Bank-Like

  • The regulation provides for the pre-funding of cash values, so that the amounts will be available upon policyholder demand, and will not be contingent upon sufficient surplus being available at that time to cover what is the equivalent to a demand deposit.
    • The regulation relies heavily on the NAIC Universal Life Insurance Model Regulation adopted by the NAIC, December 1983 (Proceedings. 1984. Vol. I. pp. 6. 31, 376. 515-526)
  • The significant changes made to the NAIC Model are:

1982-2, NAIC Proceedings

  • (p54) – Life insurers, as I mentioned, are more like banks.
    • Nevertheless, their liabilities are longer than banks’ and it is harder to have a run on a life company.
    • This should allow more time for companies to solve their problems, which are principally due to a change in product mix.

—  Jeffrey Cohen, Vice President, Goldman, Sachs & Company

1991 – FRB-Boston -The Financial Condition and Regulation of Insurance Companies – Conference, Series No. 35 – [link to PDFs]

 

1991 – FRB-Boston -The Financial Condition and Regulation of Insurance Companies – Conference, Series No. 35 – [link to PDFs]

  • Lastly, this seems to be like a bank account plus some kind of term insurance rider.
    • [Bonk: this = Universal Life Insurance]

—  Allan W. Sibigtroth

1979 – SOA – Future Trends and Current Developments in Individual Life Products (rsa79v5n44), Society of Actuaries – 24p

  • In contrast, many of the investment-oriented products marketed in the last decade have shorter duration and require greater liquidity than was needed in earlier …
1992 – World Bank – The Life Insurance Industry in the United States: An Analysis of Economic and Regulatory Issues, Kenneth M. Wright – 54p
  • Cash Value life insurance can operate as an investment vehicle that combines life insurance protection with a financial instrument that operates similarly to bank certificates of deposit and mutual fund investments.

2005-2006 – GOV (Senate) – Tax Expenditures: Compendium of Background Material on Individual Provisions – Senate – Committee on the Budget, Committee Print 109-72, 109th Congress – [PDF-1002p]

  • What the insurance company is offering in its general account is really the same thing that the BIC writer is offering as a bank.

—  Joseph J. Buff

1992 – SOA – GICS and Other Insurance Company Products – Are They Still Alive?, rsa92v18n210 – Society of Actuaries – 26p

  • I am advised that within recent times, insurance companies have offered bank-like products.
    • They call them annuity contracts, but they are really bank-like products, where persons deposit funds in the insurance company.
    • There is some small life insurance component, but it is really a fund where interest is earned.
    • In fact, there are many people in Trinidad and Tobago who have these flexible annuities or annuity contracts, they come by different names, with Colonial Life in particular, and these are really a form of fixed deposit.
    • It is a bank-like instrument.

—  Hon. C. Imbert

2009 0202 – Parliament of the Republic of Trinidad and Tobago – 203p

  • ATTTACHMENT TWO-B – Draft 4/11/88 – RE: Proposed Regulations Concerning the Valuation of Universal Life Insurance Plans
    • The regulation provides for the pre-funding of cash values, so that the amounts will be available upon policyholder demand, and will not be contingent upon sufficient surplus being available at that time to cover what is the equivalent to a demand deposit.  (p434)

1988-2, NAIC Proceedings

  • … the life insurance industry has developed new products that contain predominantly investment features similar to those offered by depository institutions.  (p93)

—  William S. McKee, Tax Legislative Counsel, Department of the Treasury [DOTT]

1983 0311 – GOV (Senate – Committee on Finance) – Taxation of Financial Services Industry (HRG98) – [PDF-356p, VIDEO-?]

  • (p2) – These products, mostly single premium deferred annuities (SPDAs) and guaranteed investment contracts (GICs), differ from what insurance companies have traditionally offered customers.
    • They are sold on the basis of their high fixed rate of return and have more in common with bank certificates of deposit than with other insurance products.

1992 – FRB-Minneapolis – SPDAs and GICs: Like Money in the Bank?, by Neil Wallace and Richard M. Todd, Federal Reserve of Minneapolis – 18p

Macroprudential

  • versus Microprudential Regulation
  • Common Exposures
  • Contagion
  • Liquidity modeling
  • Mass lapses
  • macroprudential surveillance
  • Systemic amplifiers
  • Triggers
  • Macroprudential Task Force (MPTF) of the American Academy of Actuaries
  • NAIC Liquidity Stress Testing (LST) Framework
  • NAIC MACROPRUDENTIAL INITIATIVE (MPI) – [link]
  • 269 For instance, in 1991 six major life insurers, each with over $4 billion in assets, failed as a result of their common exposures to commercial real estate and junk bonds.

