SEC Company Response from FORTITUDE LIFE INSURANCE & ANNUITY CO (CIK 0000881453) — May 3, 2021
FORTITUDE LIFE INSURANCE & ANNUITY CO (CIK 0000881453)
Date: May 3, 2021 · CIK: 0000881453 · Accession: 0000881453-21-000013
AI Filing Summary & Sentiment
File numbers found in text: 333-252773, 333-252774
Letter
VIA EDGAR Division of Investment Management Securities and Exchange Commission Prudential Annuities Life Assurance Corporation Variable Account B Registration Statement on Form N-4, SEC File No. 333-252773 Prudential Annuities Life Assurance Corporation Registration Statement on Form S-3, SEC File No. 333-252774
Dear Mr. Zapata:
On behalf of the above-referenced Registrants, below are responses to Staff comments received orally on April 9, 2021 to the registration statements noted above. Included in this submission is a revised prospectus for the FlexGuard Income contract which includes the changes described below. The staff’s comments and our responses are as follows.
1. Comment – Prospectus
A rate sheet supplement may not be used for the prospectus registered on Form S-3. Accordingly, revise the prospectus and the supplement containing the income benefit terms to conform to Form S-3 requirements.
Response:
Alberto H. Zapata, Esq.
May 3, 2021
Page 2
We have revised the supplement containing the income benefit terms that will now be referred to as the Index Linked Variable Income Benefit Supplement. It will not be filed for review by the Staff as a “rate sheet supplement” under Form N-4. We have added disclosure to the prospectus in the “Special Terms” and “Risk Factors” sections that describe the income benefit terms contained in the Index Linked Variable Income Benefit Supplement and how a customer can obtain the Supplement including on our website, by calling our Service Center and as filed on EDGAR under the Form S-3 file number. These changes are included in the revised prospectus which is included with this submission.
2. Comment – Prospectus
On the cover page, the reference to “Risk Factors” should include a hyperlink or page reference. Please add.
Response: We have added a hyperlink to the “Risk Factors” reference on the cover page. This change is included in the revised prospectus which is included with this submission.
3. Comment – Prospectus (page 3)
In the “Special Terms” section, the definition of the term “Variable Investment Subaccount” states that it may be referred to as a Variable Subaccount or Subaccount in the prospectus and the Annuity (emphasis added). Explain/clarify that the Annuity as defined in the prospectus includes the variable subaccounts.
Response: In the first paragraph on the cover page of the prospectus, we define the “Annuity” as a “single premium deferred index-linked and variable annuity.” The variable subaccount is thus included in this definition of Annuity, as are the index strategies. Accordingly, the definition of “Variable Investment Subaccount” in the “Special Terms” section appropriately references the Annuity.
4. Comment – Prospectus (page 6)
In the “Summary” section, “Interim Value” subsection, we disclose that Interim Value applies to a “partial transfer.” Explain what a “partial transfer” is in this context.
Response: A “partial transfer” as used in that section of the prospectus is intended to describe the transfer of a portion of a contract owner’s allocation to an index strategy, made at Interim
Alberto H. Zapata, Esq.
May 3, 2021
Page 3
Value, to the variable subaccount. The contract owner could then allocate to another index strategy at the next index anniversary date.
We have determined to revise the paragraph at issue as follows:
Interim Value: If you take a withdrawal (including partial withdrawals, systematic withdrawals, full surrenders, Income Withdrawals and Excess Income), transfer out of, annuitize, we process a Benefit charge, or we pay a death claim between an Index Strategy Start Date and Index Strategy End Date, we will use an Interim Value to determine the fair market value of each Index Strategy at the time of the transaction. The Interim Value is also used to determine how much the Index Strategy Base will be reduced after a transfer, withdrawal, or Benefit charge. If you withdraw, partially transfer a portion out of, or we process a Benefit charge from Account Value allocated to an Index Strategy, the withdrawal, partial transfer, or Benefit charge will cause an immediate reduction to your Index Strategy Base in a proportion equal to the reduction in your Interim Value. A proportional reduction could be larger than the dollar amount of your withdrawal, partial transfer or Benefit charge. Reductions to your Index Strategy Base will negatively impact your Interim Value for the remainder of the Index Strategy Term and will result in a lower Index Credit on the Index Strategy End Date. Once your Index Strategy Base is reduced due to a withdrawal, partial transfer or Benefit charge during any Index Strategy Term, it will not increase for the remainder of the Index Strategy Term.
