N.Y. Insurance Law § 4240: Separate accounts; fixed and variable life insurance and annuities and funding agreements

§ 4240. Separate accounts; fixed and variable life insurance and

annuities and funding agreements. (a) In accordance with paragraphs one,

two and three of subsection (a) of section one thousand one hundred

thirteen and section three thousand two hundred twenty-two of this

chapter, a domestic life insurance company may establish one or more

separate accounts and allocate thereto, pursuant to agreements for

separate accounts, amounts paid to it (i) to provide for annuities which

are payable in fixed amounts guaranteed by it, or variable amounts, or

both, including any amounts paid to it which are subject to annuity

options; or (ii) to provide life insurance with benefits, premiums or

both payable on a variable basis and the reserves for which vary

according to the investment experience of such separate account; or

(iii) to accumulate in such separate account funds to be applied to

provide life insurance, whether fixed or variable, or both; or (iv) to

accumulate or hold in such separate account funds to be applied to

provide health insurance; or (v) to accumulate or hold in such separate

account proceeds applied under settlement or dividend options; or (vi)

to accumulate or hold in such separate account funds credited under

funding agreements delivered pursuant to section three thousand two

hundred twenty-two of this chapter; provided that any such separate

account shall be maintained in accordance with the following:

(1) Income, gains and losses, whether or not realized, from assets

allocated to a separate account shall, in accordance with the applicable

agreement or agreements, be credited to or charged against such account

without regard to other income, gains or losses of the insurer.

(2) With respect to investments allocated to a separate account:

(A) except as provided in paragraphs three and five of this

subsection, the insurer may invest in any investments contractually

permitted for such separate account, the restrictions, limitations and

other provisions relating to investments specified in this chapter shall

not apply to such investments, and such investments shall be

disregarded, and shall be excluded from admitted assets, in applying the

quantitative investment limitations contained in this chapter to other

investments;

(B) no stock, bond, note or other security of a subsidiary or

affiliate of the insurer, or of any company controlling or under common

control with the insurer, shall be allocated to any separate account if,

after giving effect to such allocation, any security of a different

class issued by such subsidiary or affiliate would be held in any other

account of the insurer, or by any company controlling or under common

control with the insurer or by any other subsidiary or affiliate of the

insurer; and

(C) The insurer shall invest and reinvest for such separate account in

good faith and with that degree of care that an ordinarily prudent

person in a like position would use under similar circumstances.

(3) The insurer may allocate amounts to a separate account to

facilitate its initial operations and amounts so allocated shall be

deemed to be invested under section one thousand four hundred four (in

the case of insurers making investments under the authority of section

one thousand four hundred four) of this chapter or under section one

thousand four hundred five (in the case of insurers making investments

under the authority of section one thousand four hundred five) of this

chapter and shall be subject to the qualitative standards and

quantitative limitations provided in section one thousand four hundred

four or one thousand four hundred five of this chapter, as the case may

be.

(4) Amounts received by the insurer pursuant to one or more such

agreements may be maintained in one or more separate accounts.

(5) No guarantee of the value of the assets allocated to a separate

account, or any interest therein, or the investment results thereof, or

the income thereon, shall be made to a contractholder by the insurer,

without limitation of liability under all such guarantees to the extent

of the interest of the contractholder in assets allocated to said

separate account (i) unless the investments allocated to such separate

account are deemed part of the general assets of the insurer and are

subject to the qualitative standards and quantitative limitations

contained in section one thousand four hundred four or section one

thousand four hundred five of this chapter or (ii) if the applicable

agreements provide that the assets in such separate account shall not be

chargeable with liabilities arising out of any other business of the

insurer, unless such investments are subject to the requirements and

limitations on investments imposed by articles thirteen and fourteen

(except section one thousand four hundred two) of this chapter applied

as though the aggregate assets allocated to such separate account were

the insurer's total admitted assets or (iii) unless the insurer shall

submit annually to the superintendent an opinion, in form and substance

satisfactory to the superintendent, of a qualified actuary (as defined

in item (vi) of subparagraph (B) of paragraph four of subsection (c) of

section four thousand two hundred seventeen of this article) that, after

taking into account any risk charge payable from the assets of such

separate account with respect to such guarantee, the assets in such

separate account make good and sufficient provision for the liabilities

of the insurer with respect thereto, such opinion to be accompanied by a

memorandum, also in form and substance satisfactory to the

superintendent, of the qualified actuary describing the calculations

made in support of such opinion and the assumptions used in the

calculations, provided that, notwithstanding any other provision of this

paragraph, reserve liabilities for guaranteed minimum death benefits and

fixed incidental insurance benefits with respect to variable life

insurance policies shall be maintained in the general account of the

insurer.

(6) The insurer shall not, in connection with the allocation of

investments or expenses, or in any other respect, discriminate unfairly

between separate accounts or between separate and other accounts, but

this provision shall not require the insurer to follow uniform

investment policies for its accounts.

