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Life Insurance Products Coupled with Annuities – NAIC

  • Our Lexington report alluded to the controversial issue of nonguaranteed policy element illustrations.
  • Currently, the issue is being addressed by four different groups:
    1. this task force;
    2. the Life Insurance (A) Committee’s Cost Disclosure Task Force;
    3. the American Academy of Actuaries Task Force on Nonguaranteed Elements; and
    4. the American Council of Life Insurance’s Subcommittee on Cost Comparisons.
  • For this reason, subsection 14(b) should await the consensus of opinion on this issue at the December meeting.  (p137)

—  Report of the Market Conduct and Consumer Affairs (EX3) Advisory Committee- JUNE 22, 1987

  • ⇒  Rules Governing the Advertising of Life Insurance
  • ⇒  Life Insurance Products Coupled with Annuities

1987-2, NAIC Proc.

Rules Governing the Advertising of Life Insurance - NAIC

  • Rules Governing the Advertising of Life Insurance - NAIC  ---  [BonkNote]
  • Our Lexington report alluded to the controversial issue of nonguaranteed policy element illustrations.
  • Currently, the issue is being addressed by four different groups:
    1. this task force;
    2. the Life Insurance (A) Committee's Cost Disclosure Task Force;
    3. the American Academy of Actuaries Task Force on Nonguaranteed Elements; and
    4. the American Council of Life Insurance's Subcommittee on Cost Comparisons.
  • For this reason, subsection 14(b) should await the consensus of opinion on this issue at the December meeting.  (p137)

--  Report of the Market Conduct and Consumer Affairs (EX3) Advisory Committee - JUNE 22, 1987

  • ⇒  Rules Governing the Advertising of Life Insurance
  • ⇒  Life Insurance Products Coupled with Annuities

1987-2, NAIC Proc.

  • 1991-1A, NAIC Proceedings - p541
  • 6. Adopt Resolution Regarding Rules Governing the Advertising of Life Insurance
    • Commissioner Lyons discussed the purpose of the Rules Governing the Advertising of Life Insurance, which is to set forth minimum standards and guidelines to assure full and truthful disclosure to the public of all material and relevant information in the advertising of life insurance policies and annuity contracts.
    • He asked that this committee recommend for adoption this resolution which encourages those states which have not adopted this Rule to do so and encourages those states which have adopted the Rule to adopt the subsequent amendments and enforce the provisions of the Rule.
    • Upon motion duly made and seconded, the resolution was adopted for presentation to the Executive Committee (Attachment Seven).

LIBG - Life Insurance Buyer's Guide - Index

IULSG – IUL Illustration Subgroup – (A) – NAIC – Documents

2014

  • 2014 – NAIC Proceedings – Fall 2014, 6-62
    • Mr. Birdsall shared the results of the Kansas Insurance Department survey (Attachment Twenty-Five) on IUL policies. <WishList>

2019

  • 2019 0310 – Letter – AXA Equitable (Brian R. Lessing) to IULISG – Indexed Universal Life Illustrations Subgroup (Fred Andersen – Chair) – 2019-3, NAIC Proceedings

2020

  • 2020 0522 – Letter – Valmark to NAIC (IULSG) – RE: AG49 Independent Proposal Request for Adoption – 3p–

