Accountability

  • Second, it was observed that ….. there is virtually no accountability for any of the participants in the sale,
    • ..not for the company, not for the agent, and interestingly, the white paper discussed accountability on the part of the purchaser as well.

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

1994 – SOA – Problems and Solutions for Product Illustrations, Society of Actuaries – 28p

2010-Blumenthal v New York Life - Deposition - Universal Life Policy 2010-Blumenthal v New York Life – Deposition – Universal Life Policy
  • Neither model was intended to generate Buying Guides or to relieve consumers of their own individual responsibilities to understand the product that they are spending their hard-earned money to buy after all. 

—  Michael Lovendusky, ACLI, American Council of Life Insurers

2018 1009 – NAIC Conference Call – LIIIWG, Life Insurance Illustrations Working Group – [Bonk: Not in NAIC Proceedings]

Fiduciary

  • (p54) – 1:34-1:41 – Eric DINALLO, Superintendent, New York State Insurance Department – Well, I think it’s important for everyone to know there’s a very strong tension between policyholders’ interest and shareholders’ interest in a publicly traded company.
    • The board and management has a fiduciary interest to shareholders under our law, fiduciary interest to shareholders, but, at the same time, whenever they release capital to satisfy that to get a bigger return on equity, they are necessarily taking incremental protection against policyholders.
  • Bruce BRALEY (D-IA) –  And you also have a fiduciary obligation to policyholders under their contractual obligation with the policyholder.
  • Mr. DINALLO. Sadly, there is some debate, actually, because they’ve been so trained under our law and after Enron, etc., to worry about fiduciary duty to shareholders that there is a good argument that, although it’s in their blood to worry about policyholders, the legal requirements are a little bit gray, actually.

 GOV (House-OGR) – The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing, Henry Waxman (D-CA)  —  [BonkNote]

  • The Proposal is premised upon the Department’s rejection of the dichotomy under the law between a sales recommendation to a consumer on the one hand, and advice provided for a fee on the other.
    • The Department’s Proposal seeks to define the term “investment advice fiduciary” to include anyone who is in the business of making routine sales recommendations by persons engaged in commonplace sales and marketing efforts.
    • The Fifth Circuit disagreed with the Department’s conflation of sales activity and fee-based investment advisory activities back in 2018, observing that “when enacting ERISA, Congress was well aware of the distinction … between investment advisers, who were considered fiduciaries, and stockbrokers and insurance agents, who generally assumed no such status in selling products to their clients.”
  • The court found that the Department’s interpretation of ERISA:
    • conjoins “advice” with a “fee or other compensation, direct or indirect,” but it ignores the preposition “for,” which indicates that the purpose of the fee is not “sales” but “advice.”
    • Therefore, taken at face value, the provision rejects “any advice” in favor of the activity of “render[ing] investment advice for a fee.”
    • Stockbrokers and insurance agents are compensated only for completed sales (“directly or indirectly”), not on the basis of their pitch to the client. Investment advisers, on the other hand, are paid fees because they “render advice.”
    • The statutory language preserves this important distinction.

2024 0102 – Letter – ACLI to GOV-DOL / EBSA – Subjects: Retirement Security Rule: Definition of an Investment Advice Fiduciary (RIN 1210-AC02); Proposed Amendment to Prohibited Transaction Exemption PTE 84-24 (Application No. D-12060); Proposed Amendment to Prohibited Transaction Exemption PTE 2020-02 (Application No. D-12057)  —  [BonkNote] 

 

  • Plaintiff claims that Defendants breached a fiduciary duty. (See generally Doc. No. 1-2.)
    • However, while the insurer-insured relationship contains many elements of a fiduciary relationship, “‘the [California] courts which have directly addressed the issue … have specifically held that there is no fiduciary duty between an insurer and an insured.'” 
      • General American Life Ins. Co. v. Rana, 769 F. Supp. 1121, 1126 (N.D. Cal. 1991) (quoting Hassard, Bonnington, Roger & Huber v. Home Ins. Co., 740 F. Supp. 789, 792 (S.D. Cal. 1990)).
    • Thus, as no fiduciary duty exits, Plaintiff cannot plead a breach of fiduciary duty.

2019 – LC – Openiano v. Hartford Life and Annuity Insurance Company – 18-cv-0943 – D35 – Order Defendants’ Motion for Judgement on the Pleadings, District Court, Southern District of California – 11p

Risks

  • … referred to the Report of the Committee on Valuation and Related Problems. In that report, the Trowbridge Committee identified three categories of hazards which may impair the financial health of the insurance enterprise. [C1, C2, C3]
  • The report of the committee can be read by the members in Volume 5, Number 1 of the Record of the Society of Actuaries.

