Administrative History Effective date: June 1, 1965 Amended effective November 1, 1973 Regulation .03 amended effective August 22, 1988 (15:17 Md. R. 2048) —————— Chapter recodified from COMAR 09.30.42 to COMAR 31.09.04 effective September 7, 1998 (25:18 Md. R. 1439) Regulation .02B amended effective April 25, 2016 (43:8 Md. R. 498) Regulation .03 amended effective April 6, 2020 (47:7 Md. R. 385) Regulation .08L amended effective April 25, 2016 (43:8 Md. R. 498) Authority Insurance Article, §§ 2-109 , 8-442 (d), and 16-601 — 16-603 , Annotated Code of Maryland

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.01 Authority and Purpose. The issuance or delivery of contracts on a variable basis (hereinafter sometimes referred to as "contracts") in Maryland in any manner not in compliance with this chapter shall be deemed to be the transaction of insurance business hazardous to policyholders and the public, and contrary to the public interest.

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.02 Definitions. A. In this chapter the following terms have the meanings indicated. B. Terms Defined. (1) “Contracts on a variable basis” means annuity contracts, as defined in Insurance Article, §1-101(e), Annotated Code of Maryland , which provide for payments varying directly with the investment experience of a segregated asset account, hereinafter referred to as “variable contract account”, as distinguished from “fixed annuity contracts”. This definition does not include any of the forms of insurance prohibited by Insurance Article, §§ 16-112 and 27-207 , Annotated Code of Maryland. (2) “Fixed annuity contracts” or “guaranteed annuity contracts” means annuity contracts, as defined in Insurance Article, §1-101(e), Annotated Code of Maryland , which provide for payment of fixed dollar amounts guaranteed in the contract. C. A participating annuity contract providing for payment by the insurer of dividends or participation in the divisible surplus accruing under the contract in addition to fixed dollar payments guaranteed in the contract shall be deemed a fixed annuity contract and not a contract on a variable basis if, according to assumptions made by the insurer at the time the contract is issued, at least 50 percent of the consideration for the contract is required to support the fixed dollar guarantees.

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.03 Qualifications of Producers. A. Qualification to Sell Variable Annuity Contracts. (1) A person may not sell or offer for sale in this State any variable annuity contract unless the person is a producer and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that the person holds a license and other authorizations which may be required by any federal or State securities law for the solicitation, sale, or negotiation of variable annuities. (2) A person may not in this State solicit, sell, or act or aid in any manner in the negotiation of any variable contract unless the person has been so qualified in accordance with the provisions of Insurance Article, §§ 10-105 and 10-109 , Annotated Code of Maryland, and is licensed by the Commissioner to act as a producer with life and variable lines of authority. B. Reports of Disciplinary Actions and Criminal Prosecution. A person qualified in this State under this regulation to act as a producer of variable annuity contracts shall report to the Commissioner in accordance with Insurance Article, §§ 10-126 (f) and (g), Annotated Code of Maryland: (1) Suspension or revocation of a producer license in any other state or territory of the United States; (2) Imposition of disciplinary sanction, including: (a) Suspension or expulsion from membership; or (b) Suspension, revocation, or denial of registration imposed on the producer by any national securities exchange or national securities association or any federal, state, or territorial agency with jurisdiction over securities or variable annuity contracts; (3) Judgment or injunction entered against the producer on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation; or (4) Criminal prosecution as defined in Insurance Article, §10-126(g), Annotated Code of Maryland . C. Refusal to Qualify Producer to Sell Variable Annuity Contracts—Suspension, Revocation, or Nonrenewal of Qualification. The Commissioner may reject an application or suspend, revoke, or refuse to renew producer’s qualification under this regulation to solicit, sell, or negotiate variable annuity contracts upon any ground that would bar the applicant or producer from being licensed to solicit, sell, or negotiate life insurance policies in this State. The rules governing proceedings relating to the rejection of a producer’s application, suspension or revocation of a producer’s license, or refusal to renew a producer’s license shall also govern proceedings under this regulation.