2022

  • https://content.naic.org/sites/default/files/inline-files/IUL%20Coaliiton%20Comment%20Ltr%20022120.pdf – <Bad Link?
  • 2022 0726 – to NAIC (IULSG) –  – https://content.naic.org/sites/default/files/inline-files/W-S%20Comment%20Letter%20-%20AG49-A%20Options.pdf – <Bad Link>
  • 2022 0726 – AAA to NAIC (IULSG) – Re: Exposure (July 18, 2022), American Academy of Actuaries – 2p
  • 2022 0906 – ACLI to NAIC (IULSG) – Re: Exposed IUL Questions – 1p
    • With regard to the proposal “to address any broader issues with life illustrations,” ACLI believes that there should be a thorough analysis and evaluation process that is used to identify the underlying issues and drive the solutions, which may or may not include opening Model #582.
  • 2022 1103 – AAA to NAIC (IULSG) – Re: Exposure for AG49-A Quick Fix Proposals (October 13, 2022), American Academy of Actuaries – 3p
  • 2022 1115 – NAIC – LIAC – LIFE INSURANCE AND ANNUITIES (A) COMMITTEE – 15p
    • Fred Andersen, [MN – IULSG Chair] – gave an update on the Indexed Universal Life (IUL) Illustration (A) Subgroup. He said there have been issues with IUL illustrations over the past eight years.
    • Birny Birnbaum [CEJ] – said without addressing the problems with the illustration framework-projecting future returns using constant annual crediting rates, loan arbitrage, data-mined indices with made-up histories, no sequence of return risk, etc.-the state insurance regulators will be coming back again and again as insurers game each new iteration of the actuarial guideline. He said none of this even addresses the disparities between guidelines for indexed annuity illustrations and indexed life insurance illustrations, despite the similarities in product features.
    • Birny Birnbaum (CEJ) – said the actuaries are limited in two important ways:
      • 1) they are limited by Model #582 because it was designed 30 years ago before indexed products existed, and it is woefully out of date; and
      • 2) actuaries are not experts in consumer financial disclosures. He said illustrations are a consumer disclosure, and the technical expertise needed is not that of an actuary but of experts in consumer financial disclosure. He said asking the actuaries to fix problems with IUL illustrations would be like asking the Life Insurance Online Guide (A) Working Group to develop reserving requirements for indexed life insurance.
      • He said he urges the Committee to establish a charge to examine and re-engineer life insurance and annuity illustrations for effective consumer disclosure and consistency of principles across similar products.
  • 2022 1118 – ACLI to NAIC (IULSG) – Re: Model Reg 582 Ideas – 2p
    • ACLI wishes to work with LATF and the Subgroup to develop solutions to appropriately address the regulatory concerns around IUL illustrations and to foster appropriate consumer understanding of these products.
    • However, it is not a simple task to determine which subsections of the Model to consider opening without a clear understanding on what concern(s) the changes are trying to solve.
    • Ensure illustrations:
      • demonstrate both the benefits and risks of product features to promote consumer understanding;
      • are product-neutral, so that any changes to the Model create a level playing field between products;
      • are adaptable to new product development to ensure that consumers are provided innovative products that adapt to current market environments.
    • ACLI hopes that with a greater understanding of regulator concerns, we would be better situated to provide feedback towards solutions to those concerns.
  • 2022 1122 – AAA to NAIC (IULSG) – Re: IUL Subgroup Exposure for Model Reg 582 Ideas (October 13, 2022) – 2p
  • 2022 1122 – Seven Companies to NAIC (IULSG) – Re: October 13 IUL Subgroup Exposure for Model Reg 582 Ideas – 2p
    • Allianz Life
    • John Hancock
    • Lincoln National
    • National Life Group
    • Nationwide
    • Pacific Life
    • Sammons Financial Companies
  • 2022 1122 – Coalition of Concerned Insurance Professionals to NAIC (IULSG) – 8p
  • 2022 1122 – Transamerica to NAIC (IULSG) – Re.: Model Reg 582 Ideas – 1p
  • 2022 1209 – InvestmentNews – Insurer: Add full in-force life insurance illustration to regulation remix, by John Hilton – [link]

