Capital

  • 1981 – SOA – Effective Use of Capital, rsa81v7n14, Society of Actuaries – 26p
  • 1981 – SOA – Effective Use of Capital, rsa81v7n312, Society of Actuaries – 24p
  • 1987 – SOA – Sources of Capital for Investment and New Business, rsa87v13n318 – Society of Actuaries – 42p
  • 1990 – SOA – Capital-Raising Issues, rsa90v16n32 – Society of Actuaries – 34p
    • Bill is Executive Vice President of A. L. Williams Corporation, whose affiliate Milico has entered into a controversial commission financing transaction.
  • 1998 10 – FRBNY / AIG – Economic Policy Review – Capital from an Insurance Company Perspective, by Robert E. Lewis, Chief Credit Officer at American International Group – 3p
  • 2003 – SOA – Bringing Risk Into Capital Management, rsa03v29n124of – Society of Actuaries – 35p
  • 2008 – SOA – What Is a Robust Level of Risk Capital?, rm-essay-2008-rubin-shi – Society of Actuaries – 4p
  • 2023 – SOA – Rating Agency Perspectives on Insurance Company Capital, rating-agency-perspectives – Society of Actuaries – 28p
  • (p5) – Shelley Moore Kapito (R-WV) – Unfortunately, the consequences of Dodd-Frank are not limited to access to credit.
    • Life insurance policyholders could potentially see increases in premiums if life insurers are forced to capital levels designed for a lending institution.
    • I will continue to work with both Chairman Hensarling and Chairman Neugebauer to resolve this unintended consequence. 

2014 0723 – GOV (House-CFS) – Assessing the Impact of the Dodd-Frank Act Four Years Later – [PDF-169p,  VIDEO-CSPAN]

  • Even if we concede these differences, insurance policy holders can “run,” just differently.
    • A life insurance policy is not indentured servitude.
    • Policyholders can cash out whole life and annuity products, and halt premium payments on term products.
    • Indeed, one of the biggest life insurance failures – $15 billion Executive Life – suffered debilitating policy surrenders contributing to its failure in 1991.
  • 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

– Finding the Right Capital Regulations for Insurers – [PDF-105p,  VIDEO-Senate]

ALM – Asset Liability Matching

  • Let me be elementary to begin.
  • Asset/liability matching in its purest form likely means that we purchase assets such that whenever cash is needed to meet obligations, those assets will provide that cash.
  • However, in the real world, we are going to be mismatched either because
    • … we are not able to match 100% or
    • … because we make a corporate decision to be unmatched. 

—  Peter J. Bondy

1990 – SOA – Rating Agencies And Asset/Liability Matching, Society of Actuaries – 18p

  • The situation is always very fuzzy without a great deal of background knowledge as to what the value of the assets is in their case, and how it matches up against the liabilities.

—  Thomas S. Sutton, Pacific Life / ACLI

1991 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]

  • 1985 – SOA – Actuarial Opinions On Asset-Liability Matching, Society of Actuaries – 24p
  • 1990 – SOA – Rating Agencies And Asset/Liability Matching, Society of Actuaries – 18p
  • 1994 – SOA – Asset / Liability Management (ALM): AN International Perspective, Society of Actuaries – 18p 
  • 2003 – SOA – Are We In A Different Market Paradigm?, Society of Actuaries – 7p
  • My topic is asset/liability management in the U.S., with an emphasis on the past.
  • I have been involved in the asset/liability management practice area for over ten years.
    • ALM began, in its current form, in the late 1970s or early 1980s.
    • There are many valuable lessons we can learn from history, and my purpose is to share some of those with you through some personal experiences and stories.

—  Dennis L. Carr, vice president in charge of product development and asset/liability management for the ARM Financial Group

1994 – SOA – Asset / Liability Management (ALM): AN International Perspective, Society of Actuaries – 18p 

  • When we give the liabilities a quick checklist, I would recommend the following:
    • First and foremost I think is the disintermediation risk.
      • You need to look at the financial and psychological deterrents that contract holders have to surrender their contracts.
    • Obviously a very important factor is the prevailing interest rates in the market for comparable products and for other financial instruments in general.
      • Obviously we cannot operate in a vacuum.
      • Historically credited interest rates to policyholders, particularly the existing level, is a substantial consideration.
    • Any “expectations to policyholders that may have been created.”
      • The past experience for the product and how that relates to the original pricing assumptions is also needed.
    • Product specific characteristics including embedded policyholder options in the program.

—  Allan L. Chapman, a Senior Vice President with Executive Life Insurance Company in Los Angeles

1988 – SOA – Repricing Considerations — In Force Blocks of Business, Society of Actuaries – 20p

  • Assumptions regarding long-term expected returns play a critical role in Asset/Liability Management (ALM) of financial institutions.
    • This article questions the validity of assumptions regarding long-term expected returns used by many financial institutions at the present time.

2003 – SOA – Are We In A Different Market Paradigm?, Society of Actuaries – 7p

  • We also became more aware of the exercise of policyholder options.
    • This was not just through surrenders of annuities but also through options that we thought were safe, such as policy-loan provisions in ordinary life policies with fixed interest rates of 5% or 6%.
    • I remember Sylvia Porter, the financial columnist, writing about borrowing against your life insurance at 5% or 6% fixed interest and investing in a money market account at 15% interest.
    • Insurance companies experienced a cash-flow squeeze as money flowed out through the policy-loan feature.
    • There were some company failures at this time; Baldwin United was one of the most prominent.
    • Other companies suffered lesser degrees of financial stress.

—  Dennis L. Carr, vice president in charge of product development and asset/liability management for the ARM Financial Group

1994 – SOA – Asset / Liability Management (ALM): An International Perspective, Society of Actuaries – 18p 

  • 2015 – European Parliament – Interrelation between financial stability and monetary policy at the current juncture, Monetary Dialogue – 76p
    • 2.5 Negative impact on life insurance companies
    • Conceptual issues
      • Banks’ liabilities generally have shorter maturity than their assets.
        • But life insurance companies are typically characterised by the opposite maturity mismatch.
      • Whenever the liabilities have much longer duration than assets and the return on liabilities is fixed or guaranteed, unexpectedly low interest rates can challenge profitability and solvency.
      • According to the European Insurance and Occupational Pensions Authority (EIOPA) (2014), Moody’s (2015) and Standard and Poor’s (2014), the life-insurance industry in several euro-area countries is exposed to such risks.
      • Most life insurers’ liabilities have long maturities with a guaranteed minimum return.
        • However, other (non-life) insurance products are typically not characterised by such duration mismatches and guaranteed returns and these segments of the insurance industry might not face major risks arising from persistently low interest rates.
      • Evidence
        • The mismatch between the duration of liabilities and assets held by life insurance companies is estimated by EIOPA to about 10 years in Germany, Austria and Lithuania. In  all other euro-area countries, the mismatch is smaller – about five years in Finland, France, Luxembourg and the Netherlands, while in southern Europe (Greece, Italy, Portugal and Spain) it is below two years.
          • Therefore, Germany is particularly exposed to unexpectedly low interest rates, which is a concern for financial stability.
        • According to both Moody’s (2015) and Standard and Poor’s (2014), German life insurers have some options for mitigating the negative impacts of declining investment returns, such as reducing expenses or investment returns to policyholders, diversifying their portfolios towards new asset classes, such as infrastructure and real estate, and re-pricing new sales.
        • Stress tests conducted by EIOPA underline the vulnerability of German life insurers to a prolonged period of low interest rates.
        • Recent EU (Solvency II) and specific German regulatory changes affecting life insurance providers should improve the long-term stability of the sector, but the transition during the next few years could pose special challenges if interest rates stay low.

