Market Moving Information

  •  I have heard that the designation process is not transparent, and I am all for increased transparency, but I assume the Council must balance transparency against disclosing confidential or potentially market-moving information. (p37/2:08)

—  Senator Elizabeth Warren (D-MA)

2015 0325 – GOV (Senate-Banking) – FSOC Accountability: Nonbank Designations – [PDF-165p,  VIDEO-CSPAN]

  • 1991 0522 – GOV – Executive Life Insurance Failure
    • 51:00- 52:50 – Garamendi – Tennesee Sundquist – Shouldn’t Say, Have to Say /  Can’t Say. Bonds Prices. 
  • Where Was the Press During the S&L Crisis? – c-span.org/video/?7307-1/press-sl-crisis
    • This program is part of a series of three panel discussions entitled “Where Were the Watchdogs When the Savings & Loans Were Robbed?”
  • He (ACLI – John Bruins) said the ACLI is concerned about the reaction that may be received from consumers when their policy illustration changes, even though no changes have been made to the product being illustrated.
    • He noted that several companies have indicated receiving negative reactions from policyowners when their policy illustration changed.

2016 04 – LATF, NAIC Conference Call

  • 2017 0328 – GOV – THE ARBITRARY AND INCONSISTENT NON-BANK SIFI DESIGNATION PROCESS
    • [PDF-83p, VIDEO-youtube]
    • Anne Wagner (MO)
    • Holtz-Eakin, Douglas, President, American Action Forum
    • Kupiec, Paul H., Resident Scholar, American Enterprise Institute
    • Pollock, Alex J., Distinguished Senior Fellow, R Street Institute 
      Zaring, David, Associate Professor, Legal Studies and Business Ethics, The Wharton School, University of Pennsylvania
    • House – COMMITTEE ON FINANCIAL SERVICES – SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
  • Second, notwithstanding our disagreement with FSOC’s decision to designate Prudential and MetLife, we are even more troubled by the lack of clarity provided to regulators or even the companies themselves on the specific issues of concern that led to these companies’ designation.
  • This approach ultimately fails to make the financial system safer from the risks the company poses because regulators and the company have little information on how to address the company’s risk to the system.

–NAIC Letter to GOV

2015 0325 – GOV – FSOC Accountability Nonbank Designations –  3p

  • (p45) – Q15 – Is the list of products and activities set out in Annex 1 representative of the insurance activities and products that are conducted in the listed jurisdictions? Are there other products and activities that should be added to the list, for example because they have similar features as those in Annex 1? To what extent, if any, will the analysis of the products and activities in Annex 1 allow for the consistent application of the NTNI concept across jurisdictions? Also, are there additional or alternative terms for the listed products and activities that should be added to improve the completeness and clarity of the list?
  • (p47) – Q15 Stakeholders comments
    • Universal life is missing from the list…
      • on behalf of the European GSIIs, Aegon, Allianz, Aviva, Axa and Prudential
      • Association of British Insurers
  • (p48) – Q15 IAIS response

    • (ii) the IAIS decided to discontinue the NTNI product label and to focus on substantial liquidity risk and macroeconomic exposure and their related systemic risk transmission channels, the IAIS believes that it is no longer necessary to proceed with the publication of a list of products as proposed in the CD.

    • It is worth noting that the list of product features, and by extension products considered for the purposes of Phase Il Minimum Guarantees on Variable Product indicator calculation, remains unchanged from the 2013 methodology.

2016 0720 – IAIS – NTNI Consultation Document IAIS Responses to Comments – 51p

  • The IAIS received 56 submissions in response to the 2018 ICS Consultation Document of which 18 were requested by the respondents to be kept confidential.
  • Therefore, the comments that are posted here publicly are a subset of those that the IAIS will be taking into account as it moves forward with the ICS.
  • We thank all stakeholders and members who took the time to provide the many thoughtful comments on all aspects of the ICS.

iaisweb.org/page/supervisory-material/insurance-capital-standard//file/82711/public-2019-iais-field-testing-technical-specifications

  • Mr. Brown, CLU, presented his statement on behalf of the National Association of Life Underwriters.
    • Mr. Brown’s testimony emphasized the market confusion engendered by the FTC’s release of the 1.3% rate of return. He provided numerous examples of misleading and deceptive advertisements based on the FTC press release.
    • He also gave examples of cancellations and replacements of whole life policies caused by the FTC’s misleading release.
    • His point was the grave injury which the FTC’s irresponsible actions have caused average life insurance consumers.