Abstracts of Significant Cases Bearing on the Regulation of Insurance – NAIC

  • 2005 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance – 5p
    • The Third Circuit Court of Appeals reviewed a “vanishing premium” case in Huu Nam Tran v. Metropolitan Life Insurance Co., 408 F.3d 130 (3d Cir. Ct. App., May 25, 2005). Tran alleged that he had been misled by a MetLife agent who indicated that he would only have to pay premiums on his life insurance policy for ten years.
    • The policy did not so state, but Tran could not read English.
    • The District Court for the Western District of Pennsylvania, the court below, held that Tran had a duty to read the policy or have it read to him and that the policy language was clear and unambiguous.
    • The Court of Appeals said that no such duty existed in Pennsylvania law and also noted that the policy language was subject to interpretation, so even if Tran had read it, he might not have understood that his premiums would not “vanish.”
    • The Appeals Court ruled that genuine issues of fact existed in this case, so summary judgment for the insurer was not appropriate. This case is more appropriate for resolution by a jury than by a judge.
  • 2006 09 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance – 
  • 2007 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance
  • 2008 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance
  • 2009 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance
  • 2010 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance
  • 2011 – JIR / NAIC – Abstracts of Significant Cases Bearing on the Regulation of Insurance
    • Plant v. Northwestern Mut. Life Ins. Co., Case No. 08-CV-11988 – (Wis. Cir. Milw. March 7, 2011)
    • In this class action bench trial, the Wisconsin Circuit Court, Milwaukee County, found the defendant breached its contracts with class members holding annuity policies in 1985, when Northwestern Mutual (NWM) changed its method of paying dividends.
  • 2015 –
    • In Re Penn Treaty Network America Ins. Co., 119 A.3d 313
    • Cases in Which the NAIC Filed as Amicus Curiae
      • MetLife, Inc. v. Financial Stability Oversight Council, No. 1:15-cv-45 (D. D.C. NAIC brief filed June 26, 2015) The NAIC submitted an amicus brief in the U.S. District Court for the District of Columbia in the case of MetLife, Inc. v. Financial Stability Oversight Council. The NAIC filed this brief at the request of the California DOI and in support of MetLife’s motion for summary judgment. The case involves MetLife’s challenge to the Financial Stability Oversight Council (FSOC) in its designation of MetLife as a systemically important financial institution. Pursuant to the federal Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), the FSOC was required to consider the degree to which MetLife is already regulated by one or more primary financial regulatory agencies before making a designation. The brief asserted that the FSOC largely ignored or discounted the state-based system that regulates MetLife, and therefore acted in an arbitrary and capricious manner in making the designation. Specifically, the brief described the full range of regulatory tools available to state regulators at the individual entity and group level and the failure of the FSOC to assess the risk of asset liquidation against (Pa. 2015) those tools, which include early warning through risk-based capital requirements and stays on surrender activity. The brief also described the deliberate, incremental process that applies to troubled companies regulated by state insurance commissioners and recounted the FSOC’s failure to assess the risk of a hypothetical MetLife liquidation against this process.
  • 2016 –
    • MetLife, Inc. v. Financial Stability Oversight Council, No. 16-5086 (D.C. Cir. 2016).  The NAIC submitted an amicus brief in the United States Court of Appeals for the District of Columbia in the case of MetLife, Inc. v. Financial Stability Oversight Council on August 22, 2016. The NAIC filed this brief in support of MetLife, which had prevailed in its arguments at the District Court level. The case involves MetLife’s challenge to the Financial Stability Oversight Council (FSOC) in its designation of MetLife as a systemically important financial institution.  Pursuant to the federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the FSOC was required to consider the degree to which MetLife is already regulated by one or more primary financial regulatory agencies before making a designation.  The brief asserted that the FSOC largely ignored or discounted the state-based system that regulates MetLife and, therefore, acted in an arbitrary and capricious manner in making the designation. Specifically, the brief described the full range of regulatory tools available to state regulators at the individual entity and group level and the failure of the FSOC to assess the risk of asset liquidation against those tools, which include early warning through risk-based capital requirements and stays on surrender activity. The brief also described the deliberate, incremental process that applies to troubled companies regulated by state insurance commissioners and recounted the FSOC’s failure to assess the risk of a hypothetical MetLife liquidation against this process.
  • 2019 –
    • Independent Ins. Agents and Brokers of New York, Inc. v. New York State Dep’t of Fin. Servs., 65 Msc.3d 562 (Sup. Ct. Albany Co. July 31, 2019).  Independent Insurance Agents and Brokers of New York, Incorporated (“Plaintiff”), representing insurance agents, brokers, and financial advisors challenged the New York State Department of Financial Services’ (“DFS”) Amendment to NYCRR 224.0 et seq. The Amendment, also known as the Suitability and Best Interests in Life Insurance and Annuity Transactions, was issued by DFS on July 17, 2018. It adopted a uniform standard of care which must be met by agents and brokers, requiring them to act in the best interests of their client. Plaintiff offered many arguments including that the Amendment must be annulled for because the DFS exceeded its authority and that the regulation conflicts with the governing statutory scheme. DFS argued that it has broad supervisory power over the banking, insurance, and financial services. DFS further argued that the Amendment “is based on the principle that agents and brokers making recommendations about complex insurance transactions are more informed about market intricacies and potential impacts, and thus should be obligated to provide guidance in the best interests of the customer when making a recommendation.”  The trial court agreed with DFS and held that the Amendment is a proper exercise of its regulatory power and that DFS complied with the State Administrative Procedure Act in adopting the Amendment. The court held that the insurance statues provide DFS with the authority to ensure “the continued safety and soundness of New York’s banking, insurance, and financial services industries,
      as well as the prudent conduct of the providers of financial products and services, through responsible regulation and supervision.”