1981 – SOA – Effective Use of Capital, Society of Actuaries – 24p

  • The Combination of Risks Task Force (CORTF) was organized in the summer of 1983.
    • It reports to the Society of Actuaries Committee on Valuation and Related Problems.
    • The charge of the Task Force as set forth in the SOA Yearbook is as follows:
      • “To develop understanding and quantification of risks of loss from combination of C-l, C-2, C-3 and C-4 risks and implications on statutory reserves, contingency surplus needed on inforce business, valuation statutes, early warning tests, and corporate planning.”

1991 – SOA – V. Report of Combination of Risks Task Force, Society of Actuaries – 186p

  • Our research generally indicates that the public can be best described as conservative and risk aversive when it comes to financial matters…
  • … but perhaps the most remarkable finding has been the stability of the public’s financial needs and concerns over the years. 

—  Walter Zultowski, not a member of the Society, is Director of Economics and Consumer Research at LIMRA.

1980 – SOA –  Product Innovation – Response to Consumer Needs in the 1980’s, Society of Actuaries – 14p

  • C-1 Risks
    • 1987 – SOA – Quantifying The C-1 Risk (Defaults in Fixed Dollar Investments and Market Value Changes in Equity Investments), Society of Actuaries – 32p
    • 1988 – SOA – Variable Products Update, rsa88v14n28 – Society of Actuaries – 18p
  • C-2 Risks
    • 1987 – SOA – Quantifying The C-2 Risk (Premium Insufficiencies, Including Increasing Claims and Expenses), rsa87v13n311  -Society of Actuaries – 32p
  • C-3 Risks
    • 1989 – SOA – A Guide to Quantifing C-3 Risk, Society of Actuaries, tsa89v418 – Society of Actuaries – 42p
  • Interest Rate Risk
    • 1988 – SOA – Interest Rate Scenarios, Merlin F. Jetton, tsa88v40pt114 – Society of Actuaries – 54p

    • 1994 – SOA – Long-Term Minimum Interest Rate Guarantees, Society of Actuaries – 18p

  • (p536) – The Subgroup also found that the remaining Federal Reserve risk categories for banking organizations – liquidity, operational, legal and reputational – encompass similar underlying concepts of risks associated with insurance operations, but that such risks are viewed somewhat differently in the context of the organization and management of the business operations of banks and insurance companies.
  • From the array of risks identified, however, the Subgroup determined that some insurance risks were exclusive to particular insurance products and were therefore not comparable to banking risks.
  • (p537) – 1. Mapping of Life Insurance Company Risks

2003-3, NAIC Proceedings – Financial Condition (E) Committee 

Generally Recognized Expense Table (GRET)

  • 1998 – SOA – Generally Recognized Expense Table For 1998  Illustrations.  Society of Actuaries Committee on Life Insurance Research. Report To The NAIC Life Disclosure Working Group, tsr973 – Society of Actuaries – 8p
  • 1996-2, NAIC Proceedings
    • Generally Recognized Expense Table 716
    • Adopted 695
  • 2000-3, NAIC Proceedings
    • Society of Actuaries Committee on Life Insurance Research Report to the NAIC Life Disclosure Working Group Life Insurance Illustrations Generally Recognized Expense Table for 2001 Illustrations (p117)

Unauthorized Practice of Law

  • “National Conference of Lawyers and Life Insurance Companies”
  • ABA – American Bar Association
  • 1951 – LR – The Bar and the Unauthorized Practice of Law: A Survey – 13p
  • 1955 – LR – The Unauthorized Practice Controversy, A Struggle Among Power Groups, by Quintin Johnstone – 57p
  • 1964 – LR – Unauthorized Practice of Law – Planning Estates Incidental to Selling Life Insurance Construed as the Practice of Law – Oregon State Bar v. John H. Miller & Co., 385 P. 2d 181 – 7p
  • 1966 – LR – The Unauthorized Practice of Law by Laymen and Lay Associations, by Loyd P. Derby – 34p
  • 1973 – ABA – Unauthorized Prac. News 81 – Midwinter Report of ABA Unauthorized Practice of Law Committee
  • 1991 – Be It Resolved That the National Conference of Lawyers and Life Insurance Companies be discontinued. – 4179R – 3p
    • STANDING COMMITTEE ON NATIONAL CONFERENCE GROUPS
    • National Conference of Lawyers and Life Insurance Companies
  • When rendering legal advice to prospective customers, life insurance salesmen have a conflict of interests-they are interested in setting up an estate plan with the maximum amount of life insurance regardless of the best interests of their client.141
  • 141 In Anderson v. Knox, 297 F.2d 702 (9th Cir. 1961), a life insurance agent sold a bank-financed insurance policy with a face amount of $100,000 to a 36-year-old purchaser whose income was around $10,000 a year,  representing that the plan was suitable for the needs of the purchaser and his family.
    • To pay the first premium, the purchaser converted and pledged his existing life insurance policies.
    • The purchaser soon found the plan to be disadvantageous and was forced to cancel his various insurance policies.
    • He then sued the insurance agent for fraud and misrepresentation and was awarded compensatory damages of $13,000, punitive damages of $10,000, and $2,500 for mental distress.

