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Securities Act of 1933 - Section 5 and Rule 145
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RESPONSE OF THE OFFICE OF INSURANCE PRODUCTS |
Acacia National Life |
DIVISION OF INVESTMENT MANAGEMENT |
Insurance Company; et al. |
Based on the facts and representations in you letter dated December 17, 2003, and without necessarily agreeing with your legal analysis, we would not recommend enforcement action to the Commission against Acacia National Life Insurance Company ("Acacia National") and Acacia Life Insurance Company ("Acacia Life") under Section 5 of the Securities Act of 1933 (the "1933 Act") and Rule 145 thereunder, or Sections 8 and 11 of the Investment company Act of 1940 (the "1940 Act"), if Acacia National transfers its separate accounts (the "Separate Accounts") to Acacia Life in connection with the merger of Acacia National into its parent, Acacia Life (the "Merger"). In addition, we would not recommend enforcement action to the Commission if: (1) the change in depositor for the Separate Accounts is effected through the filing of amendments to the registration statements for the Separate Accounts under the 1940 Act; and (2) new registration statements under the 1933 Act are filed by Acacia Life and the Separate Accounts to cover any securities issued after the Merger in connection with the variable annuity contracts and variable life insurance policies funded by the Separate Accounts.
We also would not recommend enforcement action to the Commission against Acacia Life if, after consummation of the Merger, it continues to rely on the exemptive orders identified in your December 17, 2003, letter and obtained on behalf of Acacia National, the Separate Accounts, and other parties named therein, without filing amended or new applications for the same relief previously granted.
Because our position is based on the facts and representations in your letter, you should note that different facts or representations may require a different conclusion. Further, this response expresses the position of the Division on enforcement only, and does not purport to express any legal conclusions on the issues presented.
Joyce M. Pickholz
Senior Counsel
Ameritas Life Insurance Corp.,
Acacia Life Insurance Company and affiliates
Ken W. Reitz
Greg C. Sernett
Law Division
5900 "O" Street
Lincoln, NE 68510
P.O. Box 81889
Lincoln, NE 68501-1889
December 17, 2003
William J. Kotapish
Assistant Director, Office of Insurance Products
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
RE: Acacia National Life Insurance Company and
Acacia Life Insurance Company
We are writing on behalf of Acacia National Life Insurance Company ("Acacia National") and Acacia Life Insurance Company ("Acacia Life") to request that the staff advise us that it would not recommend enforcement action to the Securities and Exchange Commission (the "Commission") in connection with the merger of Acacia National into its parent, Acacia Life (the "Merger"), described below. Specifically, Acacia National and Acacia Life are seeking the staff's assurances that it would not recommend that the Commission take any enforcement action:
1. under Section 5 of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 145 thereunder, or Sections 8 and 11 of the Investment Company Act of 1940, as amended (the "1940 Act"), if Acacia National Variable Life Insurance Separate Account I ("Acacia VUL Account") and Acacia National Variable Annuity Separate Account II ("Acacia VA Account") (collectively, "Separate Accounts") are transferred intact to Acacia Life, as described below (the "Separate Account Transfers");
2. after the Merger is complete, if Acacia Life, and the transferred Separate Accounts, and certain others described herein continue to rely on exemptive orders identified here and obtained on behalf of Acacia National, the Separate Accounts, and any other parties named therein without filing or submission of amended or new applications for the same exemptive relief.
Acacia National is a stock life insurance company organized under the laws of the Commonwealth of Virginia and a wholly owned subsidiary of Acacia Life. Acacia Life is wholly owned by Ameritas Holding Company, a subsidiary of Ameritas Acacia Mutual Holding company ("Ameritas Acacia"), the ultimate parent of Acacia National. Upon the authorization by Acacia National's Board of Directors on March 29, 2001, Acacia National was re-domesticated in the District of Columbia effective April 1, 2002. Acacia National is engaged in the business of issuing life insurance and annuities throughout the United States, except Alaska, Maine, New Hampshire and New York, with an emphasis on products with variable investment options in underlying portfolios. As of December 31, 2002, Acacia National had statutory assets of $598,499,000, and capital and surplus of approximately $36,800,000.