1980-1, NAIC Proceedings

  • (p2) – Q1 – 1 – Based on the above characterisation of NTNI, is the terminology “non-traditional” confusing? If so, what might be a better term than NTNI? Additionally, what might be a better term than “traditional” for products and activities that are not NTNI?
    • The division into “traditional” and “non-traditional” products and activities is not properly fitting, considering that some products classified as systemically risky might be part of an insurer’s traditional business. Thus, terms like “insurance-driven” and “market-driven” would be more appropriate for clarifying the intention behind the distinction of the two. A clearer and also simpler way would be the separation between “potentially systemically risky” and “not systemically.
      • GDV – German Insurance Association
    • Yes, the term “non-traditional” could create confusion. The introduction to the Consultation explains that one main objective is to “provide further clarification on the concepts of NT and explain how their characteristics drive their systemic relevance.” (emphasis added) As this statement suggests, the concept of “non-traditional” is focused on identifying potential sources of systemic significance or risk, and is not intended to define whether an activity is one that insurers have “traditionally” pursued according to the ordinary meaning of that term. As the Consultation notes, an activity might generate systemic risk, even though it is one that has a long-established history, and is therefore one that is “traditionally” offered by insurers in a particular marketplace. Similarly, new products or practices may not be systemically risky, or might reduce overall systemic risk, despite being new or innovative.
      • American Academy of Actuaries
  • (p94) – Q2 – 2 – Are there any other benefit or liquidity features that should be taken into account in identifying NTNI products and activities?
    • It would appear that products where benefits are variable at the discretion of the insurer but where the insurer has no obligation to share profit, such as universal life and certain kinds of deferred annuities sold in the US are not covered in the table.
      • AIA Group – Hong Kong
  • (p94) – Q15 – Is the list of products and activities set out in Annex 1 representative of the insurance activities and products that are conducted in the listed jurisdictions? Are there other products and activities that should be added to the list, for example because they have similar features as those in Annex 1? To what extent, if any, will the analysis of the products and activities in Annex 1 allow for the consistent application of the NTNI concept across jurisdictions? Also, are there additional or alternative terms for the listed products and activities that should be added to improve the completeness and clarity of the list?
    • Universal life is missing from the list, and perhaps some consideration should be given to product packaging, secondary benefits and riders.

—  on behalf of the European GSIIs, Aegon, Allianz, Aviva, Axa and Prudential, Association of British Insurers

IAIS – Compiled Comments on Non-traditional Non-insurance Activities and Products – 153p

A: She <Sheila Bair> was saying that a couple of hundred banks would fail. I thought that was totally imprudent, totally incorrect, and should not have been said.
Q. Why was that imprudent and should not have been said?
A. Because these are people that are supposed to make sure that banks don’t fail.
Q. Why is it that publicly saying that all of these banks are likely to fail, why would you consider that to be imprudent?
A. Because it creates fear.
Q. And what is the problem of creating fear?
A. That it causes the banking system to freeze up. It causes it causes a hording of cash, both within the financial system and outside of the financial system, and that hording of cash results in a negative impact on the economy.
Q. All right. Then you go on to say: are no benefits by having prominent officials claiming that large financial institutions are
“There failing, are insolvent, are incapable of raising funds, or that they should be allowed to fail.”

Bank Atlantic vs. Richard X. Bove and Landenburg

  • Because of the concerns expressed by several states over the potential impact of the survey and at the suggestion of NAIC staff, a draft of the survey was forwarded to the Special (EX) Committee on the McCarran-Ferguson Act.
  • The Executive Committee designated Commissioner Earl Pomeroy, as chair of that committee and as the President of NAIC, to provide further input and direction.
  • Accordingly, on Sept. 10, I met with Commissioner Pomeroy, along with Mike Hessler (Ill.), Tom Reents (Neb.) and Art Chartrand (NAIC) to review these issues.
  • First, I wish to greatly express my appreciation to Commissioner Pomeroy for articulating his concerns and providing a productive framework for this subgroup to continue to carryout its charge.
  • As a result of that meeting, it was mutually agreed to suspend the activity on the current survey and to proceed as follows:
    • 2. Commissioner Pomeroy was very supportive of the subgroup recommending to EX3 Subcommittee that it pursue its investigation and make any appropriate recommendations in regard to the use of purported “consumer” groups fronting as leads or advertising agencies for insurance companies.

