SECTION 4.1503. Qualifications of Insurer to Issue Variable Life Insurance

The following requirements are applicable to all insurers either seeking authority to issue variable life insurance in this state or having the authority to issue variable life insurance in this state.

(1) Licensing and approval to do business in this state. An insurer may not deliver or issue for delivery in this state any variable life insurance contracts unless:

(A) the insurer is licensed or organized to do life insurance business in this state; and

(B) after having complied with the provisions of Insurance Code Chapter 1152, concerning Separate Accounts, Variable Contracts, and Related Products, the commissioner has authorized, either as part of the insurer's original certificate of authority or by charter amendment, the insurer to issue, deliver, and use variable life contracts, and only after the commissioner has considered, among other things, the following:

(i) whether the plan of operation for the issuance of variable life contracts is sound;

(ii) whether the general character, reputation, and experience of the management and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer are such as to reasonably assure competent operation of the variable life business of the insurer in this state; and

(iii) whether the present and foreseeable future financial condition of the insurer and its method of operation in connection with the issuance of such contracts is not likely to render its operation hazardous to the public or its contract holders in this state. The commissioner will consider, among other things:

(I) the history of operation and financial condition of the insurer;

(II) the qualifications, fitness, character, responsibility, reputation, and experience of the officers and directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;

(III) the applicable law and regulations under which the insurer is authorized in its state of domicile to issue variable life contracts. The state of entry of an alien insurer will be deemed its state of domicile for this purpose; and

(IV) if the insurer is a subsidiary of, or is affiliated by common management or ownership with, another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meets these standards.

(2) Filing for approval to do business in this state. Before any insurer may deliver or issue for delivery any variable life contract in this state, it must file with the Texas Department of Insurance the following information, and any other information specifically requested, for the consideration of the commissioner, on making the determination required by paragraph (1)(B) of this section:

(A) copies of and a general description of the variable life contracts it intends to issue;

(B) a general description of the methods of operation of the variable life insurance business of the insurer, including methods of distribution of contracts and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial, or distributive services to the insurer;

(C) with respect to any separate account maintained by an insurer for any variable life contract, a statement of the investment policy the insurer intends to follow for the investment of the assets held in such separate account, and a statement of procedures for changing such investment policy. The statement of investment policy must include a description of the investment objectives intended for the separate account;

(D) a description of any investment advisory services contemplated as required by §4.1506 of this title (relating to Separate Accounts);

(E) a copy of the statutes and regulations of the state of domicile of a foreign or alien insurer under which it is authorized to issue variable life contracts;

(F) biographical data not previously filed with the commissioner with respect to officers and directors of the insurer on the appropriate biographical form used in Texas;

(G) a statement of the insurer's actuary describing the mortality and expense risks that the insurer will bear under the contract; and

(H) the provisions of subparagraphs (A) - (G) of this paragraph will be deemed to have been satisfied to the extent that the information required by the commissioner is provided in form identical to the insurer's registration statement filed under 15 United States Code §77a, et seq.

(3) Standards of suitability. Every insurer seeking approval to enter into the variable life insurance business in this state must establish and maintain a written statement specifying the standards of suitability to be used by the insurer. Such standards of suitability must specify that no recommendation will be made to an applicant to purchase a variable life contract and that no variable life contract will be issued in the absence of reasonable grounds to believe that the purchase of such contract is not unsuitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or the agent making the recommendation.

(4) Use of sales material. An insurer authorized to transact variable life insurance business in this state may not use any sales material, advertising material, or descriptive literature or other materials of any kind in connection with its variable life insurance business in this state unless it complies with Chapter 21, Subchapter B, Division 1 of this title (relating to Insurance Advertising). An insurer issuing flexible premium variable life contracts must provide, to all prospective purchasers, an illustration of cash surrender values before or at the time of delivery of the contract. Any illustration of cash surrender values delivered to an applicant or prospective applicant under this section must:

(A) include a hypothetical gross investment return of 0.0%, and when other hypothetical gross investment returns are included, the current gross investment return must, to the extent permitted by federal law, be included;

(B) give equal prominence to both guaranteed and non-guaranteed aspects of the contract if guarantees are included in the contract;

(C) prominently display, by way of written statement, the hypothetical nature of the illustration as it relates to investment returns;

(D) prominently state that a contract may terminate due to insufficient premiums and/or poor investment performance; and

(E) prominently show, by way of written statement, that excessive loans or withdrawals may cause the contract to lapse due to insufficient cash surrender value and, at the option of the insurer, prominently display the effects of loans or withdrawals on contract values.

(5) Requirements applicable to contractual services. Any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial, or other services with respect to variable life insurance operations must be in writing and provide that the supplier of such services furnish the commissioner with any information or reports in connection with such services that the commissioner may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with these regulations, and any other applicable law or regulations.

(6) Reports to the commissioner. Any insurer authorized to transact the business of variable life insurance in this state must submit to the commissioner, in addition to any other materials that may be required by this subchapter or any other applicable laws or rules:

(A) an annual statement of the business of its separate account or accounts in such forms as may be prescribed by the National Association of Insurance Commissioners;

(B) before use in this state, any information furnished to applicants as provided for in §4.1507 of this title (relating to Information Furnished to Applicants);

(C) before use in this state, the form of any of the reports to contract holders as provided for in §4.1509 of this title (relating to Reports to Contract Holders); and

(D) such additional information concerning its variable life insurance operations or its separate accounts as the commissioner deems necessary.

(7) Treatment of material reported under paragraph (6) of this section. Receipt of the material specified in paragraph (6) of this section does not imply approval or acceptance of the material. The commissioner will require the redistribution of any previously distributed material that is found to be false, misleading, deceptive, or inaccurate in any material respect.

(8) Authority of the commissioner to disapprove. Any material required to be filed with the commissioner, or approved by the commissioner, will be subject to disapproval if at any time it is found by the commissioner not to comply with the standards established by these rules.

Source Note: The provisions of this §4.1503 adopted to be effective June 5, 1985, 10 TexReg 1676; amended to be effective January 4, 2001, 25 TexReg 12981; amended to be effective May 11, 2022, 47 TexReg 2758; transferred effective September 1, 2023, as published in the July 28, 2023, issue of the Texas Register, 48 TexReg 4127; amended to be effective January 24, 2024, 49 TexReg 250