The Acacia VA Account is a separate account originally established by Acacia National on November 30, 1995, pursuant to the provisions of Virginia law and the authority granted under a resolution of Acacia National's Board of Directors and for the purpose of funding certain individual variable annuity contracts ("Contracts"). The Acacia VA Account is registered with the Commission as a unit investment trust under the Act (File No. 811-07627), and registration statements filed pursuant to the 1933 Act are in effect with respect to two Contracts (File Nos. 333-53732 and 333-03963).
The Acacia VUL Account is a separate account originally established by Acacia National on January 31, 1995, pursuant to the provisions of Virginia law and the authority granted under a resolution of Acacia National's Board of Directors and for the purpose of funding certain individual variable life insurance policies ("Policies"). The Acacia VUL Account is registered with the Commission as a unit investment trust under the Act (File No. 811-08998), and registration statements filed pursuant to the 1933 Act are in effect with respect to three Policies (File Nos. 33-90208, 333-95593 and 333-81057).
All assets of the Separate Accounts are invested in shares of portfolios of the following investment companies ("Underlying Portfolios") each of which is registered under the Act, and the shares of each of which are registered pursuant to the 1933 Act and issued in series as contemplated by Rule 18f-2 under the Act:
New solicitations and sales of the Contracts and Policies ceased in the year 2002, although additional deposits and premium payments may be added to existing Contracts and Policies.
Acacia Life is a stock life insurance company organized under the laws of The District of Columbia in 1997, and originally chartered by an Act of the United States Congress in 1869. Acacia Life is a second-tier subsidiary of Ameritas Acacia, the ultimate parent company of Acacia Life and Ameritas Life Insurance Corp., Nebraska's oldest insurance company which has been in business since 1887. Acacia Life is engaged in the business of issuing life insurance and annuities throughout the United States (except Alaska, Maine, and New York). Acacia Life had total statutory assets at December 31, 2002 of $ 2,403,758,000.
On April 1, 2002, Acacia National entered into a modified coinsurance agreement ("Coinsurance Agreement") with Ameritas Variable Life Insurance Company ("AVLIC"), an affiliated company of Acacia National, relating to the Contracts and Policies. Under that agreement, AVLIC agreed to accept, and to reinsure and indemnify, and Acacia National agreed to cede to and reinsure with AVLIC, the Contracts and Policies including any and all riders and any supplementary contracts associated therewith, and any Contracts or Policies in the process of Internal Revenue Code Section 1035 exchanges. AVLIC agreed that the reinsurance under the Coinsurance Agreement would (a) be coinsurance on a one hundred percent (100%) quota share basis of the rights, obligations and liabilities of Acacia National under the Contracts and Policies, (b) follow the forms of Acacia National, and (c) be in the amount of the benefit provided by the Contracts and Policies. For all other incidents occurring at any time, AVLIC is responsible for any and all rights, obligations or liabilities under the Contracts and Policies, to the extent not paid for prior to the effective date of the Coinsurance Agreement, and for the maintenance of any assets or reserves in connection therewith. Concurrently with the execution of the Coinsurance Agreement, Acacia National and AVLIC also entered into and executed an assumption reinsurance agreement ("Assumption Agreement").
Acacia National and AVLIC entered into the Assumption Agreement with an effective date of April 1, 2002, pursuant to which Acacia National agreed to transfer, cede and assign to AVLIC by way of assumption reinsurance all of the obligations and liabilities under the Contracts and Policies and all of Acacia National's rights, privileges and prerogatives thereunder, and AVLIC agreed to assume by way of assumption reinsurance all of the obligations and liabilities under the Contracts and Policies and all of Acacia National's rights, privileges and prerogatives thereunder transferred to them. AVLIC agreed to issue an assumption certificate to each owner of a Contract or Policy (an "Owner") to be reinsured by informing the Owner of AVLIC's assumption of Acacia National's obligations and liabilities under the Contracts and Policies.