1991-1A, NAIC Proceedings

TO: Members of the Market Conduct & Consumer Affairs (EX3) Subcommittee
FROM: Brad Connor (Mo.), Chair of EX3 Subgroup on Unfair Trade Practices
DATE: October 11, 1990 .
RE: Meeting with NAIC Leadership on Subgroup’s Projects

Run – Triggers

  • Plenty of things could cause another run on insurance companies.
    • A devastating earnings report or financial filing could set one off.
    • So could comments from public officials.

2008 1114 – NYT – What Happens When Your Insurer Goes Under?, By Ron Lieber – [link]

  • 585 The consensus among industry analysts is that once confidence is lost in an insurance company like AIG, policyholders will pull their policies, insurance agents will dissuade clients from purchasing insurance policies from the company, and that, in effect, all the insurance companies would have become ”run-off” businesses.

—  Panel staff conversations with industry analysts.

2010 0610 – COP – Report – The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy – 337p

  • 2011 1116 – GOV (House) – Insurance Oversight and Legislative Proposals – [PDF-131p]
    • (p21) – Mr. STIVERS (R-OH) – …it seems to me that it is hard to construct a circumstance where there would be some mass run on people borrowing on their life insurance accounts.
      • Can you help us, as a committee, understand your thought process there and what you were trying to build, because it really seems like the banking system would have to have collapsed or something out of that, and it just seems difficult to imagine.
    • Daniel SCHWARCZ.  Sure. ….people wouldn’t be doing that because they didn’t have money from banks.
      • What would happen is that there would be a massive loss of confidence in a particular life insurer say, several life insurers.
      • All of a sudden, big news stories broke about how they weren’t, they didn’t have money to pay claims.
      • People would then worry, I am not going to get anything, I better start going and taking out my cash to the extent I can from this life insurer, and then that would be exacerbated by the fact-again, this is a potential calamitous scenario, but we need to think about it-that State guarantee funds wouldn’t potentially cover all of the exposure out there.
      • So that is how it could occur. 
  • What I noticed was there is a requirement for in-force illustrations, and people may have thought they bought one thing and whenever you have to give them an in-force illustration with a current disciplined scale, they’re going to realize they bought something else.
  • I think many companies will have serious problems with policyholder retention.

  —  Mark J. Greene, FSA. MAAA, Supervising Actuary, New York State Insurance Department

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

  • It was noted, though, that premium increase could lead to other policyholder actions such as increased lapses and possibly reputational risk.

2018 – IAIS – Risk-based Global Insurance Capital Standard Version 2.0 Public Consultation – 31 July 2018 – 30 October 2018 Page 69 of 158

  • 4.17 Policyholder “runs” are rare in insurance, though they have occurred in the past.
  • Policyholders may have incentives to run, including, but not limited to:
    • (1) market movements (higher external returns, either spikes in interest rates or stock returns
      could lead to higher lapse rates, while higher internal returns, such as surplus participation, could lead to lower lapse rates);
    • (2) personal financial distress or liquidity concerns; and
    • (3) a general collapse of confidence in a company, product or industry.
  • There have also been several instances where policyholders grew concerned about the financial condition of a firm, either through regulatory action or other public knowledge about potential problems of the firm.
    • These experiences did not necessarily have systemic implications, which potentially could have been caused by a variety of factors, such as regulatory intervention, the size of the insurer, or the normal economic environment.
    • On the other hand, most of the runs occurred at smaller insurance companies and during a normal economic environment and it is unclear what effect they might have had during a period of significant stress.

2017 0624 – BIS / IAIS – Systemic risk from insurance product features – [link] – 26p

  • Greg Gurlick (Northwestern Mutual Life) said that if consumers are not satisfied with results of their IUL policies, it will not only impact the reputations of the companies selling the products but also the entire industry will be painted with a broad brush.