Competition

  • Regulatory Competition
  • 1996 – SOA – Competitors to the Life Insurance Industry, rsa96v22n186if – Society of Actuaries – 26p
  • The life insurance industry competes for agents and in designing unique policies that are often merely sales tools.
    • But as shown in this section, it does not compete vigorously on the basis of price.
    • Without meaningful cost disclosure, effective price competition is impossible.54  (p62)

1979 – FTC – Life Insurance Cost Disclosure – 460p

  • Today, life insurers compete directly with non-insurance financial services institutions, such as banks and mutual funds.  (p12)

—  William B. Fisher, Vice President And Associate General Counsel, Massachusetts Mutual Life Insurance Company, On Behalf Of The American Council Of Life Insurers  (ACLI)

2001 0621 – GOV (House) – Insurance Product Approval: The Need for Modernization – [PDF-208p, VIDEO-?]

  • 2022 1109 – AP – Regulatory Competition in the US Life Insurance Industry, by Johnny Tang – 88p
    • Competition between jurisdictions is a central feature of many public policy problems.
      • I examine the consequences of such competition in the US life insurance industry, where states vie to attract insurers by setting lower capital requirements, but the costs of such actions are borne by consumers in other states.
      • I document empirical evidence of competition between state regulators and its effects on the supply of life insurance.
      • I then develop a quantitative model of the insurance market to evaluate the effects of this competition.
      • I find that competition leads regulators to set lower capital requirements, which increases default risks but also increases consumer surplus by lowering prices.
      • On net, these effects decrease regulators’ utility based on regulators’ revealed- reference objective functions.
  • Thirty-one years ago, Mark S. Dorfman (1972) concluded that workable competition did not exist in the market for life insurance products because of industry marketing practices that tended to exacerbate the insurance consumer’s ignorance and the problem of information asymmetry inherent in the industry.
    • Utterances by both industry representatives and industry critics suggest Dorfman’s assessment may still linger today.

2004 – LR – Workable Competition and the Life Insurance Market: A Quantitative Analysis, by Andrew W. Bacdayan, Elliott, Jones – 12p

  • <WishList> – 1972 – AP – Workable Product Life Competition in the Life Insurance Market, by Mark S. Dorfman, Journal of Risk and Insurance 39 (December 1972): 613-625.
  • 4. Any change in premiums and values is an important management decision and investment yields are only one factor involved.
    • Recent changes may have been influenced more by competition than by a rise in interest rates.

—  B. T. Holmes

1957 – SOA – Life Insurance Policies, Premiums and Dividends, Society of Actuaries – 9p

Claims Settlement

  • (p1501) – John Durkin, New Hampshire Insurance Commissioner: As a starting point, there is little regulation of the life insurance industry by the States.
    • The States do little with respect to life insurance regulations for many reasons, mainly because there are very few problems with complaints over claims.
    • Most of the staffs are involved with complaints relating to automobile insurance and health insurance.
    • Life insurance is sort of the stepchild of many, if not most, insurance departments.

1973 0221 and 0222 – GOV (Senate) – The Life Insurance Industry – Part 2 of 4 – Philip Hart (D-MI)  —  [BonkNote-Part 2 of 4]  —  [PDF-733p-GooglePlay]   

  • The insurer must remember that offices have unjustly refused, at the time of the death, to pay either the amount assured or to return the premiums, on the ground of error in the description of age-although no fraud was intended or reasonably suspected.
  • Legal objections of a technical nature have frequently succeeded in inducing claimants to forego a part or the whole of their demands, without the office injuring itself by appearing to be of a litigious character.
  • And I have heard of an office the trustees of which boasted of their power to litigate a claim for three years.

1850 – Book – Practical Remarks on the Present State of Life Insurance in the United States: Showing the Evils which Exist, and Rules for Improvement, by Harvey Garnett Tuckett

  • … I want to express my disappointment that the DoD decided not to participate in today’s hearing.
    • This is the second time that the DoD has refused to testify at one of our Subcommittee hearings and I am hoping that this does not become a customary response from DoD.
    • For this hearing, I invited DoD to provide views on high rate of denials for TSGLI claims and I am frustrated because I wanted the department to explain why the Armed Services denied 44 percent of TSGLI claims in fiscal year 2017.
      • This denial rate could be due to any number of factors, such as applications not being eligible for-applicants not being eligible for the benefits.
    • However, we don’t know whether this is the reason.
    • I was hoping the DoD would provide insight as to whether the servicemembers may not understand the TSGLI requirements or if they may be inadvertently filing improper claims, or are the Armed Services incorrectly denying benefits that servicemembers are paying for?
    • DoD’s expertise would certainly have been helpful here today as we consider these programs and any improvements to them.
    • [Bonk: Dod = Department of Defense]

—  Mike Bost, Chairman

2018 0425 – GOV (House) – Review of VAs Life Insurance Programs, Mike Bost (R-IL) – 34p

  • Mr. Adkins (CIR) added that in the center’s study, 12 provisions in the Unfair Trade Practices Act and 15 provisions in the Unfair Claims Settlement Practices Act were analyzed.

1996-1, NAIC Proc.

Bailouts

  • The life insurance industry takes great pride in its survival of the depression, although it seems to me that it was bailed out by government intervention.
    • I wonder if the time may come again, say if the prime rate goes to 38%, that the life insurance industry will need to be bailed out in some fashion.
    • I do not know what that fashion might be, but that is why I am curious about the nature of the discussions of April 1980.