The Assumption Agreement was subject to the satisfaction of various conditions, including the making of all required filings with and obtaining all necessary approvals of applicable state insurance authorities. With respect to state insurance approvals, all of the conditions precedent to the obligations of AVLIC and Acacia National pursuant to the Assumption Agreement have been fulfilled or satisfied. Until such time as any remaining Contracts or Policies are assumption reinsured (see discussion of "opt in" and "opt out" rights below), they will continue to be governed by the Coinsurance Agreement, under which AVLIC will perform all functions necessary for the proper administration of the Contracts and Policies.
The assumption reinsurance of the Contracts and Policies was also subject to the parties' having obtained from the Commission all necessary orders to permit the transactions and having effective registration statements under the 1933 Act relating to the AVLIC Contracts and Policies issued in exchange for the Contracts and Policies. On October 30, 2002, the Commission issued an order, Release No. IC-25791, granting Acacia National, AVLIC, and the Separate Accounts exemption relief under Sections 17(b) and 11(a) of the Act and Rule 17d-1 thereunder in connection with:
However, because many states require that Owners be given the opportunity to voice their opinion on the assumption of their contracts or policies ("out in" and "opt out" rights as described below), as of December 2, 2003, only 35 Contracts and Policies remain reinsured with AVLIC under the Coinsurance Agreement, and are not yet assumption reinsured by AVLIC.1 Assumption reinsurance with respect to these remaining Contracts and Policies is anticipated to take place in a series of transactions as Owners' opt in elections are received in accordance with state insurance laws.
No change in any terms of the Contracts or Policies were made by AVLIC in connection with its assumption reinsurance of the Contracts and Policies. The assumption reinsurance of the Contracts and Policies did not change the number of accumulation or annuity units credited under the Contracts or Policies or the value of such units, which will continue to be affected only by the investment performance of the Underlying Portfolios. Further, because shares of the Underlying Portfolios held by the Separate Accounts were transferred to corresponding reinsuring AVLIC separate accounts on the date a reinsurance transaction is effected, no interruption of investment performance is anticipated. No charges or expenses will be incurred by the Separate Accounts, the reinsuring AVLIC separate accounts or the Underlying Portfolios in connection with the transfer of shares of the Underlying Portfolios because the transfer will be made by book entry on the shareholder records of the Underlying Portfolios. Accordingly, values under the resulting AVLIC contracts and policies will be the same as they would have been under the Contracts and Policies had the assumption reinsurance transaction not occurred. Finally, there will be no tax consequences, adverse or otherwise, to Owners as a result of the assumption reinsurance of their Contracts or Policies.
Owners of Contracts or Policies assumption reinsured by AVLIC were afforded the right to "opt out" of or "opt in" to the assumption reinsurance of their Contracts or Policies, as required by state insurance laws. A state may require that an Owner be permitted to object to the assumption reinsurance of his or her Contract or Policy within a specified number of days after the Owner receives notice by means of a negative consent ("opt out") or affirmative consent ("opt in") to the assumption reinsurance transaction. If, under such an opt out provision, timely objection from the Owner were received by the reinsuring company, the Contract or Policy would not be assumption reinsured, and the Owner would continue to deal directly with Acacia National as to all aspects of his or her Contract or Policy. However, the Contract or Policy would continue to be coinsured by AVLIC and AVLIC would perform all administrative services with respect to the Contract or Policy pursuant to the Coinsurance Agreement.
Acceptance of an opt out right after the assumption reinsurance transaction has occurred will result in the Owner being restored to the same position he or she would have had if the transaction had not taken place. The number of accumulation units or annuity units credited under the Contract or Policy will remain unchanged, and the value of such units will be identical to what it would have been had the reinsurance transaction not occurred. In addition, there will be no tax consequences to the Owner resulting from his or her election of the opt-out right.
AVLIC may continue to afford Owners who have previously opted out of the assumption reinsurance of their Contracts or Policies subsequent opportunities to have their Contract or Policy assumed by AVLIC by issuing to them another assumption certificate which would include any state-mandated opt out provision. Owners opting out of the reinsurance of their Contract or Policy have remained with Acacia National (or would remain with Acacia Life subsequent to the Merger) and have their Contract or Policy values based on the applicable Separate Account. This 'second opportunity' process may extend over a period of years, and for business purposes Acacia Life and Acacia National desire to merge before this process is completed. Because only 35 or fewer Owners will remain with Acacia Life after the Merger,2 Acacia Life may seek at a future date to deregister the Separate Accounts pursuant to Section 8(f) of the Act or to take such other steps as it deems appropriate to reduce the number of Contracts and Policies outstanding or the administrative burdens presented by such contracts and policies.