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.04 Qualifications of Insurers. A. An insurer may issue the contracts provided it: (1) Otherwise qualifies as a life insurance company; (2) Has surplus assets or funds (within the meaning of Insurance Article, §4-105, Annotated Code of Maryland ) as of the end of the preceding calendar year of at least $1,000,000; and (3) Complies with one of the following: (a) Is limited by its charter and bylaws exclusively to the sale of contracts on a variable basis, including additional benefits operating to safeguard the contract from lapse, or to provide a special surrender value, or special benefit, or annuity, in the event of total and permanent disability of the holder. An insurance company so limited may not be disqualified by reason of being a subsidiary of a stock or mutual insurance company transacting other lines of business. (b) Has assets in excess of $50,000,000 and has been licensed for the sale of life insurance and annuities in this State for at least 10 consecutive years immediately before the date of issuance of the contracts on a variable basis. (c) Has capital and surplus funds in excess of $10,000,000, and has been continuously and actively engaged in the sale of contracts on a variable basis in its state of domicile for at least 5 consecutive years immediately before the effective date of the authorization to issue the contracts in Maryland. (d) By reason of its capital structure, surplus, amount of business in force, and plan of operations, in the opinion of the Commissioner, substantially conforms to the requirements of §A(3)(a), (b), or (c) of this regulation, or affords equivalent protection to contract holders; and provided further that the insurer shall have been specifically authorized by the Commissioner to issue the contracts after demonstrating to the Commissioner's satisfaction that it is qualified to do so. B. In determining the qualifications of the insurer, the Commissioner shall consider, among other things: (1) The history, reputation, and financial stability of the insurer; (2) The character, experience, and competence of the directors and officers of the insurer; (3) The proposed methods of advertising, soliciting, and selling the contracts; and (4) Whether, in the case of a foreign or alien insurer, regulation under the laws of its state of domicile provides protection to the public and to contract holders substantially equal to that provided by the laws of Maryland and the regulations of the Maryland Insurance Administration.

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.05 Filing, Approval of Forms. A. A contract on a variable basis may not be issued or delivered in this State unless the form of the contract has been filed with and approved by the Commissioner and unless the form of application for the contract, and of any certificate to be used with the contract issued on a group basis, have been filed with and approved by the Commissioner. B. The Commissioner shall disapprove or withdraw previous approval of the form of contract, application, or certificate for any of the reasons specified in Insurance Article, §12-205, Annotated Code of Maryland , or if: (1) Sales of the contracts are being solicited by any means of advertising, communication, or dissemination of information which involves misleading or inadequate description of the provisions of the contract or which involves illustrations of benefits under the contracts based on projection into the future of past investment experience or on attempted predictions of future investment experience; (2) The procedures to be followed by the insurer in determining the dollar amount of variable benefits or other contractual payments or values under the contract are inequitable or unreasonable; (3) The expense, mortality, or investment increment factors stated in the contract are unreasonable; or (4) The contracts do not conform to or are issued contrary to this chapter or any other regulations promulgated by the Commissioner.

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.06 Attainment of Balance. A. Before the issuance of any individual contract on a variable basis, the insurer shall reasonably satisfy itself that the total amounts being applied and proposed to be applied to provide the prospective annuitant with income on a variable basis will not substantially exceed the amount which would be required to purchase the income in a predetermined dollar amount which the annuitant can reasonably expect to receive. B. In determining the reasonably expectable fixed dollar income, the insurer may consider, alone or in combination, any direct source, such as a pension, annuity, Social Security benefit, or trust fund, as well as any indirect source, such as an asset having a principal amount expressed in fixed dollars and capable of being used to produce a fixed dollar income, as, for example bonds, mortgages or life insurance policies.