2014 11/14-15 – NAIC Proc. – IULSG -Index Universal Life (IUL) Illustration (A) Subgroup 

  • Bank Atlantic vs. Richard X. Bove and Landenburg
    • int.nyt.com/data/int-shared/nytdocs/docs/476/476.pdf
    • (p199) – Deposition of Richard X. Bove
      • A. She <Sheila Bair> was saying that a couple of hundred banks would fail. I thought that was totally imprudent, totally incorrect, and should not have been said.
      • Q. Why was that imprudent and should not have been said?
      • A. Because these are people that are supposed to make sure that banks don’t fail.
      • Q. Why is it that publicly saying that all of these banks are likely to fail, why would you consider that to be imprudent?
      • A. Because it creates fear.
      • Q. And what is the problem of creating fear?
      • A. That it causes the banking system to freeze up. It causes it causes a hording of cash, both within the financial system and outside of the financial system, and that hording of cash results in a negative impact on the economy.
      • Q. All right. Then you go on to say: are no benefits by having prominent officials claiming that large financial institutions are “There failing, are insolvent, are incapable of raising funds, or that they should be allowed to fail.”

Premium Benefit Pattern - Examples

  • The complications begin with a very simple question:
  • What's the premium for Universal Life?
    • It could be almost anything.
  • Then what's the cash value?
    • That depends on the premium.
  • It is the relationship between the premium and cash value that determines the product characteristics of Universal Life.

--  Ben H. Mitchell, [Bonk: a consulting actuary with Tillinghast in Atlanta - Years-?]

1981 - SOA - Universal Life (RSA81V7N412), Moderator: Samuel H. Turner, Society of Actuaries - 16p 

  • If that is the case, how does an agent program somebody?
  • How does he tell a person what he needs to pay to keep his premiums level or to have paid-up insurance at age 65?" 

--  Allan W. Sibigtroth

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

  • "Completely Flexible" - The completely flexible life insurance plans are sometimes called "universal life insurance plans.

1980-2, NAIC Proceedings

  • ...it is possible to produce any traditional plan of insurance from the generalized formulas underlying universal life.

--   Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co.- (p448)

1983 0510, 0511 and 0728 - GOV (House) - Tax Treatment of Life Insurance - [PDF-991p-GooglePlay]

  • ... life insurance contracts such as universal life ...afford purchasers greater flexibility in designing their contracts so as to meet their individual needs.

--  1981 0831 - Letter - ACLI to NAIC - Statement of the American Council of Life Insurance  to the NASAA NAIC Joint Regulatory Insurance Products Study Committee - 10p

1982-1, NAIC Proceedings

 

2010 - LegalCase - Blumenthal-v-New-York-Life-GLP-GMP-Min 2010 - LegalCase - Blumenthal-v-New-York-Life-GLP-GMP-Min 2010-Legal-Case-Blumenthal-v-New-York-Life-Plaintiff-Expert-Witness 2010-Legal-Case-Blumenthal-v-New-York-Life-Plaintiff-Expert-Witness 1977-Changing-Times-Adjustable-Life-300-grid 1977-Changing-Times-Adjustable-Life-300-grid 1978-GOV-Moss-WI-LIBG-grid-p619 1978-GOV-Moss-WI-LIBG-grid-p619 1977-Changing-Times-Graph 1977-Changing-Times-Graph 1987-Huebner-Black-Skipper-Life-Insurance-11ed-p94-UL-Flexible-Graph 1987-Huebner-Black-Skipper-Life-Insurance-11ed-p94-UL-Flexible-Graph

Universal Life and Adjustable Life are Different

  • Adjustable Life is quite different in form from Universal Life, largely because it retains the traditional principle that savings and insurance elements are intertwined--but we shall see that the same objectives can be accomplished.

-- Charles Trowbridge

1976 - SOA - Adjustable Life Products, Society of Actuaries - 14p

  • There are semantic problems here.
    • Adjustable life used to apply to the specific product that Bankers of Iowa and Minnesota Mutual had. 
    • That product had many characteristics of the traditional cash value policy.
    • Some use the expression "adjustable life" to apply to Universal Life products.
    • I do not know whether you meant to apply adjustable life to those.

--  Myron H. Margolin

1981 - SOA - The Future of Permanent Life Insurance, Society of Actuaries - 22p

  • Unlike adjustable life, where a current plan is defined, but is subject to change, a universal life policy at any time has only a "minimum" and a "maximum" plan....  (p662)

1989-1, NAIC Proceedings 

  • The Stock Company proposal also would make permanent the provisions of TEFRA relating to:
    • (6) The section 101(f) "guidelines" for universal and adjustable life insurance policies.  (p356)

--  The Stock Company Information Group

1983 0510, 0511 and 0728 - GOV (House) - Tax Treatment of Life Insurance - [PDF-991p-GooglePlay

  • The contract [Universal Life] is a lot like the Adjustable Life concepts of The Bankers and Minnesota Mutual, with the significant, additional flexibility that a plan change is not required each time there is a change in premium payments.