The principal underwriter of the Contracts and Policies is Ameritas Investment Corp., a broker-dealer registered with the National Association of Securities Dealers and a majority-owned subsidiary of Ameritas Acacia. Ameritas Investment Corp. is the broker dealer principal underwriter for all securities actively sold through Ameritas Acacia companies. New sales of the Contracts and Policies have not been solicited since 2002 (although additional deposits and premium payments into existing Contracts and Policies are permitted).
Acacia National will merge with and into Acacia Life, with Acacia Life as the surviving corporation, pursuant to an Agreement and Plan of Merger and Articles of Merger (collectively, the "Merger Agreement") approved by the Boards of Directors of Acacia Life and Acacia National. The merger is subject to the approval by the District of Columbia Insurance Department as the domiciliary for both Acacia National and Acacia Life. Acacia National and Acacia Life expect to consummate the Merger, including the Separate Account Transfer, on or about December 31, 2003 ("Effective Date").
As a result of the Merger, Acacia Life will assume legal ownership of all of the assets of the Acacia National Separate Accounts and liability for Acacia National's liabilities and obligations, including with respect to the Acacia National Contracts and Policies then outstanding. Each Acacia National Owner will become a contract owner or policy owner of Acacia Life by operation of law. The Merger will not affect the provisions of, or the rights and obligations under, the Contracts or Policies. In particular, the Merger will not dilute or otherwise adversely affect the economic interests of the Owners of Contracts and Policies, nor will the Merger affect the values determined under the Contracts or Policies. The merger will not affect any current Acacia Life contract or policy owners.
The Merger will not result in any new charges or deductions being imposed upon or made from the Separate Accounts or the Contracts and Policies beyond those otherwise required or imposed prior to the Merger.
The Merger will not add, substitute or terminate any of the Contracts' or Policies' investment options made available to Owners. After the Merger, each sub-account of the Separate Accounts will continue to invest in the same Underlying Portfolio as prior to the Merger.
The Merger will not directly affect any of the Underlying Portfolios. The Underlying Portfolios will not be a party to the Merger or any related transaction. The investment objectives, policies, and restrictions of the Underlying Portfolios will not be changed as a result of the Merger or any related transaction. No investment portfolios are proposed to be added to, substituted by, or terminated by the Underlying Portfolios in connection with the Merger or any related transaction. The Merger will not result in any change to the investment advisors for the Underlying Portfolios, the Underlying Portfolios' assets, or the charges imposed on the Underlying Portfolios or their shareholders.
The Merger will not result in a change in the principal underwriter for the Contracts or Policies.
Acacia National and Acacia Life have determined that no provision of the Contracts, Policies or state law provides the Owners with any right to opt out of, or to vote on or otherwise consent to, the Merger. Rather, the only required votes are those of the sole voting stockholders of the merging companies. None of the events affecting the Separate Accounts in connection with the Merger require a vote of Owners under the 1940 Act. In addition, as described above, the investment options and contractual rights and obligations under the Contracts and Policies will not change, except that Acacia Life will become the depositor of the Separate Accounts. Consequently, Owners will have no investment decision to make with respect to the Merger.
Following the Effective Date of the Merger, Acacia Life will not accept any purchase payments for Contracts or Policies until the new registration statements filed with the Commission become effective. Thereafter, Acacia Life intends to accept additional payments under the transferred Contracts and Policies outstanding at the time the Merger is effected. Acacia Life will not offer new Contracts or Policies. Acacia Life will administer the Contracts and Policies in the same manner as Acacia National administered them immediately prior to the Merger.
All costs of the Merger will be borne by Acacia Life or an affiliate and not by any Owners of Acacia National Contracts and Policies.