(7) Except as otherwise provided in paragraph ten hereof, assets

allocated to separate accounts shall, for the purpose of any valuation

required by this chapter, be valued at their market value at the date as

of which valued in accordance with the terms of the applicable

agreements, or if there is no readily available market, then in

accordance with the terms of such agreements, and no special reserve

under subsection (b) of section one thousand four hundred fourteen of

this chapter shall be required in respect thereof.

(8) Unless otherwise provided in approvals given by the superintendent

and under such conditions as he may prescribe, the insurer shall

maintain in each separate account assets with a value at least equal to

the amounts accumulated in accordance with the terms of the applicable

agreements with respect to such separate account and the reserves for

annuities in the course of payment that vary with the investment

experience of such separate account.

(9) Except as may be required by subsection (b) hereof, the insurer

shall not transfer any investment, or asset held for investment, between

separate accounts or between separate and other accounts, provided that

the superintendent may authorize transfers in circumstances where such

transfers would not be inequitable.

(10) Except with respect to separate accounts qualifying under item

(iii) of paragraph five of this subsection, assets supporting reserves

which do not vary with the investment experience of the separate account

shall be maintained in the separate account at their value determined in

accordance with section one thousand four hundred fourteen of this

chapter.

(11) Any contract providing for benefits, premiums or both, payable on

a variable basis, delivered or issued for delivery in this state, and

any certificate or other writing furnished by the insurer to the

employee under such a group contract in evidence of either benefits or

contributions, or both, payable on a variable basis, shall

(A) contain a statement of the essential features of the procedure to

be followed by the insurer in determining the dollar amount of such

variable elements thereunder,

(B) state in clear terms that such amount may decrease or increase

according to such procedure, and

(C) contain on its first page a statement that such elements

thereunder are on a variable basis.

(12) Amounts allocated by the insurer to separate accounts shall be

owned by the insurer, the assets therein shall be the property of the

insurer, and no insurer by reason of such accounts shall be or hold

itself out to be a trustee. If and to the extent so provided in the

applicable agreements, the assets in a separate account shall not be

chargeable with liabilities arising out of any other business of the

insurer.

(13) Every individual variable annuity contract and every certificate

subject to this section and subsection (a) of section three thousand two

hundred nineteen of this chapter shall contain a provision, or a notice

attached to the contract or certificate, to the effect that during a

period, specified in such provision or notice, it may be surrendered to

the insurer together with a written request for cancellation of the

contract or certificate, and in such event, the insurer will pay an

amount equal to the sum of (i) and (ii), where (i) is the difference

between the premiums paid, including any fees or other charges, and the

amounts, if any, allocated to any separate accounts under the contract

or certificate, and (ii) is the cash value of the contract or

certificate, or, if the contract or certificate does not have a cash

value, the reserve for the contract or certificate, on the date of

surrender attributable to the amounts so allocated. The period specified

in such provision or notice for a contract or certificate sold other

than by mail order shall not be less than ten nor more than thirty days,

and for a contract or certificate sold by mail order shall be thirty

days, from the date the contract or certificate is received by the

owner.

(14) The superintendent may, from time to time, promulgate reasonable

regulations setting forth:

(A) standards to be followed in the approval of forms for use in

connection with separate accounts; such standards may relate to, but

need not be limited to, any one or more of the following: guaranteed

face amounts, termination of contract, withdrawal of funds by the

contract holder, commitments with respect to future price of guaranteed

annuities, valuation of assets, and other elements required to effect

compliance with section three thousand two hundred one of this chapter;

(B) rules with respect to accounting and reporting of funds allocated

to separate accounts, identification of assets allocated to any separate

accounts, and the application of expenses to agreements relating to

separate accounts;

(C) rules with respect to adequate disclosure of information relating

to separate accounts; and

(D) rules with respect to required and prohibited contract provisions

for variable life insurance and variable annuity contracts delivered or

issued for delivery in this state by an authorized fraternal benefit

society.

(c) This section shall have no application to a charitable annuity

society.

(d) Except as otherwise provided in this section, all pertinent

provisions of this chapter shall apply to separate accounts and

agreements relating thereto.

(1) The following provisions of this chapter shall not apply to

annuity contracts or to certificates subject to this section and

subsection (a) of section three thousand two hundred nineteen of this

chapter: paragraphs one, seven, eight, and nine of subsection (a) of

section three thousand two hundred nineteen of this chapter, subsections

(a) and (d) of section three thousand two hundred twenty-three of this

chapter, sections four thousand two hundred seventeen, four thousand two

hundred twenty-one and four thousand two hundred twenty-three and

subsection (e) of section four thousand two hundred thirty-one of this

article, provided, however, that this paragraph shall not apply to any

contract or certificate providing benefits with respect to amounts

allocated to a separate account, if such benefits are guaranteed at any

time to be not less than an amount equal to or greater than such

allocated amounts accumulated to such time at three percent per annum.

