Ariz. Rev. Stat. § 20-2606 – Separate accounts

A. A domestic insurer issuing variable life insurance contracts shall establish one or more separate accounts pursuant to section 20-651. The following apply to the establishment of separate accounts:
1. 1. If no law governs the custody of separate account assets and if the insurer is not the custodian of the separate account assets, all contracts for the custody of the assets shall be in writing and the director may review and approve both the terms of a contract and the proposed custodian before the transfer of custody.
2. 2. Without the director's prior written approval, the insurer shall not employ any person in connection with the handling of separate account assets who within the last ten years either:
  1. (a) Was convicted of a felony or a misdemeanor offense involving embezzlement, fraudulent conversion, the misappropriation of funds or securities or a violation of 18 United States Code section 1341, 1342 or 1343.
  2. (b) Was found to have violated or has acknowledged violating any law involving fraud, deceit or knowing misrepresentation.
3. 3. All persons who have access to the cash, securities or other assets of any separate account established pursuant to this chapter shall be under bond in an amount of not less than the following amounts based on the combined assets of the insurer's separate accounts:
  Combined assets Minimum amount of bond
  Equal to or more than: But less than:
  $ 0 $ 100,000 $10,000
  100,000 600,000 $10,000 plus 4% of assets
  over $100,000
  600,000 1,200,000 $30,000 plus 3 1/3% of
  assets over $600,000
  1,200,000 3,200,000 $50,000 plus 2 1/2% of
  assets over $1,200,000
  3,200,000 4,450,000 $100,000 plus 2% of assets
  over $3,200,000
  4,450,000 6,450,000 $125,000 plus 1 1/4% of
  assets over $4,450,000
  6,450,000 90,450,000 $150,000 plus 5/8% of
  assets over $6,450,000
  90,450,000 350,450,000 $675,000 plus 3/8% of
  assets over $90,450,000
  350,450,000 1,070,450,000 $1,650,000 plus 3/16% of
  assets over $350,450,000
  1,070,450,000 $3,000,000 plus 3/32% of
  assets over $1,070,450,000
  until the total of the
  bonds equals $5,000,000
4. 4. The insurer shall value the assets of the separate accounts at least monthly.
B. The insurer shall maintain in each separate account assets with a value that is at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance policies or the benefit base for the variable life insurance policies.
C. The following apply to investments by the separate account:
1. 1. An insurer or any of its affiliates may not make any sale, exchange or other transfer of assets between any of its separate accounts or between any other investment account and one or more of its separate accounts unless both:
  1. (a) If assets are transferred into a separate account, the transfer is made solely to establish the account or to support the operation of the policies with respect to the separate account to which the transfer is made.
  2. (b) The transfer, whether into or from a separate account, is made by a transfer of cash. The director may approve the transfer of other assets in advance of the transfer.
2. 2. The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under the policies that are funded by the account.
D. Except for securities issued or guaranteed as to principal and interest by the United States, a separate account shall not purchase or otherwise acquire the securities of any issuer if immediately after the purchase or acquisition the value of the investment, together with any prior investments of the account in the security that is valued pursuant to this article, exceeds ten per cent of the value of the assets of the separate account. The director may waive this limitation in writing if the director believes that the waiver will not render the operation of the separate account hazardous to the public or to the policyholders in this state.
E. A separate account shall not purchase or otherwise acquire the voting securities of any issuer if as a result of the purchase or acquisition the insurer and its aggregated separate accounts will own more than ten per cent of the issuer's total issued and outstanding voting securities. The director may waive this limitation in writing if the director believes that the waiver will not render the operation of the separate account hazardous to the public or to the policyholders in this state or jeopardize the independent operation of the issuer of the securities.
F. The ten per cent limitation under subsection D of this section does not preclude the investment of separate account assets in shares of investment companies that are registered pursuant to the investment company act of 1940 (15 United States Code sections 80a-1 through 80a-64) or in other pools of investment assets if the investments and investment policies of the investment companies or asset pools comply substantially with subsection C of this section and with any other applicable provisions under this article.
G. The insurer shall value investments of the separate account at their market value on the date of valuation or at amortized cost if it approximates market value.
