SEC Issues No-Action Letter Regarding Delaware Life Insurance and Gainbridge Life Insurance

WASHINGTON, April 29 -- The Securities and Exchange Commission issued the following no-action letter on April 28, 2023:

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To: Stephen E. Roth, Eversheds Sutherland (US) LLP, Email: steveroth@eversheds-sutherland.com

Re: Delaware Life Insurance Company and Gainbridge Life Insurance Company

By letter dated April 19, 2023, you request permission under Regulation S-X 3-13 ("Rule 3-13") for Delaware Life Insurance Company ("DLIC") and Gainbridge Life Insurance Company ("GLIC") (each the "Company" and together the "Companies") to file audited financial statements prepared in accordance with statutory accounting principles/1 ("SAP"), in place of financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), in registration statements on Form S-1 that the Companies have filed and/or intend to file with the Commission for certain annuity contracts described in your letter (the "Contracts") in satisfaction of the financial information required by Form S-1, including the requirements of Items 11(e), 11(g), and 16(b) of Form S-1, as described in your letter.

Background

You state that each of DLIC and GLIC is a stock life insurance company domiciled in the State of Delaware and each is subject to supervision by the Delaware Department of Insurance.

You state that neither of the Companies, nor any of their parents/holding companies, is registered under the Securities Exchange Act of 1934 ("Exchange Act"), and therefore they do not file periodic reports under the Exchange Act. You also state that neither of the Companies, nor any of their parents/holding companies, prepares full GAAP financial statements for any purpose. You further state that the Companies' parents/holding companies do not prepare GAAP reporting packages or partial GAAP financial statements, and neither of the Companies prepares GAAP reporting packages or partial GAAP financial statements.

You state that the Companies would not otherwise be required to prepare audited GAAP financial statements for any reason other than in connection with the filing of Form S-1 registration statements to register the interests under the Contracts. You also state that, as insurance companies subject to state regulation, the Companies prepare SAP financial statements that are audited by an independent auditor and will be filed with the Delaware Department of Insurance and with the National Association of Insurance Commissioners. You state that the Companies manage their respective businesses on the basis of the SAP financial statements.

You state that each of the Companies is eligible for the exemption from filing periodic reports required by the Exchange Act provided by rule 12h-7 thereunder and will rely on this exemption and comply with its conditions so long as it relies on the requested permission./2 In this regard, you note that (1) each of the Companies is subject to supervision by the Delaware Department of Insurance; and (2) each of the Companies files annual statements of its financial condition with, and is supervised and its financial condition periodically examined by, the Delaware Department of Insurance./3

The Contracts

You state that the Contracts will be standalone index-linked annuity contracts or combination annuity contracts that offer variable investment options as well as registered index-linked investment options.

You also state that (1) the Contracts will not constitute an equity interest in either of the Companies and will be subject to regulation under Delaware Insurance Law;/4 (2) the Contracts will not be listed, traded or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any other similar system, network or publication for trading or quoting and the Companies will take steps reasonably designed to ensure that a trading market for its Contracts does not develop;/5 and (3) prospectuses for the Contracts will disclose that the issuing Company relies on the relief provided by rule 12h-7./6

Discussion

You note that Rule 3-13 provides that the Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of one or more of the financial statements required by Regulation S-X or the filing in substitution thereof of appropriate statements of comparable character. You assert that, for the Form S-1 registration statements for the Contracts, SAP financial statements audited by an independent auditor/7 are appropriate statements of a comparable character to GAAP financial statements and would be consistent with investor protection.

In support of this claim, you assert that investors in the Contracts will be most interested in information relevant to assessing the issuing Company's ability to fulfill its contractual obligations./8 You assert that SAP financial statements would provide investors in the Contracts with sufficient information to assess the issuing Company's solvency and its ability to satisfy its contractual obligations./9

In this regard, you claim that SAP financial statements contain detailed information about the respective Companies' assets and liabilities, as well as their regulatory capital and surplus, which serve as financial cushions for paying Contract owner claims. In addition, you claim that SAP financial statements enable state regulators to determine each Company's ability to meet Contract owner obligations based on the availability of readily-marketable assets when obligations are due.