See 1992 – AP – Policyholder Runs, Life Insurance Company Failures, and Insurance Solvency Regulation, by Scott E. Harrington, 5 Cato Rev Bus & Govt 27, 27 – 11p

2014 – LR – Regulating Systemic Risk in Insurance, by Daniel Schwarcz and Steven L. Schwarcz – 73p

  • Contagion is often characterised by a transmission in the form of a liquidation of assets and is therefore also linked to the liquidity position of the insurer.
    • In extreme cases, a large part of the insurance sector could start partly or fully selling certain asset exposures at a distress price, i.e. a fire sale of assets.
    • Such fire sales could be amplified by, for example, mass lapses, procyclical behaviour or the liquidity needs of insurers with a high exposure to insurance products with potential systemic features and/or a large activity in certain derivatives markets characterised by margin calls. (p14)

2018 11 – ESRB – Macroprudential provisions, measures and instruments for insurance – European Systemic Risk Board – 80p

Corridor

  • Corridor Factors
  • Mortality Corridor
  • 7702(d) corridor
  • 2012 – SOA – Administration of the “Material Change” Rules: Meeting the Challenge, By Christian DesRochers and Brian G. King, tax-2012-vol8-iss2-supplement-desrochers – Society of Actuaries – 8p
  • Chairman Pete STARK (D-CA):  Or, on the other hand, do you think we should get into more of the definition, as Mr. Gregg suggested we did in TEFRA, where we spell out percentages of cash value to face value?
  • [Thomas Gregg, NALU – National Association of Life Underwriters] –  (p328)
  • [Corridor]

1983 0510, 0511 and 0728 – GOV (House) – Tax Treatment of Life Insurance, Pete Stark (D-CA)  —  [BonkNote]

  • The term mortality corridor refers to any minimum requirements on the term insurance amount.

1983 – SOA – Universal Life Valuation and NonForfeiture: A Generalized Model,  Shane A. Chalke and Michael Davlin, Society of Actuaries – 72p

  • Robert BUECHNER, not a member of the Society, is President of the Legal Professional Association, Buechner, Haffer and O’Connell, Cincinnati, Ohio: The amount at risk needed in a ULI policy in order to make it life insurance is a question open to debate.
    • It’s likely the IRS will eventually come out with a revenue ruling citing several abuse cases and say that in such situations the ULI policy does not qualify as life insurance for purposes of treatment under IRS code Section 101 (a).
    • The type of abuse case likely to be attacked might be one with a $1,000,000 cash value and a $10,000 pure death benefit.
    • In the book, Why Universal Life, we propose that a constant percentage of the cash value be used to purchase the pure death benefit.
      • We base the calculation on the cost of a death benefit at age 60 equal to at least 10 percent of the cash value.
      • Thus the life insurance benefit would be higher at younger ages and lower at older ages.
    • The American Council of Life Insurance’s (ACLI) proposal used two approaches to define what the permissible level of risk is for purposes of determining whether or not a product is life insurance.
      • Their first proposal was that the premium payments should be limited to the amount required to mature the policy on the latest maturity date.
      • Their second proposal was to classify the cash value as a life insurance cash value if it was equal to or less than that of a single premium necessary to purchase whole life insurance or to endow the contract after a stated period.
      • Any cash value in excess of the single premium amount would be classified as an annuity.
      • The ACLI approach is a restrictive one.
        • What characterizes a product of life insurance is whether there’s enough risk to put the life insurance company in a position of risk shifting and risk distribution.
        • If the amount at risk is small in comparison to the total cash value, the company is in a position where it is simply taking on an investment risk.
        • It’s imperative that companies establish a minimum pure death benefit so that the policyholder cannot inadvertently place himself or herself in a position where the policy will cease to be a life insurance contract.
      • The burden is on life insurance companies to bolster the minimum rather than for the IRS to give comfort in this area.
  • Andrew BODINE, Vice President and Actuary of Inter-State Assurance Company in Des Moines: This question puts me in a difficult position. I can find fault with almost any suggestion set forth as being reasonable, but I haven’t been able to come up with any good suggestion of my own.

1982 – SOA – Universal Life Update, Society of Actuaries (rsa82v8n34) – 26p

Consolidated Appropriations Act 2021

  • 2020 0521 – NAIC – Life Actuarial (A) Task Force Conference Call May 21, 2020
  • You’re caught into this box where you’ve got a product that, when you go back to that format, it’s an iteration of the product that can’t exist.
    • The intent is, if you’re selling this thing as a level premium permanent product, there should be a way of dealing with that.
    • I really think it’s just again hitting another flaw and another hole in how the UL model regulation applies to the real world today.