5. Comment – Prospectus (page 9)
In the “Risk Factors” section, add “Reinvestment Risk.”
Response: We include in the “Risk Factors” section of the prospectus a subsection captioned “Reallocation of Index Strategies” which describes the risks of reinvestment in the index strategies at the end of an index strategy term. We will add disclosure to this existing language with respect to renewal rates. The revised disclosure for “Reallocation of Index Strategies” will read as follows (changes marked in red):
Reallocation of Index Strategies
At the end of an Index Strategy Term for an Index Strategy, the amount allocated to that Index Strategy will be reallocated based upon your instructions we received in Good Order, or if none has been received in Good Order, automatically renew into the same Index Strategy unless the Index Strategy End Date would be after the Maximum Annuity Date. During the Saving Stage, if the same Index Strategy is no longer available, the amount will be transferred into the Holding Account, and the amount may be transferred among the Variable Investment Subaccounts at any time or into another Index Strategy on the next Index
Alberto H. Zapata, Esq.
May 3, 2021
Page 4
Anniversary Date. During the Income Stage, if the current Index Strategy is no longer available and we have no additional instructions, we will automatically transfer these amounts into the Index Strategy with, in order of priority, the shortest Term, the highest Buffer, and the lowest Cap Rate. You must provide instructions for reallocation by the Index Anniversary Date. Cap Rates, Participation Rates, Step Rates and Tier Levels (together, “Rates”), upon renewal, may be higher or lower than the initial Rates but will never be less than the Guaranteed Minimum Rates. Renewal Rates may differ from the Rates used for new Annuity contracts or for other Annuity contracts issued at different times. We will determine new Rates on a basis that does not discriminate unfairly within any class of contracts.
6. Comment – Prospectus
With regard to the prospectus registered on Form S-3, consider re-ordering the sections so that “Risk Factors” precede the “Summary of Fees and Expenses,” “Expense Examples,” and “Condensed Financial Information” sections.
Response: We have re-ordered the sections of the prospectus so that “Risk Factors” precede the “Summary or Fees and Expenses,” “Expense Example,” and “Condensed Financial Information” sections. These changes are included in the revised prospectus which is included with this submission.
7. Comment – Prospectus (page 28)
In the “Information About the Insurance Company and Separate Accounts” section, “Incorporation by Reference” subsection, update the reference to the annual report on Form 10-K from 2019 to 2020.
Response: We have updated the reference to the annual report on Form 10-k from 2019 to 2020. This change is included in the revised prospectus which is included with this submission.
In addition to the disclosure changes referenced above, we have made the following changes to the prospectus disclosure:
(i)On page 39 of the prospectus, we will make the following disclosure changes to the “Rate Determination” section.
Rate Determination.
Alberto H. Zapata, Esq.
May 3, 2021
Page 5
In order for you to receive the rates associated with the Index Strategies reflected on the rate sheet found on our website at www.prudential.com, your Annuity application must be signed on or after the date set forth on the rate sheet and before a new rate sheet is established. From the date you sign your Annuity application, we must also receive that paperwork in Good Order within 15 calendar days, and the new Annuity must be issued within 45 calendar days from the date the application was signed. If these conditions are not met, and you decide to proceed with the purchase of the Annuity, you will receive the Index Strategy rates that are in effect on your Issue Date. Under certain circumstances we may waive these conditions or extend these time periods in a nondiscriminatory manner. Your Contract will receive the Cap Rates, Participation Rates, Tier Levels and Step Rates that are applicable as of the Issue Date.
