Exhibit A (12)
NORTHWESTERN MUTUAL VARIABLE LIFE ACCOUNT
Description of Issuance, Transfer and Redemption Procedures for Variable
Life Insurance Contracts Pursuant to Rule 6e-3(T)(b)(12)(iii) and Method of
Computing the Adjustment in Payments and Cash Values for Conversions Pursuant to
Rule 6e-3(T)(b)(13)(v)(B).
INTRODUCTION
1. Rule 6e-3(T)(b)(12) under the Investment Company Act provides
exemption from Sections 22(c), 22(d), 22(e) and 27(c)(1) of the Act and Rule
22c-1 thereunder for variable life insurance policies which meet the conditions
of the Rule. (Rule 6e-3(T) has not been amended to reflect the addition of
Section 27(c)(i); the registration statement with which this memorandum is filed
includes a representation in compliance with Section 27(e)(2)(A) of the
Investment Company Act, as amended in 1996.) Rule 6e-3(T)(b)(13)(v) provides
exemption from Section 27(f) of the Act for variable life insurance policies
which, among other conditions, provide for the right to convert the policies to
fixed benefit life insurance within twenty-four months after the policies are
issued. Both Rules refer to materials which must be included in the separate
account's filing with the Commission pursuant to paragraph (b)(3)(ii) of Rule
6e-3(T).
2. Rule 6c-3 provides exemptions for a registered variable life insurance
separate account which registers under Section 8 of the Act, except for
exemption from the registration requirements, "under the same terms and
conditions as a separate account claiming exemption under --- Rule 6e-3(T)."
Therefore a separate account which registers as contemplated by Rule 6c-3 may be
required to include the materials referred to in Rules 6e-3(T)(b)(12)(iii) and
6e-3(T)(b)(13)(v) as exhibits to its registration statement filed under the Act.
The purpose of this memorandum is to fulfill this requirement with respect to
the Flexible Premium Variable Joint Life Insurance Policy ("Policy") proposed to
be offered in connection with Northwestern Mutual
Variable Life Account ("Account"), a separate investment account of The
Northwestern Mutual Life Insurance Company ("Northwestern").
RULE 6e-3(T)(b)(12)(iii)
3. Rule 6e-3(T)(b)(12)(iii) provides exemptions from the sections and
rules cited above to the extent "Necessary to comply with this Rule or with
insurance laws and regulations and established administrative procedures of the
life insurer for issuance increases in or additions of insurance benefits,
transfer and redemption of flexible contracts, including, but not limited to,
premium rate structure and premium processing, insurance underwriting standards,
and the particular benefit afforded by the contract. . ." The Rule thus
recognizes that the established procedures of the insurance company itself,
founded on the requirements of the state insurance law, have a principal role in
defining the requirements which apply for variable life insurance offered by the
same company.
ISSUANCE PROCEDURES
A. PREMIUM STRUCTURE AND INSURANCE UNDERWRITING STANDARDS
4. The Policy is a flexible premium contract. Premiums may be paid at
any time and in any amount, within limits. The actual cost of insurance charge
will depend on the age, sex and insurance risk classification of the proposed
insureds, as well as the net amount at risk. Thus the price of the insurance
will differ, reflecting established insurance procedures and state law, in order
to fairly take into account the differences in risks.
5. As a mutual life insurance company organized in Wisconsin,
Northwestern is required to offer its insurance contracts as participating
policies which share equitably in Northwestern's divisible surplus. The
Policies accordingly have been designated as participating. However, no
dividends are anticipated since this Policy is not expected to contribute to
divisible surplus.
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6. Notwithstanding the documented differences between male and female
mortality rates, a 1983 decision of the U.S. Supreme Court (1) has created legal
liability issues for employers who purchase, or are otherwise involved in the
purchases of, insurance products which are priced so as to reflect these
differences. Similarly, the laws of individual states (currently only Montana)
require that policies offered there use a sex-neutral pricing basis. The
Policies will accordingly be offered on a sex-neutral pricing basis for use as
required in such situations.