Market Conduct - Documents

  • 2016 - NCOIL - Market Conduct Surveillance Model Law - 17p
    • Adopted by the NCOIL Executive Committee on November 11, 2006.
    • Readopted by the NCOIL Executive Committee on November 20, 2011 and November 20, 2016.
  • 2019 1014  - NAIC - Guidelines - Voluntary Market Regulation Certification Program, Self-Assessment Guidelines, Checklist Tool and Implementation Plan, Revisions Recommended by Pilot Jurisdictions - 38p
    • Draft: 10/14/19
      • Implementation Plan adopted Market Regulation and Consumer Affairs (D) Committee - Nov. 30, 2016
      • Implementation Plan adopted by the Market Regulation Certification (D) Working Group - Nov. 3, 2016
      • Guidelines and Checklist adopted by the Market Regulation and Consumer Affairs (D) Committee - Aug. 27, 2016
      • Guidelines and Checklist adopted by the Market Regulation Certification (D) Working Group - July 28, 2016
    • https://content.naic.org › inline-files › Redline_When conducting examinations or continuum activities, does the department incorporate applicable Market Regulation Handbook review standards and related ...
  • Market Conduct Uniform Examination Outline

1970s

  • 1974 - Report - Strengthening the Surveillance System: Final Report, McKinsey & Company, Inc. - 126p

1980s

  • 1981 - NAIC - Market Conduct and Trade Practices (B1) Subcommittee 
  • 1981 - NAIC - Market Conduct and Consumer Services Task Forces 
  • 1981 - NAIC - Background Paper on the Status of the Regulation of Market Conduct in the Insurance Industry, NAIC Market Conduct and Trade Practices (B1) Subcommittee Attachment Five - 17p
    • This paper describes the history of the examination process, summarizes the 1974 McKinsey evaluation of the examination system, outlines market conduct developments since the McKinsey study and identifies current market conduct issues.
  • 1981-2, NAIC Proceedings - Survey of Industry Experience with Market Conduct Examinations, June 7, 1981, Attachment Four and Four-A (Questionnaire) - p448-
  • 1982 - NAIC - Report of the National Association of Insurance Commissioners Special Joint Committee on Examinations - 306p
  • 1984 05 - NAIC - Report of the (EX3) Market Conduct Surveillance Task Force Working Group on Consumer Complaint Analysis - 26p
  • 1988 - NAIC - Complaint analysis questionnaire: survey conducted by the Subgroup on Market Conduct Data, Complaints and Examinations of the Market Conduct Surveillance (EX3) Task Force

1990s

  • In 2011, the NAIC introduced a new Market Conduct Annual Statement (MCAS) collection system
  • 1995 - JIR / NAIC - Symposium on the Regulation of Life Cost Disclosure and Market Conduct, by Tom Foley and Carolyn Johnson - 48p
  • 1998 - SOA - Market Conduct: A New Actuarial Frontier, Society of Actuaries - 20p

