If adopted, the proposal would permit variable contracts to use a summary prospectus to provide disclosures to investors. The new prospectuses would be concise and reader-friendly as they summarize the contract’s key facts. More information and details about the contract would be available online. In addition, an investor can also choose to have this information delivered in paper or electronic format at no charge. This proposed layered disclosure format for annuities and life insurance contracts would be similar to that of mutual funds, which have been permitted to send investors a summary prospectus with further information available upon request since 2009.

The proposed new rule 498A under the Securities Act would permit the use of two distinct types of contract summary prospectuses:

• initial summary prospectuses covering variable contracts currently offered to new investors, which would include an overview of the contract, a table summarizing the contract’s fees, risks, and other important considerations, more detailed disclosures relating to fees, purchases, and withdrawals, and other benefits.
• updating summary prospectuses for existing investors, which would include a brief description of certain changes to the contract that occurred during the previous year, as well as the key information table from the initial summary prospectus.

When investors allocate their investment to one or more underlying investment options (typically mutual funds), certain key information about these funds would also be provided in the annuity contract’s initial summary prospectus and updating summary prospectus. The prospectuses and related documents for the mutual funds would be available online and could be requested in electronic or paper format by the investor at no cost.

The new rule would also require the variable contract’s statutory prospectus, as well as the contract’s Statement of Additional Information, to be publicly accessible at a website that would
be specified on the cover of the summary prospectuses. Again, further information could be requested in paper or electronic form without cost.

In addition, proposed amendments to Forms N-3, N-4, and N-6 (the registration forms for the variable contracts) should improve the content, format, and presentation of information to investors, including by updating the required disclosures to reflect industry developments. The SEC also proposed amendments to require the use of the Inline XBRL format for the submission of certain required disclosures in the variable contract statutory prospectus. Finally, the SEC proposed certain technical and conforming amendments to its rules that would reflect the changes for variable contract summary prospectuses. Some other rules and forms will be removed as they were rendered moot by legislative action or have been deemed otherwise unnecessary.

The public comment period will be open through February 15, 2019. The complete set of proposed amendments and comment solicitations can be read in the full releases. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with the reference number (S7-23-18) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-23-18.

Sources:

SEC Proposes Disclosure Improvements for Variable Annuities and Variable Life Insurance Contracts (www.sec.gov)
Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts (www.sec.gov)