SEC Issues No-Action Letter Regarding Everlake Life Insurance
October 23, 2022 by Targeted News Service
WASHINGTON, Oct. 22 — The Securities and Exchange Commission issued the following no-action letter on Oct. 21, 2022:
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To: Stephen E. Roth, Eversheds Sutherland (US) LLP
Email: steveroth@eversheds-sutherland.com
Re: Everlake Life Insurance Company
By letter dated October 20, 2022, you request permission under Regulation S-X Sec.3-13 (“Rule 3-13”) for Everlake Life Insurance Company (“ELIC”) to file audited financial statements prepared in accordance with statutory accounting principles/1 (“SAP”), in place of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), in registration statements on Form S-1 filed in the future for certain contracts in satisfaction of the financial information required by Form S-1, including the requirements of Items 11(e), 11(g), and 16(b) of Form S-1, as described in your letter. These contracts (collectively, the “Contracts”) are deferred annuity contracts with market value adjustment features and deferred indexed linked annuity contracts.
Background
ELIC
You state that ELIC is a stock life insurance company, domiciled in the State of Illinois, that is subject to regulation by the Illinois Department of Insurance. You also state that ELIC is a direct wholly-owned subsidiary of Everlake US Holdings Company, a holding company incorporated in the state of Delaware, which is, in turn, a direct wholly owned subsidiary of Everlake US Parent Company, a holding company also incorporated in the state of Delaware, which in turn is a direct wholly owned subsidiary of Everlake Holdings, LP, a Cayman Islands limited partnership, whose general partner is Blackstone ISG Investment Partners – A Management Associates (Cayman) – NQ L.P., a Cayman Islands exempted limited partnership (“BISG Management Associates”). You further state that BISG Management Associates is an indirect subsidiary of Blackstone Inc., a Delaware corporation, which is a publicly traded company listed on the New York Stock Exchange (“Blackstone”).
You state that ELIC prepares SAP financial statements that are audited by an independent auditor and filed with the Illinois Department of Insurance and with the National Association of Insurance Commissioners (“NAIC”), and that ELIC manages its business on the basis of SAP financial statements. You also state that ELIC currently prepares GAAP financial statements in connection with the Contracts that are registered on Form S-1, but does not prepare full entity level GAAP financial statements, a GAAP reporting package or partial GAAP financial statements for any other purpose./2
You state that ELIC relies upon the exemption, provided by rule 12h-7 under the Securities Exchange Act of 1934 (“Exchange Act”), from filing periodic reports required by the Exchange Act and will rely on this exemption and comply with the conditions of the rule so long as ELIC relies on the requested permission./3 In this regard, you note that: (1) ELIC is subject to supervision by the Illinois Department of Insurance; and (2) ELIC files annual statements of its financial condition with, and is supervised and its financial condition is periodically examined by, the Illinois Department of Insurance./4
The Contracts
You state that the Contracts are deferred annuity contracts with market value adjustment features (“MVA Contracts”) or deferred annuity contracts with index linked crediting features (“RILA Contracts”):
MVA Contracts. You state that the MVA Contracts are either standalone single or flexible premium annuity contracts that offer fixed rate investment options with market value adjustment features, or are combination contracts that offer fixed rate investment options with MVA features as well as variable investment options. You further state that the fixed rate investment options in the Contracts, which ELIC has registered on Form S-1, guarantee an interest payment at a specified fixed rate greater than or equal to 0% for a specified term period. You also state that withdrawals from or transfers out of a fixed rate investment option before the end of the specified term are subject to a positive or negative market value adjustment that is calculated according to a formula prescribed by the Contracts.
RILA Contracts. You state that the RILA Contracts, which ELIC also has registered on Form S-1, are single premium deferred indexed linked annuity contracts. You further state that during the accumulation phase of the RILA Contracts, Contract owners select an investment option period for their Contract and may select among a set of interest crediting strategies that are each linked to a market index or benchmark. You also state that the Contract uses the movement of the index as the basis to calculate the performance of each investment option, but performance is subject to specified minimum performance rates and maximum performance rates outlined in the Contract that depend on the investment option(s) chosen.
You state that ELIC does not offer the Contracts for sale, but existing Contract owners may continue to allocate subsequent premiums or additional contract value to available fixed rate investment options in the MVA Contracts and also may continue to rollover their current allocations to new term periods in both the MVA and RILA Contracts. You also state that: (1) the Contracts do not and will not constitute an equity interest in ELIC and are, and will be, subject to regulation under Illinois insurance laws;/5 (2) the Contracts are not and will not be listed, traded or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any other similar system, network, or publication for trading or quoting, and ELIC has taken, and will continue to take, steps reasonably designed to ensure that a trading market for the Contracts does not develop;/6 and (3) prospectuses for the Contracts have disclosed, and will continue to disclose, that ELIC relies on the relief provided by rule 12h-7./7
Discussion
You note that Rule 3-13 provides that the Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of one or more of the financial statements required by Regulation S-X or the filing in substitution therefor of appropriate statements of comparable character. You assert that, for the Form S-1 registration statement of the Contracts, SAP financial statements audited by an independent auditor/8 are appropriate statements of a comparable character to GAAP financial statements and would be consistent with investor protection.
