SEC Division of Investment Management staff letter: TACT Asset Management Inc.

Investment Advisers Act of 1940 — Section 203(a) TACT Asset Management Inc.

October 24, 2012

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 201210171155

Your letter dated October 23, 2012 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the “Commission”) under Section 203(a) of the Investment Advisers Act of 1940 (the “Advisers Act”) against TACT Asset Management Inc. (“TACT”) if TACT does not register with the Commission as an investment adviser under the Advisers Act.

Facts

You state the following: TACT is a corporation organized under the laws of the State of Delaware that has its only place of business located in the state of New York. Nipponkoa Insurance Co., Ltd. (“Nipponkoa”) is an insurance company organized under the laws of Japan. Nipponkoa is licensed in Japan to conduct its insurance business and is regulated by the Financial Services Agency of Japan, the Japanese insurance regulator. Nipponkoa satisfies the requirements to be a “foreign insurance company” as defined in Rule 3a-6 under the Investment Company Act of 1940 (the “1940 Act”). 1 TACT provides investment advice for, and assists with the management of, the portion of Nipponkoa’s general proprietary account invested in United States securities. TACT has no clients other than Nipponkoa.

Legal Analysis

Section 203(a) of the Advisers Act states, in relevant part that, except as provided in Section 203(b), it shall be unlawful for any investment adviser, unless registered under this Section, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser. Section 203(b)(2) of the Advisers Act provides that Section 203(a) does not apply to an investment adviser whose only clients are insurance companies. “Insurance company” is defined in Section 202(a)(12) of the Advisers Act as having the same meaning as in the 1940 Act.

The reference in Section 202(a)(12) of the Advisers Act to the “meaning” of insurance company under the 1940 Act is not clear. Section 202(a)(12) could be interpreted to refer to the definition of “insurance company” in Section 2(a)(17) of the 1940 Act, which clearly includes only U.S. insurance companies. 2 The Commission, however, adopted Rule 3a-6 in 1991 which “adopt[s] the general approach [for foreign insurance companies] that the [1940] Act takes with regard to United States … insurance companies” and “effectively removes foreign … insurance companies from the scope of the [1940] Act.” 3 Accordingly, Section 202(a)(12) of the Advisers Act also could be interpreted to include both insurance companies that meet the definition under Section 2(a)(17) of the 1940 Act, as well as those that qualify under Rule 3a-6 under the 1940 Act. 4

You argue that investment advisers whose only clients are insurance companies, whether those clients are domestic insurance companies, foreign insurance companies that meet the requirements of Rule 3a-6 or a mixture of such insurance companies, should not be required to register with the Commission in reliance on Section 203(b)(2) of the Advisers Act. In particular, you assert that the adviser’s role is the same whether they are advising domestic or foreign insurance companies. You argue that, in both cases, the adviser provides investment advice solely to companies engaged primarily in the business of writing insurance and reinsurance and that are regulated by their local insurance regulators. Moreover, you argue that foreign insurance companies that can rely on Rule 3a-6 are no more in need of the protections of the Advisers Act if they retain an adviser than domestic insurance companies. Indeed, you argue that the Commission has a greater interest in protecting domestic insurance companies and their customers and investors than protecting foreign insurance companies and their customers and investors.

Conclusion

Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission against TACT under Section 203(a) of the Advisers Act if TACT does not register as an investment adviser under the Advisers Act. This response expresses our view on enforcement action only and does not express any legal or interpretive position on the issues presented. 5 Because our position is based upon all of the facts and representations, any different facts or representations may require a different conclusion.

Michael S. Didiuk Senior Counsel

“Foreign insurance company” under Rule 3a-6 under the 1940 Act means “an insurance company incorporated or organized under the laws of a country other than the United States, or a political subdivision of a country other than the United States, that is:

(i) Regulated as such by that country’s or subdivision’s government or any agency thereof;

(ii) Engaged primarily and predominantly in:

(A) The writing of insurance agreements of the type specified in section 3(a)(8) of the Securities Act of 1933, except for the substitution of supervision by foreign government insurance regulators for the regulators referred to in that section; or

(B) The reinsurance of risks on such agreements underwritten by insurance companies; and

(iii) Not operated for the purpose of evading the provisions of the Act. Nothing in this rule shall be construed to include within the definition of ‘foreign insurance company’ a separate account or other pool of assets organized in the form of a trust or otherwise in which interests are separately offered.”

