SEC Issues No-Action Letter Regarding Minnesota Life Insurance

WASHINGTON, June 11 -- The Securities and Exchange Commission issued the following no-action letter:

VIA ELECTRONIC MAIL

RESPONSE OF CHIEF ACCOUNTANT'S OFFICE DIVISION OF INVESTMENT MANAGEMENT

To: Richard T. Choi, Carlton Fields, P.A.

Email: [email protected]

Re: Minnesota Life Insurance Co.

By letter dated June 10, 2020, you request authority under Regulation S-X Sec.3-13 ("Rule 3-13") for Minnesota Life Insurance Co. ("Company") to file audited financial statements of the Company prepared in accordance with statutory accounting principles1 ("SAP"), in place of financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), in registration statements filed under the Securities Act of 1933 ("Securities Act") on Form S-1 for certain index annuity contracts that the Company plans to register (collectively, "Contracts"), in satisfaction of the requirements of Items 11(e), 11(f) and 11(g) and Item 16(b) of Form S-1, as described in your letter.

Background

The Company

You state that the Company is a stock life insurance company organized under Minnesota law. You also state that the Company is a wholly owned subsidiary of Securian Financial Group, Inc. ("SFG"), which in turn is wholly owned by Securian Holding Company ("SHC"). In addition, you state that both SFG and SHC are Delaware corporations organized for the purpose of holding subsidiary corporations. Further, you state that SHC is wholly owned by Minnesota Mutual Companies, Inc., a mutual insurance holding company organized under Minnesota law ("MMC").

You state that, as private companies, MMC, SHC, and SFG do not have securities being offered or sold pursuant to the Securities Act, nor do they file reports with the U.S. Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("Exchange Act"). You note that, pursuant to an agreement with the Minnesota Department of Commerce, MMC files GAAP financial statements with the state of Minnesota and that, in connection with a 2018 private placement debt offering, SFG is required to prepare GAAP financial statements. With those exceptions, you state that none of MMC, SFC or SHC has any obligation that requires it to prepare GAAP financial statements.

You state that MMC and SFG do not require their respective subsidiaries to provide audited or unaudited GAAP financial statements, or to prepare a GAAP reporting package or partial GAAP financial statements, in connection with the preparation of their respective consolidated GAAP financial statements. In this regard, you note that MMC and SFG manage their business operations through operating segments rather than through a legal entity approach, and that MMC and SFG prepare their respective consolidated financial information by aggregating information for each operating segment recorded across multiple legal entities (i.e., their respective subsidiaries). You also note that, in fact, Minnesota Life does not prepare GAAP financial statements, or a GAAP reporting package or partial GAAP financial statements, for any reason.

You further state that, absent the relief you have requested, the Contracts registration statements would be the only reason Minnesota Life prepares GAAP financial statements, and you state that Minnesota Life would not otherwise need to prepare GAAP financial statements. You state that Minnesota Life does not issue or have outstanding any publicly traded equity securities, nor has it issued any publicly traded debt securities. You note that Minnesota Life currently issues variable insurance products registered on Forms N-4 and N-6, but that Minnesota Life currently files SAP financial statements in lieu of GAAP financial statements in those registration statements. In this regard, you note that each of those forms permit Minnesota Life to file SAP financial statements if it would not have to prepare GAAP financial statements except for use in in registration statements used to register variable insurance products.

You also state that the Company is eligible to and will rely on Rule 12h-7 for an exemption from the reporting requirements imposed by the Exchange Act.2 In this regard, you note that the Company is subject to supervision by the Minnesota Department of Commerce. In addition, you state that the Company files annual statements of financial condition with, and its financial condition is periodically examined by, the Minnesota Department of Commerce.3

2 Further, you state that the Company annually prepares SAP financial statements, which are audited by an independent auditor,4 and files these statements with the Minnesota Department of Commerce and the National Association of Insurance Commissioners.

The Contracts

You state that the Contracts the Company will offer, which will include several indexed options among which a contract owner may allocate their purchase payments, will credit interest based on the performance of an index. You also state that the Company expect to offer the Contracts on a standalone basis, although the Company may decide later to offer the Contracts in combination with a variable annuity.

You state that the options under the Contracts will offer different interest crediting methods that pair a downside protection feature with an upside crediting feature, and that interest over a given period may be positive, negative, or zero. Specifically, you state that downside protection may include buffers, which provide protection up to a specified level of loss, and protection rates, which provide a proportional reduction in any losses. You also state that upside crediting features may include (a) caps, which offer participation in an index up to a maximum gain; (b) participation rates, which credit a proportional share of any gains; and (c) performance triggers, which credit a fixed interest rate in the event of positive index performance.

You state that the Contracts will not constitute equity interests in the issuer and will be regulated under Minnesota insurance law. In addition, you state that the Contracts will not be not 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.5

Discussion

You note 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 therefor of appropriate statements of comparable character." You assert that, for the Form S-1 registration statement of the Contracts, SAP financial statements audited by an independent auditor are appropriate statements of a comparable character to GAAP financial statements.

In support of this claim, you assert that investors in the Contracts will be most interested in information relevant to assessing the Company's ability to fulfill its contractual obligations.6 You assert that SAP financial statements would provide investors in its Contracts with sufficient information to assess the Company's solvency and its ability to fulfill its contractual obligations.7 In this regard, you claim that SAP financial statements contain detailed information about an insurance company's balance sheet, including its regulatory capital and surplus that serve as financial cushions for paying policyholder claims. In addition, you claim that SAP financial statements enable regulators to determine the Company's ability to meet its obligations to owners of the Contracts 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 the Company 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. /8/9

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,

Alison Staloch, 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 Company's domiciliary state regulator.

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 if certain other conditions are satisfied. 17 C.F.R. Sec.240.12h-7 (2018).

3 Rule 12h-7(a) and (c) specify that an issuer qualifying under that 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 (as defined in that Act). Id.

4 You state that the financial statements that Minnesota Life will prepare and file in its registration statements for the Contracts will be audited by an auditor that will satisfy the independence standards of Article 2 of Regulation S-X and that will be registered with and subject to inspection by the Public Company Accounting Oversight Board.

5 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. Id. Rule 12h-7(d) further 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. Id.

6 You note the Commission recognized, in proposing variable annuity registration forms, that investors in those products may only be interested in the solvency of the account depositor with respect to the insurance benefits offered in those products by the depositor. Registration Form for Insurance Company Separate Accounts that Offer Variable Annuity Contracts, Securities Act Release No. 33-6502 and Investment Company Act Release No. 13689 (December 22, 1983).

7 You also note that, while the use of GAAP assists investors in understanding an issuer's going concern value, investors in the Contracts do not need information regarding the Company's going concern value since there is no secondary market in the Contracts.

8 The staff notes that it would be receptive to considering applications under Rule 3-13 from other registrants seeking to file SAP financial statements in lieu of GAAP financial statements in registration statements filed for products similar to the Contracts described here, under circumstances similar to those described above.

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

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View the letter of Richard T. Choi to Alison Staloch at https://www.sec.gov/files/minnesota-life-insurance-061120-3-13.pdf