delivered or issued for delivery in this State shall stipulate the investment increment factor to be used in computing the dollar amount of variable benefits or other variable contractual payments or cash values thereunder and shall guarantee that expense and mortality results shall not adversely affect those dollar amounts.

 

f)         The reserve liability for variable contracts shall be established pursuant to the requirements of Section 223 of the Code in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees, provided those actuarial procedures meet the approval of the Director.

 

(Source:  Amended at 44 Ill. Reg. 3896, effective March 2, 2020)

 

Section 1551.70  Required Reports

 

a)         Any company issuing individual variable contracts 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.  The company shall submit annually to the Director 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.

 

b)         Any company issuing individual variable contracts 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 reporting as of a date not more than four months previous to the date of mailing:

 

1)         in the case of an annuity contract under which payments have not yet commenced,

 

A)        the number of accumulation units credited to such contract and the dollar value of a unit, or

 

B)        the value of the contractholder's account; and

 

2)         in the case of a life insurance policy, the dollar amount of the death benefit.

 

Section 1551.80  Foreign or Alien Companies

 

If the law or regulation in the place of domicile of a foreign or alien company provides a degree of protection to the policyholder and the public which is substantially equal to that provided by applicable provisions of the Illinois Insurance Code and this Part, the Director, to the extent deemed appropriate, may consider compliance with such law or regulation as compliance with applicable provisions of the Illinois Insurance Code and this Part.  The state of entry of an alien company shall be deemed its place of domicile for the purposes of this Part.

 

(Source:  Amended at 25 Ill. Reg. 4208, effective March 5, 2001)

 

Section 1551.90  Licensing of Producers for Variable Contracts

 

a)         No producer shall be eligible to sell or offer for sale a variable contract unless, prior to making any solicitation or sale of such a contract, the producer also is licensed as a variable contract producer.  No agent of a fraternal benefit company that operates on a legal reserve basis shall be eligible to be licensed as a variable contract producer unless the producer also is licensed as a life insurance producer.

 

b)         Any producer 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 77(a) et seq.) need not be licensed as a variable contract producer.

 

c)         Any producer applying for a license as a variable contract producer shall do so by obtaining a life insurance producer license pursuant to 50 Ill. Adm. Code 3119 and filing with this Department proof of passing the Securities Examination.  Upon completion of these requirements, the Director shall issue a variable contract license to the individual.

 

d)         Any person licensed in this State as a variable contract producer shall immediately report to the Director:

 

1)         any suspension or revocation of the variable contract producer's license or life insurance producer's license in any other State or Territory of the United States;

 

2)         the imposition of any disciplinary sanction (including suspension or expulsion from membership, suspension or revocation of or denial of registration) imposed by any national securities exchange, or national securities association, or any federal, or state or territorial agency with jurisdiction over securities or variable contracts;

 

3)         any judgement or injunction entered against the producer on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

 

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

 

f)         Renewal of a variable contract producer's license shall follow the same procedure established for renewal of a producer's license to sell life insurance contracts in this State.

 

g)         No recommendation shall be made by an insurance producer, or insurer when no producer is involved, to an applicant to purchase a variable life insurance policy, on an individual basis, in the absence of reasonable grounds to believe that the purchase of the policy is not unsuitable for the applicant on the basis of information furnished after reasonable inquiry of the applicant concerning the applicant's age, insurance and investment objectives, financial situation, needs and tax status, and any other information known to the insurer or producer making the recommendation.

 

1)         For purposes of this subsection (g), "recommendation" means advice provided by an insurance producer, or an insurer when no producer is involved, to an individual consumer that results in a purchase or exchange of a variable life insurance contract in accordance with that advice.

 

2)         Compliance with the Financial Industry Regulatory Authority rules pertaining to suitability (1735 K Street, N.W., Washington DC 20006) (amended by SR-FINRA-2014-016, effective May 2, 2014; no later editions or amendments are included) shall satisfy the requirements under this Section for the recommendation of variable life insurance policies.  However, nothing in this Section shall limit the Director's ability to enforce this requirement.

 

3)         Violation of the requirements of this Part shall be an unfair trade practice and evidence of incompetence or untrustworthiness in the conduct of business under Section 500-70(a)(7) and (8) of the Code.

 

(Source:  Amended at 44 Ill. Reg. 3896, effective March 2, 2020)

 

Section 1551.100  Disclosure

 

a)         The following information shall be furnished to an applicant for a contract of variable life insurance prior to execution of the application:

 

1)         A summary description of the insurance company and its principal activities.

 

2)         A summary explanation in non-technical terms of the principal variable features of the contract and of the manner in which any variable benefits reflect the investment experience of a separate account.

 

3)         A brief description of the investment policy for the separate account with respect to such contract.

 

4)         A list of investments in the separate account as of a date not earlier than the end of the last year for which an annual statement has been filed with the Director of the state of domicile.

 

5)         Summary financial statements of the insurance company and the separate account based upon the last annual statement filed with such Director, except that for a period of 4 months after the filing of any annual statement the summary required by this subsection (a)(5) may be based upon the annual statement, immediately preceding such last annual statement, filed with the Director.

 

b)         The insurance company may include such additional information as it deems appropriate.

 

c)         A copy of the statement containing the information required by subsection (a) shall be filed with the Director prior to any use of the statement and shall be subject to disapproval if found to be inaccurate or misleading.

 

(Source:  Amended at 25 Ill. Reg. 4208, effective March 5, 2001)

 

Section 1551.APPENDIX A  Variable Annuities Only

 

[Name of Company]

 

Hypothetical Illustration of Benefits

From An Immediate Variable Annuity

 

Prepared for	John Doe
Age & Sex	65 Male
Annuity Form	Life Annuity with 120
	Months Certain
Single Purchase Payment		$15,000

 

Annuity payments will vary as described in the prospectus, and in accordance with the actual investment results.

 

An interest rate of 3½% is used in calculating the initial payment. If the investment result after charges and taxes, as described in the prospectus, is equal to the interest rate assumed for the annuity, the annuity payment for that period will be unchanged.  If the investment result is greater, the annuity payment will increase; if less, the payment will decrease.

 

The table below illustrates the effect of three hypothetical annual rates of investment return.  The hypothetical rates of investment return shown are after provision for any taxes chargeable to the account, but before deduction of other charges.

 

				MONTHLY ANNUITY PAYMENT
				AT AGE
Hypothetical Investment Result		First Payment		70		75		80		85
8%		$92.64		$109.40		$129.19		$152.56		$180.16
4%		92.64		90.42		88.26		86.15		84.09
0%		92.64		74.18		59.39		47.56		38.08

 

The investment results bear no relationship to past or future investment results.  Actual investment results will vary from month to month and actual payments may be more or less than shown above.

 

Use of this material is prohibited unless preceded or accompanied by a current prospectus which sets forth the sales expenses and other material information.