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.07 Contract Provisions. A. Any contract on a variable basis issued or delivered in this State shall contain a statement of the essential features of the procedure to be followed by the insurer in determining the dollar amount of variable benefits or other contractual payments or values under the contract and shall state in clear terms that this amount may decrease or increase according to this procedure. A contract, and any certificate evidencing variable benefits issued pursuant to the contract on a group basis, and any application for the contract or certificate shall have prominently printed on its first page in boldface type not less than 10 point, a clear statement that payments and termination values provided by the contract are variable and not guaranteed as to dollar amount. B. A contract issued or delivered in this State shall stipulate the expense, mortality, and investment increment factors to be used in computing the dollar amount of variable benefits or other contractual payments or values under the contract, and shall guarantee that expense and mortality experience will not adversely affect the dollar amount. C. A contract shall contain all of the standard or uniform provisions required by Insurance Article, Annotated Code of Maryland , except that the Commissioner will give consideration to waiving the requirements of former Article 48A, §408A, Annotated Code of Maryland (transferred to the Session Laws by §6, Ch. 57, Acts of 1997), upon a showing by the insurer satisfactory to the Commissioner that the requirements are inconsistent with the purposes of the contract. D. An individual contract on a variable basis may not be issued or delivered in this State unless it contains in substance the following provisions: (1) That in event of default in payment of any consideration beyond the period of grace allowed by the contract for the payment thereof, the insurer will make payment of the value of the contract in accordance with an equitable plan specified in the contract, this payment to commence not later than the date contractual payments by the insurer would have begun if there had been no default. (2) That upon request of the contract holder received by the insurer at least 90 days before the date contractual payments by the insurer would otherwise begin, the insurer will make payment of the value of the contract in accordance with an equitable plan specified in the contract which may be selected by the contract holder, this plan to become effective as of the date contractual payments under the contract would otherwise begin, unless another date is requested by the contract holder and agreed to by the insurer. (3) That the insurer will mail to the contract holder at least once in each contract year, a report in a form approved by the Commissioner which shall include a statement of the number of units credited to the contract, the dollar value of a unit, and the dollar value of the total number of units credited, all this information to be furnished as of a stated date which shall be not more than 2 months before the date of mailing.