—  Joseph Belth, Academic

1981 – SOA – The Life Insurance Business — The View of Consumerists, Society of Actuaries – 18p

  • 1920s/1930s – Great Depression
  • 1980s – Federal Reserve
  • 1990s – Executive Life, etc.
  • Federal Reserve Report on Economy
  • 03:38:22
    		  

    SEN. RIEGLE

    And the banks got into big trouble. Not just the ones under your supervision, but the ones under the supervision of other regulators. And last year, we had to pass legislation to provide a $70 billion tax payer loan because the bank insurance fund was broke. Not the S & L’s, now, but the commercial bank insurance fund was broke. And at a deficit, the GAO tell us, at the end of last year.
  • 2008 – AIG- FCIC – COP – Congress
    • 2009 CSPAN – AIG Collapse
    • Caroline – 17-20bn to AIG Life Insurance – Liddy
  • 2016 – JIR / NAIC / FRB-B – A Post-Mortem of the Life Insurance Industry’s Bid for Capital During the Financial Crisis, by Michelle L. Barnes, James Bohn, Cynthia L. Martin, Federal Reserve Bank of Boston – 41p

28 Apr 1992, Tue Newsday (New York, New York) Newspapers.com

  • Senator BRYAN.
    • You think so. And can you tell us how widespread that is likely to be?
      • Because although some have tried to say, “Well, you know, the Congress is just trying to get itself involved in another area.” 
    • When you see this kind of a report and other comments which are made in financial journals, not by those who hold public office, and you look back over the decade and I must say I consider myself very lucky…
      • I was not here in Washing ton in the 1980’s.
      • I was very fortunate from my perspective.
    • I must say that there is kind of this blurred impression that in the 1980’s, folks from the savings and loan industry were saying, “Hey, there is some isolated problems, no need to get involved.”
    • We all know how that story came out.
  • A year ago, I happened to serve on the Banking Committee as well.
    • We were told, look, that that fund is fine, that we are not going to need any Federal bailout.
    • Today I attended a hearing in which representatives of the industry, the independent banking association, the ABA , the major trade associations, if you were lining up, you know, a $10 billion plus loan to in effect recapitalize the system.
    • That ultimately, as you well know, Mr. Sutton <ACLI / Pacific Life>, means you and I, the taxpayers, all of us collectively.
  • And so when we hear these assurances it is not that we impugn your integrity, but I must say that there is a hope that you are right- because that is the last thing the country needs or this Congress needs to deal with.
  • But give us a little bit more of your sense.
    • How widespread is the problem out there?
  • And what levels of failure are we likely to see under the reasonable parameters, as opposed to the most Draconian, you know, a complete economic collapse?

[PDF-369p-GooglePlay, <No Video-227/0507 and 0523> –  0509-VIDEO-CSPAN]

  • Joseph BELTH: Before you sit down, John, let me ask you a question.
    • Rumor has it that there were some extensive discussions between highly placed life insurance officials and officials of the Federal Reserve in April, 1980.
    • Would you care to discuss exactly what the nature of those conversations was?
  • John BOOTH (ACLI): I was not present.
    • There were some discussions; as you know, in the Spring there was a policy loan crunch.
    • There have been discussions held periodically as far back as 15 to 20 years.
  • MR. BELTH: I raise the question whether the disintermediatlon problem could conceivably become so serious as to threaten the viability of the life insurance industry and force some kind of unilateral governmental action in order to save, or literally bail out, the industry.
    • One incident that I recall which somehow has been blacked out of most textbooks was when the NAIC (it was then the NCIC) allowed life insurance companies to change their valuation rules for just one year.
    • Was it 1932?

1981 – SOA – The Life Insurance Business — The View of Consumerists, Society of Actuaries – 18p

  • [Bonk:  Referencing ->???]
  • Further Resolved, That inasmuch as a number of worthy industrial and commercial corporations are in emergency receivership and a number of corporate bonds are in default as to interest and/or principal by reason of lack of liquidity rather than by reason of lack of underlying value, stocks of corporations in receivership and bonds in default should be valued on the 1931 Convention basis less 30 per cent of the difference between such Convention value and the exchange quotation as of December 1, 1932, unless the value underlying such securities has been heavily depleted or has disappeared to such an extent that a lower value is required by reason of such special circumstances. (p8)
  • The Committee on Valuation of Securities

1933-1, NAIC Proceedings, volume only, NAIC/ NCIC

  • We must get rid of “too big to fail.”
  • It must be declared today that there will not be government backup other than some sort of minimum level.
  • You could use  $100,000 on deposits if you want to.
  • Insurance companies have had their own fund.
  • That $100,000 should absolutely be paid solely by the banking industry.
  • There shouldn’t be a nickel to the taxpayer, but it has to be clear that there’s a limit and anyone who has more than $100,000 to put in a bank can gauge whether that’s an appropriate risk reward to take, just as they would with mutual funds for example.
  • We have to address this, and we have to make it clear because there is, as we’ve seen in other countries in Asia, not enough money around to support irrational risk-taking, and there’s lots of irrational risk-taking going on out there.

—  Richard M. Kovacevich, President and CEO at Wells Fargo and Company

1999 – SOA – CEO Perspective: The Future of Financial Services, rsa99v25n330pd – Society of Actuaries – 19p

29 Apr 1992, Wed Lincoln Journal Star (Lincoln, Nebraska) Newspapers.com

Shopping for Life Insurance

  • Judy Faucett*  responded that people spend more time buying a microwave than they do an insurance policy.

*Actuarial Consultant to the NAIC

1994-1, NAIC Proceedings

  • 2018 1009 – NAIC – LIIIWG, Life Insurance Illustrations Working Group – [Bonk: Not in NAIC Proceedings]
    • Goal of Policy Overview
      • Birny Birnbaum (CEJ) – Shopping
      • ACLI – Not Shopping
  • 2018 – AP – A Behavioral Study of Life Insurance Purchase Decisions, by Manohar Giri – 200p
  • The key questions are who is going to buy the product and what’s important to the buyer?
    • Premiums can be high or low, fixed or flexible.
    • How important is the early death benefit to the purchaser?
    • Is the initial cash value important?
    • What about safety and guarantees?
    • For universal life products, what about the interest crediting rate and cost of insurance rates?
    • Other issues may involve simplified or guaranteed issue underwriting and loan provisions. All of these features need to be balanced against one another.
  • Not all can be most favorable to the client.

—  Phillip J. Grigg, PRUCO Life / Prudential

1987 – SOA – Product Development Process — Bringing New Products To Market Quickly And Efficiently, Society of Actuaries – 22p

  • Birny Birnbaum (Center for Economic Justice-CEJ) said he supports a uniform format for the one- to two-page consumer document and the policy and narrative summaries because some standardization is necessary to achieve the goal of Model #580, the purpose of which is to facilitate consumer comparison shopping.

2016-2, NAIC Proceedings – Life Insurance and Annuities (A) Committee, San Diego, California, August 27, 2016

  • One thought about the Moss Report is that requiring that costs for both term and whole life be provided when selling insurance products does not seem right in the American marketplace.
  • If the agent wants to do it voluntarily, that is one thing, but to have it mandated, seems to be against our way of marketing products.

— William M. Snell, Northwestern Mutual Life and Chairman of the Wisconsin Task Force

1979 – SOA – Cost Disclosure (Moss Report), Society of Actuaries – 18p

  • (p96) – Survey evidence has consistently shown that most people do not shop at all for life insurance; they deal with only one agent. See Chapter IX.
  • (p290) – Almost twenty years ago, the Yankelovich organization, on the basis of an extensive survey, reported to the major life insurance company trade association that6….
    • Due in part to the inherent characteristics of the product, the average person feels less self-confident as a buyer of life insurance than of any major purchase.
    • Indeed, the entire act of purchasing life insurance is fraught with anxiety:
      • people are not confident about their ability to comprehend the pros and cons of alternative plans. 