—  Craig R. Raymond

1999 – SOA – 1999 Valuation Actuary Symposium, (va99-44of), Edward L. Robbins, Society of Actuaries – 28p

  • 2021 0202 – Joseph Belth – No. 408: A Recent Change in the Federal Income Tax Law Designed to Benefit Wealthy Life Insurance Policyholders – [link]
    • The 1984 Change in the Tax Law
      • I asked representatives of the American Council of Life Insurers (ACLI), which had lobbied for the 2021 change in the tax law, whether they could provide me with material about the 1984 change.
      • They said they could not locate any such material.
      • Therefore, I will describe what happened, based on my memory.
  • WSJ – A Small Tax Change Is a Boon for Permanent Life Insurance – Insurers worried that a government rule from 1984 threatened certain products-and sought Washington’s help, Leslie Scism – [link]
  • In a memo to the ACLI Board dated March 5, 1982, two approaches to this were outlined.
    • The first proposed guideline measures and limits premium payments based on a guideline premium defined in the contract.
    • The second proposed guideline classifies life insurance cash values as amounts not in excess of the net single premium necessary to purchase the life insurance or to endow this contract after a stated period.

—  Christian Desrochers

1982 – SOA – Universal Life Update, Society of Actuaries (rsa82v8n34) – 26p

  • MR. MARKS: Do any companies have concerns regarding not being able to charge a premium that would be high enough to mature the policy on a current interest rate basis with the new guideline premiums being lower?
    • In other words, since the interest rates are being credited or say, in the 5 to 5.5 percent range, and there’s a six percent interest rate in the calculation of guideline single premiums, would there be a concern that you couldn’t even fund the policy on a guaranteed basis?
  • MR. BERLIN: I’ve heard of that issue.
    • Your guideline level is calculated at four percent.
    • This is just my feeling, but I don’t think that we want to approach the Service to reduce the interest rates from four percent to say, 2.5 to 3 percent because then it opens 7702 up for scrutiny and a whole host of other issues.
    • Sometimes the evil you know is better than the evil you don’t.

2002 – SOA – Implications of the New CSO Mortality Table, Society of Actuaries – 28p

  • NAIC – LAHTF
  • 2020 – GOV (House) -The Heroes Act Summary – 90p
  • Sec. 308. Minimum Rate of Interest for Certain Determinations Related to Life Insurance Contracts.
  • In order to qualify as life insurance contracts for tax purposes, permanent life insurance policies must meet several requirements under Internal Revenue Code section 7702.
    • These requirements include two interest rate assumptions for determining the premiums that can be used to fund the contracts.
    • The interest rate assumptions were set by statute at 4 percent and 6 percent when the requirements were put in place in 1984.
  • At the time, the average long-term Treasury rate was around 12 percent.
    • The recent public health and economic crisis has prompted the Federal Reserve to reduce already persistently low interest rates to around 0 percent, and the daily long-term Treasury rate has hovered at 1 percent.
  • Without adjusting the section 7702 interest rates to reflect economic realities, consumer access to financial security via permanent life insurance policies-which represent approximately 60 percent of the individual life insurance market-could decrease significantly.
    • This legislation updates section 7702 to reflect the interest rate environment that has been exacerbated by the current crisis, and ensures that the rates will continue to appropriately reflect economic conditions, by tying the rates to either a floating rate prescribed in the National Association of Insurance Commissioners’ Standard Valuation Law or a floating rate based on the average applicable Federal mid-term rates over a 60-month period.
  • 2020 0512 – House – H. R. 6800 – [PDF-1815p]
  • 2020 0528 – JCT – JCX-16-20 – [LINK-DOWNLOAD]
    • 7. Minimum rate of interest for certain determinations related to life insurance contracts…… cia 12/31/20 — -8 (2021) -38 -92 -160 -242 -334 -438 -553 -672 -791 -540 (2020-2025) -3,328 (2020-2030)
  • 2020 1019 – Congressional Record https://www.congress.gov/116/crec/2020/10/19/CREC-2020-10-19-pt1-PgS6075.pdf
  • 2020 1221 – Senate – RULES COMMITTEE PRINT 116-68 -TEXT OF THE HOUSE AMENDMENT TO THE SENATE AMENDMENT TO H.R. 133 – [PDF-5593p] – [PDF-p4923-3927]
    • TITLE II-OTHER PROVISIONS
      Sec. 205. Minimum rate of interest for certain determinations related to life insurance contracts
  • 2020 – H. R. 133 – [PDF-2124p]
  • 2020/1?? – ACLI – Consolidated Appropriations Act Updates to Internal Revenue Code Section 7702 – 3p
  • 2021 03 – SOA – Rightsizing the Floor Interest Rate Rules of Sections 7702 and 7702A, By Craig Springfield, Brian King and Robert Fishbein, Taxing Times, Society of Actuaries – [link]
  • 2021 02 – SOA – Recent Change to IRC § 7702 Interest Rates and Impact on Life Insurance Products, Society of Actuaries – [link]

