SECs New Rules For VL Registrations Will Reform Prospectuses
The Securities and Exchange Commissions new rules for prospectuses that offer variable life insurance policies, which were adopted in April, are part of a new type of registration statement.
Insurers will be required to use this statement–Form N-6–to register VL policies as securities. Form N-6 must be used for new contracts or updates to VL insurance prospectuses filed with the SEC on or after Dec. 1, 2002.
This is the first time the SEC has adopted a registration statement format specifically tailored to VL insurance.
Prior to this, insurers had to use a general form with antiquated requirements that did not provide any guidance on disclosure for VL policies. That left the industry and the SEC staff to grope through disclosure requirements through the process of SEC staff review of filings.
Under current standards, VL insurance prospectuses are required to include so much information that they are veritable books. These books can be as long as 100 pages.
The new rules help shorten VL prospectuses in many ways. For instance:
Form N-4 provides for a two-part disclosure format, consistent with the rules for mutual funds and variable annuities. This format consists of a prospectus and an additional document called a “statement of additional information” (SAI). The prospectus need only include “essential information” that assists an investor in making an investment decision. More detailed discussions can now be relegated to the SAI. The prospectus must be delivered with the security (the VL policy), and the SAI must be made available upon request.
The insurers financial statements may be relegated to the SAI or parts of the registration statement other than the prospectus. (By contrast, current standards require such statements to be included in the prospectus.)
The financial statements of the segregated asset account that supports the VL policys assets may also be relegated to the SAI. (Again, under current rules, these must be included in the prospectus.)
Illustrations may be included at the discretion of the insurer in either the prospectus or the SAI. (Note: The SEC has traditionally required hypothetical illustrations in VL policy prospectuses for prototype insureds, but now illustrations are no longer required.)