Insurance-Variable Annuities-Application of Investment Company Act of 1940

Anticipating the sale of variable annuity contracts as a part of its regular business, Prudential, a life insurance company, applied to the Securities and Exchange Commission for complete exemption from the requirements of the Investment Company Act of 1940. Prudential claimed that it qualified for exemption as an insurance company under the definition of "insurance company" in the Investment Company Act ("a company ... whose primary and predominant business activity is the writing of insurance . . . and which is subject to supervision by the insurance commissioner or a similar official or agency of a state"). In the alternative, Prudential requested exemption from specific provisions of the Investment Company Act relating primarily to investor control and redeemability requirements. On the principal application, asking complete exemption, held, denied.

If an insurance company sells equity interests to the public and creates an investment fund, the insurance company's exemption from federal regulation does not carry over to the investment fund, which is treated as a separate entity. Moreover, the Supreme Court decision which initially brought the variable annuity under federal securities regulation as a "security" classified the annuity contract itself, apart from any consideration of the type of company issuing it. Prudential Ins. Co. of America, SEC Investment Co. Act Release No. 3620, Jan.

22, 1963.