-- Spencer Koppel

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

  • Some common names for dynamic products include universal life, variable universal life, unit-linked life, and adjustable life.  (p288)

2000 - Book - Life Insurance Products and Finance, by D.B. Atkinson and J.W. Dallas

  • 1982-2, NAIC Proceedings - (524-526) - Statement on Behalf of the American Council of Life Insurance to the NAIC (A) Committee's Manipulation, Lapsation, Dividend Practices and Annuity Disclosure Task Force - June 8, 1982
    • 1. The product commonly referred to as "universal life insurance" has aroused considerable attention and is being marketed to an increasing extent.
      • Under a universal life insurance policy, the insured has considerable flexibility with respect to the amount and timing of premium payments.
      • It is possible for the insured to skip premium payments and still have the policy continue in force, even until the point at which the policy expires or matures.
      • Under these circumstances, when is a policy to be considered as having lapsed for the purpose of the proposed disclosure system?
      • How about the situation where a premium is paid, but at a substantially lower level than the policyholder had been paying?
      • Should this be considered a partial lapse and, if so, how should the amount lapsed be measured?
    • 2. Another recent product is "adjustable life insurance."
      • The policyholder must pay premiums on the specified due dates but can request changes in the amount of the premium, the amount of insurance, or the plan of insurance.
      • The policy thus can be changed from a permanent insurance plan to a term plan, and vice versa.
  • How are such policies to be handled under the advisory committee's proposed system, which calls for a separation of the experience between permanent and term insurance?
  • Universal Life Insurance:
    • ...a flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the premium payments.
    • Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates which may change from time to time. (p138/G30)
  • Adjustable Life Insurance:
    • a type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium, and lengthen or shorten the protection period. (p109/G1)

2002 - IAIS / United Nation - Supervision of Insurance Operations - 140p

4 Percent

  • 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

  • First, the average premium per thousand is going down as a result of companies introducing products based on the 4% valuation interest rate basis.

—  Jesse M. Schwartz

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

  • The basic assumptions in each of these examples is the individual buying the insurance is 35 years old; the insurance company is guaranteeing a return of 4 percent, and that is the assumed rate on each of these examples.

—  John E. Chapoton, Assistant Secretary for Tax Policy, Department of the Treasury

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

  • The suggested rule keys this additional exemptive relief to a “guideline annual premium.”
    • This concept is defined as the level annual premium, payable to the highest attained age at which a premium may be paid, that would provide the future benefits under the policy based on (i) the 1958 Commissioners’ Standard Ordinary Mortality Table, (ii) an assumed interest rate of four percent, and (iii) the expenses specified in the policy.6
  • In short, Petitioner states, the guideline annual premium equals the annual premium necessary to keep the policy ·inforce for the life of the insured.
    • 6Petitioner states that the guideline annual premium concept is derived from the 101(f) of the International Revenue Code [I.R.C. 101(f)(1982)[ relating to exclusion from gross income the proceeds of a flexible life policy payable by reason of death.
    • [Bonk: Petitioner = ACLI]

1983 1130 – Federal Register, Vol.48 No. 231 – 234p

  • Then, again, they say they are willing, as I understand, to put up a reserve sufficient to meet the claim at 4 1/2 or 4 percent, whichever it may be, but they want our reports to show that their capital is unimpaired.
  • Well, it is a very fair proposition upon its face.
  • But what is the proposition?
    • As I understand it, it is simply this: “That you, Messrs. Commissioners, will please help us advertise our company.”

1871-1, NAIC Proc. 

  • In most states, 4% interest is now permitted for cash values; the report of the special committee, which so far seems to be receiving favorable comments from NAIC and has created a favorable first impression with the Actuarial Committee of the ALIA, puts forth the concept of establishing minimums at high interest rates as well as other changes that could dramatically affect cash values.
    • Do you perceive changes in cash value patterns which might be a result of the continuing march towards interest adjusted cost disclosure methods?
    • Mr. Astley, you referred in your remarks on consumerism to high early cash values. Are there some more thought processes there that you would like to share with us?

