| November 15, 1996 |
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Donald J. Toumey, Esq. Dear Mr. Toumey: This is in response to your letter dated September 13, 1996, in which National City Corporation ("National City") and its section 20 subsidiary, NatCity Investments, Inc. ("NatCity"), propose a limited expansion of the products offered through a dual employee arrangement between NatCity and a third party insurance agent ("Agent"). You have asked whether staff would object to this proposal. NatCity currently has a dual employee arrangement and lease agreement with Agent to sell fixed and variable annuities to customers on the premises of NatCity and affiliated banks.1 NatCity proposes to expand this arrangement to allow the dual employees to sell four insurance products on behalf of Agent or another third party insurance agent. You indicate that these products would be single premium variable life, single premium whole life, variable life insurance, and variable universal life insurance. Each of the products would have both an investment component as well as a death benefit. The sale of these four new products would be conducted in the same manner as sales of annuities under NatCity's current dual employee arrangement. The dual employees would be licensed in the appropriate states as insurance agents of Agent, and would sell annuities and insurance products only on behalf of Agent. The dual employees also would be registered with the SEC and the NASD as registered representatives of both NatCity and Agent. The lease between NatCity and Agent would be entered into on an arm's length basis on terms at least as favorable as those prevailing for comparable transactions with or involving other nonaffiliated companies. Agent, or another third party insurance agent, would be responsible for assuring that the dual employees are properly licensed to engage in insurance sales activities. Agent would also provide initial and ongoing training and supervision to the dual employees in connection with these insurance sales activities. Agent would enter into separate agreements directly with the dual employees that would cover the employees' obligations to Agent and the compensation to be paid to the employees for sales of insurance products, and Agent would pay compensation for the sales of insurance products directly to the dual employees. NatCity and its affiliates would be held harmless for the activities of the dual employees when they are under the control and supervision of Agent or another third party insurance agent. The dual employees would follow the guidelines set forth in the Interagency Statement of Retail Sales of Nondeposit Investment Products. The employees would use disclosures, business cards, marketing information, and application and acknowledgment forms to distinguish sales of securities from sales of annuities or insurance products. These disclosures include the fact that the insurance products are not products of NatCity and that the Agent selling the insurance products is a separate and distinct corporate entity and that the insurance products are not insured by the FDIC, and are not deposits of or other obligations of affiliated banks or guaranteed by affiliated banks. Under the framework established by the NatCity Letters, and based on all the facts of record, staff will not recommend that the Board take action if National City proceeds with this proposal. This decision is limited to the specific facts as you have presented them to Board staff, in particular the fact that the proposal involves financial activities, and that NatCity would conduct the sales of the insurance products in accordance with representations outlined in the NatCity Letters. In that regard, NatCity will take steps to reinforce the employee relationship with the third party insurance agent and to address the potential for customer confusion about NatCity's role. Any change in circumstances or any evidence that the sale of annuities or insurance products are in fact being conducted by National City or a nonbank subsidiary may result in a different opinion. If in the future, the terms of the lease between NatCity and the third party insurance agent indicate that NatCity is engaged in the sale of annuities or insurance products for purposes of the Bank Holding Company Act, the Federal Reserve System may require termination of the proposed arrangement to ensure compliance with, and to prevent evasion of, the provisions of the Act. Accordingly, you should notify staff promptly if any facts presented by you should change. Except as modified by this letter, all other aspects of the NatCity Letters shall remain in effect.
Sincerely,
(signed) J. Virgil Mattingly
J. Virgil Mattingly
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