1. Summary Prospectuses for Variable Annuity and Variable Life Insurance Contracts SEC’s Proposed Disclosure
May 19-21, 2019
ALIC Annual Conference
Richard Choi
Carlton Fields
Dodie Kent
Eversheds Sutherland
Scott Rothstein
Mutual of America

2. Proposal Highlights & Discussion Points
New Option to use an Initial Summary Prospectus for Variable Contracts at the point of sale
New Option to use an Updating Summary Prospectus for Variable Contracts for Existing Contract Owners
Optional Method to Satisfy Portfolio Company Prospectus Delivery Requirements
Discontinued Variable Contracts
Industry Comments

3. Why the changes?
Concern that the “volume, format and content of disclosures” makes it difficult for some investors to find and understand the key information they need to make an informed investment decision.
Contract complexity;
Unfamiliar terminology;
Length;
Multiple contract iterations covered by a single prospectus;
Availability of numerous and wide ranging of investment options;
Proliferation of guaranteed benefits;
Practice of bundling the underlying fund prospectuses with the variable contract prospectus.

4. Initial Summary Prospectus: Content
Cover Page
Contract Overview
Important Considerations - Key Information Table
Standard Death Benefit
Other Benefits
Buying the Contract/Premiums
How Your Contract Can Lapse (Variable Life only)
Surrenders & Withdrawals
Other Fee Information
Fund Appendix
Special Terms

5. KEY INFORMATION TABLE Required in: Initial Summary Prospectus
Fees and Expenses must include:
(i) maximum surrender charge and maximum surrender charge period with a dollar example; a list of transaction charges; the minimum and maximum base contract charges; portfolio expense charges; and optional benefit charges; and minimum and maximum expense example. (For VLs, presentation can be narrative)
 “Risks” must include a succinct description of:
(i) risk of loss; (ii) risks that could occur if an investor believes a variable annuity is a short-term investment; (iii) risks associated with the contract’s investment options; and (iv) insurance company risks. (For VLs, include risk of lapse).
The “Restrictions” must include:
(i) optional benefits limitations, e.g., investment option restrictions; and (ii) investment options limitations generally, e.g., right to remove or substitute funds.
“Taxes” would require
several standard disclosure statements.
The “Conflicts of Interest” must include information about:
(i) investment professional compensation; and (ii) exchange-related disclosures.
KEY INFORMATION TABLE
Required in:
Initial Summary Prospectus
Updating Summary Prospectus
Statutory prospectus

6. Initial Summary Prospectus: Content, cont’d1. 2. 3. .
Initial Summary Prospectus: Content, cont’d
Include a table of funds that are available under the contract, including: (i) portfolio type (e.g., money market fund, bond fund, balanced fund, etc.) or investment objective; (ii) the name of the portfolio company and its adviser or subadvisor; (iii) the portfolio company’s expense ratio; and (iv) its average annual total returns over the past 1-year, 5-year, and 10-year periods.
Only currently available funds may be included.
If applicable, include an additional appendix with a separate table indicating which portfolio companies are available under each benefit.
Paper delivery of underlying fund prospectuses would no longer be required.
Fund Appendix

7. Updating Summary Prospectus: Content
Cover Page – similar to Initial Summary
Updated Information about the Contract – Changes
Important Considerations about the Contract – similar to Initial Summary
Fund Appendix – similar to Initial Summary
Special Terms – similar to Initial Summary

8. Important Changes
Concise description of the following types of changes must be included: (i) availability of portfolio companies; (ii) fee table; (iii) the standard death benefit; and (iv) other benefits available under the contract.
A concise description of any other changes to the contract are permitted, provided they occurred within the same time period.
Description of the change should be such that it provides enough detail to allow contract owners to understand the change and how it will affect them: e.g., your benefit charge increased vs. your benefit charge increased from 1.50 to

9. Optional Method to Satisfy Portfolio Company Prospectus Delivery Requirements
Current Delivery Practices
New Option to Satisfy Delivery Requirements
At the time of initial purchase payment and upon reallocation of contract value and upon fund amendments and/or supplements.
Insurer effects delivery.
With certain key information about the underlying funds provided in the contract’s summary prospectus, i.e., the fund appendix, an optional method for satisfying initial and updated fund prospectus delivery, as well as amendments and supplements, would be available, provided certain conditions are met, including:
(i) an Initial Summary Prospectus is used for each currently offered variable contract under a registration statement; (ii) the fund generally uses a summary prospectus; and (iii) the fund’s current summary prospectus, statutory prospectus, SAI, and most recent shareholder reports are posted online.  

10. Discontinued Variable Contracts – “Alternative Disclosure Contracts”
No insurance company will be permitted to rely on the Great-West no- action letters, unless pursuant to a “grandfather” exception.
An insurance company may continue to do so with respect to any variable contract that is “Great-Wested” as of the effective date of the final summary prospectus rules.
Such “grandfathered” Contract owners will continue to get financial statements and underlying fund prospectuses and other typically required documents, e.g., confirmations.

11. Possible Alternatives to, or in addition to, Grandfathering
APPROACH 1:
Require an annual notice—including information comparable to an updating summary prospectus, such as (i) the Key Information Table; (ii) a brief description of any changes relating to fees, the standard death benefits, other benefits, and available funds; (iii) a fund table.
Financial statements would be filed with SEC, posted online and available upon request.
APPROACH 2:  
Similar to Approach 1 but additionally requires the statutory prospectus and SAI be made available online and delivered to contract owners upon request. Financial statements could be incorporated by reference (forward-looking) into those documents.
A variable contract would continue to qualify as an Alternative Disclosure Contract if (i) it is no longer offered to new purchasers; (ii) there are fewer than 5,000 contract owners; and (iii) there have been “no material changes to the contract” since the last updated registration statement. And…

12. Proposed Rule Comment Period Has Ended
The SEC received comments beginning November 1, 2018 and received 53 letters in total (submission deadline was March 15, 2019), including from the following entities and organizations:
Commenters
Association for Advanced Life Underwriting
Broadridge
AIG
AARP
Transamerica
Wells Fargo Advisors
Ameritas
Committee of Annuity Insurers
Donnelley
Jackson National Life
Brighthouse Financial
Pacific Life Insurance Company
ICI
TIAA
IDC
Lincoln
Center for Capital Markets
IRI
XBRL US
Donnelly Financial Services
Better Markets
Consumer Federation of America
Capital Group
Financial Services Institute

13. Comments/Challenges The Fate of Great West Fund Appendix Terminology
Access = Delivery
Future Proofing

14. Timing?
QUESTIONS?