(ii)We will add two new indices to the product that are linked to the performance of two ETFs, the Invesco QQQ ETF and the iShares Russell 2000 ETF. Disclosure related to the two new ETFs is added to the first two paragraphs in the section captioned “Indices” in the “Index Strategies” section of the Prospectus as shown below:
Each Index Strategy references an Index that determines the Index Return used to compute the Index Credit. When you allocate to an Index Strategy that is linked to the performance of one of the Indices, you are not investing in the Index. We currently offer Index Strategies based on the following securities Indices:
S&P 500 ® Index, Price Return (SPX). The S&P 500 ® Index is comprised of 500 stocks considered representative of the overall market. An index is unmanaged and not available for direct investment.
MSCI EAFE Index, Price Return (MXEA). The MSCI EAFE Index measures the equity market performance of 22 developed market country indices located in Europe, Australasia and the Far East. An index is unmanaged and not available for direct investment.
Invesco QQQ ETF, Price Return (QQQ). The Invesco QQQ ETF is an exchange-traded fund that seeks to track the investment results of the NASDAQ-100 Index®. The Index includes the 100 largest non-financial companies listed on the Nasdaq® based on market cap.
iShares® Russell 2000 ETF, Price Return (IWM). The iShares® Russell 2000 ETF seeks to track the investment results of the Russell® 2000 Index, an index composed of small-capitalization U.S. equities. The Russell® 2000 Index measures the performance of the small capitalization sector of the U.S. equity market, as defined by FTSE Russell.
When you allocate to an Index Strategy that is linked to the performance of an ETF you are not investing in the ETF. Index-based ETFs seek to track the investment results of a specific market index. Due to a variety of factors, including the fees and expenses associated with an ETF, an ETF’s performance may not fully replicate or may, in certain circumstances, diverge significantly from the performance of the underlying index. This potential divergence between the ETF and the specific market index is known as tracking error.
Alberto H. Zapata, Esq.
May 3, 2021
Page 6
Although we believe that we will be viewed as the owner of the Index Strategy for tax purposes, there is no legal guidance to indicate how the IRS might view access to an ETF linked Index Strategy coupled with frequent transfers among investment options.
Index Returns for Index Strategies linked to an ETF are based on the closing share price (price return) of each respective Index. Index Strategies linked to an ETF do not include dividends and other distributions declared by the Index.
In addition, the chart of currently available index strategies on the cover page of the prospectus is amended to add the index strategies offerings that use the new indices, Appendix B of the prospectus is amended by adding disclosure about the ETF index providers, and the “Risk Factors” section of the prospectus is revised to add disclosure related to the new indices. These changes are included in the revised prospectus which is included with this submission.
Finally, we have also made other non-material wording edits and clarifying language. Those changes are also included on the attached revised prospectus and, subject to any comment, will be included in Pre-Effective Amendment #1 to the registration statement.
If you have any questions, please call me at (203) 925-3707.
Very truly yours,
/s/Richard H. Kirk
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Richard H. Kirk
Vice President, Corporate Counsel
The Prudential Insurance Company of America
213 Washington Street, Newark, NJ 07102-2917
Tel 203-925-3707
richard.kirk@prudential.com
May 3, 2021
VIA EDGAR
Alberto H. Zapata, Esq.
Senior Counsel
Disclosure Review and Accounting Office
Division of Investment Management
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: Response to SEC Staff Comments on Registration Statements
Prudential Annuities Life Assurance Corporation Variable Account B
Registration Statement on Form N-4, SEC File No. 333-252773
Prudential Annuities Life Assurance Corporation
Registration Statement on Form S-3, SEC File No. 333-252774
Dear Mr. Zapata:
On behalf of the above-referenced Registrants, below are responses to Staff comments received orally on April 9, 2021 to the registration statements noted above. Included in this submission is a revised prospectus for the FlexGuard Income contract which includes the changes described below. The staff’s comments and our responses are as follows.
