Document ID: SEC-2013-1921-0001
Agency: sec
Document Type: Notice
Title: Applications: Transamerica Life Insurance Co., et al.
Posted Date: 2013-11-13T05:00Z

[Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
[Notices]
[Pages 68103-68107]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27039]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 30776; File No. 812-14133]

Transamerica Life Insurance Company, et al; Notice of Application

November 6, 2013.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940, as amended (the ``1940 Act'') granting 
exemptions from the provisions of Sections 2(a)(32), 22(c), and 
27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder.

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Applicants:  Transamerica Life Insurance Company (``TLIC''), 
Transamerica Financial Life Insurance Company (``TFLIC'') (each a 
``Company'' and collectively, the ``Companies''); Separate Account VA B 
(``TLIC Account''), Separate Account VA BNY (``TFLIC Account'') (each 
an ``Account'' and collectively, the ``Accounts''); and

[[Page 68104]]

Transamerica Capital, Inc. (``TCI''). The Companies, the Accounts and 
TCI are collectively referred herein as the ``Applicants.''

Summary of Application:  The Applicants seek an order under Section 
6(c) of the 1940 Act to the extent necessary to permit, under specified 
circumstances, the recapture of certain bonus credits applied to 
purchase payments made with respect to certain flexible premium 
variable annuity policies issued by the Companies.

DATES: Filing Date: The application was filed on March 14, 2013, and 
amended and restated applications were filed on June 5, 2013 and on 
October 11, 2013.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on December 2, 2013, and should be accompanied by proof of 
service on the Applicants, in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the requester's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicants: Transamerica Life Insurance 
Company and Separate Account VA B, Transamerica Financial Life 
Insurance Company and Separate Account VA BNY, 4333 Edgewood Road NE., 
Cedar Rapids, IA 52499-4240; Transamerica Capital, Inc., 4600 South 
Syracuse Street, Suite 1100, Denver CO 80237.