1985 – FTC – Life Insurance Products and Consumer Information – 317p

  • National Association of Insurance Commissioners External Communication Plan – September 8, 1985
  • External Communication Project Rational
    • Objective – To increase awareness of state insurance departments as a primary source of consumers information about insurance products.
    • Strategy – To offer buying tips and to solicit questions on a specific insurance product. (p95) 

1986-1, NAIC Proceedings

  • EXHIBIT F – [From Dally News, Friday, Dec. 29, 1972]
  • CONSUMERS GET SHOP TALK ON BUYING LIFE INSURANCE, (By Gene Spagnoll)
    • The average consumer probably spends more time shopping for a color TV set than he does for his life insurance.
    • One reason for this, perhaps, is that it’s so difficult to shop for a policy.
    • There is no such thing as an insurance supermarket where one could compare prices and other factors affecting the purchase of insurance.  (p801)

1973 0220 – GOV (Senate) – The Life Insurance Industry, Philip Hart (D-MI) – Part 1 of 4  —  [BonkNote]

  • To get the best buy in insurance, Charlie Is going to have to shop around, talk to several agents and compare the prices and services offered by the companies.  (p802)

—  Herbert Denenberg, Pennsylvania Insurance Commissioner 

1973 0220 – GOV (Senate) – The Life Insurance Industry, Philip Hart (D-MI) – Part 1 of 4  —  [BonkNote]

  • Mr. Foley:  …responded that, if consumers want to compare policies, they have the illustrations to do so.

1999-4,  NAIC Proceedings

  • William L. HUNGATE (D-MO-House): Mr. Speaker, the State of Pennsylvania is taking what may be a leader’s role in analyzing State insurance problems.
  • The following article should be of interest to all who purchase life insurance:
  • A national shopper’s guide for life insurance shows that some major companies charge more than twice as much as others for similar policies, and that some of the best known firms charge the most for coverage.
  • NP – Variation in Surety Cost Charges Can Double From Firm to Firm, By Bob Woodward
    • A national shopper’s guide for life insurance shows that some major companies charge more than twice as much as others for similar policies, and that some of the best known firms charge the most for coverage.
    • Among the life insurance firms doing business in the Washington area, for example, average annual cost for the same $10,000 straight life policy from Connecticut Mutual Life is $22.40 compared to $53.10 a year from Travelers Insurance Co.
      • This means that over 20 years it takes to pay off such a policy, the Counnecticut Mutual subscriber would pay $448, compared to $1,062 paid by a subscriber of Travelers. (p25109) 

1972 0724 – Federal Register – [38p]

Policy Performance

  • ….provide illustrations based on different assumptions.
  • This would serve to demonstrate to the consumer the effect on future benefits of changes in assumptions.

STATEMENT ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURANCE <ACLI> TO THE NAIC MARKET CONDUCT SURVEILLANCE (EX3) TASK FORCE, June 13, 1988

1988-2, NAIC Proceedings

  • – Walker v LSW – Doc 781 –
    • (p4-5) – In regard to consumer understanding, the Court correctly found that there was no foundation because, quote, “The concept of policy performance based on hypothetical returns is not so complex that consumers could not understand it.” 
  • Chalke and Davlin point out that a policy that provides whole life benefits assuming 10 percent interest is not a whole life plan if the guaranteed cash value is only 4 percent.
    • Such a plan is term insurance only for a period of years.

—  Thomas G. Kabele

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

  • Phoenix was the exclusive source of information concerning the projected performance of the policy.
2004 – LC – WILKES v. PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
From <https://caselaw.findlaw.com/pa-superior-court/1101716.html>
  • Please also tell us what documents or information you were given after you had applied for coverage, including documents or information provided at the time your policy was delivered to you. 
  • For example, were you given an illustration, ledger, or written explanation of policy performance with your policy?

1999 – LC – Spitz v Connecticut General – Amended and Restated Stipulation of Settlement – Case 2:95-cv-03566-JFW-EX Document 249-1 Filed 07/29/99 Page 39 of 160

  • The inability to evaluate policy performance in the normal course of owning the policy seems to be fundamental to any theory of informational market failure in this market.
  • The survey evidence cited above suggests that policyholders do not understand how to evaluate the dual savings/protection pay in advance life insurance contract.
  • They neither know nor realize the economic importance of cash values, dividends and the policy loan interest rate.
  • None of the usual market institutions that help buyers cope with complexity, expert “agency” or firm reputation, will work unless buyers can and, with some frequency do, evaluate the product and the services supplied by sales agents. (p293)

1985 11 – FTC – Life Insurance Products And Consumer Information – Michael P. Lynch and Robert J. Mackay – Staff Report Bureau of Economics – Federal Trade Commission – 317p

1995-1 p481
  • Mr. Higgins said he also thought it was important to add an alert that there was  something different, if in fact that was the case, so that the insured would understand the importance of requesting an in-force illustration.
  • Commissioner Ruthardt emphasized that it was very important to get information to the policyholders on how their policy was doing.

1995-1 P486
  • Drafting Note: The susceptibility of non-guaranteed benefits and values to changes in the underlying assumptions can be demonstrated in various ways.
  • The approach suggested here involves reducing the non-guaranteed items to a midpoint.

1995-1 p488

IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it has performed and may perform in the future.

  • You should not consider replacement of your policy or make changes in your coverage without requesting an updated illustration. You may request such an illustration by calling [insurer’s phone number], writing to [insurer’s name] at [insurer’s address] or contacting your agent at [agent’s phone].

1995-1 p489

C. If the annual report does not contain an in-force illustration, and there has been a diminution of previously illustrated values, it shall contain the following notice displayed prominently:

  • IMPORTANT POLICY OWNER NOTICE: During the past year, previously illustrated values for your policy in the area of [describe which values have diminished] have diminished and may have an impact on your expectations.

D. Upon the request of the policy owner, the insurer shall furnish an updated illustration based on amounts actually paid, credited, withdrawn or charged under the policy since issue; and future illustrated items based on the insurer’s present disciplined current scale or some lower scale applicable to the policy. No signature or other acknowledgment of receipt of this illustration shall be required.

Comment: The earlier draft contained a requirement to provide the updated illustration within 30 days of the request.

Comment: The working group needs to identify the items to be included in the updated illustration. Is it supposed to match the basic or the concept illustration? The insured may have changed his or her mind about the way the policy is to be handled.

Without including such things as “vanishing premiums,” policy loans, etc., it is not too meaningful.

  • It would be most useful if the updated illustration was designed to fit the needs of the policy owner. The insurer won’t have this information.

 

Q: What’s the Problem That We Are Trying To Solve?