Section 2(a)(17) provides that “insurance company” means “a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State; or any receiver or similar official or any liquidating agent for such company, in his capacity as such.”

See Exception From the Definition of Investment Company for Foreign Banks and Foreign Insurance Companies, Investment Company Act Release No. 18381 (Nov. 4, 1991) (“Adopting Release”). Rule 3a-6 generally provides that, notwithstanding Section 3(a)(1)(A) or 3(a)(1)(C) of the 1940 Act, a foreign insurance company shall not be considered an investment company for purposes of the 1940 Act.

But

see Adopting Release at n.9.

You do not request guidance, and we take no position, regarding the meaning of “insurance company” under the Advisers Act for any other purposes ( e.g. , the definition of “dealer” under Section 202(a)(7) of the Adviser Act).

Incoming Letter

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/investment/noaction/2012/tact-asset-management-203a.htm

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SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE F"'IRM/AF'F'ILIATE OF'F'ICES NEW YORK 10036-6522 BOSTON CHICAGO HOUSTON TEL: (212) 735-3000 LOS ANGELES FAX: {212) 735-2000 PALO ALTO SAN FRANCISCO www.skadden.com WASHINGTON, C.C. WILMINGTON DIRECT DIAL BEIJING 2 I 2-735-3406 BRUSSELS DIRECT FAX FRANKFURT 9 I 7-777-3406 HONG KONG EMAIL ADDRESS LONDON MICHAEL.HOFFMAN@SKADDEN.COM MOSCOW

MUNICH

PARIS

SAO PAULO

SHANGHAI

SINGAPORE
October 23, 2012 SYDNEY

TOKYO

TORONTO

VIENNA

Mr. Michael Didiuk
United States Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 RE: Registration Requirements under the Investment Advisers Act of 1940 Dear Mr. Didiuk:
We are writing on behalf of TACT Asset Management Inc. ("TACT"),

a Delaware corporation that has its only place of business located in the State ofNew

York. We respectfully request that the staff ofthe Division ofInvestment

Management (the "Staff') not recommend enforcement action to the U.S. Securities

and Exchange Commission (the "Commission") ifTACT does not register with the

Commission as an investment adviser under Section 203(a) ofthe United States

Investment Advisers Act of 1940, 15 USC §§ 80b-1 - 80b-18c (the "Advisers Act").

We believe TACT is excepted from the Section 203(a) registration requirement

pursuant to the exemption provided in Section 203(b)(2) ofthe Advisers Act for any

investment adviser whose only clients are insurance companies.

TACT is a wholly-owned subsidiary of Sompo Japan Nipponkoa

Asset Management Co., Ltd. ("SJNAM"), a Japanese investment adviser. SJNAM

does not provide investment advice to any United States clients and is not registered

as an investment adviser under the Advisers Act. SJNAM is regulated as an

investment adviser by the Financial Service Agency, the Japanese regulatory

authority for investment advisers, under Japan's Financial Instrument and Exchange

Act.

Mr. Michael Didiuk
October 23, 2012
SJNAM has entered into a discretionary investment agreement with Nipponkoa Insurance Co., Ltd. ("Nipponkoa"), an insurance company organized under the laws ofJapan. Nipponkoa is primarily engaged in the business of writing insurance policies, mainly in the fields of fire insurance, marine insurance and automobile insurance, and also operates in the reinsurance business. Nipponkoa is licensed in Japan to conduct its insurance business and is regulated by the Financial Services Agency ofJapan, the Japanese insurance regulator. Nipponkoa satisfies the requirements to be a "foreign insurance company" as defined in Rule 3a-6 under the United States Investment Company Act of 1940, 17 C.F .R. § 270.3a-6 (20 11) (the "Investment Company Act"). TACT is party to an investment advisory agreement with SJNAM, pursuant to which TACT provides investment advice for, and assists with, through SJNAM, the management ofthe portion ofNipponkoa's general proprietary account invested in United States securities. TACT has no clients other than Nipponkoa. One ofthe exemptions from the registration requirements under the Advisers Act is the exemption set forth in Section 203(b)(2) ofthe Advisers Act for advisers whose only clients are insurance companies. The Advisers Act provides that the term "insurance company" has the same meanings as defined in the Investment Company Act. "Insurance company" is defined in the Investment Company Act to mean "a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring ofrisks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State" (emphasis added). 1 As a foreign country is not a "State" as defined in the Investment Company Act, an insurance company domiciled in a foreign country and subject to supervision by an agency ofthe foreign country does not directly meet the definition of "insurance company" under the Investment Company Act or, indirectly, the Advisers Act. This oversight generally was rectified by the Commission when it adopted Rule 3a-6 to exempt bona fide foreign insurance companies from the definition of "investment company" under the Investment Company Act? 1 15 U.S.C. § 80a-2(a)(l7). 2 In order to be an exempt foreign insurance company under the 1940 Act, a foreign insurance company must (i) be incorporated or organized under the law of a country other than the United States, (ii) be regulated as an insurance company by that country's government or any agency

Mr. Michael Didiuk
October 23, 2012
When the Commission adopted Rule 3a-6, however, it did not amend the definition of "insurance company" set forth in Section 2(a)(17) of the Investment Company Act, which would have afforded foreign insurance companies the same status as domestic companies for all purposes under the Investment Company Act and, presumably, the Advisers Act. Instead, the Commission stated that the determination of whether a foreign insurance company could be allowed to fulfill the roles assigned to domestic insurance companies would depend upon the "particular role involved." 3 Investment advisers whose only clients are insurance companies, whether foreign or domestic, should not be required to register or be regulated under the Advisers Act, because the adviser's role is the same whether they are advising domestic or foreign insurance companies. In both cases, the adviser provides investment advice solely to companies engaged primarily in the business of writing insurance and reinsurance and that are regulated by their local insurance regulators. Accordingly, foreign insurance companies that meet the requirements of Rule 3a-6 are no more in need of the protections ofthe Advisers Act if they hire a United States investment adviser than domestic insurance companies need such protections, just as the Commission determined that investors in foreign insurance companies that meet the requirements of Rule 3a-6 do not need the protections ofthe Investment Company Act any more than investors in domestic insurance companies. Furthermore, the decision by the Commission to adopt Rule 3a-6 presumably was made in part because a United States regulator such as the Commission has a greater interest in protecting domestic insurance companies and their customers and investors than protecting foreign insurance companies and their customers and investors. If Congress determined that regulatory protections were not necessary under the Investment Company Act and Advisers Act for domestic insurance companies that hire United States investment advisers, then the Commission need not expend its finite resources regulating United States investment advisers whose only clients are bona fide foreign insurance companies. In light ofthe foregoing, United States investment advisers whose only clients are insurance companies, whether those clients are domestic insurance thereof, (iii) be engaged primarily and predominantly in either of(a) the writing of insurance agreements or (b) the reinsurance of risks on such agreements underwritten by insurance companies, and (iv) not be operated for the purpose of evading the provision of the 1940 Act. 17 C.F.R. § 270.3a-6. 3 See Exception From the Definition oflnvestment for Foreign Insurance Companies, Securities Act Release No. 6921, Investment Company Act No. 18381, 1991 WL 355055 (Oct. 28, 1991), at *3 n.9.

Mr. Michael Didiuk
October 23, 2012 companies, foreign insurance companies that meet the requirements of Rule 3a-6 or a mixture of such insurance companies, should not be required to register with the Commission in reliance on Section 203(b)(2) ofthe Advisers Act. Such equal treatment of foreign and domestic insurance companies also would further the Commission's stated intent in adopting Rule 3a-6 "to place foreign banks and insurance companies selling their securities in the United States on a more equal footing with domestic banks and insurance companies in furtherance of the policies of national treatment and open United States financial markets. " On behalf of TACT, we hereby request that the Staff confirm that it will not recommend enforcement action to the Commission if TACT does not register with the Commission as an investment adviser under Section 203(a) of the Advisers Act in reliance on the exemption provided in Section 203(b )(2). v?;? Michael Hoffman Exception from the Definition oflnvestment for Foreign Insurance Companies, 1991 WL 355055, at *1.