2021 – H. R. 133 – 2124p]

SEC. 205. MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS.
(a) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF CASH VALUE ACCUMULATION TEST.-
(1) IN GENERAL.-Section 7702(b)(2)(A) is amended by striking ”an annual effective rate of 4 percent” and inserting ”the applicable accumulation test minimum rate”.
(2) APPLICABLE ACCUMULATION TEST MINIMUM RATE.-Section 7702(b) is amended by adding at the end the following new paragraph:
(3) APPLICABLE ACCUMULATION TEST MINIMUM RATE.-For purposes of paragraph (2)(A), the term ‘applicable accumulation test minimum rate’ means the lesser of-
”(A) an annual effective rate of 4 percent, or
”(B) the insurance interest rate (as defined in subsection (f)(11)) in effect at the time the contract is issued.”.
(b) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF GUIDELINE PREMIUM REQUIREMENTS.-
(1) IN GENERAL.-Section 7702(c)(3)(B)(iii) is amended by striking ”an annual effective rate of 6 percent” and inserting ”the applicable guideline premium minimum rate”.
(2) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.-Section 7702(c)(3) is amended by adding at the end the following new subparagraph:
”(E) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.-
For purposes of subparagraph (B)(iii), the term ‘applicable guideline premium minimum rate’ means the applicable accumulation test minimum rate (as defined in subsection (b)(3)) plus 2 percentage points.”.
(c) APPLICATION OF MODIFIED MINIMUM RATES TO DETERMINATION OF GUIDELINE LEVEL PREMIUM.-Section 7702(c)(4) is amended-
(1) by striking ”4 percent” and inserting ”the applicable accumulation test minimum rate”, and (2) by striking ”6 percent” and inserting ”the applicable guideline premium minimum rate”.
(d) INSURANCE INTEREST RATE.-Section 7702(f) is amended by adding at the end the following new paragraph:
”(11) INSURANCE INTEREST RATE.-For purposes of this section- “Consolidated Appropriations Act”

H.R.6800 – The Heroes Act – 116th Congress (2019-2020)

Sponsor: Rep. Lowey, Nita M. [D-NY-17] (Introduced 05/12/2020)
Committees: House – Appropriations; Budget; Ways and Means
Committee Meetings: 09/22/20 10:30AM 09/16/20 12:00PM 09/10/20 12:00PM (All Meetings)
Latest Action: Senate – 07/23/2020 Committee on Small Business and Entrepreneurship. Hearings held.  (All Actions)
Roll Call Votes: There have been 2 roll call votes

 

Sec. 307. Minimum rate of interest for certain determinations related to life insurance contracts. https://www.govinfo.gov/content/pkg/CREC-2020-10-19/html/CREC-2020-10-19-pt1-PgS6075.htm [Congressional Record Volume 166, Number 178 (Monday, October 19, 2020)] [Senate] [Pages S6075-S6295] From the Congressional Record Online through the Government Publishing Office [www.gpo.gov] STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTION
  • 2020 Summer, NAIC Proceedings, 6-198  Attachment Six – Life Actuarial (A) Task Force
  • 2. Exposed Amendment Proposal 2020-07
    • Paul Graham (American Council of Life Insurers-ACLI) said the Heroes Act, a bill passed recently by the U.S. House of Representatives, contains a revision to Section 7702 of the Internal Revenue Code (IRC), which for tax purposes provides the definition of life insurance.
      • The definition uses the cash value accumulation test (CVAT) to determine whether a policy qualifies as life insurance, allowing it to avoid being taxed as an investment.
      • The interest rate used in the Section 7702 CVAT is currently floored at 4%.
      • He noted that the 4% nonforfeiture interest rate floor in the Standard Valuation Law (#820) and the Valuation Manual was set to match the 4% floor in the Section 7702 CVAT.
    • Mr. Graham further explained that the Heroes Act changes the CVAT by replacing the interest rate floor from the 4% static rate to an indexed rate.
      • He said the change necessitates a similar change in the Valuation Manual for policies issued after the congressional bill is adopted by the U.S. Senate.
      • He said the challenge is that the timing of the Senate adoption is uncertain.
  • Brian Bayerle (ACLI) said amendment proposal 2020-07 (Attachment Six-C) removes Valuation Manual references to the 4% interest rate floor and replaces it with language that sets the nonforfeiture rate floor in the Valuation Manual to the rate determined by Section 7702, eliminating the need for future adjustment to align the two sets of requirements.
    • He reiterated that the change will not affect any existing policy.
  • Mr. Tsang said lowering the nonforfeiture rate will result in higher cash values.
    • He asked if there is a business reason for lowering the rate.
  • Mr. Graham said that as interest rates decline, premiums on new policies will increase.
    • He said providing higher cash values as premiums increase is a matter of equity.
  • John Norton (Globe Life) said Globe Life is not in favor of the change recommended in amendment proposal 2020-07.
    • He said Globe Life is concerned the change will lead to higher costs that will affect the affordability of basic life protection.
    • He said Globe Life is supportive of comprehensive reform of the nonforfeiture laws.
  • Jim Hodges (National Alliance of Life Companies-NALC) said that the NALC agrees with the Globe Life viewpoint.
  • Mr. Yanacheak made a motion, seconded by Mr. Tsang, to expose amendment proposal 2020-07 for a 21-day public comment period ending June 10.
    • The motion passed unanimously.