2000s

  • 2000 - NCOIL - Reforming Insurance Regulation: Making the Marketplace More Competitive for Consumers - <WishList>
    • 2003 1105 - GOV (House) - Reforming Insurance Regulation: Making the Marketplace More Competitive for Consumers, Richard H. Baker (R-LA) - [PDF-200p, VIDEO-?]
  • 2003 09 - GAO - Common Standards and Improved Coordination Needed to Strengthen Market Regulation - 53p
  • 2003 0506 - GAO - Insurance Regulation: Preliminary Views on States' Oversight of Insurers' Market Behavior, Statement of Richard J. Hillman, Director, Financial Markets and
    Community Investment   -  gao.gov/products/gao-03-738t  --- Full Report:  15p
  • 2003 0701 - Report - For NCOIL - The Path to Reform - The Evolution of Market Conduct Surveillance Regulation, by PricewaterhouseCoopers and Georgia State University - 117p
  • 2004 - NAIC - Military life insurance sales regulatory response options, Market Regulation & Consumer Affairs (D) Committee, Market Analysis Working Group, HG 8861 N38  - <WishList>
  • 2004 - NAIC - Market Conduct Examiners Handbook - 1582p
  • 2004 - IMSA - Market Conduct Standards & the Life Insurance Industry, NOLGHA Annual Meeting, October 26-27, 2004 - 26p
  • 2007 11 - Report - For NCOIL - A Study on State Authority: Making a Case for Proper Insurance Oversight, by James W. Schacht Managing Director Navigant Consulting, Inc. and SUNY - 147p
  • 2006 (updated) - NAIC - A Reinforced Commitment: Insurance Regulatory Modernization Action Plan - 20p
  • 2009 - GAO - Insurance Reciprocity and Uniformity: NAIC and State Regulators Have Made Progress in Producer Licensing, Product Approval, and Market Conduct Regulation, but Challenges Remain - gao.gov/products/gao-09-372   ---  Full Report - 57p

2010s

  • 2012 10 - NAIC / CIPR - CIPR Newsletter - 32p
    • (p19-) - The Market Conduct Analysis Framework - Randy Helder
      • Market Analysis Prioritization Tool (MAPT)
        • Because MAPT is a prioritization tool, it does more than just aggregate data for market analysts. Built into the tool is a scoring system.
        • complaint index
        • total number of complaints against a company, the count of confirmed complaints against a company (a confirmed com-plaint is a complaint that was coded with a disposition con-sidered adverse to the company) and the market share of the company.
      • Many analysts refer to MAPT as a "wall of data" because there is so much data provided for so many companies at one time. Nevertheless, MAPT is incapable of identifying, with certainty companies that are misbehaving in the market. Its primary purpose is to prioritize the companies for more in-depth analysis.
      • Regulators and NAIC staff developed MAPT with a heavy emphasis on the data available at the NAIC. At that time, much of the data at the NAIC was financial data. Data that could be considered strictly market conduct-related data was limited to complaints, market regulatory actions taken by the states and demographic information. Beginning in 2008, however, the NAIC became the central repository of data gathered through the Market Conduct Annual State-ment (MCAS.) This has greatly increased the scope of data available to market analysts.
        • The current form of the MCAS was first collected in 2002 by eight states.
    • For the life and annuity lines of business, MCAS collects information on new and replacement activity with a focus on the age of the insured/annuitant and surrender activity, particularly of policies that may incur a surrender charge. There are also claims questions for the life products that address the speed of claim settlement and the percent of claims compromised or denied. Suitability and policyholder service are the focus of the life and annuity MCAS.4
    • An analyst can also compare the data to the types of complaints filed against a company. The analyst may find correlations between the complaints and the reported data that substantiates consumer concerns.
    • Level 1 - Prior to any examination or audit of a company, an insurance department has to know what they need to focus on during the examination or audit. This requires reviewing a company's financial statements, the company's communi-cations with the insurance department and consumers' communications with the insurance department.
  • The analyst accesses this template through the NAIC Market Analysis Review System (MARS).
  • "Continuum activity" - Continuum activity is any regulatory response to a market conduct issue. The range of possible responses is referred to as a continuum because of the multitude of possible ways to work with companies in understanding and resolving market conduct concerns. The possible responses can range from a telephone call or letter to audits and examinations and every-thing in between, such as an interview or survey.
  • Conclusion
  • The States regulate insurance entities to help ensure financial solvency and to promote a fair and competitive market-place. Regulators rely on data gathered from a variety of sources to monitor the marketplace. The goal is to spot dis-ruptions as early as possible and resolve them effectively and efficiently. To do so, the data must be organized, ana-lyzed and evaluated. This is the responsibility of financial and market analysts.
    • Market analysis does not, and maybe cannot, have the same exactness of financial analysis because of the nature of what it is attempting to analyze: human behavior and the arena in which it takes place-56 NAIC jurisdictions with distinct and occasionally different market conduct regula-tions. Market analysts, however, continue to refine their methodologies in an attempt to be predictive. Regardless of the methodologies, predictive analytics are not possible without adequate data. The only data adequate to the task is transaction-level data. Regulators, particularly market analysts, must continue to push for greater access to trans-action-level data from companies.