B. PROCEDURES FOR PLACING A POLICY IN EFFECT
7. When the applicant applies for a Policy, Northwestern will begin the
same process of risk evaluation which takes place when an application for a
fixed benefit insurance policy is received. Several days or weeks may elapse
from the date of the application until this underwriting procedure is completed
and, if insurability is established, the Policy is issued and delivered to the
owner. If both insureds die in the interim, after at least the minimum initial
premium has been paid, Northwestern pays the death benefit to the beneficiary
unless it is determined that the application would have been rejected.
8. If the applicant for insurance pays at least the minimum initial
premium when the application is submitted, the Policy Date will be the date when
Northwestern received the later of (1) the application and (2) medical evidence
form.
9. If the application is submitted without any premium, the underwriting
procedure will be carried out and the Policy will be issued and delivered in due
course. In that case the Policy Date will be 7 days after the date on which the
application is finally approved and the Policy is issued, provided that the
Policy is in fact delivered within 32 days after the approval date and the
premium is paid at that time. If more than 32 days elapse, the Policy Date will
be reset according to the agent's instructions and will be subject to approval
by the Home Office.
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(1) ARIZONA GOVERNING COMMITTEE, ETC. v. NORRIS, 103 S. Ct. 3492 (1983).
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10. For life insurance purposes, one's age is reckoned as the age at the
last or next birthday, depending on which is closer. The Policy Date may be
backdated for a maximum of 6 months, but no earlier than October 31, 1998,
subject to applicable state insurance law.
11. In any case, investment experience begins on the date the initial
premium is received. For all purposes under the Policies, the Policy Values for
any date are determined as of the close of business on that date, or whenever
the assets of the Account are next valued. Assets of the Account consist
entirely of shares of Northwestern Mutual Series Fund, Inc., ("Fund") and shares
of each series of the Fund are valued daily as of the close of trading on the
New York Stock Exchange.
12. The suicide and incontestability periods under a Policy will run from
the Issue Date. The Issue Date will not necessarily coincide with the Policy
Date, for the reasons indicated above.
C. PREMIUM PROCESSING
13. Premiums may be paid at any time and in any amount, within limits.
The net premium, after the deductions described in the prospectus, will be
placed in the Account on the date received by Northwestern at its Home Office.
14. Transactions between the Account and the general account of
Northwestern will be effected as of the dates determined in accordance with the
terms of the Policies but the transactions will not in all cases be physically
processed on those dates. For example, as described below, the death of the
second insured will mark the date on which the Policy ceases to participate in
the Account, with interest being paid on Policy proceeds from that date until
the Policy is settled, but several days may elapse before Northwestern receives
notification. Because of the timing discrepancies the total assets of the
Account will not always exactly match the sum of the interests in the Account
represented by all of the Policies outstanding. An accounting routine will be
established to reconcile these amounts once each year, as of December 31, and
the amount of assets in the Account will be adjusted as required.
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TRANSFER PROCEDURES
15. The Account consists of nine divisions, corresponding to the nine
Portfolios of the Fund. All assets of each division are invested in shares of
the corresponding Fund Portfolio. Anytime following the initial allocation
date, the Policy owner may direct that accumulated amounts under the Policy be
transferred from one division to another. The Policy provides for a $25 charge
for transfers of assets among the divisions of the Account if more than twelve
transfers take place in a policy year. Currently, this fee is being waived.
Transfers will be effected as of the date when a written request is received at
Northwestern's Home Office.
16. In order to minimize the investment risk to Northwestern during the
period when the Policy owner has the right to return the Policy for a refund,
premiums placed into the Account prior to the initial allocation date are placed
in the Money Market Division of the Account. The initial allocation date is
described in the prospectus and identified in the Policy. On the initial
allocation date amounts in the Money Market Division of the Account are
transferred to other divisions based on the instructions in the application for
the Policy.
REDEMPTION PROCEDURES
A. SURRENDER FOR CASH VALUE
17. The cash value equals the Policy Value, less any Policy debt
outstanding, less the surrender charge. The owner of a Policy may surrender it
for the cash value of the Policy at any time upon written request before the
death of the second insured. Northwestern will affix a date and time stamp when
the request is received at its Home Office and pay the cash value computed as of
that day.
18. For its conventional fixed benefit insurance, Northwestern has
developed performance goals for the timeliness of responses to requests for
payment of policy benefits, including payment of cash and loan values.