1995 – SOA – Current Developments Surrounding Regulations and Standards of Life and Annuity Products, Society of Actuaries – 18p

⇒ *Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC)

  • Kanjorski – What is the plan, and what is the problem? – <Paraphrasing a Staffer) – (p14)

2009 0210 – GOV (House) – Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in Current Financial Crisis – [PDF-123p

  • Observation #1: We should be clear on the problem we are trying to solve. – Which raises the question:
    • What is that missing piece?
    • What is the problem we are trying to solve?
    • We must know the problem if we are to assess whether the solution works or whether, as is also possible, it only makes the situation worse.

2011 0328 – Comments to the NAIC Solvency Modernization Initiative (SMI) Task Force, Therese M. Vaughan, CEO, NAIC – 11p

It is hard to fix a system that has not been analyzed.  (p14)

— J. Robert Hunter

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection – [PDF-123p

  • Tom Leonardi (CT – Insurance Commissioner):  So I think what we need to do is step back and say again, what is the problem we are trying to solve with this very complex structure?  (p26)

2014 0204 – GOV (House) – The Federal Insurance Office’s Report on Modernizing –  [PDF-277p, VIDEO-YouTube]

  • Robert Ehren (Securian Financial Group)…  noted that Securian has adopted the ACLI proposal for its illustrations.
    • He said the proposal addresses 90% of the IUL illustration problems the industry has identified.

2014 – NAIC Proceedings – Fall 2014, 6-62 

  • Brad Barks (Life USA) commented that there were many good building blocks on the models, but there had not been good objectives identified.

1994-1. NAIC Proceedings, (353)

  • Mr. Myers reemphasized that without the benefit of the originally anticipated study to determine the problem, a regulation would be produced before the problem is clearly defined.

1991-1A, NAIC Proceedings – Life Marketing Practices to Senior Citizens Working Group (601)

  • Now, each one of those people is solving a different problem.
  • One of the suggestions that I have for you, when you go into situations like that, is to ask a very simple question:
    • “What problem are we trying to solve?”
    • You’ll be surprised at the answers you’ll get.

—  Steven Weber

2003 – SOA – The Discipline of Getting Things Done, rsa03v29n3119ts – Society of Actuaries – 19p

  • (p33) And, Mr. Chairman, as they say in baseball-and I understand you have an interest in baseball these days-you cannot tell the players without a scorecard?
    • Well, it is far too easy for consumers these days to lose track of balls and strikes on how their insurance product works for them, and that is leading to the type of problems we have heard about this morning.

—  NAIC – Statement of David J. Lyons, Commissioner, Iowa Insurance Department, And Chairman, Disclosure Task Force, National Association of Insurance Commissioners

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • Bruce Ferguson (ACLI) said more than 40 states have adopted Model #582.
    • He noted that, in its comment letter, the ACLI suggests enhancing simplicity and transparency of the narrative summary in Model #582 to reflect the significant changes in the marketplace since Model #582 was adopted 20 years ago, including the demographics of consumers who buy life insurance, the product designs developed to meet the changing needs of consumers and the technology consumers use to obtain information about life insurance products.

2015-3, Proceedings

3. (LIAC) Appointed a New Working Group to Address Life Insurance Policy Illustration Issues

  • Mr. Lovendusky said the ACLI work group discussed whether the charge should include revising the Buyer’s Guide, which was a suggested addition to the charge from the American Academy of Actuaries (Academy).
  • While the ACLI work group did not oppose including the Buyer’s Guide, some on the work group thought that revisions to the Buyer’s Guide might work instead of revisions to the models.
  • However, Ms. Cude pointed out that the Buyer’s Guide has a different purpose from the policy summary and that revisions to one would not take care of the other because the Buyer’s Guide is designed to be educational, while the policy summary is informational and explains a particular policy.

2016 0403, NAIC Proceedings, LIIIWG CC

  • 2016 0403, LIIIWG CC, NAIC Proceedings (6-8)
    • Mr. Schwartzer reminded the Working Group that the Life Insurance Illustration Issues (A) Working Group came out of concerns raised when the Indexed Universal Life (IUL) Illustrations (A) Subgroup under the Life Actuarial (A) Task Force was working on guidance for IUL policy Illustrations that would result in consumers being better able to understand the product performance and interest variability of IUL products. (IULISG – Indexed Universal Life Illustrations Subgroup – NAIC)
      • During the IUL Illustrations (A) Subgroup’s discussions, interested parties expressed a need to take a broader look at how all products are explained to consumers

2016/10/20 – LIIIWG CC, 2016-3 NAIC Proceedings

a. Purpose of Policy Overview Document

  • Birny Birnbaum (Center for Economic Justice – CEJ) suggested that the policy overview document should be a tool to aid consumers in comparing plans across companies, but not to choose between types of plans.
  • Mr. Wicka explained that he envisions the policy overview as being a high-level document including the basic elements of the plan.
    • He said the policy overview should enhance consumer understanding, but not replace the buyer’s guide or the details in the illustrations.
  • Ms. Mealer said she agrees with Mr. Wicka’s description of the intended purpose of the policy overview document.
  • ….perhaps, this came out of the fact that Illustrations were not as clear.
  • Maybe there’s been complaints. 
  • And the purpose of this entire committee was to provide some kind of summary to make it a little bit more clear.

–Teresa Winer (GA)

2019 0903 – LIIIWG, NAIC, <Bonk>

  • 2008 1009 – FAIR Canada – Canadian Foundation for Advancement of Investor Rights – re: Product Suitability Consultation – 2p
    • We believe that the consultation would benefit from a clearer articulation of the reasons for and objectives of the consultation.
  • ICP 24 – Summary of comments received
  • There is still a lack of articulation around the nature of systemic risk in the insurance sector.
  • For any activity to be deemed potentially systemically risky there needs to be a clear transmission channel into wider financial markets, with the quantification of the nature, scale and materiality of activities/exposures in the context of the size of the market as a whole.
  • In terms of global collaboration and cross-sectoral consistency, it is not clear how this will work in practice.
  • The guidance under ICP 24.3.4 mandates supervisors to require insurers to take action necessary to mitigate any particular vulnerabilities that have the potential to affect financial stability.
  • No actual guidance is given as to how vulnerabilities could be mitigated.
  • IAIS response
  • As per the Holistic Framework for Mitigating Systemic Risk in the Insurance Sector, the IAIS has developed an approach for assessing systemic risk informed by both an entity-based analysis and an activity-based analysis.
  • These are based on the Individual Monitoring data collection, Sector-Wide Monitoring data collection and their interplays.
  • The Holistic Framework describes the IAIS’ view in terms of transmission channels of systemic risk.
  • The ICP 24 statement has been amended in this respect so it captures the macroprudential supervision around transmission of systemic risk as well. ICP 24.2.11 language has been amended to better reflect the cross-sectoral consistency.
  • Also, the scope of ICP 24 is broader than systemic risk assessment, focusing on all aspects of macroprudential supervision.
  • These elements will be further developed and built upon in the planned Application Paper on Macroprudential Supervision.