2020 1019 – Congressional Record – 221p

SEC. 307. MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS.
(a) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF CASH VALUE ACCUMULATION TEST.-
(1) IN GENERAL.-Section 7702(b)(2)(A) of the Internal Revenue Code of 1986 is amended by striking ”an annual effective rate of 4 percent” and inserting ”the applicable accumulation test minimum rate”.
(2) APPLICABLE ACCUMULATION TEST MINIMUM RATE.-Section 7702(b) of such Code is amended by adding at the end the following new paragraph:
”(3) APPLICABLE ACCUMULATION TEST MINIMUM RATE.-For purposes of paragraph (2)(A), the term ‘applicable accumulation test minimum rate’ means the lesser of- ”(A) an annual effective rate of 4 percent, or ”(B) the insurance interest rate (as defined in subsection (f)(11)) in effect at the time the
contract is issued.”.
(b) MODIFICATION OF MINIMUM RATE FOR PURPOSES OF GUIDELINE PREMIUM REQUIREMENTS.-
(1) IN GENERAL.-Section 7702(c)(3)(B)(iii) of such Code is amended by striking ”an annual effective rate of 6 percent” and inserting ”the applicable guideline premium minimum rate”.
(2) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.-Section 7702(c)(3) of such Code is amended by adding at the end the following new subparagraph:
”(E) APPLICABLE GUIDELINE PREMIUM MINIMUM RATE.-For purposes of subparagraph (B)(iii), the term ‘applicable guideline premium minimum rate’ means the applicable accumulation test minimum rate (as defined in subsection (b)(3)) plus 2 percentage points.”.
(c) APPLICATION OF MODIFIED MINIMUM RATES TO DETERMINATION OF GUIDELINE LEVEL PREMIUM.-Section 7702(c)(4) of such Code is amended- (1) by striking ”4 percent” and inserting ”the applicable accumulation test minimum rate”, and (2) by striking ”6 percent” and inserting ”the applicable guideline premium minimum rate”.
(d) INSURANCE INTEREST RATE.-Section 7702(f) of such Code is amended by adding at the end the following new paragraph:
”(11) INSURANCE INTEREST RATE.-For purposes of this section-
”(A) IN GENERAL.-The term ‘insurance interest rate’ means, with respect to any contract issued in any calendar year, the lesser of- ”(i) the section 7702 valuation interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year), or ”(ii) the section 7702 applicable Federal interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year).
”(B) SECTION 7702 VALUATION INTEREST RATE.-The term ‘section 7702 valuation interest rate’ means, with respect to any adjustment year, the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law) as effective in the calendar year immediately preceding such adjustment year.
”(C) SECTION 7702 APPLICABLE FEDERAL INTEREST RATE.-The term ‘section 7702 applicable Federal interest rate’ means, with respect to any adjustment year, the average (rounded to the nearest whole percentage point) of the applicable Federal mid-term rates (as defined in section 1274(d) but based on annual compounding) effective as of the beginning of each of the calendar months in the most recent 60-month period ending before the second calendar year prior to such adjustment year.
”(D) ADJUSTMENT YEAR.-The term ‘adjustment year’ means the calendar year following any calendar year that includes the effective date of a change in the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law).
”(E) TRANSITION RULE.-Notwithstanding subparagraph (A), the insurance interest rate shall be 2 percent in the case of any contract which is issued during the period that- ”(i) begins on January 1, 2021, and ”(ii) ends immediately before the beginning of the first adjustment year that beings after December 31, 2021.”.
(e) EFFECTIVE DATE.-The amendments made by this section shall apply to contracts issued after December 31, 2020.