Performance is closely monitored and data are compiled on a periodic basis. The
data from August 1996 to August 1997 show that 77% of surrender requests and 93%
of loan applications were processed within five days. For these
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Policies, Northwestern will implement special handling procedures to assure that
benefits are paid within seven days after a request with the necessary
information is received.
19. When a surrender of a Policy is effected, Northwestern will pay the
cash value out of its general assets. An amount equal to the interest of the
Policy in the Account will be transferred from the Account to Northwestern's
general account as of the effective date of the surrender.
B. PARTIAL WITHDRAWAL OF CASH VALUE
20. A withdrawal of Policy Value may be made under certain conditions
specified in the prospectus. A withdrawal may not reduce the loan value to less
than any Policy debt outstanding. Following a withdrawal the remaining Policy
Value must be at least three times the current monthly charge. Also, following
a withdrawal the remaining death benefit must be at least the minimum amount
that Northwestern would currently issue, but not less than the initial Specified
Amount. The minimum amount for withdrawals is $250. The Policy reserves the
right to charge a fee of up to $25 per withdrawal. This fee is currently being
waived.
21. Withdrawals may be made upon written request at Northwestern's Home
Office. The maximum allowable withdrawal will be determined by reference to
computations as of the close of business on the day the request is received.
The check for the amount of the withdrawal will be mailed from the Home Office.
Special handling procedures will be implemented to assure that withdrawal
benefits are paid within seven days after a request is received.
C. PAYMENT OF DEATH BENEFIT
22. Northwestern will pay the death benefit to the beneficiary or other
payee in accordance with the terms of the Policy following receipt at its Home
Office of proof of the death of the insureds. Payment of the death benefit is
subject to the suicide and incontestability provisions of the Policy and any
applicable state law requirements. Payment will be made promptly and in any
case within seven days after the last of the conditions is met.
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23. The death benefit for a Policy will depend on the death benefit option
chosen. With Option A, the death benefit equals the Specified Amount. With
Option B, the death benefit equals the sum of the Specified Amount and the
Policy Value. And with Option C, the death benefit equals the sum of the
Specified Amount and premiums paid. At ages 100 and older of the younger
insured, the death benefit will equal the Policy Value under all three options.
In addition, under any of the options, the death benefit will be increased, if
necessary, to meet the definitional requirements for life insurance for federal
income tax purposes. The death benefit is adjusted to reflect any unpaid
monthly charges if the Policy is in the grace period. Also, any Policy debt is
deducted from the death benefit.
24. Northwestern will pay the death benefit for a Policy out of its
general assets. The amount payable will include interest from the date of
death. An amount equal to the interest of the Policy in the Account as of the
date of death will be transferred from the Account to Northwestern's general
account.
D. LAPSE AND REINSTATEMENT
25. If the cash value is less than the monthly charges on any monthly
processing date, a 61 day (2) grace period is allowed for the payment of
sufficient premium to keep the Policy in force. The grace period begins on the
date when a notice is sent to the policyowner. The notice will state the
minimum amount of premium required to keep the Policy in force and the date by
which the premium must be paid. The Policy will terminate with no value unless
the
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(2) In administering the Policies Northwestern intends to use a 66-day period,
instead of 61 days, before the lapse routine is implemented. The longer period
is used simply to reduce the volume of lapse and reinstatement transactions
occasioned by miscalculation when Policy owners attempt to pay the overdue
premium on the last day of the grace period. The 66-day period is used for
Northwestern's fixed benefit insurance policies and will be administered
consistently. It does not appear in the prospectus for the Policies because its
purpose would be defeated if Policy owners know that the extra time would be
allowed. When the 66 days have transpired and the Policy lapses, the values
will be computed as though the Policy had lapsed after the grace period of 61
days. Notwithstanding the postponement of internal procedures to reflect the
fact of a lapse, the Policy does lapse upon the experience of the grace period
and the death benefit is determined accordingly if the insured dies thereafter
regardless of whether the internal procedures have been implemented prior to the
date of death.
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required amount is paid before the grace period expires. If the second death
occurs during the grace period, the death proceeds will be reduced by the amount
of the unpaid monthly charges.