FOR FURTHER INFORMATION CONTACT: Michelle Roberts, Senior Counsel, or 
Joyce M. Pickholz, Branch Chief, Insured Investments Office, Division 
of Investment Management at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an Applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Applicants seek an order under Section 6(c) of the 1940 Act to 
the extent necessary to permit, under specified circumstances, the 
recapture of certain bonus credits applied to purchase payments made 
with respect to certain variable annuity policies, including 
endorsements thereto, and certificates under group policies marketed 
under the names ``Transamerica Variable Annuity Series--X Share,'' 
``Members Variable Annuity Series--X Share,'' and ``Partners Variable 
Annuity Series--X Share'' (``Policies'') as described in the 
application as well as variable annuity policies, including 
endorsements thereto, and certificates under group policies issued by 
the Companies in the future that are substantially similar in all 
respects to the Policies (``Future Policies''). The Applicants seek to 
recapture bonus credits from the Policies where the bonus credit was 
applied within the preceding twelve (12) months and the owner withdraws 
from or surrenders the Policy and there is no surrender charge or an 
otherwise applicable surrender charge (or contingent deferred sales 
load) is waived, because (i) an owner exercises his or her ``free 
look'' option; (ii) a death benefit is payable; (iii) an owner 
annuitizes the Policy; or (iv) an owner exercises a provision or rider 
providing for waiver of the surrender charge under the Nursing Care and 
Terminal Condition Withdrawal Option or the Unemployment Waiver as 
defined in the Policy. The order would also apply to any other separate 
accounts of the Companies or their affiliated companies that are 
controlling, controlled by, or under common control with the Companies 
(``Future Accounts'') that support Future Policies. Applicants also 
request that the order being sought extend to any Financial Industry 
Regulatory Authority (``FINRA'') member broker-dealers which may, in 
the future, act as principal underwriter of such Policies or Future 
Policies (``Future Underwriters'') and any successors in interest \1\ 
to the Applicants.
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    \1\ Successors in interest is defined as any entity or entities 
that result from a reorganization into another jurisdiction, a 
change in control or a change in the type of business organization.
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    2. TLIC is a stock life insurance company organized under the laws 
of the state of Iowa. TFLIC is a stock life insurance company organized 
under the laws of the state of New York. The TLIC Account is registered 
under the 1940 Act as a unit investment trust (File No. 811-06032). 
Interests in the TLIC Account offered through certain flexible premium 
variable annuity policies have been registered under the Securities Act 
of 1933 (``1933 Act'') on Form N-4 (File No. 333-185573).
    3. The TFLIC Account is registered under the Act as a unit 
investment trust (File No. 811-08750). Interests in the TFLIC Account 
offered through certain flexible premium variable annuity policies have 
been registered under the 1933 Act on Form N-4 (File No. 333-185574).
    4. Each Account is comprised of subaccounts established to receive 
and invest net purchase payments under the Policies (each a 
``Subaccount'').
    5. TCI, an affiliate of the Companies, is the principal underwriter 
and the distributor of the Policies for the Accounts. TCI is registered 
with the Commission as a broker-dealer under the Securities Exchange 
Act of 1934, as amended, and is a member of FINRA.
    6. TLIC issues the Policies in all states except New York. TFLIC 
issues the Policies only in New York. The Policies provide for 
accumulation of values on a variable basis, fixed basis, or both during 
the accumulation period, and may provide settlement or annuity payment 
options on a variable basis, fixed basis, or both. The Policies may be 
purchased on a non-qualified tax basis. The Policies may also be 
purchased and used in connection with plans qualifying for favorable 
federal income tax treatment.
    7. The owner determines in the application or transmittal form for 
a Policy how the net premium payments will be allocated among the 
Subaccounts of the Accounts and any available guaranteed period options 
or dollar cost averaging options of the fixed account. The policy value 
will vary with the investment performance of the Subaccounts selected, 
and the owner bears the entire risk for amounts allocated to an 
Account.
    8. For each premium payment an owner makes, the Companies may add a 
bonus credit equal to a percentage of the premium payment to the 
owner's policy value. The Companies do not assess a specific charge for 
the bonus credit. The Companies expect to use a portion of the 
mortality and expense risk charge, the administrative fee, and/or the 
surrender charge to pay for the bonus credit. The credit percentage is 
determined by the annuitant's age at the time of each premium payment. 
Currently, the bonus credit as a percentage of each premium payment 
equals 5.5% (ages 0-59), 5.0% (ages 60-69), 4.0% (ages 70-79) and 2.0% 
(ages 80+). The percentage could vary based on state laws. The 
Companies may vary the bonus credit percentage from premium to premium 
and/or based on the annuitant's attained age at the time

[[Page 68105]]

a premium payment is made, but the bonus credit will never be less than 
0.25% nor more than 7%.
    9. An owner may return his or her Policy for a refund. This is 
called the ``Right to Cancel Period'' or ``Free Look Right.'' An owner 
will generally have 10 days to return his or her Policy depending on 
the state where the Policy is issued. The Companies will not assess 
surrender charges against a Policy returned during the Right to Cancel 
Period.
    10. Under the Policies, each Company will pay a death benefit under 
certain circumstances. The Policies also offer an optional Additional 
Death Distribution rider and an Additional Death Distribution+ rider 
which pay an additional death benefit amount when a death benefit is 
payable during the accumulation phase. A discussion of the death 
benefits offered under the Policies is included in the application. The 
Applicants may add other optional death benefit riders to the Policies 
in the future.
    11. Policy owners may select one of several optional living 
benefits. The Policies offer three guaranteed lifetime withdrawal 
benefits, which guarantee a minimum amount may be withdrawn annually 
from the Policy for the lifetime of the annuitant, regardless of market 
performance and even if these withdrawals reduce the policy value to 
zero. The Policies also offer the Guaranteed Principal Solution Rider, 
which provides a guaranteed minimum accumulation benefit and a 
guaranteed minimum withdrawal benefit. The guaranteed minimum 
accumulation benefit guarantees that the policy value will equal a 
specified value on a specified future date. A discussion of the 
features of the Policies, including the optional living benefits, is 
included in the application. The Applicants may add other living 
benefit riders to the Policies in the future.
    12. An owner may transfer policy values. Transfers may be limited, 
or a charge may apply. Transfers and withdrawals from a guaranteed 
period option of the fixed account prior to the end of the guaranteed 
period are generally subject to an excess interest adjustment (except 
for policies issued in New York by TFLIC). This adjustment will also be 
made to amounts that an owner applies to an annuity payment option.
    13. An owner may surrender a Policy or make a partial withdrawal 
from the policy value during the Accumulation Period. If an owner 
surrenders a Policy or takes a partial withdrawal, a Company may deduct 
a surrender charge to compensate it for expenses relating to sales, 
including commissions to registered representatives and other 
promotional expenses. An owner generally may be permitted to withdraw 
certain limited amounts free of a surrender charge. The following 
charts show the surrender charges that apply to the Policies:

------------------------------------------------------------------------
                                                             Surrender
                                                           charge (as a
                                                           percentage of
       Number of years since  premium payment date            premium
                                                              payment
                                                            withdrawn)
------------------------------------------------------------------------
1.......................................................               9
2.......................................................               8
3.......................................................               7
4.......................................................               6
5.......................................................               5
6.......................................................               4
7.......................................................               3
8.......................................................               2
9.......................................................               1
10+.....................................................               0
------------------------------------------------------------------------

    A Company will waive the surrender charges if an owner withdraws 
money under the Nursing Care and Terminal Condition Withdrawal Option 
or the Unemployment Waiver. Those riders are discussed in the 
application.
    14. In states where permitted, if an owner takes a surrender or 
withdrawal under the Nursing Care and Terminal Condition Withdrawal 
Option or Unemployment Waiver, the Company will reduce the amount of 
the surrender value by the total bonus credits the Company credited to 
an owner's policy value during the 12 months before the surrender or 
withdrawal.
    15. The owner may elect or change an annuity payment option during 
the lifetime of the annuitant. The first annuity payment will be made 
as of the annuity commencement date. The owner generally may change the 
annuity commencement date, subject to specified limits. The amount of 
each annuity payment under the annuity payment options will depend on 
the sex (if allowed) and age of the annuitant (or annuitants) at the 
time the first payment is due and the payment option.
    16. The Companies deduct various fees and charges, which may 
include a daily mortality and expense risk fee; a daily administrative 
charge; an annual service or policy charge; premium taxes; surrender 
charges (contingent deferred sales loads); and fees for optional 
benefits or riders.

Applicants' Legal Analysis

    1. Section 6(c) authorizes the Commission, by order upon 
application, to conditionally or unconditionally grant an exemption 
from any provision, rule or regulation of the 1940 Act to the extent 
that the exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    2. Applicants request exemptions for the Policies described in the 
application, and for Future Policies that are substantially similar in 
all material respects to the Policies described herein, from Sections 
2(a)(32), 22(c), and 27(i)(2)(a) of the Act, and Rule 22c-1 thereunder, 
pursuant to Section 6(c), to the extent necessary to recapture the 
bonus credit applied to a premium payment within the preceding twelve 
(12) months when the owner withdraws from or surrenders the Policy and 
there is no surrender charge, or an otherwise applicable surrender 
charge (or contingent deferred sales load) is waived, because: (i) An 
owner exercises his or her ``free-look'' option, (ii) a death benefit 
is payable, (iii) an owner annuitizes the Policy; or (iv) an owner 
exercises a provision or rider providing for the waiver of the 
surrender charge under the Nursing Care and Terminal Condition 
Withdrawal Option or the Unemployment Waiver as defined in the Policy.
    3. Section 27(i) provides that Section 27 does not apply to any 
registered separate account funding variable insurance contracts, nor 
to the sponsoring insurance company and principal underwriter of such 
account, except as provided for in Section 27(i)(2)(A) of the 1940 Act. 
Section 27(i)(2)(A), in pertinent part, makes it unlawful for any 
registered separate account funding variable insurance contracts, or 
for the sponsoring insurance company of such account, to sell any such 
contract unless such contract is a redeemable security.
    4. Section 2(a)(32) of the 1940 Act defines ``redeemable security'' 
as any security under the terms of which the holder, upon its 
presentation to the issuer, is entitled to receive approximately his 
proportionate share of the issuer's current net assets, or the cash 
equivalent thereof.
    5. The Applicants submit that the bonus recapture provisions in the 
Policies do not deprive the owner of his or her proportionate share of 
the issuer's current net assets. An owner's right to the bonus credit 
will vest in full one year after a Company applies the bonus credit. 
Until that time, a Company retains the right and interest in the dollar 
amount of any unvested bonus credit amount. Thus, when a Company 
recaptures a bonus credit, it is only retrieving its own assets, and 
because an owner's interest in the bonus credit is