Deregulation

  • It is an exciting time in the financial services industry today.
  • Banks want to sell insurance.
  • Insurance companies want to sell securities.
  • Sears Roebuck wants to sell everything.
  • I will discuss the insurance activities of banks and bank holding companies

— Charles Eggleston, not a member of the Society, is a Senior Manager at Price Waterhouse

1984 – SOA – Deregulation of Financial Industries (rsa84v10n221) –  30p 

  • NAIC
  • 1984-2, NAIC Proceedings – Systems for Deregulation and Improved Regulation (EX) Task Force
    • J. Michael Low, Chairman – Arizona
  • Paul KANJORSKI (D-PA): If we have learned anything from the financial crisis, it is that excessive deregulation is dangerous.
    • My three bills work to reverse this trend by closing loopholes and fixing problems in the broken regulatory structure, especially in our securities and insurance markets.  (p1)

2009 1006 – GOV (House) – Capital Markets Regulatory Reform: Strengthening Investor Protection, Enhancing Oversight of Private Pools of Capital, and Creating a National Insurance Office, Barney Frank (D-MA) – [PDF-325p, VIDEO-House-Error]

  • (p26) – Pete STARK (D-CA) The only thing I think we can do better than the States is pay, and I am not sure we can do that much better than a rich State like California or New York.
    • But I am suggesting that if we are called upon to pay, that perhaps at that point we could reasonably require some minimum asset standards, to insure the integrity of the assets, so we would not have to pay again and again and again.
  • John GARAMENDI, California Insurance Commissioner – That, of course, is coupled with regulation, and here is the case where my State fell down and did not carry out its regulatory responsibilities.
    • In fact, I suspect for most of America, the 1980s, the deregulation period, when the mantra of deregulation was preached in most every hall in America-the result of that is now the debacle of the 1990s, the S&Ls, the banks and now some parts of the insurance companies.

Executive Life Insurance Failure, Charles B. Rangel (D-NY)  —  [BonkNote]

IAIS – International Association of Insurance Supervisors

  • Activities-Based Approach (ABA)
  • Behavioral-Based Approach
  • Comframe
    • ComFrame Standards
    • ComFrame Guidance
  • Entity-Based Approach
  • Insurance Core Principles (ICPs)
    • first published in 2003
    • ICP Online Tool
    • 2014 – IAIS/Team USA – UNITED STATES SELF-ASSESSMENT OF OBSERVANCE WITH INSURANCE CORE PRINCIPLES 
  • Prudential 
  • Application Papers
  • Compiled Comments
  • Consultation Document
  • Global Insurance Market Report (GIMAR)
  • Issues Papers
  • IAIS – Regulation and Supervision Supporting Inclusive Insurance Markets
    • Application Paper
  • IAIS created a Task Force on Enhanced Disclosure
  • Insurance Regulation Committee
  • IAIS – Liquidity Risk Management
    • 2020 0629 – IAIS –  Application Paper – 25p

    • “material funding draws”

  • “Insurance and Financial Stability Report” – 2010, 2011

Q101. Are there examples of other instances for which an extension of management actions to allow for the recognition of premium adjustments may be appropriate? Please explain. (Section 6.5.3.1)

  • ACLI believes that rate actions such as COI increases should be allowed.
    • We understand that rate actions might precipitate other policyholder actions such as increased lapses and possibly reputational risk.
  • Such policyholder behavior sensitivity could be captured by reasonable dynamic lapse assumptions.

FINAL_ACLI response to the IAIS Insurance Capital Standard consultation (Version 1.0) – 16p

  • The insurance sector is susceptible to systemic risks generated in other parts of the financial sector.
  • For most classes of insurance, however, there is little evidence of insurance either generating or amplifying systemic risk, within the financial system itself or in the real economy.
  • This is because of the fundamentally different role of insurers in the economy as compared to banks.
  • It is important also to note the stabilisation role that the insurance sector typically plays in the economy that may help to limit systemic risk. (p3)

2010 0604 – IAIS – Position Statement on Key Financial Stability Issues – 5p

The Geneva Association – Insurance Industry Reaction to International Association of Insurance Supervisors (IAIS) Position Statement on Key Financial Stability Issues – 3p

  • 10 IAA Insurance Regulation Committee Commentary on IAIS Draft Guidance Paper on Public Disclosure, July 2001
  • 11 IAIS Draft Guidance Paper on Public Disclosure by Insurers, April 2001 (p33)

2002 02 – IAA – Report of Solvency Working GroupPrepared for IAA Insurance Regulation Committee – 99p

  • ABA – Activities-Based Approach to Systemic Risk
    • 2017 1208 – Activities-Based Approach to Systemic Risk – Public Consultation Document – Comments due by 15 February 2018

Business of Insurance

  • 2010 – Book – Regulating the Business of Insurance in a Federal System, By Joseph F. Zimmerman
  • (p71) – If you want to do something to help the regulation of insurance and to help the policyholders, then cut through the case law and amend McCarran-Ferguson to precisely state that “the business of insurance “includes insolvency proceedings.