H. A domestic insurer shall not change its investment policy of a separate account without first filing the change with the director. A change that is filed pursuant to this subsection is effective sixty days after the date on which it was filed with the director, unless the director notifies the insurer before the end of the sixty day period of the director's disapproval of the proposed change. At any time, after notice and a public hearing, the director may disapprove any change that has become effective. The director may disapprove the change if the director determines that the change would be detrimental to the interests of the policyholders who participate in the separate accounts.
I. Before or contemporaneously with the delivery of the policy, the insurer shall disclose to the insured in writing all charges that may be made against the separate account, including the following:
1. 1. Taxes or reserves for taxes that are attributable to investment gains and income of the separate account.
2. 2. Actual cost of reasonable brokerage fees and similar direct acquisition and sale costs that are incurred in the purchase or sale of separate account assets.
3. 3. Actuarially determined tabular costs of insurance and the release of separate account liabilities.
4. 4. Charges for administrative expenses and investment management expenses, including internal costs that are attributable to the investment management of assets of the separate account.
5. 5. A charge for mortality and expense guarantees at a rate specified in the policy.
6. 6. Any amounts in excess of the amounts that are required to be held in the separate accounts.
7. 7. Charges for incidental insurance benefits.
J. The board of directors of each insurer that seeks approval to enter into the variable life insurance business in this state shall adopt written standards of conduct relating to the purchase or sale of investments of separate accounts. The standards of conduct are binding on the insurer and its officers, directors, employees and affiliates. The adoption of a code of ethics that meets the requirements of section 17j of the investment company act of 1940 satisfies this section.
K. A law that applies to the officers and directors of insurance companies with respect to conflicts of interest also applies to the members of a committee or any other similar body of a separate account.
L. An insurer shall not enter into a contract under which a person for a fee undertakes to regularly furnish investment advice to the insurer with respect to its separate accounts that are maintained for variable life insurance policies unless the contract is in writing, the contract states that the insurer may terminate the contract without penalty to the insurer or the separate account on sixty days' written notice to the investment advisor and one of the following applies:
1. 1. The person who provides the advice is registered as an investment adviser under the investment advisers act of 1940 (15 United States Code sections 80b-1 through 80b-21).
2. 2. The person who provides the advice is an investment manager under the employee retirement income security act of 1974 (29 United States Code sections 1001 through 1461) with respect to the assets of each employee benefit plan that are allocated to the separate account.
3. 3. The insurer has filed with the director and continues to file annually the following information and statements concerning the proposed advisor:
  1. (a) The name and form of the organization, the state of organization and the proposed advisor's principal place of business.
  2. (b) The names and addresses of the proposed advisor's partners, officers and directors and of persons who perform similar functions if the investment advisor is an individual.
  3. (c) A written standard of conduct that complies in substance with subsection J of this section.
  4. (d) A statement that is submitted by the proposed advisor to the insurer and that states with respect to each of the following that the proposed advisor or a person associated with the proposed advisor has not:
    1. (i) Within the last ten years been convicted of a felony or misdemeanor offense arising out of such person's conduct as an employee, salesman, officer or director of an insurance company, a banker, an insurance producer, a securities broker or an investment advisor involving embezzlement, fraudulent conversion, the misappropriation of funds or securities or a violation of 18 United States Code section 1341, 1342 or 1343, and arising out of the person's conduct as an employee, salesperson, officer or director of an insurance company or as a banker, insurance producer, securities broker or investment advisor.
    2. (ii) Been permanently or temporarily enjoined by a court order, judgment or decree from acting as an investment advisor, underwriter, broker or dealer, acting as an affiliated person or an employee of an investment company, bank or insurance company or engaging in or continuing any conduct or practice in connection with any enjoined activity.
    3. (iii) Been found by a federal or state regulatory authority to have wilfully violated or acknowledged a wilful violation of a federal or state securities law or the insurance laws of this state.
    4. (iv) Been censured, been denied an investment advisor registration, had a registration as an investment advisor revoked or suspended or been barred or suspended from associating with an investment advisor by a federal or state regulatory authority.
M. After notice and an opportunity for a hearing, the director may require that the investment advisory contract be terminated if the director deems that continued operation under the contract would be hazardous to the public or the insurer's policyholders.