1. Comment – Prospectus
A rate sheet supplement may not be used for the prospectus registered on Form S-3. Accordingly, revise the prospectus and the supplement containing the income benefit terms to conform to Form S-3 requirements.
Response:
Alberto H. Zapata, Esq.
May 3, 2021
Page 2
We have revised the supplement containing the income benefit terms that will now be referred to as the Index Linked Variable Income Benefit Supplement. It will not be filed for review by the Staff as a “rate sheet supplement” under Form N-4. We have added disclosure to the prospectus in the “Special Terms” and “Risk Factors” sections that describe the income benefit terms contained in the Index Linked Variable Income Benefit Supplement and how a customer can obtain the Supplement including on our website, by calling our Service Center and as filed on EDGAR under the Form S-3 file number. These changes are included in the revised prospectus which is included with this submission.
2. Comment – Prospectus
On the cover page, the reference to “Risk Factors” should include a hyperlink or page reference. Please add.
Response: We have added a hyperlink to the “Risk Factors” reference on the cover page. This change is included in the revised prospectus which is included with this submission.
3. Comment – Prospectus (page 3)
In the “Special Terms” section, the definition of the term “Variable Investment Subaccount” states that it may be referred to as a Variable Subaccount or Subaccount in the prospectus and the Annuity (emphasis added). Explain/clarify that the Annuity as defined in the prospectus includes the variable subaccounts.
Response: In the first paragraph on the cover page of the prospectus, we define the “Annuity” as a “single premium deferred index-linked and variable annuity.” The variable subaccount is thus included in this definition of Annuity, as are the index strategies. Accordingly, the definition of “Variable Investment Subaccount” in the “Special Terms” section appropriately references the Annuity.
4. Comment – Prospectus (page 6)
In the “Summary” section, “Interim Value” subsection, we disclose that Interim Value applies to a “partial transfer.” Explain what a “partial transfer” is in this context.
Response: A “partial transfer” as used in that section of the prospectus is intended to describe the transfer of a portion of a contract owner’s allocation to an index strategy, made at Interim
Alberto H. Zapata, Esq.
May 3, 2021
Page 3
Value, to the variable subaccount. The contract owner could then allocate to another index strategy at the next index anniversary date.
We have determined to revise the paragraph at issue as follows:
Interim Value: If you take a withdrawal (including partial withdrawals, systematic withdrawals, full surrenders, Income Withdrawals and Excess Income), transfer out of, annuitize, we process a Benefit charge, or we pay a death claim between an Index Strategy Start Date and Index Strategy End Date, we will use an Interim Value to determine the fair market value of each Index Strategy at the time of the transaction. The Interim Value is also used to determine how much the Index Strategy Base will be reduced after a transfer, withdrawal, or Benefit charge. If you withdraw, partially transfer a portion out of, or we process a Benefit charge from Account Value allocated to an Index Strategy, the withdrawal, partial transfer, or Benefit charge will cause an immediate reduction to your Index Strategy Base in a proportion equal to the reduction in your Interim Value. A proportional reduction could be larger than the dollar amount of your withdrawal, partial transfer or Benefit charge. Reductions to your Index Strategy Base will negatively impact your Interim Value for the remainder of the Index Strategy Term and will result in a lower Index Credit on the Index Strategy End Date. Once your Index Strategy Base is reduced due to a withdrawal, partial transfer or Benefit charge during any Index Strategy Term, it will not increase for the remainder of the Index Strategy Term.
5. Comment – Prospectus (page 9)
In the “Risk Factors” section, add “Reinvestment Risk.”