2014 12 – re: FSOC SIFI Designation of MetLife, Woodall / Hamm – Views of the Council’s Independent Member Having Insurance Expertise – 13p

  • 2014 12 – re: FSOC SIFI Designation of MetLife, Woodall / Hamm – Views of the Council’s Independent Member Having Insurance Expertise  —  [BonkNote] —  13p
  • Roy Woodall – 
  • I do share concerns about some of MetLife’s activities, particularly in the non-insurance and capital markets activities spheres, and in the resulting exposures identified and described in the Council’s Notice of Final Determination in the Company Overview and Exposure Transmission Channel sections.
    • These activities might conceivably pose a threat to the U.S. financial stability under certain circumstances.
    • It is these types of activities that should be fully evaluated under the Second Determination Standard, as opposed to the flawed Council analysis under the First Determination Standard.
  • I do not, however, agree with the analysis under the Asset Liquidation Transmission Channel of the Notice of Final Determination, which is one of the principal bases for the finding under the First Determination Standard.
    • I do not believe that the analysis’ conclusions are supported by substantial evidence in the record, or by logical inferences from the record.
      • The analysis relies on implausible, contrived scenarios as well as failures to appreciate fundamental aspects of insurance and annuity products, and, importantly, State insurance regulation and the framework of the McCarran-Ferguson Act.2
    • The analysis discusses in detail, and is dismissive of, the U.S. State insurance regulatory framework, the panoply of State regulatory authorities, and the willingness of State regulators to act, thereby overstating shortcomings and uncertainties that are inherent in all regulatory frameworks, State or Federal.
  • The Council’s expressed concerns in the Notice of Final Determination as to existing regulatory scrutiny, the State guaranty associations, and the potential complexities associated with the resolution of a large insurance company, seem to me to be unbalanced and lead to distorted conclusions regarding the Asset Liquidation Transmission Channel.
  • In my considered view, the Council should be more transparent about which of MetLife’s activities, together or separately, pose the greatest risk to U.S. financial stability in order to provide constructive guidance for the primary financial regulatory authorities, the Board of Governors, international supervisors, other insurance market participants and, of course, MetLife itself, to address any such threats posed by the company.
  • It is important to identify particular activities in order to encourage appropriate and further action that could lessen any company-specific threat to U.S. financial stability.
    • Paraphrasing what one insurance thought leader once told me: “We should not tolerate any insurance company posing a threat to our financial system – pinpoint what makes them systemically risky and let’s fix them.”3 < 3Therese M. Vaughan, Ph.D., Dean of the College of Business and Public Administration, Drake University, and former Iowa Insurance Commissioner, President and CEO of the National Association of Insurance Commissioners, International Association of Insurance Supervisors Executive Committee member, and Chair of the Joint Forum.>
  • I believe that not pinpointing specific activities that contribute to the company’s systemic risk profile is a mistake.
    • Importantly, rather than confronting the greater burden tied to the Second Determination Standard, it is easier to simply presume a massive and total insolvency first, and then speculate about the resulting effects on activities, than it is to initially analyze and consider those activities.
  • However, the Notice of Final Determination concludes that the origin of the company’s systemic risk would stem from a sudden and unforeseen insolvency of unprecedented scale, of unexplained causation, and without effective regulatory responses or safeguards.