(2) Individual variable annuity contracts and group variable annuity

certificates delivered or issued for delivery in this state shall

contain grace, reinstatement, and nonforfeiture provisions appropriate

to such variable contracts and certificates. Payment of death benefits

under such contracts and certificates shall be made within seven

calendar days following receipt of the beneficiary's completed election

form with all information required by such form for the payment of

proceeds. If such death benefits are not paid within seven calendar days

following receipt of such completed election form, interest shall be

computed daily from the end of such seven day period at the rate of

interest currently paid by the insurer on proceeds left under the

interest settlement option and such contracts or certificates shall not

be subject to the payment of interest under subsection (c) of section

three thousand two hundred fourteen of this chapter. For amounts

received under actions commenced to recover proceeds pursuant to

subsections (a) and (b) of section three thousand two hundred fourteen

of this chapter, interest shall be computed daily at the rate of

interest currently paid by the insurer on proceeds left under the

interest settlement option from the earlier of the date the action is

commenced or the insurer's receipt of the beneficiary's completed

election form to: (A) the date the verdict is rendered or the report or

decision is made and thereafter in accordance with the provisions of

sections five thousand two and five thousand three of the civil practice

law and rules, for amounts received under subsection (a) of section

three thousand two hundred fourteen of this chapter; or (B) the date the

settlement is reached, for amounts received under subsection (b) of such

section.

(3) The following provisions of this chapter shall not apply to life

insurance policies to the extent that they provide for allocation of

amounts to separate accounts: paragraphs one, seven, eight, nine and ten

of subsection (a) of section three thousand two hundred three of this

chapter, section four thousand two hundred twenty-one and subsection (b)

of section four thousand two hundred thirty-two of this article,

provided, however, that this paragraph shall not apply to any policy

providing benefits with respect to the amounts so allocated, if such

benefits are guaranteed at any time to be not less than an amount equal

to or greater than such allocated amounts accumulated to such time at

three percent per annum.

(4) Contracts delivered or issued for delivery in this state for

individual variable life insurance policies shall contain loan, grace,

reinstatement and nonforfeiture provisions, and may provide for

settlement options, under conditions acceptable to the superintendent.

(5) Individual variable contracts shall be included in determining the

aggregate limits prescribed in section four thousand two hundred

twenty-eight of this article, with appropriate modification of expense

limits for such contracts, as required by the superintendent, to

recognize the variable nature of the contracts.

(6) The reserve liability for variable contracts shall be established

in accordance with actuarial procedures that recognize the variable

nature of the benefits provided and any mortality guarantees provided in

the contract.

(7) Notwithstanding any other provision of law, the superintendent

shall have the sole authority to regulate the issuance and sale of such

agreements; and, in addition to the powers expressly given by this

section, the superintendent shall have the power to promulgate, from

time to time, such regulations, not inconsistent with the provisions of

this chapter, as may be appropriate to carry out the provisions of this

section and, insofar as applicable to this section, other provisions of

this chapter.

(e) No authorized insurer shall make any such agreement in this state

providing for the allocation of amounts to a separate account until such

insurer has filed with the superintendent a statement as to its methods

of operation of such separate account and the superintendent has

approved such statement. Subject to the approval of the superintendent,

any such statement may apply to one or more groups of separate accounts

classified by investment policy, number or kinds of separate account

participants, methods of distribution of such agreements or otherwise.

In determining whether or not to approve any such statement, the

superintendent shall consider, among other things, the history,

reputation and financial stability of the insurer and the character,

experience, responsibility, competence and general fitness of the

officers and directors of the insurer. If the insurer files an amendment

of any such statement with the superintendent that does not change the

investment policy of a separate account and the superintendent does not

approve or disapprove such amendment within a period of thirty days

after such filing, such amendment shall be deemed to be approved as of

the end of such thirty day period, except that if the superintendent

requests further information on the statement during such period from

the insurer, such period shall be extended until thirty days after the

day on which the superintendent receives such information. An amendment

of any such statement that changes the investment policy of a separate

account shall be treated as an original filing.

(f) Notwithstanding the restrictions and limitations herein or

otherwise imposed by law, the insurer may with respect to any separate

account, (i) exercise any voting rights of any securities allocated

thereto in accordance with instructions from persons having interests in

such account ratably as determined by the insurer, or (ii) establish a

committee for such account, the members of which may be directors or

officers or other employees of the insurer or persons having no such

relationship to the insurer, or any combination thereof, who may be

elected to such membership by vote of the persons having interests in

such account ratably as determined by the insurer. Such committee may

have the power, which may be exercisable alone or in conjunction with

others, or which may be delegated to the insurer or any other person, as

investment manager or investment adviser, to authorize, approve or

review the acquisition and disposition of investments for such account.

In addition, the insurer may make such other provisions in respect to

the separate account, including but not limited to voting, investments,

audits and otherwise regarding management and administration, as the

insurer may deem appropriate to facilitate compliance with any

requirements of or pursuant to any federal or state law now or hereafter

in effect; provided that the superintendent approve such provisions as

not hazardous to the public or its policyholders in this state.