Based on the facts and representations set forth in your letter as summarized above, as well as the conditions outlined above, and without necessarily agreeing with all of your analysis, your request for permission under Rule 3-13 for DLIC and GLIC to file SAP financial statements, audited by an independent auditor, in lieu of GAAP financial statements in registration statements filed for the Contracts on Form S-1, as it relates to the accounting basis of those financial statements only and as described above, is granted./10

If you have any questions regarding this letter, please call the Chief Accountant's Office of the Division of Investment Management at (202) 551-6918.

Sincerely,

Jenson Wayne, Chief Accountant, Division of Investment Management

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

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Footnotes:

1/ You note that these principles are those that are prescribed or permitted by the Companies' domiciliary state regulators.

2/ Rule 12h-7 exempts insurance companies from filing Exchange Act reports with respect to certain specified types of securities that are subject to state insurance regulation and are registered under the Securities Act of 1933 if certain other conditions are satisfied. 17 CFR 240.12h-7.

3/ Rule 12h-7(a) and (c) specify that an issuer qualifying under the rule is a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State (as defined in the Exchange Act); and files an annual statement of its financial condition with, and is supervised and its financial condition examined periodically by, the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of the issuer's domiciliary State.

4/ Rule 12h-7(b) specifies that the securities that would otherwise trigger Exchange Act reporting obligations must not constitute an equity interest in the issuer, and must either be securities subject to regulation under the insurance laws of the domiciliary State of the issuer or guarantees of securities that are subject to regulation under the insurance laws of that jurisdiction.

5/ Rule 12h-7(d) requires that those securities must not be listed, traded, or quoted on an exchange, alternative trading system, inter-dealer quotation system, electronic communications network, or any other similar system, network, or publication for trading or quoting. Rule 12h-7(e) requires that an issuer take steps reasonably designed to ensure that a trading market for the securities does not develop.

6/ Rule 12h-7(f) provides that the prospectus for the securities must contain a statement indicating that the issuer is relying on the exemption provided by the rule.

7/ You state that the independent auditor engaged to audit the SAP financial statements will be registered with and subject to inspection by the Public Company Accounting Oversight Board, and will satisfy the independence standards of Article 2 of Regulation S-X.

8/ You note the Commission recognized, in proposing variable annuity registration forms, that contract owners, participants, and annuitants may not want or need disclosure about the financial performance of the insurance company, but instead may be interested only in the insurer's solvency. Registration Form for Insurance Company Separate Accounts that Offer Variable Annuity Contracts, Securities Act Release No. 6502 and Investment Company Act Release No. 13689 (Dec. 22, 1983).

9/ You also note that, while GAAP financial statements assist investors in understanding the Companies' going concern value, investors in the Contracts do not need information regarding Companies' going concern value since there is no secondary market in the Contracts.

10/ Our analysis underlying this assurance has been developed in consultation with the staff of the Commission's Office of the Chief Accountant.

This permission is provided for the Contracts described in your letter based on the facts disclosed therein, including that the Contracts seeking to rely on the permission are non-variable annuity contracts classified as market-value adjusted annuities, contingent deferred annuities, and/or indexed annuities. As to any Contract registered or materially amended in the future, this permission is subject to the Commission staff's assessment of the Contract's registration statement for consistency with the facts described in your letter and the intended product types. In this regard, you have stated that the Companies will notify the staff, in a letter accompanying the filing of any new registration statement for a Contract or any post-effective amendment to an existing registration statement that reflects a material change to a Contract, of its intent to rely on the permission granted in this letter.

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Original text here: https://www.sec.gov/files/delaware-life-insurance-company-and-gainbridge-life-insurance-company-042823.pdf