Investment Companies, 2019

Chapter 10 Variable Contracts — Insurance Entities

Separate Accounts

10.01 This chapter discusses separate accounts of life insurance entities. Separate accounts, also known as variable accounts, are used to support variable annuity contracts and variable life insurance policies (hereinafter referred to together as variable contracts). Separate accounts are often registered investment companies under the Investment Company Act of 1940 (the 1940 Act), without an applicable exemption.¹ A variable contract is both a security registered under the Securities Act of 1933 (the 1933 Act) and an insurance policy filed with, and approved and regulated by, state insurance departments.

10.02 A variable contract is a contractual arrangement that combines some features of an investment company (the contract holder assumes the risk of investment gain or loss) with certain traditional insurance features (the insurance company assumes the risk of mortality and administrative expenses). A significant difference between a traditional or fixed annuity and a variable annuity is that, in sponsoring a fixed annuity, the insurance company assumes the risk of investment gain or loss and guarantees the contract holder a specified interest rate. In a variable annuity, the contract holder assumes the risk of investment gain or loss because the value of the contract holder's account varies with the investment experience of the specific portfolio of securities (that is, the securities held in the separate ...