In support of this claim, you assert that investors in the Contracts will be most interested in information relevant to assessing the issuing Company’s ability to fulfill its contractual obligations./9 You assert that SAP financial statements would provide investors in the Contracts with sufficient information to assess ELIC’s solvency and its ability to satisfy its contractual obligations./10
In this regard, you claim that SAP financial statements contain detailed information about ELIC’s assets and liabilities, including its regulatory capital and surplus, which serve as financial cushions for paying contract owner claims. In addition, you claim that SAP financial statements enable state regulators to determine ELIC’s ability to meet contract owner obligations based on the availability of readily marketable assets when obligations are due.
Based on the facts and representations set forth in your letter as summarized above, as well as the conditions outlined above, and without necessarily agreeing with all of your analysis, your request for permission under Rule 3-13 for ELIC to file SAP financial statements, audited by an independent auditor, in lieu of GAAP financial statements in registration statements filed for the Contracts on Form S-1, as it relates to the accounting basis of those financial statements only and as described above, is granted./11
If you have any questions regarding this letter, please call the Chief Accountant’s Office of the Division of Investment Management at (202) 551-6918.
Sincerely,
Jenson Wayne, Chief Accountant
Division of Investment Management
For the Commission, by the Division of Investment Management, pursuant to delegated authority
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Footnotes:
1/ You note that these principles are those that are prescribed or permitted by the Company’s domiciliary state regulator.
2/ In this regard, you state that while certain of either ELIC’s parent companies, or the general partner of Everlake Holdings, LP or other entities in the chain of control (e.g., Blackstone) do, or at some point in the future might, prepare GAAP financial statements, ELIC is not required to prepare full entity level GAAP financial statements, a GAAP reporting package or partial GAAP financial statements in connection therewith, and does not intend to do so if the permission requested by this letter is granted and relied upon.
3/ Rule 12h-7 exempts insurance companies from filing Exchange Act reports with respect to certain specified types of securities that are subject to state insurance regulation and are registered under the Securities Act of 1933 if certain other conditions are satisfied. 17 CFR 240.12h-7.
4/ Rule 12h-7(a) and (c) specify that an issuer qualifying under the rule is a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State (as defined in the Exchange Act); and files an annual statement of its financial condition with, and is supervised and its financial condition examined periodically by, the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of the issuer’s domiciliary State.
5/ Rule 12h-7(b) specifies that the securities that would otherwise trigger Exchange Act reporting obligations must not constitute an equity interest in the issuer, and must either be securities subject to regulation under the insurance laws of the domiciliary State of the issuer or guarantees of securities that are subject to regulation under the insurance laws of that jurisdiction.
6/ Rule 12h-7(d) requires that those securities must not be listed, traded, or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any other similar system, network, or publication for trading or quoting. Rule 12h-7(e) requires that an issuer take steps reasonably designed to ensure that a trading market for the securities does not develop.
7/ Rule 12h-7(f) provides that the prospectus for the securities must contain a statement indicating that the issuer is relying on the exemption provided by the rule.
8/ You state that the independent auditor engaged to audit the SAP financial statements will satisfy the independence standards of Article 2 of Regulation S-X and will be registered with and subject to inspection by the Public Company Accounting Oversight Board.
9/ You note the Commission recognized, in proposing variable annuity registration forms, that contract owners, participants, and annuitants may not want or need disclosure about the financial performance of the insurance company, but instead may be interested only in the insurer’s solvency. Registration Form for Insurance Company Separate Accounts that Offer Variable Annuity Contracts, Securities Act Release No. 6502 and Investment Company Act Release No. 13689 (Dec. 22, 1983).
10/ You also note that, while GAAP financial statements assist investors in understanding ELIC’s going concern value, investors in the Contracts do not need information regarding ELIC’s going concern value since there is no secondary market in the Contracts.
11/ Our analysis underlying this assurance has been developed in consultation with the staff of the Commission’s Office of the Chief Accountant. This permission is provided for the Contracts described in your letter based on the facts disclosed therein, including that the Contracts seeking to rely on the permission are non-variable annuity contracts classified as market-value adjusted annuities, contingent deferred annuities, and/or indexed annuities. As to any Contract registered or materially amended in the future, this permission is subject to the Commission staff’s assessment of the Contract’s registration statement for consistency with the facts described in your letter and the intended product types. In this regard, you have stated that ELIC will notify the staff, in a letter accompanying the filing of any new registration statement for a Contract or any post-effective amendment to an existing registration statement that reflects a material change to a Contract, of its intent to rely on the permission granted in this letter.
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Original text here: https://www.sec.gov/files/everlake-life-insurance-company-102122.pdf