2019 – IAIS – Main_public_consultation_comments_received_and_resolution_to_holistic_framework_supervisory_material.pdf

Reinsurance

  • CHAIR : What is the status of Maryland regulation of reinsurers?
  • Mr. Muhl, Maryland Insurance Commissioner: There is none.
  • Chair : And is there in other states?
  • Mr. Muhl : None …  (p257)

—  Excerpts from Tape of Hearing of Maryland Governor’s Task For on Medical Malpractice  — October 22, 1985

1986 0121 and 0122 – GOV (House) – The Liability Insurance Crisis – [PDF-553p-GoogIePIay

  • The destiny of my ease for my perspective has been determined not only by someone I’ve never spoken to, but more often than not, by a company of which I’m totally unaware. I don’t know what company is being used or who it goes to. My company does not inform me of who the reinsurance cartier is, and in most cases is even reluctant to show the information or the name of the carrier.
  • My question is, What’s the mystery? Why is this part of the underwriting process cloaked in such secrecy by
    the field underwriter?

—  David Rittenberg, Field Underwriter at Mutual of New York

1995 – SOA – Reinsurers and Producers: What Can We Learn from Each Other?, Society of Actuaries –12p

  • NAIC – Special Purpose Reinsurance Vehicle Model Act – 789-1 – 34p
    • Section 1. Purpose – This Act provides for the creation of Special Purpose Reinsurance Vehicles (“SPRVs”) exclusively to facilitate the securitization of one or more ceding insurers’ risk as a means of accessing alternative sources of capital and achieving the benefits of securitization.
    • Section 5. Limited Purpose of SPRV – The chair asked whether the model should allow SPRVs to be used for other than catastrophic risks noting that this was a suggestion in the scholarly paper received by the working group.
      • A regulator stated that he believed the working group should take baby steps and that it should therefore focus on catastrophic risk only to begin with. He did not feel comfortable voting for a model that allowed unlimited types of SPRVs. He also noted that tail risk and the issue of multiple cedents were also major problems that needed to be solved.
      • A commissioner stated that it would be a mistake to focus solely on catastrophic risks. He noted that the earliest securitization deal was a life insurance securitization as has been the case with some of the more recent securitizations.
      • 2001 Proc. 1st Quarter 399.
  • At least one interpretation within the California Department is that many mod co 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

  • On the surface is the handbook operator.
    • He makes a profit from the persons who place bets with him because he has an edge on every bet. He pays track odds but usually not in excess of 20 to 1.
  • The odds at the track are calculated after deducting the 15 percent to 18 percent of the total betting pool which goes to pay taxes and other expenses. The bookmaker pockets that amount.
    • However, he is not a man of unlimited resources.
    • He must balance his books so that he will lose no more on the winner than has been bet on the other horses in a race, after his percentage has been deducted.
    • He cannot control the choices of his customers and very often he will find that one horse is the favorite choice of his clientele.
  • His “action,” as he calls it, may not reflect the “action” of the track.
    • Therefore, he must reinsure himself on the race in much the same fashion that casualty insurance companies reinsure a risk that is too great for it to assume alone.
    • To do this the bookmaker uses the “layoff” man, who for a commission, accepts the excess wager. (p3)

—  Statement of Hon. Robert F. Kennedy, Attorney General of the United States

1961 JUNE 6, 19, 20, 21, AND 26 – GOV (Senate) – The Attorney General’s Program to Curb Organized Crime and Racketeering – Robert Kennedy, James O. Eastland  (D-MS) – [PDF-349p-GooglePlay]

  • While a company may be able to minimize and finalize its payments through a commutation with a policyholder, though, it often faces difficulty collecting from its reinsurers, she noted.  (Cheryl Sheridan, director of marketing for specialist runoff manager Global Resource Managers Ltd., a London-based unit of CNA.)
  • “Once a company is in runoff, it finds it very hard to collect its reinsurance claims, as reinsurers focus their cash flow on live clients,” said Mr. McGuigan, pointing out that this creates a cash flow crunch and a claims payment slowdown throughout the chain to the original policyholders.

2005-4, NAIC Proc.

1980s

  • 1985 – SOA – Regulation of Reinsurance, rsa85v11n4a14 – Society of Actuaries – 22p
  • 1987 – SOA – Reinsurance from the Regulator’s Point of View, rsa87v13n4b17 – Society of Actuaries – 38p

1990s

  • 1990 11 – GAO – Insurance Regulation: The Insurance Regulatory Information System Needs Improvement – 64p

  • 1991 – SOA – Reinsurance in the News, rsa91v17n26 – Society of Actuaries – 20p

  • 1992 – SOA – Federal Versus State Regulation of Reinsurance, rsa92v18n4A9 – Society of Actuaries – 12p
  • 1993 – SOA – Reinsurance and Rating Agencies. Society of Actuaries – 22p

2000s

  • 2003 – SOA – Famous Reinsurance Disasters, rsa03v29n316of – Society of Actuaries – 26p
  • 2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform – [PDF-180p
    • Kanjorski, Hunter, Nutter
  • 2009 – LR – Reinsurance: The Silent Regulator, by Aviva Abramovsky, Connecticut Insurance Law Journal – p345-406 – 63p
  • 2010 – SOA – The Reinsurer Made Me Do It, By Ross Morton, rsn-2010-iss67-morton, Society of Actuaries – 5p

2010s

  • 2015 – JIR / NAIC – The Economics and Regulation of Captive Reinsurance in Life Insurance, Scott E. Harrington – 45p
  • 2017 0502 – GOV (Senate) – Examining the U.S.-EU Covered Agreement – [PDF-89p
  • (p6) – I do note that on reinsurance issues, there does need to be a national debate on what we do with reinsurance issues.
  • We have been discussing this along with NAIC, and there are very technical, detailed things that have to happen on a worldwide basis, not just what we do.

—  Craig Eiland, Texas House of Representatives, on behalf of the National Conference of Insurance Legislators (NCOIL)

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform, Paul Kanjorski (D-PA)  —  [BonkNote]

  • Reinsurance
  • Reinsurance contracts do not relieve the Company from its obligations to policyholders.
  • Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible.

2014-CFPB-0002 Document 55-10 Filed 10/31/2014

https://files.consumerfinance.gov/f/documents/201411_cfpb_expert-report-crawshaw-exh-1-12-Redacted_055_08-19.pdf

  • As reinsurance is used more frequently in major joint ventures and capital raising deals, it comes under increased public scrutiny from regulators, rating agencies and the press.
    • The Federal Government also has been investigating the role of reinsurance in connection with the financial health of insurers.
  • This session will help reinsurance actuaries prepare to give testimony and interviews, and to become proactive in explaining the needs and proper uses for reinsurance.

1991 – SOA – Reinsurance in the News, Society of Actuaries – 20p

  • Michael Mcraith: Director, Illinois Department of Insurance, on behalf of The National Association of Insurance Commissioners (NAIC) 
  • May I add to that?
    • The ultimate consumer protection, Congressman, is when your constituent pays a premium and doesn’t have a claim for several years, that the company is not only around to answer the telephone, but is able financially to pay the claim.
    • Reinsurance is an essential part of solvency, and solvency is the core mission, core purpose, of consumer protection in each State.
    • And for that reason, it is appropriately a subject for State based regulation.  (p41)

Insurance and Systemic Risk) – [PDF-181p

  • Reinsurance is also essential in pricing: by accelerating earnings or minimizing the surplus strain caused by the reserve.
  • Improvements can be recognized in pricing because now the actuary does not have to guarantee all the assumptions; the risk can be shifted to the buyers.