Response: We include in the “Risk Factors” section of the prospectus a subsection captioned “Reallocation of Index Strategies” which describes the risks of reinvestment in the index strategies at the end of an index strategy term. We will add disclosure to this existing language with respect to renewal rates. The revised disclosure for “Reallocation of Index Strategies” will read as follows (changes marked in red):
Reallocation of Index Strategies
At the end of an Index Strategy Term for an Index Strategy, the amount allocated to that Index Strategy will be reallocated based upon your instructions we received in Good Order, or if none has been received in Good Order, automatically renew into the same Index Strategy unless the Index Strategy End Date would be after the Maximum Annuity Date. During the Saving Stage, if the same Index Strategy is no longer available, the amount will be transferred into the Holding Account, and the amount may be transferred among the Variable Investment Subaccounts at any time or into another Index Strategy on the next Index
Alberto H. Zapata, Esq.
May 3, 2021
Page 4
Anniversary Date. During the Income Stage, if the current Index Strategy is no longer available and we have no additional instructions, we will automatically transfer these amounts into the Index Strategy with, in order of priority, the shortest Term, the highest Buffer, and the lowest Cap Rate. You must provide instructions for reallocation by the Index Anniversary Date. Cap Rates, Participation Rates, Step Rates and Tier Levels (together, “Rates”), upon renewal, may be higher or lower than the initial Rates but will never be less than the Guaranteed Minimum Rates. Renewal Rates may differ from the Rates used for new Annuity contracts or for other Annuity contracts issued at different times. We will determine new Rates on a basis that does not discriminate unfairly within any class of contracts.
6. Comment – Prospectus
With regard to the prospectus registered on Form S-3, consider re-ordering the sections so that “Risk Factors” precede the “Summary of Fees and Expenses,” “Expense Examples,” and “Condensed Financial Information” sections.
Response: We have re-ordered the sections of the prospectus so that “Risk Factors” precede the “Summary or Fees and Expenses,” “Expense Example,” and “Condensed Financial Information” sections. These changes are included in the revised prospectus which is included with this submission.
7. Comment – Prospectus (page 28)
In the “Information About the Insurance Company and Separate Accounts” section, “Incorporation by Reference” subsection, update the reference to the annual report on Form 10-K from 2019 to 2020.
Response: We have updated the reference to the annual report on Form 10-k from 2019 to 2020. This change is included in the revised prospectus which is included with this submission.
In addition to the disclosure changes referenced above, we have made the following changes to the prospectus disclosure:
(i)On page 39 of the prospectus, we will make the following disclosure changes to the “Rate Determination” section.
Rate Determination.
Alberto H. Zapata, Esq.
May 3, 2021
Page 5
In order for you to receive the rates associated with the Index Strategies reflected on the rate sheet found on our website at www.prudential.com, your Annuity application must be signed on or after the date set forth on the rate sheet and before a new rate sheet is established. From the date you sign your Annuity application, we must also receive that paperwork in Good Order within 15 calendar days, and the new Annuity must be issued within 45 calendar days from the date the application was signed. If these conditions are not met, and you decide to proceed with the purchase of the Annuity, you will receive the Index Strategy rates that are in effect on your Issue Date. Under certain circumstances we may waive these conditions or extend these time periods in a nondiscriminatory manner. Your Contract will receive the Cap Rates, Participation Rates, Tier Levels and Step Rates that are applicable as of the Issue Date.
(ii)We will add two new indices to the product that are linked to the performance of two ETFs, the Invesco QQQ ETF and the iShares Russell 2000 ETF. Disclosure related to the two new ETFs is added to the first two paragraphs in the section captioned “Indices” in the “Index Strategies” section of the Prospectus as shown below:
Each Index Strategy references an Index that determines the Index Return used to compute the Index Credit. When you allocate to an Index Strategy that is linked to the performance of one of the Indices, you are not investing in the Index. We currently offer Index Strategies based on the following securities Indices:
S&P 500 ® Index, Price Return (SPX). The S&P 500 ® Index is comprised of 500 stocks considered representative of the overall market. An index is unmanaged and not available for direct investment.
MSCI EAFE Index, Price Return (MXEA). The MSCI EAFE Index measures the equity market performance of 22 developed market country indices located in Europe, Australasia and the Far East. An index is unmanaged and not available for direct investment.