  • I simply cannot agree with such a premise, which is the central foundation for this designation.
  • On February 14, 2013, MetLife announced that it had deregistered as a bank holding company, as approved by the Board of Governors and the Federal Deposit Insurance Corporation (FDIC), after having been supervised by the Board since 2001.5
    • Many of the company’s activities set forth in the Notice of Final Determination developed over this time period.
  • FSB
  • As the Council continues its work, it is my hope that we can concentrate our efforts to consider regulatory reform and improve regulation of those large nonbank financial companies and their activities that have been left largely unexamined since the financial crisis, but that may significantly risk financial instability.
    • The Council’s vigor in evaluating such unexamined (and in some cases unregulated) nonbank financial companies is imperative in successfully fulfilling its charge to identify threats to our financial system, economy, and the American people.
  • Adam Hamm – 
  • To the extent that the Council speculates about such stays leading to further contagion across the insurance industry, insurance regulators have extensive authorities to intervene to protect policyholders at these other firms as well.
  • Moreover, the Basis implicitly assumes material financial distress at all insurance entities at the same time, yet the Basis cites no historical examples of that having ever occurred. <FTC Report, BTID, etc>
  • As for the exposure channel, the Council makes claims that retail policyholders or corporate  customers would suffer losses as a result of material financial distress at MetLife, but does not detail how those losses translate into “an impairment of financial intermediation or of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy.” <Pacific Lumber>
  • A key consideration for the final designation is the asset liquidation channel.
    • The final Basis, like the proposed Basis, continues to offer merely speculative outcomes related to the liquidation of assets based in large part on hypothetical and highly implausible claims of significant policyholder surrenders. 
    • To remedy this, the Council offers additional analysis in an appendix, but that analysis treats all financial institutions exactly the same using broad-based assumptions regarding asset dispositions that do not take into account the specific characteristics of MetLife, its assets and liabilities, the particular characteristics of insurance products or insurance policyholder behavior.
    • There is no explicit provision for the differences in timing and the assets of MetLife are categorized using bank asset categories even though they are substantially different. 
  • For example, in response to the arguments by MetLife seeking to analogize the impacts of a failure of MetLife to other insurance company failures in history, the Council notes correctly that the failure of an insurance company of MetLife’s size and scope has never taken place.
    • While that is a fair statement as each company has its own unique characteristics, the fact that there is no comparable insurance failure is a testament to the state insurance regulatory system, a fact that the Council ignores.
  • I also take issue with certain arguments that are not firm-specific.
    • For example, the Council raises concerns that a MetLife failure could stress the guaranty fund system.
  • Another example is the Basis’ treatment of MetLife’s Funding Agreement Backed Securities Programs and their impact on money market funds in the event MetLife would be unable to meet its obligations under those contracts.
  • Finally, I would be remiss if I did not mention that, despite the sheer volume of arguments (no matter how far-fetched) contained in the Basis, the Council fails to identify the specific set of legitimate issues of concern that has led to the company’s designation.

2013 – NAIC – State of the Life Insurance Industry: Implications of Industry Trends – 220p