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.08 Administration and Accounting Procedures. A. Any domestic life insurer specifically authorized by the Commissioner to issue contracts on a variable basis and any foreign or alien life insurer specifically authorized by the Commissioner to deliver these contracts in Maryland may establish and operate one or, upon express approval by the Commissioner, more than one, segregated asset accounts to be known as variable contract accounts. An insurer which has established a separate investment account as defined in Insurance Article, §5-512, Annotated Code of Maryland , may, upon express approval by the Commissioner, use the same segregated asset account as both a separate investment account and a variable contract account. B. Except as may be otherwise specifically provided by the contract, all amounts received in connection with any contract on a variable basis shall be placed in the appropriate variable contract account, and all the liabilities of the contract shall be set up in that account. C. The investments and liabilities of a variable contract account at all times shall be clearly identifiable and distinguishable in the books or other records of the insurer from the other investments and liabilities of the insurer. An insurer may not hypothecate any of the assets of any variable contract account or borrow on the security of these assets. An investment, other than cash, in any variable contract account, in any separate account, or in the insurer's general investment account may not be transferred by sale, exchange, substitution, or otherwise from one account to another except with the Commissioner's approval. D. Assets allocated to a variable contract account shall be owned by the insurer and the insurer may not be, or hold itself out to be, a trustee with respect to these assets. E. An insurer issuing a contract on a variable basis shall, annually on or before March first, submit to the Commissioner a true statement for the business of its variable contract accounts. This statement shall be in such form and content as is approved or adopted for current use by the National Association of Insurance Commissioners or its successor organization and as supplemented for additional information required by the Commissioner and shall include details as to all of the income, disbursements, assets, and liability items associated with the variable contract accounts. F. The valuation of variable contract account assets for all purposes, including annual statements of the insurer to the Commissioner, shall be determined in accordance with the market value of the assets notwithstanding the application of other valuation methods to assets of the insurer other than the assets of the variable contract accounts. The valuation may be made as of such valuation dates as the insurer shall establish from time to time, except as otherwise required for the annual statements to the Commissioner. To accomplish the valuation at market value any equity security purchased for variable contract account shall be a security: (1) Which is listed or admitted to trading on a securities exchange located in the United States of America or Canada; or (2) Which is publicly held and traded in the over-the-counter market as defined by the Commissioner and as to which market quotations have been available. G. The reserve liability for contracts on a variable basis shall be established by the Commissioner pursuant to the requirements of Insurance Article, Title 5, Subtitle 3, Annotated Code of Maryland , and in accordance with actuarial procedures that recognize the variable nature of the benefits provided. H. Investments. (1) An insurer may not invest more than $10,000 or 5 percent of any one variable contract account, whichever is greater, in the stock or shares of any one corporation, mutual fund, or investment company, except that during the first year of operation of a variable contract account having total assets of less than one million dollars, the insurer may invest up to 10 percent of the account, or $10,000 if greater, in these stock or shares provided the account is not a segregated asset account which also serves as a separate investment account as defined in Insurance Article, §5-512, Annotated Code of Maryland . However, with express approval of the Commissioner, an insurer may invest a greater proportion of the assets of a variable contract account which does not serve as a separate investment account in the shares of a nonaffiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended (an open-end diversified management investment company so registered being hereinafter sometimes referred to as "management company"), if the investment policy of the nonaffiliated management company conforms to the investment requirements of this chapter. The term "affiliated" or "affiliate" as used in this chapter, except in Regulation .09 of this chapter , means an "affiliated person" as defined in the federal Investment Company Act of 1940, as amended. (2) An insurer may not purchase for a variable contract account common stock or shares of any corporation in excess of 5 percent of the total issued and outstanding common stock or shares of that corporation. However, with express approval of the Commissioner, an insurer may purchase in excess of 5 percent of the total number of outstanding shares of an open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended. (3) An insurer may not purchase for a variable contract account common stock or shares of any corporation unless investment in the common stock or shares of any corporation is authorized as a permissible investment under Insurance Article, §§ 16-601 — 16-603 , Annotated Code of Maryland. (4) An insurer may not purchase for a variable contract account any securities of a corporation which is a subsidiary or affiliate of the insurer or in which a subsidiary or affiliate of the insurer or a director or officer of the insurer owns 3 percent or more of the common stock or shares. (5) An insurer may purchase securities or other investments for its variable contract accounts through licensed brokers or by direct placement, but these purchases may not be made directly or indirectly from a director, officer, subsidiary, or affiliate