Inter-Affiliate Transactions

  • 2003 – Case Study of the dangers of Inter-Affiliate Transactions: Monarch Life Insurance Company, by Shauna Ferris – 
    • Ferris, S., 2003, Understanding Actuarial Management. Bellis, C., Shepherd, J. & Lyon, R. (eds.). p. 1-3 3 p.

Genetic Testing

  • FROM THE FLOOR: I, for one, am willing to question that broad consensus.
    • Mr. Jermyn, you mentioned the prospect of genetic testing, which theoretically could classify a great number of people or at least certainly a fair number of people who are currently substandard as uninsurable.
    • How do you reconcile that with the actuarial standardof practice on risk classification which holds, as one of its tenets, that we are to encourage the availability of coverage?
  • MR. JERMYN: What I was intending to say about genetic testing was that assuming that it became accepted within society and then permeated the insurance industry, we would face significant risk-classification issues and questions, not the least of which would be what to do about the actuarial standards as they currently exist.
    • I wasn’t necessarily saying that we would or should be automatically utilizing genetic testing.
    • I think you have a good question and a good issue. That was what I was trying to communicate.
  • MR. DESROCHERS: Certainly the process of insurance involves some pooling, and if we get to the point where we can no longer pool risks, then you have to raise some very fundamental questions as to whether insurance has any applicability at all.
    • If we could tell, for example, exactly when everyone would die, clearly there would be no life insurance industry at all.

1992 – SOA – Strategic Product Development, Society of Actuaries – 36p

 

Culture

  • Chairman Paul KANJORSKI. (D-PA) – Do you think it is not working smoothly because of avarice, or a thoughtful intent to deny paying customers, or attempting to target and only make special monies in special areas?
  • Mr. HUNTER. I think it is-
  • Chairman KANJORSKI. From the areas that Mr. Eiland is talking about?
  • Mr. HUNTER. I think it is a fundamental change in corporate culture over decades, to the point now where, for example, McKinsey could come in to Allstate and say, we want to turn your claims operation into a profit center, and here is how you can basically cheat your customers.
    • And Allstate didn’t kick them out.
    • When I was a young man in the insurance industry, I think we would have called the cops if somebody came in and made such a proposal, and now probably 17 of the top 20 insurers are using that methodology.
  • Chairman KANJORSKI. Mr. Gilliam, do you agree with Mr. Hunter that the standards for the insurance industry have materially changed as a result of culture?
    • Or do you think it is getting better?
  • Mr. GILLIAM. I am not quite sure how to answer that because Mr. Hunter and I don’t agree on very many things.
  • Mr. HUNTER. I didn’t think you would.

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform – [PDF-180p,

  • Hunter, J. Robert, Director of Insurance, Consumer Federation of America
  • Gilliam, Scott, Assistant Vice President and Government Relations Officer, The Cincinnati Insurance Companies

Life Insurance Company Yield

  • 1937 – AP – Analysis of the Yield of the Investments of a Selected Group of Legal Reserve Life Insurance Companies: 1929-1936 – Thesis, Atlanta University – 55p
    • (p14) – The extremely low yield on the real estate shows that most of it could not be disposed of at book value.
      • The mortgage market is also very stagnant1. 
    • Life insurance companies are not called on to liquidate all of their investments in the regular course of business.
      • It is for that reason that investments in mortgages are considered good for this class of companies.
      • However insurance companies have desired greater liquidity in recent years and there has been a flight from mortgages to stocks and bonds.
    •  <Mortgage vs Stocks and Bonds – 1860, 1926, 1935>
    • Policy Loans
    • (p25) – The majority of the companies do
      not need to keep much cash on hand because even when in an insolvent
      state they are usually able to meet their claims with premiums that are collected and interest on investments. 1
      • 1 Alfred M. Best, op. cit., 1936, Introduction, p. xviii.

Write-Downs

  • 1994 – FRB – Announcements of asset-quality problems and contagion effects in the life insurance industry, by George W. Fenn and Rebel A. Cole, First version August 1992, final version October 1993, Federal Reserve Board – 29p
  • AIG Securities Lending / Life Insurance – 50-55 Billion
    • mp3 interview – Dixie / 
  • [Contagion / Writedowns] – (p139) – 677 One analysis of the contagion effects on other insurers of announcements by First Executive in January 1990 of a write-down in its bond portfolio, and by Travelers in October 1990 of losses on its CRE portfolio, concluded that “the primary significance of the write-down announcements to the market was their anticipated effect on policyholders’ behavior [at other insurers].”
    • George Fenn and Rebel Cole, “Announcements of Asset-Quality Problems and Contagion Effects in the Life Insurance Industry,” Journal of Financial Economics volume 35, issue 2 (1994).  