  • 2013 – NAIC – State of the Life Insurance Industry: Implications of Industry Trends – 220p
  • (p16) – The continuation of high interest rates coupled with financial deregulation in the early 1980s pushed up returns on insurers’ competing financial products such as Treasuries, money market accounts and emerging mutual funds.
  • (p17) – Long-term interest rates were substantially lower than short-term interest rates due to an inverted yield curve at the time.
    • As such, insurers’ investment portfolios of predominately long-term bonds were unable to support competing crediting rates.
    • Consumers responded by withdrawing their cash out of their whole-life policies (through surrenders or policy loans) and moving their savings dollars into competing products offering higher returns (a process referred to as disintermediation).
    • Although consumers still sought income protection through low-cost term policies, insurers’ whole-life policies had fallen out of favor with long-term investors. 
  • (p17) – Prior to the 1980s, insurers sold primarily fixed-premium term and whole-life insurance to individual policyholders.
    • With competitive pressures significantly reducing sales of whole-life products, insurers had little choice but to innovate in the 1980s to meet demand.
    • They did so by redesigning whole-life into a hybrid product that included a traditional income protection component and a long-term investment component using market-based yields (and thus were interest rate-sensitive).
    • The first of these new complex products, universal life insurance, revolutionized the industry. Its popularity was rooted in its flexibility.
  • (p17) – Universal life is permanent insurance combining term insurance with a cash account earning tax-deferred interest. Under most contracts, premiums and/or death benefits can fluctuate (within the contract’s bounds) with policyholder preference.
    • The policy stays in effect as long as the cash value is sufficient to cover premiums.
    • Additionally, the insurer usually guarantees the cash value will not fall below a minimum value.
    • The cash value of the policy can also be used to pay the term insurance portion of the policy.
  • (p17) – Variable life insurance was developed in 1976 as a way to protect policyholders’ benefits by hedging against the high inflation of the time.60
    • Premiums, fixed by the insurer, are deposited into the separate account.
    • Cash values reflect the performance of the underlying investments, which were designated by the policyholder and included such things as stocks, bonds, and mutual funds.
    • Although death benefits fluctuate with the performance of the underlying assets, the insurer guarantees a minimum death benefit. 

2021 1119 - LIIIWG - Life Insurance Illustrations Issues Working Group - (A) - NAIC - LIAC Requested Chair Report - Richard Wicka - 5p

  • 2021 1119 - LIIIWG - Life Insurance Illustrations Issues Working Group - (A) - NAIC - LIAC Requested Chair Report - Richard Wicka (Chair - Life Insurance Illustrations Issues Working Group)  ---  [BonkNote]  ---  26p
  • (p3) - [Chair Report] - This context is important to address one of the comments made by the ACLI.
    • Specifically, that the Working Group did not identify any specific issues or problems with current summaries.
      • [ACLI - 2021 0805] - After an exhaustive review process...   No regulator found fault with the information consumers currently receive from companies or agents. - 2021 0805 - ACLI to NAIC (LIAC) - RE: Life Insurance Illustrations Issues (A) Working Group - 3p].
    • (p3) - [Chair Report] - As stated, the ad hoc group did in fact identify specific issues that hindered consumer understanding of life insurance products.
  • (p3) - [Chair Report] - The group also identified three specific issues with the summaries  themselves.
      • First, it was determined that current  summary disclosures were quite lengthy which impeded consumer understanding
      • Second, the summaries showed variations in layout and the accessibility of the language used.
      • Third, the structure of the model regulations drove some of the issues with the summary's length and made them less consumer friendly.
  • 2018 1015 - ACLI - Emily Email - Illustration Examples
    • 2019 1115 - ACLI to NAIC - RE: Revisions Considered for Life Insurance Policy & Narrative Summaries - 8p
      • The ACLI supplied the NAIC and interested parties with access to numerous sample policy summaries and policy narratives.
  • [Bonk: What's the Problem? Lovendusky: More Granular]
    • 6 Letters -
      • 2015 1120 - (LIAC) - Life Insurance and Annuities (A) Committee National Harbor, Maryland - (6-3)
        • the Committee set a 30-day public comment period to receive comments from stakeholders on their issues and concerns with life insurance illustrations and the Life Insurance Illustrations Model Regulation (#582). In response, she said the Committee received comments from:
        • American Academy of Actuaries (Academy) - 3p
        • American Council of Life Insurers (ACLI) - 2p
        • California Department of Insurance - 1p
        • Massachusetts Mutual Life Insurance Company (MassMutual) - 1p
        • NAIC consumer representatives - 1p
        • [State Farm] - 1p
  • Q: What Do Agents Say to Consumers?
  • 1991 0509 - GOV (Senate) - Insurance Company Solvency - Tom Sutton - ACLI - Pacific Life