Invesco QQQ ETF, Price Return (QQQ). The Invesco QQQ ETF is an exchange-traded fund that seeks to track the investment results of the NASDAQ-100 Index®. The Index includes the 100 largest non-financial companies listed on the Nasdaq® based on market cap.
iShares® Russell 2000 ETF, Price Return (IWM). The iShares® Russell 2000 ETF seeks to track the investment results of the Russell® 2000 Index, an index composed of small-capitalization U.S. equities. The Russell® 2000 Index measures the performance of the small capitalization sector of the U.S. equity market, as defined by FTSE Russell.
When you allocate to an Index Strategy that is linked to the performance of an ETF you are not investing in the ETF. Index-based ETFs seek to track the investment results of a specific market index. Due to a variety of factors, including the fees and expenses associated with an ETF, an ETF’s performance may not fully replicate or may, in certain circumstances, diverge significantly from the performance of the underlying index. This potential divergence between the ETF and the specific market index is known as tracking error.
Alberto H. Zapata, Esq.
May 3, 2021
Page 6
Although we believe that we will be viewed as the owner of the Index Strategy for tax purposes, there is no legal guidance to indicate how the IRS might view access to an ETF linked Index Strategy coupled with frequent transfers among investment options.
Index Returns for Index Strategies linked to an ETF are based on the closing share price (price return) of each respective Index. Index Strategies linked to an ETF do not include dividends and other distributions declared by the Index.
In addition, the chart of currently available index strategies on the cover page of the prospectus is amended to add the index strategies offerings that use the new indices, Appendix B of the prospectus is amended by adding disclosure about the ETF index providers, and the “Risk Factors” section of the prospectus is revised to add disclosure related to the new indices. These changes are included in the revised prospectus which is included with this submission.
Finally, we have also made other non-material wording edits and clarifying language. Those changes are also included on the attached revised prospectus and, subject to any comment, will be included in Pre-Effective Amendment #1 to the registration statement.
If you have any questions, please call me at (203) 925-3707.
Very truly yours,
/s/Richard H. Kirk
Richard H. Kirk
Vice President, Corporate Counsel
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION
A Prudential Financial Company
One Corporate Drive, Shelton, CT 06484
PRUDENTIAL FLEXGUARD® INCOME
Single Premium Deferred Index-Linked and Variable Annuity (“B SERIES”)
PROSPECTUS:
This prospectus describes the B Series of a single premium deferred index-linked and variable annuity (“Annuity”) offered by Prudential Annuities Life Assurance Corporation (“PALAC”, “we”, “our”, or “us”). The Annuity provides for the potential accumulation of retirement savings through investment in certain Index Strategies and Variable Investment Subaccount during the Savings Stage and opportunity for lifetime income through a built-in living benefit rider during the Income Stage and Insured Income Stage, as well as annuitization options. The Annuity is intended for retirement or other long-term investment purposes.
This prospectus describes all material rights and obligations of Annuity purchasers under the Annuity contracts. This prospectus is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client(s) or prospective client(s). The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. Clients seeking information regarding their particular investment needs should contact a Financial Professional. The Annuity is offered as an individual annuity contract and has features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the Annuity. The Annuity or certain of its Index Strategies, Variable Investment Subaccount and/or benefits and features may not be available in all states.
Financial Professionals may be compensated for the sale of the B Series. Selling broker-dealer firms may not make available or may not recommend the B Series of the Annuity and/or benefits described in this prospectus. Please speak to your Financial Professional for further details.
We hold the assets for each Index Strategy in a non-insulated, non-unitized separate account we have established to support our obligations with respect to the Index Strategies.
During the Savings Stage, the Index Strategies currently available are listed below. During the Income Stage, only the 1-year Point-to-Point with Cap Index Strategies are available.
Point-to-Point with Cap Index Strategy Step Rate Plus Index Strategy Tiered Participation Rate Inde