1966 – LR – The Unauthorized Practice of Law by Laymen and Lay Associations, by Loyd P. Derby – 34p

Plan of Insurance

  • Broken down to its simplest basis, universal life has eliminated the concept of “plan of insurance“, and, through the computer, coverage has been unbundled into “protection” and “savings” elements. 

 — Christian J. DesRochers

1983 – SOA – Universal Life (RSA83V9N212), Society of Actuaries – 24p

  • For another problem, consider the following plan of insurance which has been proposed.
  • The coverage is to be level for fifteen years, but the premium at the end of five years is to rise by 50 percent, remain level to the tenth premium, then go to a multiple of three of the initial premium for the remaining five years.

1970 – SOA – Gross Premiums for the Term Insurance with Varying Benefits and Premiums, tsa70v22pt1n62ab3 – Society of Actuaries – 34p

  • Adjustable life is characterized as either “term” or “whole” life depending on how long the plan of insurance will last on a guaranteed basis with the face amount and premium chosen.

2001 – LC – MCCORD V. MINNESOTA MUTUAL LIFE INSURANCE COMPANY, (D.MINN. 2001) – Civil No. 98-2656 (DSD/JMM), MDL No. 1186 – casemine.com/judgement/us/5914b9b9add7b0493478cbb9

  • (p448) – Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co. – In fact, it is accurate to describe Universal Life as a generalized version of the actuarial formulas underlying traditional life insurance products.
    • In other words, it is possible to produce any traditional plan of insurance from the generalized formulas underlying universal life.

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

  • [Plan of Insurance]
  • 2019 0903 – 2019-3, NAIC Life Insurance Illustration Issues (A) Working Group (LIIIWG) – Conference Call
    • Michael Lovendusky, ACLI …  said assisting consumers to compare products is outside the scope of the Working Group’s charge, and it would limit innovation and harm consumers.
    • Birny Birnbaum, CEJ …  said the Working Group’s charge specifically includes how the summaries are “designed, formatted and accessed” by consumers, and the stated purpose of Model #580 is to “require insurers to deliver to purchasers of life insurance information that will improve the buyer’s ability to select the most appropriate plan of life insurance for the buyer’s needs.”
  • Section 2. Purpose
  • A. The purpose of this regulation is to:
    • require insurers to deliver to  purchasers of life insurance information that will improve the buyer’s ability to select the most appropriate plan of life insurance for the buyer’s needs and improve the buyer’s understanding of the basic features of the policy that has been purchased or is under consideration.

NAIC – Life Insurance Disclosure Model Regulation, MDL-580  —  [BonkNote]  —  12p 

  • 2016-2, NAIC Proceedings – 2016 0817 – Life Insurance and Annuities (A) Committee, San Diego, California
    • 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.
  • 2016-3, NAIC Proceedings – 2016 1020 – NAIC – Life Insurance Illustration Issues (A) Working Group Conference Call (LIIIWG) CC 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.
  • 2019 0903 – NAIC – Life Insurance Illustration Issues (A) Working Group Conference Call
    • Mr. Birnbaum said the Working Group’s charge specifically includes how the summaries are “designed, formatted and accessed” by consumers, and the stated purpose of Model #580 is to “require insurers to deliver to purchasers of life insurance information that will improve the buyer’s ability to select the most appropriate plan of life insurance for the buyer’s needs.” 
  • 1951 – SOA – Lapse Rates, Society of Actuaries – 59p

  • The 818(c) election is another issue that is being looked at by the Service [Bonk: IRS – Internal Revenue Service]
  • One question that was discussed briefly was what was the plan of insurance? [Bonk: Universal Life Insurance]
    • How do you know whether you have a permanent policy that qualifies for $21 per thousand,
    • or a term policy that qualifies for $5,
    • or perhaps some that qualifies for nothing.
    • → That is an unanswered question.

—  William B. Harman, Jr., partner in Sutherland, Asbill & Brennan. 