[[Page 68106]]

not vested, such owner would not be deprived of a proportionate share 
of the Account's assets (the issuer's current net assets) in violation 
of Section 2(a)(32). However, to avoid uncertainty as to full 
compliance with the 1940 Act, the Applicants request an exemption from 
the provisions of Sections (2)(a)(32) and 27(i)(2)(A) to the extent 
deemed necessary to permit them to recapture the bonus credit under the 
Policies and Future Policies.
    6. Section 22(c) of the 1940 Act states that the Commission may 
make rules and regulations applicable to registered investment 
companies and to principal underwriters of, and dealers in, the 
redeemable securities of any registered investment company to 
accomplish the same ends as contemplated by Section 22(a). Rule 22c-1, 
promulgated under Section 22(c) of the 1940 Act, in pertinent part, 
prohibits a registered investment company issuing a redeemable security 
(and a person designated in such issuer's prospectus as authorized to 
consummate transactions in such security, and a principal underwriter 
of, or dealer in, any such security) from selling, redeeming, or 
repurchasing any such security except at a price based on the current 
net asset value of such security which is next computed after receipt 
of a tender of such security for redemption or of an order to purchase 
or sell such security.
    7. The Applicants note that a Company's addition of the bonus 
credit might arguably be viewed as resulting in an owner purchasing a 
redeemable security for a price below the current net asset value. 
Further, a Company's recapture of the bonus credit might arguably be 
viewed as resulting in the redemption of a redeemable security for a 
price other than one based on the current net asset value of an 
Account. The Applicants submit, however, that the bonus credit does not 
violate Section 22(c) and Rule 22c-1.
    8. An owner's interest in his or her policy value or in an Account 
would always be offered at a price next determined on the basis of net 
asset value. The granting of a bonus credit does not reflect a 
reduction of that price. Instead, the Companies will purchase with 
their own general account assets an interest in an Account equal to the 
bonus credit. Applicants submit that because the bonus credit will be 
paid out of Company assets, not Account assets, no dilution will occur 
as a result of the credit.
    9. The Applicants contend that the recapture of the bonus credit 
does not involve either of the evils that the Commission intended to 
eliminate or reduce with Rule 22c-1; namely, (1) the dilution of the 
interests of other security holders and (2) speculative trading 
practices that are unfair to such holders. The Applicants note that 
these evils were the result of backward pricing, the practice of basing 
the price of a mutual fund share on the net asset value per share 
determined, as of the close of the market on the previous day. Backward 
pricing allowed investors to take advantage of increases or decreases 
in net asset value that were not yet reflected in the price, thereby 
diluting the values of outstanding mutual fund shares.
    10. The Applicants submit that the proposed recapture of the bonus 
credit does not pose such threat of dilution. The bonus credit 
recapture will not alter an owner's net asset value. Each Company will 
determine an owner's net cash surrender value under a Policy in 
accordance with Rule 22c-1 on a basis next computed after receipt of an 
owner's request for surrender (likewise, the calculation of death 
benefits and annuity payment amounts will be in full compliance with 
the forward pricing requirement of Rule 22c-1). The amount recaptured 
will equal the amount of the bonus credit that a Company paid out of 
its general account assets. Although an owner will retain any 
investment gain attributable to the bonus credit, a Company will 
determine the amount of such gain on the basis of the current net asset 
value of the Subaccount. Thus, no dilution will occur upon the 
recapture of the bonus credit.
    11. The Applicants further submit that the other harm that Rule 
22c-1 was designed to address, speculative trading practices calculated 
to take advantage of backward pricing, will not occur as a result of a 
Company's recapture of the bonus credit.
    12. For the reasons set forth above, Applicants submit that Rule 
22c-1 and Section 22(c) should have no application to the bonus credit 