—  Thomas F. Eason

1976 – SOA – Individual Life Products, Society of Actuaries – 24p

Policy Loans

  • 1976 – SOA – Policy Loans, Society of Actuaries – 26p
    • 1. The Problems.
    • 2. Legal Considerations.
    • 3. Allocation of Investment Income.
    • 4. Basic Pricing Options.
    • 5. Sales Problems.
    • 6. Policyholder Considerations.
  • 1982 0612 – NP – Omaha World-Herald – Plan Uses Life Insurance Loans – Called ‘Idle Assets’, by By Linda Brenners-Stulberg, The Chicago Sun-Times  —  [BonkNote]
  • Chris H. McElvaine: …I heard another policyholder at the annual meeting mention that he has taken advantage of his 6% policy loan provision.
    • He has reinvested that money with the same company in an RRSP five-year interest certificate bearing a phenomenal rate of interest. Apparently he has been doing this for 4 or 5 years.
    • My question to Mr. McLeod as President of the organization is “Why has he not informed me as a policyholder that I could do this?”
  • Charles C. McCleod, Actuarial Vice-President with Manufacturers Life – This question has been asked of many insurance companies over the last few years.
    • The reason, of course, is that the companies cannot afford to do so. 

1981 – SOA – Current Topics: Canadian Insurance, rsa81v7n411 – Society of Actuaries – 26p

  • In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA “creditors.”
  • The insurance companies do not extend, renew, or continue credit; nor do they arrange for such transactions.
  • Rather, despite the use of the word “loan,” a policy loan is in substance an advance payment of the policy’s cash surrender value.
  • It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because if a policyholder does not repay the loan, the insurance company’s recourse is simply to reduce the policy benefits by the outstanding balance of the loan.

2017 0105 – Carlton Fields / Mondaq – NAIC Draws Line In CFPB Sandbox – mondaq.com/unitedstates/insurance-laws-and-products/557644/naic-draws-line-in-cfpb-sandbox

  • Q Well, the focus on income payments, what he would get after retirement —
  • A You mean policy loans is what we’re talking about.
  • Q All right. The letter refers to income payments, correct?
  • A Um hum. Yes.
  • Q Is there any reference there to policy loans?
  • A No. But that’s what they were.

—  Transcript of Testimony of James Barrett, Agent

2009 – LC – National Security Systems  vs. Robert L. Iola, Jr. – Case 3:00-cv-06293-AET-TJB, Document 375, Filed 12/03/09 Page 91 of 117

  • 1965 – AP – Life Insurance Policy Loans: The Emergency Fund Concept, by Glenn L. Wood, The Journal of Risk and Insurance, Vol. 31, No. 3 (Sep., 1964), pp. 411-420 (10 pages), Published By: American Risk and Insurance Association – <JSTOR> – <WishList> 
  • 1976 – SOA – Policy Loans, rsa76v2n42 – Society of Actuaries – 26p
  • 1977 – SOA – Policy Loans and Equity, tsa77v294 – Society of Actuaries – 120p
  • 1984 0131 – GOV (Senate) – Tax Treatment of Life Insurance Products and Policyholders – [PDF-345p-GooglePlay]
  • 2009 – AP – The Demand for Life Insurance Policy Loans, by Liebenberg, Carson, Hoyt – 25p-ssrn.com-link
  • Life insurance companies are also in danger of a major acceleration of loans on outstanding policies at well below market cost of funds if short-term interest rates, especially for money market funds, continue at approximately twice the rate at which most individual policy loan contracts are written.

(p11) – Statement of Alan Greenspan, Townsend-Greenspan & Co., Inc., New York, N.Y.,  [Bonk: Alan Greenspan = 1987-2006 – Chair of the Federal Reserve]

1981 – GOV (JEC) – The 1981 Economic Report of the President, Part 1 – [PDF-215p]