26. A lapsed Policy may be reinstated while at least one insured is alive
within one year after the Policy terminated. The Policy may not be reinstated
if the Policy was surrendered for its cash value or if either of the insureds
died after the end of the grace period. Reinstatement is conditional upon
evidence of insurability and payment of an amount equal to the monthly charges
that were due when the Policy terminated plus charges for three more months.
Reinstatement will be effected as of the first monthly processing date after the
request for reinstatement is received at the Home Office of Northwestern,
subject to approval by Northwestern. Any Policy debt that was outstanding when
the Policy terminated will also be reinstated. The Policy Value when a policy
is reinstated is equal to the premium paid, after the deduction for taxes and
sales load, less the sum of all monthly charges for the cost of insurance and
other expenses for the grace period and for the current month. The cash amount
required to reinstate a Policy will be paid into Northwestern's general account
and the amount required for the Policy's separate account reserve will be placed
in the Account as of the reinstatement date.
E. POLICY LOANS AND LOAN REPAYMENTS
27. The Policies provide that the owner may borrow from Northwestern using
the Policy as collateral security. The maximum loan value is 90% of the cash
value. If a Policy loan is already outstanding, these limitations are applied
to the amount of cash value which the Policy would have if there were no loan.
28. The Policy provides that loans will be made upon written request.
Northwestern also intends to honor requests made at the offices of its agents in
accordance with procedures presently in place for fixed benefit policies. In
that case the request will be transmitted to the Home Office for processing. In
any event, the check for the loan proceeds will be mailed from the Home Office,
usually the next business day after the request is received. The date of the
loan will be the date on which the check for the loan proceeds is issued. The
maximum loan value of the Policy will be determined by reference to computations
at the close of business the
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preceding day -- after the request for the loan was submitted but before
processing took place -- and interest will accrue on the loan from the date of
the check.
29. Interest on a Policy loan accrues and is payable on a daily basis.
The Policy loan rate is a fixed rate of 5%. Unpaid interest is added to the
principal. The Policy will terminate if the cash value falls to zero on a
monthly processing date, but written notice will be mailed to the owner of the
Policy at least 61 days before the termination date. The notice will state the
amount which must be paid to keep the Policy in force.
30. When a Policy loan is effected, the loan amount is taken from the
divisions of the Account in proportion to the amounts in the divisions. The
amounts taken from the Account are credited with an earnings rate equal to the
Policy loan interest rate. On the monthly processing date, a charge for
expenses and taxes associated with any Policy debt is deducted. The amount
deducted for expenses is disclosed in the prospectus. The earnings rate is in
lieu of the investment experience of the Account. The amounts of any loan
repayments will be transferred from Northwestern's general account to the
divisions of the Account, according to the allocation percentages in effect for
premiums, and will thereafter participate in the Account's investment
experience.
F. EXCHANGE OF POLICY
31. In those states that require the option to exchange the Policy for a
permanent fixed benefit policy, the Policy provides that the owner may exchange
the Policy during a limited period for a conventional whole life insurance
policy with benefits that do not vary with the investment experience of a
separate account. The fixed benefit policy will be issued by Northwestern, will
be on the lives of the same insureds, and will have the same initial death
benefit, Policy Date and issue ages as the Policy being exchanged. The premiums
and cash values for the new policy will be the same as those for fixed benefit
policies issued by Northwestern on the Issue Date of the Policy. No evidence of
insurability is required.
32. The exchange will be subject to an equitable cash adjustment, which is
calculated consistent with the requirements of Rule 6e-3(T)(b)(13)(v) although
the load
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structure of the Policy does not require exemption from Section 27(f) of the
Investment Company Act. The amount of cash adjustment will be equal to the
difference between 1) the discounted Policy Value plus the sum of all loads and
charges previously deducted on this Policy; and 2) the premium(s) payable on the
fixed benefit policy.
33. The effective date of the exchange will be the date when Northwestern
received the request together with the Policy and any amount due for the cash
adjustment. The owner of the Policy may request a later date. An amount equal
to the interest of the Policy in the Account will be transferred from the
Account to Northwestern's general account on the effective date of the exchange.
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