as neither of the harms that Rule 22c-1 was designed to address are 
found in the recapture of the bonus credit. However, to avoid 
uncertainty as to full compliance with the Act, the Applicants request 
an exemption from the provisions of Section 22(c) and Rule 22c-1 to the 
extent deemed necessary to permit them to recapture the bonus credit 
under the Policies and Future Policies.
    13. The Applicants contend that a Company's recapture of the bonus 
credit is designed to prevent anti-selection against that Company. The 
risk of anti-selection would be that an owner could make significant 
premium payments into the Policy solely in order to receive a quick 
profit from the credit. By recapturing a bonus credit, a Company 
protects itself against the risk that an owner will make such large 
premium payments, receive a bonus credit, and then withdraw his or her 
money from the Policy under one of the circumstances described herein. 
Furthermore, a Company's recapture of the bonus credit is designed to 
protect the Company against the risk that owners will not hold the 
Policy for a sufficient period of time for the Company to recover its 
costs related to providing the bonus credit.
    14. The Applicants also contend that it would be inherently unfair 
to allow an owner exercising the free-look privilege in a Policy to 
retain the bonus credit when returning the Policy for a refund after a 
period of only a few days (usually 10 or less). If a Company could not 
recapture the bonus credit, individuals might purchase a Policy with no 
intention of retaining it, and simply return it for a quick profit. By 
recapturing the bonus credit, a Company will prevent such individuals 
from doing so.
    15. Applicants seek relief requested herein not only for themselves 
with respect to the Policies, but also with respect to Future Accounts 
or Future Policies. In addition, Applicants seek relief herein with 
respect to Future Underwriters (i.e., a class consisting of FINRA 
member broker-dealers which may in the future act as principal 
underwriter of the Policies and Future Policies). Applicants represent 
that the terms of the relief requested with respect to any Future 
Underwriters are consistent with the standards set forth in section 
6(c) of the 1940 Act and Commission precedent.
    16. Applicants represent that the terms of the relief requested 
with respect to any Policies or Future Policies issued by the Companies 
and funded by the Accounts or Future Accounts are consistent with the 
standards set forth in Section 6(c) of the 1940 Act and Commission 
precedent. Applicants state that, without the requested class relief, 
exemptive relief for any Future Account, Future Policy or Future 
Underwriter would have to be requested and obtained separately. 
Applicants assert that these additional requests for exemptive relief 
would present no issues under the 1940 Act not already addressed 
herein. Applicants state that if the Applicants were to repeatedly seek 
exemptive relief with respect to the same issues addressed herein, 
investors would not receive additional protection or benefit, and 
investors and the Applicants could be disadvantaged by increased costs

[[Page 68107]]

from preparing such additional requests for relief. Applicants argue 
that the requested class relief is appropriate in the public interest 
because the relief will promote competitiveness in the variable annuity 
market by eliminating the need for the Companies or their affiliates to 
file redundant exemptive applications, thereby reducing administrative 
expenses and maximizing efficient use of resources. Applicants submit 
that elimination of the delay and the expense of repeatedly seeking 
exemptive relief would enhance each Applicant's ability to effectively 
take advantage of business opportunities as such opportunities arise.
    17. All entities that currently intend to rely on the requested 
order are named as Applicants. Any entity that relies upon the 
requested order in the future will comply with the terms and conditions 
contained in this Application.

Conclusion

    For the reasons summarized above, Applicants represent that: the 
requested exemptions are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act; 
and their request for class exemptions is necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the 1940 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-27039 Filed 11-12-13; 8:45 am]
BILLING CODE 8011-01-P