Documents 85-2 and 85-3 – 2015 0930 – MetLife v. FSOC – 15-CV-45 – Documents 85-2 and 85-3 – 387p

  • “American International Group Inc plans to absorb losses for a dozen insurance units after their securities lending accounts suffered $13 billion of write downs tied to the subprime mortgage collapse during the past year.
    • The world’s largest insurer will absorb as much as US$5 billion of any losses on sales of investments, up from a previous commitment of US $500 million, said Christopher Swift, vice-president for life and retirement services.
    • AIG will also inject an undisclosed amount of capital into some of the subsidiaries, he said.
  • ⊗ Moody’s Investors Services and AM Best Co. both cited the write downs in May when they downgraded New York based AIG’s credit ratings.
  • State regulators in Texas said they didn’t know AIG was investing cash collateral from the securities lending business in subprime-linked assets and were concerned the insurance units hadn’t put aside enough capital to cover potential losses.

2008 0627 – Bloomberg – AIG to Absorb $5 Billion Loss on Securities Lending: Insurance Units Wrote Down $13B Tied To Mortgages, by Miles Weiss  —  [BonkNote]

Modco – Modified Coinsurance

  • What happened under TEFRA? Several things: 
    • We lost MODCO 820 forever.
    • We had a deceptively modest reduction in 818(c)2.
    • A lot of the teeth were taken out of reinsurance as a tax planning tool.
    • Universal Life was given legitimacy through 101(f).
  • In terms of Anderson’s Taxation Horseman, it is now clearly possible for the industry to provide a competitive rate of interest return to policyholders–at least on new money products. 
  • The matter of the existing portfolio of assets is another question, but at least on new money products, the industry is in the position of being able to offer competitive products.
  • In addition, the 818(c)2 adjustment is available for the first time to many companies.

—  William R. Britton, Jr., Vice President and Principal of the Tillinghast firm

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p

  • At least one interpretation within the California Department is that many modco type treaties do not appropriately transfer liability to the reinsurer. Would you agree with either of the following analyses?
    • Company and Reinsurer enter a co/modco treaty covering a universal life block of business.
    • As experience unfolds the reinsurer receives a risk and profit charge on each settlement due.
      • This is the only cash that ever transfers hands.
      • Company recaptures the business when the coinsurance reserve set up by Reinsurer decreases to zero.
    • ⇒ Does this mean no liability was transferred to the reinsurer?

1992-1A, NAIC Proceedings

  • 1981 – GAO – Billions Of Dollars Are Involved In Taxation Of The Life Insurance Industry — Some Corrections In The Law Are Needed, Government Accountability Office – 242p
    • 1 / For example, “Prudential Insurance Company of America , the nation’s largest insurance company, paid $ 380.2 million in federal income taxes in 1979. Last year, despite the growth of its business, Prudential’s tax bill plummeted to $120 million, less than one-third of the 1979 total . . . The tax magic is accomplished through transactions known as ‘modified coinsurance.’ Richard V. Minck, [an executive of the industry’s chief trade group says he believes that the tax loss to the federal government from [modified coinsurance transactions] runs in the billion or billion-and-a- half range.
      • Daniel Hertzberg, “Life Insurers Cut Federal Income Taxes Using Special Reinsurance Arrangement, “Wall Street Journal, May 20, 1981, p. 14.
      • For a further  discussion of the use of modified coinsurance to reduce Federal income taxes, see Herbert E. Goodfriend, “Odd Men Out,” Barron’s, January 12, 1981, p. 28 .
  • 1982 0414 – GAO – Letter – GAO to Dan Rostenkowski (D-IL), Chairman, Joint Committee on Taxation – re: Modified Coinsurance Used to Reduce Taxes – 9p
  • 1982 0318 – GAO – Statement of Morton A. Myers – Director, Program Analysis Division Before The Senate Committee on Finance on Modified Coinsurance, Government Accountability Office – 13p
    • By entering into modified coinsurance agreements under Section iv, 820 of the Internal Revenue Code, some insurance companies–most notably the very large mutual companies –are able to convert investment income on which they pay taxes into underwriting gains on which they pay little, if any, taxes. This was not the intent of Congress when section 820 was included in the code.
      • It was intended to avoid possible double taxation when these coinsurance arrangements are used.
    • Without a section 820 election double taxation could occur because both the original insurer and the company sharing the risk would be subject to tax on some of the same income.
  • 1959 – GOV – 112 PUBLIC LAW 86-69-JUNE 25, 1959 [73 STAT.https://www.govinfo.gov › STATUTE-73-Pg112
    • a modified coinsurance contract (as defined in subsection (b)) shall be … Be it enacted hy th^e Senate and House of Representatives of the. United States of … – 30 pages