—  Karl L. Rubenstein, Special Deputy Insurance Commissioner, State of California

1988 0914 and 0915 – GOV (House) – Insurance Company Failures, John Dingell (D-MI)  —  [BonkNote]

  • Opening Statement of Senator Metzenbaum (D-OH)
    • Today the Subcommittee on Antitrust and Monopoly begins its examination of cost disclosure in life insurance.
      • Life insurance is a tremendous business in this country.
      • Americans carry 140 million ordinary life policies, with nearly $1.3 trillion in coverage.
      • Cash-value life insurance accounts for more than 20 percent of total savings in this country-second only to deposits in savings and loan institutions.
    • The business of life insurance is presently exempt from the Federal antitrust laws under the McCarran-Ferguson Act.
      • It is the only major financial business without Federal regulation. This is a unique situation.
    • It is fair to ask how well has the industry operated under this system.
      • Do consumers of insurance enjoy the benefits of competition?
      • Are consumers able without heroic efforts to find the best coverage for their needs at the lowest cost?
      • And are consumers able to readily understand precisely what kind of coverage they are buying?
    • My staff has conducted a major investigation of these issues.
      • I must say today that I was shocked when I saw its findings.  (p1)

1979 0524 – GOV (Senate) – Cost Disclosure in Life Insurance, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • The United States Supreme Court has identified three factors in determining whether a particular practice is part of the business of insurance:
  • The Court stated none of these factors is necessarily determinative of the issue. Id.

2000 – LC – Cox v Woodmen of the World, Court of Appeals of South Carolina – [Google-Scholar]

  • (p20) – Karl L. Rubenstein, Special Deputy Insurance Commissioner, State of California  – But the Court went on to say what it saw as the business of insurance is that which touches the fundamental relationship between the policyholder and the insurance company, which, of course, would be things such as the policy,
    • and there are many cases throughout the country that hold that the insurance regulatory statutes, specifically the insolvency statutes, are part of the insurer’s – excuse me, yes, of the insured’s insurance contract, and that is bound by them, and since these State insurance insolvency regulations will determine whether or not a dollar that is available to – that is in the estate of the insurance company will be paid to the policyholders or paid to somebody else is an issue of overriding importance to State regulators today.
  • (p71) – Several decisions have held that under McCarran Ferguson, the state priority statutes should apply and that liquidation of insurance companies is “the business of insurance” within the meaning of McCarran- Ferguson. See, for example, …
  • (p71) – In the 1987 case of Gordon v U.S. Dept. of Treasury,24 however, it was held that liquidation of an insurance company is not “the business of insurance .”

1988 0914 and 0915 – GOV (House) – Insurance Company Failures, John Dingell (D-MI)   —   [BonkNote]

  • An example of this approach is Colonial Life & Accident Insurance Co v American Family Life Assurance Co,’ where a federal district court applied the broader National Securities analysis.
  • The court ruled that a state law regulating insurance advertising fell within the boundaries of “business of insurance” for purposes of the first clause of the McCarran-Ferguson Act because the law affected the insurer-insured relationship.32

2000 – LR – After Fabe: Applying the Pireno Definition of “Business of Insurance” in First-Clause McCarran-Ferguson Act Cases, by Peter B. Steffen – 27p

ASOPS – Actuarial Standards of Practice

  • One of my concerns is that we have Practice Notes that people may not be looking at, which in a court of law could be used against you.
  • Read the ASOP; read the regulation and get your hands on the Practice Notes and do what the profession says you should be doing.
  • That’s all you can do

—  Timothy F. Harris

1996 – SOA – Life Insurance Sales Illustrations-What’s Next?, Society of Actuaries – 22p

  • 2014 1205 – Letter – AAA to NAIC – Comments on Exposure Draft of Life Insurance and Annuity Pricing ASOP – Life Products Committee (LPrC) comment letter to Actuarial Standards Board on exposure draft of an Actuarial Standard of Practice (ASOP) on Life Insurance and Annuity Pricing – 6p
  •  
  • Other
    • ASOP 1 – “Introduction to Actuarial Standard of Practice”
    • ASOP 25 – “Credibility Procedures”
    • ASOP 27 – “Selection of Economic Assumptions for Measuring Pension Obligations”
    • ASOP 51 – “Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions.”
    • ASOP 23- for data quality compliance.