1981 – SOA – Universal Life (RSA81V7N412), Society of Actuaries – 16p

U.S. Department of Veterans Affairs – benefits.va.gov/insurance/plans.asp

Plans of Insurance

Government Life Insurance is issued in a variety of insurance plans. Select a plan below to view a brief description of that plan. This information is for policy numbers beginning with K, V, RS, W, J. JR. JS and RH. Information for: Servicemembers’ Group Life Insurance policies (SGLI) and Veterans’ Group Life Insurance policies (VGLI).

  • TERM AND WHOLE – LIFE INSURANCE COST AS DEVELOPED BY THE ROYAL ARCANUM.
    • A pamphlet on the above subject, by W. T. Wallace of Philadelphia, has recently made its appearance, and doubtless is being widely circulated among believers in the assessment or “pocket reserve” plan of insurance.

1909 0617 – The Spectator – [link-GooglePlay]

  • When it offers a plan of insurance for a specified premium it does so on the basis of an expected level of mortality, interest, withdrawal, expense and taxation in the future.
    • It also recognizes that the future experience levels will vary from those expected at issue through statistical variability or through long term or cyclical trends and sets its premiums to make allowances  for this variability.
    • As the experience under the plan unfolds the company can release into earnings the differences between the provisions in the premiums for variability and actual variations experienced to date.
    • The instrument for accomplishing this is the reserve and, specifically, the release from risk reserve system is based on this concept

1974 – SOA – Report of the Historian – Special Report, Society of Actuaries – 116p

  • The guaranteed plan is important because it also affects policyholder taxes (such as Internal Revenue Code, secs. 72, 101, and 1035).
    • The guaranteed plan for many universal life contracts is unspecified.

1983 – SOA – Universal Life and Policyholder Dividends, by Thomas Kabele, Society of Actuaries – 96p

  • EXHIBIT A – NAIC MODEL REGULATION AS AMENDED AND ADOPTED 6/6/73 – LIFE INSURANCE INTEREST-ADJUSTED COST COMPARISON INDEX
    • Section l Authority – This rule is adopted and promulgated by (title of supervisory authority) pursuant to Sections of the insurance code.
    • Section 2 Purpose – It is in the interests of prospective purchasers of life insurance that there should be available to such persons a cost comparison index prepared on a uniform basis for comparison of the relative cost of similar plans of insurance.
    • It is in the public interest to make such an index available so that price competition in the life insurance market is encouraged and stimulated.

1973-2, NAIC Proceedings

  • NEITHER IS BETTER
    • Reams of copy have been written about the relative values of term and straightlife.
    • Pennsylvania Insurance Commissioner Herbert Denenberg, a severe critic of the insurance industry, concludes:
      • “Neither plan of insurance is necessarily superior to the other.
      • … they are fundamentally different but both are useful contracts and there are ‘good buys’ and ‘bad buys’ on both.” (p802)

1973 – GOV – The Life Insurance Industry – Hart – Part 1

  • (p243) – Any of the foregoing provisions or portions thereof not applicable by reason of the plan of insurance may to that extent be omitted from the policy.
  • Gross Premiums Calculated on Basis of Assumptions Plan Ages: 26 ~~ 40
    • Ordinary Life – $15.03 $15.42 $48.20
    • 20 Payment Life – 22.23 33.53 53.93
    • 20 Year Endowment 42.46 46.60 57.70

1942-Supplement, NAIC Proceedings

  • I guess my problem can be stated thus: how can you emphasize that the guaranteed plan of insurance may be term to age 65 but then say it is all right to ignore that and take a whole life expense allowance calculated at a low interest rate because the plan is sold as whole life? 

—  Jeff T. Dukes

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

  • Drafting Note: The drafters chose a whole life initial expense allowance for several reasons. Although highly flexible, universal life insurance is generally considered a permanent life insurance plan.
    • Most companies encourage a premium level which will provide lifetime insurance protection.
    • Every universal life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection.
  • As a result, it is expected that most universal life insurance policies will be sold as permanent plans.
  • The guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.
    • (C) is the quantity ((a)-(b))ax+t r where (a)-(b) is as described asin [insert reference to Section 4 of the Standard Valuation Law] for the plan of insurance defined at issue by the guaranteed maturity premiums and all guarantees contained in the policy or declared by the insurer.

NAIC – ULMR – Universal Life Insurance Model Regulation – (MDL-585) – Citations  —  [BonkNote]  —  22p

  • Plans of insurance fall into five categories: term, limited pay whole life, continuous premium endowment, limited pay endowment, and income endowment where the ratio of amount of insurance to maturity value may be varied.

1976 – SOA – Toward Adjustable Individual Life Products, Society of Actuaries, Walter L. Chapin – 50p

  • Defining the principal elements of a policy as amount of insurance, gross premium, and plan of insurance, an original issue involves election of any two of the elements and calculation of the third.
    • Each change after issue involves a change elected for one element, either a change or continuation for a second element, and calculation of the third element.
1976 Toward AL Plan Solve 123 2
  • Proposed Article IV, Section 3f
    • f. a provision that at any time during the first eighteen months of the variable life insurance policy, so long as premiums are duly paid the owner may exchange the policy for a policy of permanent fixed benefit life insurance on the life of the insured for the same initial amount of insurance as the variable life insurance policy and on a plan of insurance specified in the policy, provided that the new policy:  (p563)

1976-1, NAIC Proceedings

  • 5. Effect of an Election Under Section 5-c of the Standard Nonforfeiture Law for Life Insurance
    • Mr. Montgomery’s letter of October 15, 1982 contained a copy of a California Bulletin which set forth the conditions under which companies could elect separate operative dates by plan of insurance.
    • Under the Bulletin, a company could issue a new plan on the new standards provided like plans on the old standards were discontinued in California and in other states permitting plan-by-plan elections.
    • In addition, once a company had issued a plan on the new standards, those standards would apply to other new plans unless the company could demonstrate a need to apply the old standards.
    • Mr. Montgomery suggested that the California Rule could serve as a basis for developing an NAIC guideline.  (p478)

1983-1, NAIC Proceedings

  • The agent and prospect have the ability to choose almost any pattern of benefits and premiums.
  • No longer is the sale limited to one of several fixed plans of insurance from a ratebook.

1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  —  [BonkNote]

  • Those who are interested in the stock plan of life insurance, maintain that this rule holds even to the extent of a six percent reserve..

1871-2, NAIC Proceedings

Marketing

  • We have all heard some talk about twisting, and it has strong negative connotations.
    • Universal Life, mainly because of its premium flexibility, has changed that.
  • I recently heard one of our marketing people refer to replacement of old traditional permanent policies with Universal Life.
    • He called it “The Enlightened Liberation of Assets”.

—  Stuart Grodanz, Travelers

1984 – SOA – Variable Universal Life, rsa84v10n4b12 – Society of Actuaries –  22p

  • …a great deal of our problem is caused because the people out there marketing our life insurance products are trying to market it against and like mutual funds.
    • Until we start to market it as life insurance and describe it and teach the consumers about life insurance, they’re not in any position to make those kinds of judgment calls

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

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

  • Historians have, perhaps, been too preoccupied with mortality tables and the founding dates of companies to consider the astonishing influence that selling method, or the lack of it, has had upon the development of life insurance in every age.

1942 – Book – Marketing Life Insurance: Its History in America, by J. Owen Stalson

  • 1942 – Book – Marketing Life Insurance: Its History in America, by J. Owen Stalson
  • 1961 – SOA – Marketing Trends, Society of Actuaries – 10p
  • 1976 – LR – Marketing Mutual Funds and Individual Life Insurance – 125p
  • 1979 – SOA – Marketing Systems, rsa79v5n18 – Society of Actuaries – 18p
  • 1982 – AP – Using Information-Processing Principles in Public Policymaking – Marketing – 21p
  • Marketing
  • A. By urging agents to upgrade their prospecting, is the life insurance industry forsaking a market and inviting government sponsored life insurance programs?
  • B. Would it be in the consumers’ best interest if the life insurance industry sold a greater portion of permanent insurance? What is being done, or should be done, to emphasize permanent insurance more in such areas as advertising, sales promotion, plan design, field compensation, and production credits?
  • C. Is it possible to make new plans available to present policyholders by change or by rider addition without too expensive a process?

1962 – SOA – Discussion of Subjects of Special Interest: Marketing, tsa62v14pt2d29 – Society of Actuaries – 8p

Solvency

1994 04 – CBO – The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office  —  [BonkNote]  —  80p