Acacia Life will file new registration statements on Form N-4 or Form N-6 as applicable under the 1933 Act to reflect the change in depositor of the Separate Accounts and Acacia Life's assumption, pursuant to the Merger, of the contractual obligations and liabilities of Acacia National. Acacia Life will seek to have the new registration statements declared effective on or immediately following the Effective Date. Owners will receive a new Form N-6 or Form N-4 prospectus, as applicable, that reflects the change in depositor.
In compliance with applicable state law, Acacia Life and Acacia National will notify the Owners that Acacia Life has assumed all obligations and responsibilities of Acacia National under those Owners' Contracts and Policies.
For reasons discussed below, we believe:
We are aware of no previous insurance company merger or separate account transfer letters in this area of law involving facts where a plan of assumption reinsurance pursuant to exemption relief was in place and underway at the time no-action relief was requested. Nonetheless, we believe the proposed Merger poses no different issues than those present in these previous transactions.
Section 5 of the 1933 Act and Rule 145 there under do not apply to the Separate Account Transfers and no registration statements on Form N-14 are required.
We believe the Separate Account Transfers would not result in the offer or sale of any new or different security or in the creation of a new or different investment company issuer for purposes of Section 5 of the 1933 Act and Rule 145 there under.
The Separate Accounts will remain intact after the Merger and the assets of each of the transferred Separate Accounts will be legally segregated from all other assets of the depositor and will not be combined with those of any other separate account or other entity. By the terms of the Merger Agreement, the Separate Account Transfers would not result in any material change to the Contracts or Policies, except that, by operation of law, the identity of the sponsor/depositor will be different. Accordingly, after the Separate Account Transfers, Acacia Life will guarantee the rights and benefits provided by the Contracts and Policies.5 These rights and benefits (e.g., surrender rights, annuity options, death benefits, etc.) would remain the same but would be guaranteed directly by Acacia Life's larger pool of assets. Cash values under the Contracts and Policies allocated to the Separate Accounts would remain funded by the same pool of assets that presently constitute each Separate Account, and their subaccounts would continue to invest in the same Underlying Portfolios. The unit values under the Contracts and Policies immediately after the transfer of the Separate Accounts would be the same as immediately before. Transfer of the Separate Accounts would not, therefore, affect those aspects of the Policies and Contracts that cause interests there under to be treated as securities, e.g., the investment options available through the Separate Accounts.
Transfer of the Separate Accounts would have no effect on the Separate Accounts except for the succession of Acacia Life as the depositor and successor-issuer described above. The assets and liabilities of the Separate Accounts immediately before the Separate Account Transfers would remain intact and legally segregated from all other business of Acacia Life. The Separate Accounts' financial history would be carried forward, and, with the exception of the assumption of liabilities by Acacia Life, would not change.
As discussed above, Owners will not have the opportunity to opt out of or to vote on or consent to the Merger, including the Separate Account Transfers, and will not, by virtue of the Merger, have available any new or different investment options. Consequently, Owners will have no new investment decision to make in connection with the Separate Account Transfers.
Based on the foregoing, we believe that Section 5 of the 1933 Act and Rule 145 there under do not apply to the Separate Account Transfers.
Moreover, we believe no registration statement on Form N-14 would be required to be filed in connection with the Separate Account Transfers. Form N-14, by its terms, does not apply to separate accounts registered as unit investment trusts. Nonetheless, we believe the registration statements for the transferred Contracts and Policies issued through each Separate Account need to be in effect under the 1933 Act to cover any securities issued after the Separate Account Transfers, which may include any additional payments accepted on the transferred Contracts and Policies outstanding at the time the Separate Account Transfers are effected. In connection with effecting the Separate Account Transfers, Acacia Life and the Separate Accounts would file new registration statements with the Commission under the 1933 Act for the transferred Contracts and Policies, which registration statements would be requested to be declared effective in conjunction with the Separate Account Transfers. These new registration statements would reflect Acacia Life's assumption of Acacia National's contractual obligations and liabilities with respect to the Contracts and Policies pursuant to the Separate Account Transfers. Because the Separate Account Transfers are to be made in connection with the Merger of Acacia National into Acacia Life, the registration statements also would include appropriate financial information reflecting the Merger. The new prospectus would be sent to Owners of Contracts and Policies outstanding at the time the Separate Account Transfers are effected, would retain the historical financial information of the Separate Accounts and would disclose that new deposits or premium payments will be accepted under the Contracts and Policies after the Merger. Prior to the Effective Date of the Separate Account Transfers, Owners would have received disclosure from Acacia Life informing them of the proposed Separate Account Transfers and any related transactions expected to be effected in connection therewith.
