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Vedder Thinking | Articles SEC Position Allows Insurance Companies to Rely on Prior Mutual Fund Substitution Orders


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On February 23, 2021, the SEC issued a statement taking the position that the substitution by an insurance company of mutual funds used as investment options for variable life insurance policies or variable annuity contracts will not provide a basis for an enforcement action if the insurance company does not obtain a substitution order, so long as the terms and conditions of the proposed substitution are substantially similar to those approved by a prior substitution order obtained by the company since January 1, 2004.

Prior to the SEC’s statement, an insurance company was required to receive a substitution order under Section 26(c) of the Investment Company Act before substituting shares of mutual funds offered as investment options with the company’s variable insurance products, regardless of whether such insurance company had received a similar substitution order in the past.

An insurance company intending to rely on the SEC’s position must disclose the substitution in a prospectus supplement filed with the SEC and submit correspondence accompanying the filing that:

  • indicates that the substitution is of the type discussed in the statement;
  • identifies the prior order with terms and conditions similar to those in the substitution;
  • confirms that the substitution is consistent with the terms and conditions of the identified prior order; and
  • explains why each existing fund and corresponding replacement fund are substantially similar, including a comparison of the investment objectives, strategies and risks of each existing fund and its corresponding replacement fund.

If an insurance company has not obtained a substitution order since January 1, 2004, the insurance company will need to apply for one. An insurance company that has received a substitution order since January 1, 2004 is not required to rely on the SEC’s position and may continue to apply for a new order.

The statement is available here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt