1992 0428 / 0505 - GOV (Senate) - Insurance Guaranty Funds and the Involuntary Transfer of Insurance Policies

    • [Both Dates PDF-629p-GooglePlay, 0428-VIDEO-? / 0505-VIDEO-CSPAN-Insurance Policy Transfers]->Not on govinfo.gov 
    • Senate - Committee on the Judiciary - Subcommittee on Antitrust, Monopolies and Business Rights
    • 0428 -
      • Panel 1 -
        • Richard L. Fogel (GAO - General Accounting Office);  Bert J. McKasy, (Insurance Commissioner, Minnesota)
      • Panel 2 - Marty Leary (Southern Finance Project)
      • Panel - Jack H. Blaine (NOLGHA),  Dan Mica (ACLI)
      • Panel 1 - James McNeill (Insurance Agent),  Terry Tiede (Assistant Commissioner of Insurance, Kansas), Howard R. Fricke (president and chief executive officer, Security Benefit Life Insurance Co)
      • Panel 2 - Joseph Belth (Professor),  David H. Rogers (Chief Deputy for the State of Washington)
  • First Pyramid
  • Security Benefit Life (SBL) (Mutual Life Insurance Company)
    • Value Builder Annuities
  • Diamond Benefits Life Insurance Company/Life Assurance Company of Pennsylvania (LACOP)
  • NOLGHA 
  • 18:55-30:20 - James McNeill - Life Insurance Agent
  • 30:20- - 
  • 37:00 - Terry Tiede - Kansas Insurance Commission
  • (p392) - 59:12-1:05 - Senator Orrin HATCH (R-UT). Let me ask you this, Mr. Tiede.  Why is State contract law an insufficient remedy in this instance, or is it?
  • Terry Tiede, Assistant Commissioner of Insurance, Kansas - I don't know. I am not an attorney.
  • Senator HATCH - You are not a lawyer.  Mr. Fricke?
  • Howard R. FRICKE, Security Benefit Life Insurance Co. - I think the State contract law is adequate. I mean, it seems to be.
  • Senator HATCH. I do, too. To me, I think there is plenty of recourse under the law to resolve any of these problems so the contract holders or the insureds don't suffer.
  • ...
  • Senator HATCH. And my point is I have a contractual right to sue and I have a contractual right to get a remedy in court. I have a contractual right to right this wrong. I have a contractual right to stand up for my rights.
  • Mr. FRICKE. Absolutely.
  • Senator HATCH. That is all I am saying. It is no different than if you don't allow any transfer of annuity obligation. I have a contractual right, probably, under certain circumstances against everybody in that chain.
  • Senator METZENBAUM (D-OH) - If you can afford the legal fees and you are a small policyholder.
  • Senator HATCH. That is no different from if the issuing company
    breaches its contract anyway. I mean, you are still in the same position.

    • In other words, it is nice to come up with these unique theories of law, but it is also nice to recognize there is plenty of remedy within the current law to solve these problems.
    • Why do we want to prohibit what are legitimate contractual approaches that might benefit everybody concerned, and might not, too?
    • But then, again, we have contractual law to take care of it.
    • Why do we want to limit that right because we, in our almighty wisdom here in Washington, think that contractual law that has worked for two centuries now really isn't going to work anymore?
    • [More]
  • 1:05 - James McNeill
  • 1:41:00 - SECOND PANEL
    • 1:41:40-1:48:45 - Joseph Belth
    • 1:48:45-1:55:00  - David H. Rodgers, Chief Ceputy Insurance Commissioner - Washington
    • 1:55:00-1:57:00 - Metzenbaum - ACLI Press Release
  • Metzenbaum Opening Statement
  • -41:05 - Terry Tiede - Assistant Commissioner of Insurance, State of Kansas
  • (p387) - 41:10--48:30 - James McNeill, Life Insurance Agent / Policyowner/ SBL (Security Benefit Life)
    • (p387) - Senator Howard METZENBAUM (D-OH) - Did Security Benefit ever inform you that it was considering the transfer before it occurred?
    • James McNeill, Insurance Agent - No, sir.
    • Senator Howard METZENBAUM. And in your answers when you are saying no, is that generally applicable to your clients as well as to yourself?
    • (p387) - James McNeill, Insurance Agent - To my knowledge, it is always applicable.
      • The insurance companies really try to hide the fact that they are negotiating a transfer for fear, I suppose, that it might alarm policyowners and they would start lapsing their policies and create a run on the bank, so to speak. 
      • So they always, to my knowledge, do this in secret...
  • (p389) - 48:30-53:30 - Strom Thurmond
    • Senator THURMOND: Mr. Fricke, why did Security Benefit assume and then transfer the ValuBuilder annuities so quickly? As I understand the facts, Security Benefit assumed the annuities from First Pyramid in June 1986 and then transferred them to Life Assurance Co. of Pennsylvania in March 1987, only 9 months later.
    • Senator THURMOND. Mr. Tiede, in reviewing the facts of the Security Benefit transfer, I notice that the policies had been transferred three times in approximately 2 years. In your experience, how usual is it for the same policies to be transferred so frequently? In other words, what is the magnitude of the problem we are talking about today?
    • Policyholders notification / consent for policyholders
      • NAIC creating new regulations
  • 53:30-59:00 - Paul Simon (D-IL)
    • Review of Metzenbaums Bill
    • Metzenbaum - Notifications / Consent to Policyholders
    • 57:30 - Metzenbaum - Do you think those were for the Benefit of the Policyholders? Tiede
  •  59:10- - Orrin Hatch (R-Utah)
    • Why is State Contract Law an insufficient remedy? or is it?
      • Tiede - I don't know. I'm not a lawyer
      • Fr - 
    • 1:01-1:05 - Metzenbaum - Example.
      • Hatch - "I have a contractual right."
      • Metzenbaum - if you can afford it
      • Metzenbaum - How would you like it if a bank transferred your money
      • Hatch - I can sue them if I don't like it. Plenty of recourse under state law. I'm interested. Not sure if your legislation helps at all.
    • 1:05- - Metzenbaum
      • McNeill  - 3 transfers. Pyramid to SBL to LACOP / Diamond Benefits
      • Ratings influence on Agents / Policyholders
      • Surrender Charges / New Commissions
      • Read Letter to Arkansas Insurance Commissioner - Questionable Reserves - re: sale to American Standard (90m vs 75m)
    • 1:13:30 - Metzenbaum - Fricke
      • 1:20 - Fricke - LACOP - Good Company
      • memo from Archie to Dale
      • knowledge of problems at LACOP, paid their policyholders 
      • We did a lot of things...or at least the file would indicate that we did
      • why isn't LACOP paying their policyholders
      • Mr. FRICKE. In hindsight, certainly, sir. I mean, I think it would have avoided the looting of Diamond Benefits, the transferring of our money, maybe even the insolvency of LACOP. But, also, sir, that wasn't the common practice and hasn't been the common practice for a long, long time in the industry.
        Senator METZENBAUM. That doesn't make it right, does it?
        Mr. FRICKE. No, it doesn't.
        Senator METZENBAUM. That is the main reason for this hearing.
      • Metzembaum:  ...it has been suggested that the NAIC has a proposal, we will be prepared to discuss that at a later point because it is our view that that proposal does not indeed protect the annuitants or the policyholders.
    • 1:35- - Metzenbaum to Tiede
      • What do the Regulators do for a reinsurance transaction? 10
  • 1:30 (p414) - Senator Howard METZENBAUM (D-OH). I just want to get this understanding as to where insurance commissioners think that they have the right to permit some policyholder or many policyholders to have a contract made with company A to be transferred to company B without their notice, without their consent, and without any real concern as to whether the transferee is financially stable.
    • Where do you get the right? It just shocks my conscience.
    • Senator Hatch says let them go sue.
      • Wonderful; what a fantastic opportunity that all the policyholders in the country have to go into court in order to protect themselves.
    • You people supposedly are protecting the interests of the policyholders, and you have just said to me you wouldn't do anything about it unless all of the policies were transferred, and then you would only conduct a hearing, and I gather that the policyholders themselves  would not be notified to be present at that hearing.
      • I don't understand you.
      • I don't understand the commissioners.
      • I don't understand to whom you owe it a responsibility.
      • Do you owe it to the insurance industry or do you owe it to the policyholders?
      • If you owe it to the policyholders, how can you permit this to happen?
  • 1:42:00-1:49:00 - Joseph Belth - Statement
  • 1:49:00-1:55:00 - David H. Rogers (Chief Deputy for the State of Washington )
  • 1) Computers 2) High Interest Rate
  • Universal Life, Variable Assumptions,
  • 1:55:00-1:57:10 - Metzenbaum / ACLI
  • 1:57:10- - Metzenbaum / Belth
    • NAIC, Consent, pay a premium then policyholder consents, "Hazardous Financial 
    • Metzenbaum: I will say absurd
    • Belth:  "Informed Consumer"
  • 2:06:00-2:09:30 - Belth - Aetna to Mutual of Omaha Assumption Reinsurance Transaction, NAIC Working Group
  • 2:09:30 - Rodgers - Contract Law
  • 2:11:45 - re: Fogel (OCC) - Guaranty Association , people may not be protected. Washington Regulation, NAIC Model Act: implied vs affirmative consent.

1:55:00-1:57:10 - Metzenbaum / ACLI

Senator METZENBAUM.

  • Thank you very much, Mr. Rodgers, and I am frank to say to you that you are like a breath of fresh air.
    • I do have some questions, but it seems to me that in the State of Washington there indeed is an effort being made to protect the policyholders.
  • I must say parenthetically at this point that it is my understanding that there is being distributed at the press table to anyone else who wants it a statement from the American Council of Life Insurance, which is indeed disappointing.
    • Long before I started any of these hearings in connection with the subject of insurance, I indicated to the American Council of Life Insurance and all others in the insurance industry that we were prepared to cooperate with them in order to try to protect the public and to protect the industry and to make this a positive way of making the insurance industry live up to its reputation and do the kinds of things that it can and should do.
  • The life insurance industry is a responsible industry.
    • It is a reputable industry, but it has permitted itself to get into some bad habits.
    • Now, I am disappointed to read in this press release the absurd statement that insurers also believe that written, signed consent is not required for liabilities to transfer completely from the ceding insurer to the assuming carrier. Regulators generally agree.
    • Well, if regulators generally agree, then they ought to quit regulating because they are not protecting the public.
    • Even Mr. Fricke, who was here, indicated a need to provide protection.
  • But the American Council of Life Insurance thinks that they are so high and mighty that they don't need to worry.
  • They have got Congress in their pocket.
  • Their PAC funds have been taking care of the Members of Congress and the Senate.
  • Well, let me say to them, you may be right. You may have us in your pockets, but you don't have all of us in your pockets.
  • But you have a greater responsibility than just the question of whether or not you can keep legislation from being enacted.
    • You have a responsibility to the people of this country.
    • You are the most powerful economic interest in this entire Nation and it is time that you shape up and meet your responsibilities to the public.
    • You are not doing it, and this statement today is extremely disturbing and disappointing as well.
  • (p379) - Terry Tiede, Kansas, Assistant Commissioner of Insurance, State of Kansas
    • In any event, it is my understanding that, historically, in most transactions where assumption reinsurance was utilized, the effect of the transaction was beneficial to all parties involved, including the policyholders.
    • The Kansas Insurance Department is very much aware of and very disappointed with the length of time the ValuBuilder policyholders have had to endure not having access to or not knowing if they would ever see the values they had accumulated in their policies, and we are extremely interested in finding a solution so other policyholders can avoid similar situations.
  • (p528-529) - Senator Howard METZENBAUM (D-OH) - The NAIC proposal also requires that policyholders be given the names, addresses, and phone numbers of the company that will be assuming the business.
    • We have heard testimony here about the financial health of LACOP when Security Benefit transferred to them.
    • Do you think that giving policyholders phone numbers and addresses of the insurers gives them enough tools to make a knowledgeable decision about a transfer? 
  • Joeseph BELTH (Professor, Indiana University) Hardly.
  • Senator METZENBAUM. You pick up the phone and you call.
    • Mr. Company, are you in sound financial condition?
      • You get some secretary who answers the phone.
    • Do you think that really gives them much protection?
  • Mr. BELTH. No, no, sir.
  • Senator METZENBAUM. It is rather absurd, isn't it?
  • Mr. Belth. I was going to say absurd , but I would rather just say no.
  • Senator METZENBAUM. I will say absurd.