—  Lawrence Silkes

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

  • “The reinsurance business has the defect of being too attractive-looking to new entrants for its own good and will therefore always tend to be the opposite of, say, the old business of gathering and rendering dead horses that always tended to contain few and prosperous participants.”  (p5)

– Charles T. Munger, Chairman, Wesco Financial Corp. (extract from the 1986 Annual Report)

Year?? – actuaries.org.uk – Working Party – Insurance Company Failure – 65p

  • IAIS – ICP 19.-.7 – Conduct of Business
  • Detailed conduct of business rules may not be appropriate for reinsurance transactions, where benefits under a policy are not affected by the reinsurance arrangements (see ICP 13 Reinsurance and Other Forms of Risk Transfer).
  • Nonetheless, this does not relieve insurers and reinsurers of their duty to provide each other with complete and accurate information.
  • (p379) – Terry Tiede – Assistant Commissioner of Insurance, State of Kansas
  • In any event, it is my understanding that, historically, in most transactions where assumption reinsurance was utilized, the effect of the transaction was beneficial to all parties involved, including the policyholders.
    • The Kansas Insurance Department is very much aware of and very disappointed with the length of time the ValuBuilder policyholders have had to endure not having access to or not knowing if they would ever see the values they had accumulated in their policies, and we are extremely interested in finding a solution so other policyholders can avoid similar situations.

[Both Dates PDF-629p-GooglePlay,  0428-No Video / 0505-VIDEO-CSPAN- Insurance Policy Transfers]

  • To bolster their statutory surplus and reported financial condition, the four insurers reduced policy reserves on their balance sheets through reinsurance transactions and received from their parent holding companies millions of dollars in surplus infusions and loans.
    • Although reinsurance is a legitimate practice in the life insurance industry to reduce the strain on surplus of selling new policies, the Executive Life insurers and First Capital relied on questionable reinsurance transactions to artificially inflate their surplus.
    • Without reinsurance and borrowed surplus, the Executive Life insurers would have been insolvent as early as 1983.

1992 0218 – GAO – Insurance Regulation: The Failures of Four Large Life Insurers, Statement of Richard L. Fogel, Assistant Comptroller General, General Government Programs – 21p

  • And so we certainly stay here hoping to work with you on the reforms that you all determine are necessary so that we hope that we can support them and work to help reform this.
  • I do note that on reinsurance issues, there does need to be a national debate on what we do with reinsurance issues.
  • We have been discussing this along with NAIC, and there are very technical, detailed things that have to happen on a worldwide basis, not just what we do.  (p6)

—  Statement of The Honorable Craig Eiland, Texas House of Representatives, Testifying on Behalf the National Conference of Insurance Legislators (NCOIL)

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

  • (p41) – Senator Tim Johnson (SD-D) – Mr. Nutter, you talk about many problems the U.S. reinsurance industry and fund reinsurers face with 50 different U.S. insurance regulators and sets of State laws.
    • You mentioned that this patchwork of regulation has caused tensions with foreign officials, and these result in U.S. reinsurers being disadvantaged overseas.
    • Can you elaborate?
    • Is there anything that this Congress can do to make sure that the U.S. reinsurers are not discriminated against because of our regulatory system? 

2008 0729 – GOV (Senate) – The State of the Insurance Industry: Examining the Current Regulatory and Oversight Structure – [PDF-472p

  • Does Reinsurance + Side Letters = CDS?
  • One of the most widespread means of risk shifting is reinsurance, the act of paying an insurer to offset the risk on the books of a second insurer.
  • This may sound pretty routine and plain vanilla, but what most people don’t know is that often times when insurers would write reinsurance contracts with one another, they would enter into “side letters” whereby the parties would agree that the reinsurance contract was essentially a canard, a form of window dressing to make a company, bank or another insurer look better on paper, but where the seller of protection had no intention of ever paying out on the contract.

2009 0402 – ritholtz.com – AIG: Before CDS, There Was Reinsurance  Part 1 – [link]

2009 0402 – ritholtz.com – AIG: Before CDS, There Was Reinsurance – Part 2 – [link]

  • Karl L. Rubinstein (Special Deputy Insurance Commissioner, State of California): 
  • (p11) – One of the first concepts I think that the members need to deal with is the question of what is reinsurance.
  • (p15) – One of the things that is important to insurance companies is how much capital and surplus do they have.
    • That is what is important to the regulators.
    • If the capital and surplus are less than the liabilities, then obviously the company is insolvent.
  • One of the features of reinsurance is that it provides surplus relief.
    • That is to say – let’s go back to my example earlier.
    • Let’s say I am the insurance company.
      • I issue a policy for $100.
    • Then again, simplistically speaking, I better have at least $100 in capital and surplus.
    • If I don’t have $100 in capital and surplus, I am insolvent.
    • So I am an insurance company.
      • I go out. I sell a policy and I assume $100 in risk.
      • If I have $100 in capital and surplus, I am out of business.
      • Because I have sold all I can sell, because I have got $100 in risk, I have got $100 in capital and surplus. That is it.
    • So if I want to do more business, I have to either get more capital and surplus or I have to find something that is just as good.
    • Now, obviously cash will do.
      • So if someone infuses cash, then that creates the needed capital and surplus.
      • But reinsurance will also do.
    • So if I had $100 in risk and I entered into a reinsurance agreement and laid off $50, then I have got $50 in available surplus.
    • Again, now you know an insurance examiner would probably come up here and slap me for being too simple, but this is how I see it, and what I am saying to you is basically the way it works, although technically it is more complicated.
    • So what you get when you obtain reinsurance is reinsurance credits.

[PDF-369p-GooglePlay,

Nonforfeiture

  • Elizur Wright
  • 1941 Guertin Report
    • NAIC’s Committee to Study Nonforfeiture Benefits and Related Matters, chaired by Alfred N. Guertin, actuary of the New Jersey Insurance Department
  • 1942-Supplement, NAIC Proceedings – Reports and Statements on Non-Forfeiture Benefits and Related Matters
  • 1975 Unruh Committee
    • SOA, Special Committee on Valuation and Nonforfeiture Laws, chaired by Henry C. Unruh
  • 1983-1, NAIC Proceedings – Task Force on Valuation and Nonforfeiture Regulation for New Products
  • 1989-1, NAIC Proceedings
    • (p612-) – Attachment One-B
      To: Members Of The Society Of Actuaries
      Date: October 1988
      Re: Task Force On Nonforfeiture Principles Interim Report-Tentative Conclusions
    • This Task Force was formed in the spring of 1987 in response to a request from the NAIC Life and Health Actuarial Task Force that the Society of Actuaries establish a committee to review the underlying principles elicited by the Unruh Committee Report, considering concepts of equity and solvency as they relate to nonforfeiture benefits in the light of current and anticipated conditions.
    • After its formation in the spring of 1987, the Task Force has been actively examining all aspects of what is clearly a broad and tangled situation.
  • 1990s – NAIC – Second Standard Nonforfeiture Law 
  • 1996-1, NAIC Proceedings
    • 1941 Guertin Report
      • The NAIC’s Committee to Study Nonforfeiture Benefits and Related Matters was chaired by Alfred N. Guertin, actuary of the New Jersey Insurance Department
      • The report, known as the Guertin Committee Report
    • 1975 Unruh Committee
      • The SOA Board of Governors appointed a Special Committee on Valuation and Nonforfeiture Laws, chaired by Henry C. Unruh, and assigned it:
        • (1) to study in-depth the underlying actuarial principles involved in, and the practical problems which arise in the application of these principles to, current regulations and practices with regard to valuation and nonforfeiture requirements; and
        • (2) to develop a report on its findings. In 1975 the Committee submitted its report on nonforfeiture, which included the following (underlined emphases added):
  • 1996-3v2, NAIC Proceedings
    • A Report to the NAIC Life and Health Actuarial Task Force on a Proposal Paper for a New Approach to Nonforfeiture Law
      • From the American Academy of Actuaries Working Group on Nonforfeiture Law – Committee on Life Insurance (AAA)
  • 1980 – SOA – Nonforfeiture and Valuation Concerns in the 1980’s, Society of Actuaries – 16p
  • 1983 – SOA – Universal Life Valuation and NonForfeiture: A Generalized Model, by Shane A. Chalke and Michael Davlin, Society of Actuaries – 72p
  • 1988 – SOA – Update on Universal Life Reserves and Non-Forfeiture Values, Society of Actuaries – 36p
  • 1989 – SOA – Status Report on Standard Nonforfeiture Law Revisions, Society of Actuaries – 14p
  • 1995 – SOA – Nonforfeiture Laws Update (rsa95v21n4a20), Society of Actuaries – 18p
  • 1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p
  • 1996 – SOA – Nonforfeiture Law Developments (rsa96v22n38pd), Society of Actuaries – 23p
  • 1998 03 – SOA – New Standard Nonforfeiture Law: Unsafe at Any Speed?, by Douglas C. Doll (p1), pdn9803 – Society of Actuaries – 15p
  • The opinion that nonforfeiture benefits should be mandated was not completely unanimous among the Task Force.
  • Following is a presentation by Shane Chalke to a group of economists at The Institute For Humane Studies at George Mason University on June 29, which presents the opposing view.

1989-4. NAIC Proc.

  • One of the ideas that people have considered for life insurance is to have life insurance without a cash-surrender value, but a nonforfeiture value, either reduced, paid-up, or extended-term insurance, that would in some way make life insurance and annuity standard nonforfeiture a little bit closer.

— Walter A. Neeves

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

  • 6. Discussed the purpose and concepts relative to new nonforfeiture approaches and decided to draft a model patterned after the New York and New Jersey requirements relative to nonguaranteed elements pertaining to universal life policies, indeterminate premium products, and deferred annuities.

1998-2, NAIC Proc.

  • Finally, I just would like to make a small pitch for the “mystique” of whole life.
    • If we come up with a retrospective approach for nonforfeiture, then we are hastening the viewpoint that life insurance, no matter what kind is nothing more than term insurance plus a side fund.
  • I think the industry has some vested interest yet in keeping the impression that there is more to it than that.
    • It is not just term insurance plus a side fund.
  • If it is strictly term insurance plus a side fund, then we weaken our arguments for favorable tax and regulatory treatment.

— Douglas Doll

1989 – SOA – Status Report on Standard Nonforfeiture Law Revisions, Society of Actuaries – 14p

  • Let me review again for the Society the history of insurance regulation in the United States and the prominence in that history of one Elizur Wright.
    • He went to England in the mid-1850’s to study actuarial science and to examine the life insurance business.
    • One of the things that made a very indelible impression on him both in England, and to a limited extent in the United States, was the public auction of life insurance policies, level premium whole life insurance policies without cash values.
    • When the individual owners of those policies reached an advanced age and they no longer had the means to pay the premiums they could sell those policies in the open market for a market cash value.
    • The problem was that the purchaser then had an adverse interest in the continuing longevity of that policyowner.
      • It was those humiliating and actually dangerous transactions that brought Mr. Wright to develop the nonforfeiture aspect of the Massachusetts Insurance Law and historically bring about required cash values.
    • Well, either we’ve forgotten that history or we believe that man has grown more mature and can now cope with that more effectively. It may help to think a little on those origins when designing a permanent insurance product without cash values

—  Dale Gustafson, Northwestern Mutual

1980 – SOA – Treatment of Existing Life Insurance Policyholders in Times of Rapidly Changing Economic Conditions, Society of Actuaries – 16p

  • (p91) – THE “CASH” NON-FORFEITURE BENEFIT
    • The development of level premium whole life insurance, limited premium policies and policies on the endowment plan maturing in the policyholder’s lifetime and, later, short-term endowment contracts on the single premium plan, has resulted in the requirement for the accumulation of substantial reserves.
    • It was recognized early by most life insurance companies that it was unconscionable to confiscate or cause the forfeiture of such reserves in their entirety.
    • On the other hand, for very satisfactory reasons it was not deemed an equitable procedure to compel a company to give the outgoing policyholder, in every case, ·the whole reserve held on the policy.
  • Term Policies
    • Policies written for a term of less than twenty years. are not now usually required to contain a non-forfeiture benefit.
    • If there is a substantial accumulation on any such policy, there is ho good reason why the insured should be deprived thereof.

1942-Supplement, NAIC Proceedings – Reports and Statements on Non-Forfeiture Benefits and Related Matters

  • (p100) – THE “Insurance” NON-FORFEITURE BENEFIT
    • The paid-up insurance option might· be described as the allowance upon lapse of a smaller amount of insurance on the whole life or endowment plan, similar to that provided for in the original policy, the amount of insurance being the variable depending upon the length of time premiums were paid, the plan of the original policy and other factors affecting the value of the original policy at lapse.
    • Under the extended insurance option, the amount of insurance is held at the same figure as in the original policy, subject to reduction on account of indebtedness, but the plan is changed to term insurance of such length that the value thereof is approximately equal to the value of the policy.

1942-Supplement, NAIC Proceedings – Reports and Statements on Non-Forfeiture Benefits and Related Matters

  • Whenever the plan or term of a policy shall have been changed, either by request of the insured or automatically in accordance with a provision of the policy, the date of inception of the changed policy, for the purpose of determining the cash surrender value, shall be the date as of which the rated age of the insured is determined under the changed policy.  (p158) 

1942-Supplement, NAIC Proceedings – Reports and Statements on Non-Forfeiture Benefits and Related Matters