ASOP NO. 1

ASOP NO. 2

NOLHGA – National Organization of Life and Health Insurance Guaranty Associations

  • These events, of course, were the reasons that NOLHGA was created (under the auspices of the ACLI).

2006 0803 – DOTT – Remarks of David G. Nason Deputy Assistant Secretary, Financial Institutions Policy U.S. Department of the Treasury Before the National Organization of Life and Health Insurance, Department of the Treasury – [link]

  • (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

  • In the early 1990s, there were a number of large insolvencies

—  Willis B. Howard Jr., NOLHGA – National Organization of Life and Health Insurance Guaranty Associations

1998 – SOA – Once in a Hundred Years, rsa98v24n393pd – Society of Actuaries – 22p

  • Finally, I have mentioned the NOLHGA.
  • Quite frankly, I still don’t know what to make about this, but there’s no question that they have had a substantial impact on the Executive Life Insurance Company transaction.
  • I have no idea how that’s going to play out, but the talking process in Executive Life has been significantly impacted by NOLHGA.
  • And the last I heard, they are to be considered a serious buyer.
  • So in rehabilitation situations, they are a force to be reckoned with.

—  Patrick S. Baird, Vice President and Chief Tax Officer of Aegon U.S.A., Inc.

1991 – SOA – What is a Life Company Worth? rsa91v17n4b12 – Society of Actuaries – 24p 

1990s

  • 1991 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]
  • 1993 0629 – GOV (Senate) – NOLHGA Bails Out a Healthy Insurance Company: Examining the Current System The State Guaranty Fund System Uses to Pay Off Insurance Policyholders, re: Security Benefit Life Insurance Company –
  • 1993 0629 – GOV (Senate) – NOLHGA Bails Out a Healthy Insurance Company: Examining the Current System The State Guaranty Fund System Uses to Pay Off Insurance Policyholders, re: Security Benefit Life Insurance Company
  • 1993 0629 – GOV – (Antitrust, Monopolies and Business Rights), State Insurance Guaranty Funds: Controlled by the Industry or by the Public? <Bonk: Can’t Find- Same As
    • 1993 0629 – GOV (Senate) – NOLHGA Bails Out a Healthy Insurance Company: Examining the Current System The State Guaranty Fund System Uses to Pay Off Insurance Policyholders, re: Security Benefit Life Insurance Company
  • 1995-1, NAIC Proceedings – Testimony from Jack H. Blaine, President National Organization of Life and Health Insurance Guaranty Associations Public Hearing on Policyholder Protection in Insurance Company Failures – September 11, 1995 – p
  • 1995-1, NAIC Proceedings – Guaranty Fund Issues Working Group B of the Insolvency (EX5) Subcommittee – September 11,1995

2000s

  • 2009 – NOLHGA – NOLHGA, the Life and Health Insurance Guaranty System, and the Financial Crisis of 2008-2009, Peter G. Gallanis (President, NOLHGA) – 31p

2010s

  • 2011 1216 – NOLHGA – Joint Comments of NOLHGA and NCIGF in Response to FIO’S Request for Public Input – 51p
  • 2012 02 – NOLHGA Journal – 16p
    • Second, the collapse of AIG’s securities lending program was an effect, not a cause, of AIG’s failure
  • 2014 10 – NOLHGA Journal – 24p
    • (p2) – Insurers, Systemic Risk, and the Debate Over Regulatory and Resolution Policy. This column is the first of a two-part discussion; the conclusion will follow in the next issue of the NOLHGA Journal, President’s Column by Peter G. Gallanis 
    • (p4-) – Harvey Miller discusses the Lehman Brothers bankruptcy, the challenges in unwinding a multinational company, and how Dodd-Frank doesn’t really end “too big to fail.”
    • Eric Dinallo, Ben Bernanke
  • 2016 – NOLHGA – NOLHGA Report Comparing The Federal Pension System and the State Insurance System – 68p
  • FRANKLIN PROTECTIVE LIFE Insurance Company – Martin Frankel
    • mid.ms.gov/companies/pdf/fplicliquidorder.pdf
      • John Hackney, President of the Company, has advised that he invested the Company’s assets in bonds through the broker known to him as LNS, Inc. Petitioners have confirmed that records of the Company reflect these investments, however, LNS, Inc. and the money invested in bonds throughLNS, Inc. is missing. With total liabilities of$21,857.487, and the missing bonds, the Company is insolvent.