  • 1991 0729 – GAO – Insurance Regulation: Assessment of the National Association of Insurance Commissioners, Statement of Richard L. Fogel, Assistant Comptroller General General Government Programs, Before the Subcommittee on Policy Research and Insurance Committee on Banking, Finance, and Urban Affairs, U.S. House of Representatives – 57p –  [link]
    • Highlights: GAO discussed the National Association of Insurance Commissioners’ (NAIC) capability to establish and maintain an effective national insurance solvency regulation system.
  • 1995 06 – SOA – Actuaries in regulation influencing the future of industry, by Dwight K. Bartlett, III, The Actuary, act-1995-vol29-iss06-bartlett – Society of Actuaries – 3p
    • The NAIC has recently charged its Insolvency (Ex5) Subcommittee with considering the need for reforms.
  • 1990 1218  – Deseret News – Life Insurance Industry Faces A&L-Type Threat, Senator Says, by Associated Press – [link]
    • The life insurance industry, which controls nearly $2 trillion, could suffer the same fate as the savings and loans, jeopardizing the financial security of millions of Americans, a senator contends.
    • Sen. Howard Metzenbaum, D-Ohio, who chairs the Senate Judiciary subcommittee on antitrust, said financially shaky insurers are able to conceal their real problems through questionable accounting gimmicks and with little policing from the states.
    • But A.M. Best Co., which operates a well-regarded system of rating insurance companies, says insurers have maintained their secure standing, especially in comparison to other financial industries.
  • Most insurers face risk and uncertainty from a source not normally covered by classical theory of risk texts. This additional element of risk is insolvency, not of your company, but that of other licensed insurers.

—  Joseph W. LEVIN, not a member of the Society, is a fellow of the Casualty Actuarial Society and Vice President and Actuary of the Employers Reinsurance Corporation. 

1978 – SOA – Capacity and Solvency — The Outside Influence, rsa78v4n111 – Society of Actuaries – 20p

  • II. REGULATORS’ PROBLEMS
  • The development of new products and the entry into new lines of activities by financial organizations have presented regulators with serious new problems.
  • These problems have shown up in the area of protections afforded buyers of these products and most especially in the area of regulating the operations of companies with a view to solvency.

—  Dick Minck, Executive Vice-President of the American Council of Life (ACLI) Insurance and the newly elected Secretary of the Society of Actuaries

1984 – SOA – Changes in the Canadian Regulatory Framework for Life Insurance, Society of Actuaries – 36p

  • Another area of concern relating to solvency is investments by insurers.
  • Recently, some states have expressed concern over investment by life insurance companies in high yield / high risk obligations, referred to as “junk bonds.”

—  John Washburn, Director of Insurance for the State of Illinois and Vice President of the NAIC

1987 0701 and 0729 and 1014 – GOV (House) – Developments In State Insurance Regulation – [PDF-511p-GooglePlay

  • Solvency Modernization (EX) Task Force – NAIC
  • 1995-3, NAIC Proceedings – ATTACHMENT TEN-D: Mission Statement For The NAIC
    • Financial Regulation Standards and Accreditation Program 
    • The NAIC’s Financial Regulation Standards and Accreditation Program seeks cooperation among state officials to maintain a high level of merited confidence in solvency regulation in each state. 
  • 1976 – SOA – Solvency Standards for Life Companies in the United States, Canada, and the United Kingdom, rsa76v2n110 – Society of Actuaries – 36p
  • 1984 – SOA – Changes in the Canadian Regulatory Framework for Life Insurance, Society of Actuaries – 36p
  • 1991 – AP – Should the Feds Regulate Insurance Company Solvency?, by Scott E. Harrington – 9p
  • 1992 – California – State Solvency Regulation of Property-Casualty and Life Insurance Companies – Advisory Commission on Intergovernmental Relations – 144p
  • 1993 – SOA – Life Company Solvency — Has The Industry Stabilized?, rsa93v19n222 – Society of Actuaries – 18p
  • 1994 04 – CBO – The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office  —  [BonkNote]  —  80p
  • 1994 – SOA – Forum on Dynamic Solvency, rsa94v20n224 – Society of Actuaries – 20p
  • 1995 – Journal of Actuarial Practice – Surveillance of Life Insurer Solvency: A Comparison of Stock and The Multiple Scenario Cash Flow Financial Stress Tests – 27p
    • The solvency of life insurance companies may be threatened by interest rate risk when the maturities of assets and liabilities are mismatched.
  • Bill White, chief actuary, New Jersey, reported on their special project pertaining to universal life. – <WishList>
  • Their commissioner, on June 25, 1982, declared an 81-day moratorium on “Universal-Flexible Factor” type of policies.
  • His staff was directed to
    • (1) study the matter and issue a position paper on the subject;
    • (2) conduct public hearings on March 10-11;
    • (3) terminate the moratorium April 16 with the publishing of a set of guidelines. – <WishList>
  • Reports and results have been mailed to each insurance department.
  • Some of the questions New Jersey conveyed included:
    • (1) are these policies participating or non-participating;
    • (2) the “Bait and Switch” potential;
    • (3) disclosure;
    • (4) Federal Income Tax aspects;
    • (5) non-forfeiture values;
    • (6) replacement problems.
  • The concern was not just with the “twisting” replacements, but was the impact of justified replacements on the solvency of replaced companies.