Section 8 of the 1940 Act Does Not Apply to the Separate Account Transfers
We believe the succession of Acacia Life as depositor for the transferred Separate Accounts as a result of the Merger will not result in the organization or creation of any new investment company pursuant to Section 8 of the 1940 Act and, therefore, can and should be effected through amendment of the current registration statements of the transferred Contracts and Policies (on either Form N-4 or N-6) under the 1940 Act. Such amendments will be filed with the Commission as part of the process of filing new 1933 Act registration statements discussed above for the Contracts and Policies. These amendments will reflect Acacia Life as the depositor of the Separate Accounts and the transfer of contractual obligations and liabilities from Acacia National to Acacia Life as of the Effective Date.
The Merger will change the depositor of the Separate Accounts, which will involve a change in the successor-issuer of the Contracts and Policies. However, the change of depositor will not change the structure or operation of the Separate Accounts or their relationship to the insurance company issuing the Contacts and Policies or to the Owners. The Separate Accounts would continue to be treated as separate entities for all relevant purposes, including financial reporting.
Section 11 of the 1940 Act Does not Apply to the Separate Account Transfers
Based upon the foregoing analysis, we believe the Merger, including the Separate Account Transfers, do not involve an exchange of securities issued by an investment company for any other security of an investment company for purposes of Section 11 of the 1940 Act. However, should the Separate Account Transfers be viewed as including an offer of exchange of investment company securities within the meaning of Section 11, we believe that such transactions would comply with the requirements of Section 11(a) and Rule 11a-2 there under, because any such exchange would be effected at relative net asset values. Thus, Commission approval of such transactions should not be required under Section 11 of the 1940 Act.
Continued Reliance on Prior Exemption Relief to Acacia National Is Appropriate
We believe exemption orders granted by the Commission under the 1940 Act to Acacia National and its Separate Accounts6 should continue to apply to Acacia Life without the filing of amended or new applications for the same exemption orders. The Merger will not change the operations of the Separate Accounts or their relationship to their depositor, to any other separate account, or to Owners. The only change resulting from the Merger is the substitution of Acacia Life for Acacia National as the depositor for the Separate Accounts and as successor-issuer and insurer of the Contacts and Policies. We believe such changes have no impact upon, and are not relevant to, the exemptions that were previously granted or the justifications for those exemptions.7
NO-ACTION REQUEST
Based upon the above facts and circumstances, we respectfully request that the Commission staff issue a letter stating that the staff will not recommend that the Commission take any enforcement action in connection with the proposed Merger, including the Separate Account Transfers and any related transactions, described herein with respect to Section 5 of the 1933 Act and Rule 145 there under and Sections 8 and 11 of the 1940 Act. In addition, we request that the staff further indicate in its letter that the staff would not recommend that the Commission take any action if: (1) the change in the depositor for the transferred Separate Accounts as a result of the Merger is effected through the filing of amendments to the registration statements for the transferred Separate Accounts under the 1940 Act; and (2) new registration statements for the transferred Contracts and Policies under the 1933 Act are filed by Acacia Life and the transferred Separate Accounts to cover any securities issued in connection with the Contracts and Policies after the Merger is effected.
Further, we request that the staff indicate in its letter that the exemption orders cited herein, to the extent they continue to be relied upon, will continue to be applicable after the Effective Date, in the manner described above, to Acacia Life and any other parties named therein without the filing of amended or new applications for the same exemption orders.
Questions or communications regarding this request may be directed to either of the undersigned.
Sincerely,
On behalf of
Acacia National Life Insurance Company and
Acacia Life Insurance Company
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Ken W. Reitz, Esquire |
Greg C. Sernett, Esquire |
http://www.sec.gov/divisions/investment/noaction/acacia121903.htm
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