Better watch out for variable insurance prospectuses that fail to make allowances for policyholders who want to rebalance their portfolios.[@@]
The National Association of Securities Dealers Inc. today imposed $450,000 in fines on 2 units of Jefferson-Pilot Corp., Greensboro, N.C., in connection with concerns about administration of Ensemble variable universal life subaccounts.
The policy prospectus limits each policyholder to 20 transfers per policy year.
Jefferson-Pilot spokesman Paul Mason notes that Jefferson-Pilot’s own compliance team identified the problems and reported them to NASD.
Although the compliance team discovered 2 actual market timers, who generated about $239,000 in extra profits by making dozens of trades over the 20-trade limit, the team also found 290 policyholders who were simply rebalancing their portfolios.
“Although not market timers, those policyholders still exceeded the VUL prospectus transfer limitations,” NASD says.
NASD says it is imposing $325,000 in fines on Jefferson Pilot Variable Corp., the Jefferson-Pilot unit that supervises the Ensemble subaccounts, because it relied too heavily on an electronic system that was supposed to catch violations of the rules on transfer limits.
Jefferson Pilot Variable also must pay about $239,000 in restitution to the 3 subaccounts affected by the marketing timing.
Meanwhile, Jefferson Pilot Securities, a sister company, has agreed to pay $125,000 in fines to resolve NASD charges concerning e-mail archives for “registered persons.” From Jan. 1, 2001, to Dec. 31, 2003, Jefferson Pilot Securities’ e-mail system purged the e-mail communications of 217 registered persons after 60 days, NASD says.
“NASD rules require that e-mail communications be retained for no less than 3 years,” NASD says in the announcement.
The enforcement action against Jefferson Pilot Variable is the first NASD enforcement action involving market timing in VUL subaccounts, NASD says.
Neither Jefferson Pilot unit has admitted or denied the NASD charges, but each company has consented to the entry of NASD’s findings, NASD says.
Mason agrees that the Jefferson-Pilot units have neither admitted nor denied the NASD charges, but he does emphasize that the units reported their problems to NASD themselves.
Jefferson Pilot “took immediate steps toward resolution of the deficiencies and restitution to investors,” Mason says. “We would also note that Jefferson Pilot fully cooperated with the NASD during their review of these issues. Our goal is to ensure we operate with the highest standards of integrity and in compliance with all regulations.”
In addition to fining the 2 Jefferson-Pilot units, NASD has required Jefferson Pilot Variable to certify that Jefferson Pilot Variable has disclosed all instances of transfers within VUL subaccounts that violated the policy prospectus and that Jefferson Pilot Variable now has the controls needed to enforce prospectus transfer limits.
Jefferson Pilot Securities has had to certify that it has improved its supervision of e-mail retention rules.