1982-2, NAIC Proceedings

  • The one financial institution which is still stable and in which the public still has confidence, and that is life insurance, cannot stand very many more months continuation of this situation.
  • ……..life insurance companies are not nearly so solvent as their re­ports might indicate.
  • A tremendous load of credit loans has been transferred from banks to life-insurance companies. (p102)

—  C.V. Gregory (Editor of the Prairie Farmer, Chicago, ILL)

1932 – FRB – Federal Reserve Board : Bill Opposition – Price Stabilization, 1932, Subject File, Box 119, Folder 8 – 212p

  • 3. H.R. 1290 –  Bob Mackin (NCOIL) expressed concerns about the various industry and related groups that have publicly supported H.R. 1290.
    • Assemblyman Lasher said that NCOIL and NAIC should present a coordinated effort to oppose the legislation for the best interest of insurance consumers.
    • Director McCartney noted that consumer groups generally agree that H.R. 1290 does not offer any consumer protection.
    • The members agreed to continue to coordinate their efforts to defeat the federal legislation that would preempt state regulation of insurance.

1993-2, NAIC Proceedings

H.R.1290 – Federal Insurance Solvency Act of 1993103rd Congress (1993-1994) – congress.gov/bill/103rd-congress/house-bill/1290?s=1&r=34

  • During the past decade, the savings and loan crisis and the problems of the banking industry have focused the public’s attention on the financial problems in the insurance industry and their implications for the overall economy.
  • The life insurance industry suffered from some of the same competitive forces that hurt the savings and loan and banking industries.

1994 04 – CBO – The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office  —  [BonkNote]  —  80p

  • PROPOSED NEW INSURANCE LAW
  • Acting upon the suggestion by Superintendent Hotchkiss, Governor Hughes sent to the legislature last week a message, asking for the enactment of a law conferring created the necessity for some such law, it will be noted that upon the Superintendent power to deal summarily with insolvent insurance companies, or when their affairs are so managed as to render their continuance in business hazardous to the public.

1909 – The Spectator, VOL. LXXXII, MARCH 18

  • The necessity of some such authority being commended in the head of the Insurance Department was demonstrated most emphatically in the recent  entanglements connected with the attempt to transfer the Washington Life to a Pittsburg company and remove its assets from the jurisdiction of the State of New York, which attempt was frustrated by the prompt action of the Attorney General.

1909 – The Spectator, VOL. LXXXII, MARCH 18

  • Based on the Subcommittee’s work outlined above, the Committee has determined that additional investigative action relative to the insurance industry is called for.
    • In particular, the Committee believes the Treasury Department should undertake a study to determine what actions, if any, might be taken at the Federal and/ or State levels to reduce the impact of solvency problems on the ability of insurers to extend credit through intermediation, particularly through the provision of loans.
    • The study should also determine what additional actions, if any, might be taken at the Federal and / or State levels to reduce the likelihood and magnitude of insurance company solvency problems.
    • In testimony before the Subcommittee on the role of the National Association of Insurance  Commissioners in the regulation of the insurance industry, NAIC vice-president William McCartney stated that if state regulators are not able to make significant strides towards implementing stronger regulatory action by the end of 1994, then more aggressive steps at the Feder al level may be called for.
  • The Committee believes that this study authorized by H.R. 4731 complements the suggested time frame that the states are currently working within.
  • The principal basis for the Committee’s concern over to the insurance industry relative to H.R. 4731 is the significant role insurance companies play in the extension of credit to individuals, industry and commerce, as well as their role in urban development
    and the impact of their financial intermediation on Federal monetary policy.

1992 – GOV – House Reports Nos. 651-699 – 102d Congress – 2d Session January 3 – October 9, 1992

Regulation 187

  • 2021 – LC – INDEPENDENT INSURANCE AGENTS AND BROKERS OF NEW YORK, INC., vs. NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
    •  530047
    • OPINION AND ORDER – 7p
      • Appeal from a judgment of the Supreme Court (Zwack, J.), entered August 7, 2020 in Albany County, which dismissed petitioners’ applications
      • [NAIFA] – That same day, petitioner National Association of Insurance and Financial Advisors – New York State, Inc. (hereinafter NAIFA) commenced a combined CPLR article 78 proceeding and declaratory judgment action in New York County seeking similar relief. 4 NAIFA thereafter filed an amended petition adding an additional petitioner (hereinafter the NAIFA petition). The Independent petitioners moved to consolidate the two matters and, while this motion was pending, respondents answered the NAIFA petition and sought dismissal of same on the merits. Supreme Court granted the Independent petitioners’ motion5 and respondents answered the petition of the Independent petitioners, asserting the same grounds for dismissal as set forth in response to the NAIFA petition.
        On August 7, 2020, Supreme Court issued a judgment dismissing both petitions on the merits. 