Companies – Index

#

Back to top

Moratorium

  • Moratorium
  • Stay
  • Contractual 
  • State
  • Courts
  • (p16) – Willis B. Howard, Jr., NOLHGA – National Organization of Life and Health Insurance Guaranty Associations:
    • I’d like to respond briefly to my honorable friend, Commissioner Bartlett.
    • Dwight, the guarantee association system works, and it works well.
  • Dwight K. Bartlett III, Maryland Insurance Commissioner:
    • Are you going to tell me, Bill, in all honesty that you really believe that the policyholders of Executive Life and Mutual Benefit Life have been well-served?
    • For example, with Mutual Benefit, if you opted out of that rehabilitation plan you get, as I recall, 55 cents on the dollar of your account value.
      • If you opt into the plan, you agreed to subject yourself to a moratorium period, which means you do not get full access to the cash values of your policy until the next century.
    • Are you going to say that’s meaningful coverage for those policyholders?
    • ⇒  I think that’s ridiculous.

1994 – SOA – Valuation Actuary – Symposium Proceedings – Session 1 – Introduction and Overview, Society of Actuaries – 110p

  • I question the argument that insurance organizations should have weaker bank/thrift holding company protections because their insurance policy holders can’t easily cash out if they make bad investments.

2014 0310 – Letter – Sheila C. Bair to Senator Sherrod Brown (D-OH) – 6p

  • Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection
  • Re: Subcommittee Hearing: “Finding the Right Capital Regulation for Insurers”
  • The very nature of insurance significantly reduces the potential of a run-on-the-bank scenario for property/casualty, health and most life insurance products.
  • For those limited products sold by insurers that could be subject to some level of run risk, mitigating factors exist such as policy loan limitations, surrender/withdrawal penalties, and additional taxes.

—  Kevin M. McCarty – NAIC Testimony – Commissioner, Florida Office of Insurance Regulation and President of the National Association of Insurance Commissioners – 8p

2012 1129 – GOV (House) – Examining the Impact of the Proposed Rules To Implement Basel III Capital Standards – [PDF-439p, VIDEO-?] 

Corporate Governance

  • Under some permanent insurance, contracts being sold today, the chances are you could stop paying after 7, 8, or 9 years and the insurance would remain in force for the rest of your life without further premium payments. (p6069)

— Robert Beck (Prudential CEO)

1985 0719 and 0722 – GOV (House) – Comprehensive Tax Reform: Hearings Before the Committee on Ways and Means, House of Representatives – Part 7

  • 2013 1216 – ThinkAdvisor – Charges of NAIC corporate governance problems erupt, By Elizabeth D. Festa – [link]
    • 2013 1211 – Letter – Tom Leonardi to NAIC etc – 3p
      • “We have met the enemy and he is us!”
        • This famous line from the comic strip Pogo aptly describes the current state of governance at the National Association of Insurance Commissioners.
  • 1998 – SOA – Corporate Governance of Investments: Avoiding the Next Class-Action Suit, Society of Actuaries – 20p
  • 1999 – AP – Coordination of Earnings, Regulatory Capital and Taxes in Private and Public Companies, by Michael B. Mikhail – 54p
    • This paper analyzes how ownership affects managerial coordination of earnings management, capital management, and tax planning in the life insurance industry between 1975 and 1991.
    • I study the life insurance industry because these companies are required to disclose financial results for regulatory purposes, regardless of ownership structure.
    • My sample includes three distinct ownership structures: public and private stock companies and policyholder-controlled mutual companies.1
  • Report of the Governance Subgroup of the Former Special Advisory Committee to the Joint Working Group on Receivership/Guaranty Fund Policy Issues

1993-2, NAIC Proceedings