Which description best matches the Direct Method in the context of variable products?

Which description best matches the Direct Method in the context of variable products?

• A. It uses an open-ended investment company created inside the insurer to manage the separate account
• B. It is a method of guaranteeing a minimum return
• C. It is a way to convert to a fixed annuity
• D. It refers to a licensing requirement for sellers

Answer: (A)

Direct Method describes how the separate account’s assets are invested by using an open-ended investment company created inside the insurer. This internal investment vehicle backs the variable subaccounts, keeping assets separate from the insurer’s general account and allowing the insurer to manage the funds directly within its own structure. The result is that the contract values move with the performance of these internal funds, subject to any contract charges. This approach is not about guaranteeing a minimum return, converting to a fixed annuity, or dealing with licensing rules, which is why the description matches the Direct Method best.

Direct Method describes how the separate account’s assets are invested by using an open-ended investment company created inside the insurer. This internal investment vehicle backs the variable subaccounts, keeping assets separate from the insurer’s general account and allowing the insurer to manage the funds directly within its own structure. The result is that the contract values move with the performance of these internal funds, subject to any contract charges. This approach is not about guaranteeing a minimum return, converting to a fixed annuity, or dealing with licensing rules, which is why the description matches the Direct Method best.