Suitability

  • There should be suitability rules in place, particularly for cash value life insurance policies to assure that sales of proper products are made.  (p14)

--  J. Robert Hunter

2003 0506 – GOV (House) – Increasing the Effectiveness of State Consumer Protection, Sue W. Kelly (R-NY)  —  [BonkNote]

  • 2000 - NAIC - Suitability of Sales of Life Insurance and Annuities, LIAC - Life Insurance and Annuities (A) Committee - 33p
  • New York - Regulation 187 - Suitability and Best Interest in Life Insurance and Annuity Transactions - New York State Department of Financial Services Insurance  (11 NYCRR 224)
  • Suitability Working Group – NAIC
    • 1999-4v2, Suitability Working Group
    • 2000-1
    • 2000 – NAIC – Suitability of Sales of Life Insurance and Annuities – 33p
    • The working group reviewed the white paper (Attachment Four-B)
  •  
  • Law Reviews
    • 2002 - LR - My Customer's Keeper: The Search for a Universal Suitability Standard in the Sale of Life Insurance, by Richard J. Wirth, Western New England Law Review - 51p
    • 2013 - LR - Suitability and Non-Maleficence: A Proposal for Insurance Producer Regulatory Reform, by Mark Franke, Loyola - 35p
  • Lawsuits
    • 1958 - Knox v. Anderson, Hawaii
    • 2010 - Pike v. New York Life, New York
  • Mr. Adams asked if it was the intent of the working group to consider placing the burden of suitability on the company.
    • He said the draft language speaks of using a correct illustration, without emphasizing whether the illustration is of a policy that is right for the policyholder.

1994-3, NAIC Proc. 

  • Universal Life might well be a more appropriate product than Adjustable Life for the very sophisticated, very high premium, as you mentioned, product or sale.
    • However, I think that there is a major segment out there where Universal Life Just would not fit.
  • Universal Life seems to be taking a giant step forward.
    • Adjustable Life may be a reasonable middle ground which our agents and our potential policyholders can understand a little bit better than the Universal Life concept at the present time.

--  Spencer Koppel

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

  • John Montgomery (Calif.) said that complicated products are not understood by the typical applicant.
  • Commissioner Wilcox said that a "typical applicant" for a sophisticated policy should be a sophisticated applicant, and he acknowledged that the wording might need to be clarified in that instance.
  • [Bonk: complicated products ~ Universal Life, etc]

1994-3 - NAIC Proceedings

  • SUITABILITY OF SALES OF LIFE INSURANCE AND ANNUITIES
  • Issue: Should insurers be required to consider the suitability of the sale of a life insurance policy or annuity contract to a customer?
  • Background: During discussions about annuity disclosure, regulators expressed concern that in some cases annuities were being sold when the contract was not suitable. Research indicated only a few states had specific standards in their codes requiring insurers to evaluate the suitability of sales of insurance products. A working group drafted a white paper that concluded that rules should be developed requiring that suitability be determined by the producer and carrier in the sale of nonregistered life insurance and annuity products.
    • The working group noted that suitability standards have existed for over 40 years for registered products and they seem to have worked well. Nonregistered products are becoming increasingly complex and the investment components and the emphasis placed on these components in sales have become more prominent. Relying on disclosure alone no longer is enough, in the opinion of the Life Insurance and Annuities (A) Committee. During 2003 a model regulation was adopted that sets forth standards and procedures for recommendations to senior consumers age 65 and older to consider the insurance needs and financial objectives of the senior consumers. Although drafting began with a comprehensive model covering all sales of life insurance and annuties, the compromise document adopted in the fall of 2003 is limited to sales of fixed and variable annutites. Regulators had reported the most concern about unsuitable sales in this catagory. The adopted model makes both insurers and producers responsible for determining that a recommendation is suitable.
  • NAIC Position: Sales should consider adopting the model to provide protection to seniors purchasing annuity products. (p57)
  • Originated: 2001, Revised: 2002, 2003, 2004

2004 - NAIC - ISSUES 2004 - 118p

1 site_soa.org _life insurance_ _suitability_ -exam - Google Search

2 site_soa.org _life insurance_ _suitability_ -exam - Google Search

SEC - Suitabilty