of the insurer. (6) Assets of a variable contract account may be sold for cash in a bona fide sale made directly to the purchasers or through licensed brokers but these sales may not be made directly or indirectly to any director, officer, subsidiary, or affiliate of the insurer. (7) An insurer may not purchase or sell any of the investments of a variable contract account through a broker who is a director or officer of the insurer or of an affiliate or subsidiary of the insurer. (8) To the extent approved by the Commissioner, the restrictions of §H(4), (5), (6), and (7) of this regulation are not applicable to investments in the shares of an affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended, which management company has been approved by the Commissioner for the variable contract account in accordance with §I of this regulation . I. With the express approval of the Commissioner, an insurer may invest all or any portion of the assets of a variable contract account which does not serve as a separate investment account in the shares of an affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940, as amended, if the insurer, the affiliated management company, and the sponsor and/or holding company, as the case may be, of the insurer and the affiliated management company agree that: (1) The investments to be made by the affiliated open-end diversified management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, will conform to the requirements of §H of this regulation , which, except for the provisions of the insurer, would otherwise be required to observe had the investments been made for a variable contract account of the insurer; (2) An investment, other than cash, may not be transferred by sale, exchange, substitution, or otherwise between the insurer, the affiliated management company, and any sponsor, parent, or holding company except with the Commissioner's approval; (3) In determining compliance with the provisions of Regulation .05B(3) of this chapter , the sales load and other charges, if any, to be made by the affiliated management company shall be added to any charges made in the variable annuity contract of the insurer; (4) The Commissioner may at any time conduct such examination of the affiliated management company and of the sponsor, parent, or holding company as he deems necessary, the cost of which is to be borne by the insurer in accordance with Insurance Article, §2-208, Annotated Code of Maryland ; and (5) The insurer and the affiliated management company will establish such additional procedures and restrictions as the Commissioner deems necessary to safeguard the interests of contract holders. (6) Approval under this section shall, to the extent permitted by the Commissioner, supersede the restrictions contained in §H of this regulation . Any approval under this section may be withdrawn by the Commissioner upon 30 days written notice to the insurer, which notice shall specify the reason for the withdrawal. At any time during the 30-day period, the Commissioner may suspend approval under this section by written notice or by telegram, the suspension to become effective immediately upon receipt of the communication from the Commissioner. During suspension of approval, or following withdrawal of approval, the insurer may make no further investments in the affiliated management company unless approval is reinstated. J. While serving as an elected or appointed officer or as a director or trustee of an insurer authorized to issue contracts on a variable basis, a person may not receive directly or indirectly any commission on the business transactions of the insurer. K. In connection with the allocation of investment expenses, or in any other respect, an insurer may not discriminate unfairly between variable contract accounts, separate accounts, and the insurer's general investment account, but this provision does not require the insurer to follow uniform investment policies for all its accounts. L. Maximum Asset Deduction Charge. (1) The maximum asset deduction charge which an insurer may make against a variable contract account that applies to individual variable contracts for investment expenses and annuity mortality guarantees may not exceed 1-1/2 percent in the aggregate. This maximum charge shall be reduced by the amount of any asset deduction charge for investment expenses made by an affiliated open-end diversified management investment company in which the assets of the variable contract account are invested in accordance with the provisions of §I of this regulation . (2) The maximum asset deduction charge referred to in §L(1) of this regulation may be increased by the amount of any reasonable additional charge made for guaranteeing the asset values of individual accounts as of specified dates. (3) The maximum charges allowable under §L(1) of this regulation shall be reduced to reasonably reflect any charges for annuity mortality guarantees made by the insurer by means of deductions from the gross premiums or contributions paid under the contract, if the deductions are not allocated to the variable contract account. M. For each contract on a variable basis, the insurer shall maintain a history record card, a ledger sheet or a comparable record, showing in addition to the usual stipulated payment or contract consideration information, each net annuity consideration applied and the increment and accumulated balance on either a unit or dollar value basis. N. Right to Vote. (1) Variable annuity contract owners shall have the right to vote with respect to the following matters affecting the variable contract account: (a) The election of members to the variable contract committee or board; (b) Amendments to the investment policies or objectives of the variable contract account required to be submitted to a vote of contract owners in accordance with the federal Investment Company Act of 1940 as amended or under any other statute; (c) The selection of auditors for the variable contract account; and (d) Any other matters required or determined to be submitted to contract owners for approval or disapproval. (2) Notice of the voting rights of each contract owner shall be given by furnishing him with a prospectus containing the information or by other proper written notice.

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.09 Group Contracts. A contract on a variable basis may be issued as an individual contract or as a group contract, but any contract shall be considered as being issued on a group basis only if it conforms to the description in one of the following sections: A. A contract issued to an employer providing a plan of retirement annuities for covered employees on the date of issue, the stipulated payments on the contract to be remitted by the employer and to be paid either wholly by the employer or jointly by the employer and the employees. The employees eligible under the contract shall be all of the employees of the employer, or all of any class or classes of employees determined by conditions pertaining to employment, but the contract may exclude classes of employees determined by age. The contract may provide that the term "employees" shall include the employees of one or more subsidiary corporations, and the employees, individual proprietors, and partners of one or more affiliated corporations, proprietors, or partnerships if the business of the employer and of the affiliated corporations, proprietors, or partnerships is under common control. The contract may provide that the term "employees" shall include the individual proprietor or partners if the employer is an individual proprietor or a partnership. A director of a corporate employer may not be eligible under the contract unless the person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. An individual proprietor or partner may not be eligible under the contract unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. B. A contract issued to a labor union providing a plan of retirement annuities for at least 25 covered members on the date of issue, the stipulated payments under the contract to be remitted by the union and to be paid wholly from funds contributed by the union, or by the employer or employers of the persons covered, or by both, or partly from these funds and partly from funds contributed by members covered under the contract, but this contract may not require that the entire cost be derived from funds contributed by the insured members specifically for the stipulated payments under it. The members eligible under the contract shall be all of the members of the union or all of any specified class or classes of members determined by conditions pertaining to their employment, or to membership in the union, or to both, but the contract may exclude classes of members determined by age. C. A contract issued to the trustees of a fund established by an employer or by two or more employers, or by an association of employers which has been in existence for at least 5 years (or with express approval of the Commissioner if less than 5 years), or by one or more labor unions, or by one or more employers and one or more labor unions, providing a plan of retirement annuities for all of the employees of the employer or employers, or all of the employees of the member employers of the association, or all of any class or classes of the employees determined by conditions pertaining to their employment, or all of the members of the union or unions, or all of any class or classes of members determined by conditions pertaining to their employment or to membership in the union, or to both, but the contract may exclude classes of employees or members determined by age. The contract may provide that the term "employees" shall include the individual proprietor or partners if an employer is an individual proprietor or a partnership. A director of a corporate employer may not be eligible under the contract unless the person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. An individual proprietor or partner may not be eligible under the contract unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership. The contract may provide that the term "employees" shall include the trustees or their employees, or both, if their duties are principally connected with the trusteeship. The contract shall cover at least 100 persons at date of issue. The contract shall provide that the stipulated payments shall be remitted by the trustees and shall be paid wholly from funds contributed by the employer or employers of the persons covered, or by the union or unions, or by both, or partly from these funds and partly from funds contributed by the persons covered under the contract, but this contract may not require that the entire cost be derived from funds contributed by the covered persons specifically for the stipulated payments under it. D. A contract issued to an association of persons having a common calling, occupation, or profession, which association was organized and maintained in good faith for purposes other than obtaining annuities and has been in existence for at least 5 years, or with express approval of the Commissioner if less than 5 years, or to the trustees of a fund established by the association, providing a plan of retirement annuities for all the members and employees of the association or all of any specified class or classes of the members and employees. The contract may provide that the terms "employees" or "members" shall include the trustees or their employees, or both, if their duties are principally connected with the trusteeship. The contract shall cover at least 100 persons at date of issue. The contract shall provide that the stipulated payments shall be remitted by the association or by the trustees and shall be paid wholly from funds contributed by the association, or partly from these funds and partly from funds contributed by the persons covered under the contract, or wholly from funds contributed specifically for that purpose by the persons covered under the contract. E. A contract issued to one or more departments of any federal or state government, or their subdivisions, or of any state college or university, or to an association of persons employed in any such department, which association was organized and maintained in good faith for purposes other than obtaining annuities and has been in existence for at least 5 years, or with express approval of the Commissioner if less than 5 years, or to the trustees of a fund established by a department or association, providing a plan of retirement annuities for all of the employees of the department or all of the members of the association or all of any specified class or classes of employees or members. The contract may provide that the terms "employees" or "members" shall include the trustees or their employees, or both, if their duties are principally connected with the trusteeship. The contract shall cover at least 100 persons at date of issue. The contract shall provide that the stipulated payments shall be remitted by the department, association, or trustees and shall be paid wholly from funds contributed by the department or association, or partly from these funds and partly from funds contributed by the persons covered under the contract, or wholly from funds contributed specifically for that purpose by the persons covered under the contract.

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Previous Chapter 03 Industrial Life Insurance—Dividends Required

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