  •  1977 – SOA – Policy Loans and Equity, Society of Actuaries – 120p
    • The purpose of this paper is to bring up to date the actuarial literature on policy loans.
    • A brief history of policy loans is given, followed by a description of the “policy loan problem” as it is being experienced by many companies today.
    • The third section lists a variety of possible solutions, with varying degrees of feasibility and effectiveness.
    • Two of those solutions are then explored in greater depth, illustrating how the dividend distribution formulas might be modified to meet the problem.
  • John C. Angle: I would like to begin by reciting for you one case example.
  • Most of you are probably aware that the net worth of savings and loans in the United States have declined by 7% during the first 7 months of this year, at the rate of 1% a month.
  • An examination of the assets of these institutions shows that almost 9% of their assets consist of advances from the Federal Home Loan Bank at interest rates of 16-20% and that they also have significant holdings of negotiated rate certificates of deposit or repurchase agreements.
  • The Board of Directors of the Guardian Life includes three economists, all three of whom sit on the boards of mutual savings banks in New York.
  • As they go from a meeting of a particular savings bank to our Board, they carry with them a concern over our ability to meet immediate demands for our individual life policy cash values which are not yet encumbered by policy loans.

1981 – SOA – The Impact of Inflation on Insurance and Annuity Reserve Valuation: The C-3 Risk, Society of Actuaries – 44p

  • In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA “creditors.”
  • The insurance companies do not extend, renew, or continue credit; nor do they arrange for such transactions.
  • Rather, despite the use of the word “loan,” a policy loan is in substance an advance payment of the policy’s cash surrender value.
  • It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because if a policyholder does not repay the loan, the insurance company’s recourse is simply to reduce the policy benefits by the outstanding balance of the loan.

2017 0105 – Carlton Fields / Mondaq – NAIC Draws Line In CFPB Sandbox – mondaq.com/unitedstates/insurance-laws-and-products/557644/naic-draws-line-in-cfpb-sandbox

  • Dr. LUBIN. May I just raise a question before you continue? It is quite evident that for the year 1938 the most profitable investment an insurance company could make was a loan to a policyholder.
  • Mr. Howe. With respect to the gross rate; yes.
  • Dr. LUBIN. And these funds that were loaned to the policyholders, I take it, are part of the reserves that were set apart, and in a sense is his own money?
  • Mr. Howe. There is an argument about whether it is his own money.
  • Dr. LUBIN. Although legally it may be not his, in a sense it is a sum set aside against his policy?
  • Mr. Howe. It is money which he paid in originally as premiums, less expense.
  • Dr. LUBIN. And which in the event he does not pay the loan is deducted from the policy?
  • Mr. Howe. That is right.  (p14808)

PART 28 – Life Insurance – Operating Results and Investments – [1072p-archive.org]

  • 1938-1941 – GOV (Senate) – TNEC – Temporary National Economic Committee, Joseph C. O’Mahoney (D-WY)  —  [BonkNote]
  • After the introduction of indexation, this was no longer a problem except for some “tricks”
  • e.g.,  At one point, indexation was only semi-annual and not monthly, so people took policy loans one day after the indexation day and repaid the loan prior to the next indexation day.
    • They made a lot of money out of these transactions.

—  Dr. Kahane, not a member of the Society, is Associate Professor and director of the insurance center at Tel Aviv University.

1982 – SOA – The Experience of Living Under Sustained Inflation, rsa82v8n19 – Society of Actuaries – 18p

Coverage Period

  • Key Attributes of Generic Life Insurance Policies --- Table 4-2
    • Duration of coverage - Universal Life - Depends on premiums paid.  (p111)

2015 - Book - Life Insurance, 15th Ed. (Huebner Series) - Black jr., Skipper, Black

  • g. Clarifying "Coverage Period Description"
    • The Working Group discussed what information is intended to be included.
    • Mr. Yanacheak said this is intended to capture how long a policy's term is-a term of years or for life.
    • Mr. Birnbaum said it is intended to answer the question: If I pay my premium, this policy will cover x amount of time.
    • Mr. Wicka suggested, and the Working Group agreed, to the following revised language to Section 5A(2)(e)(iii): (iii) Indicate whether it is a term or permanent policy.
      • If it is a term policy, indicate the length of the initial term.

2019 0917 - NAIC - LIIIWG - Life Insurance Illustrations Issues Working Group - Proceedings (Fall, 6-77) - Cost of Insurance  ---  [BonkNote]

  • A third problem is of great concern to me... 
  • A few years ago, an awful lot of universal life policies were sold using, in effect, level premium illustrations - your policy will go for all of life or whatever - with companies using 10% or 11% interest rates, which is what the interest rate environment was then. 
  • The concern that I have, which may soon give much of the industry a very black eye, is that while people have received, as required by law, the annual updated policy values, they have not been shown that in all too many cases, their policy is going to end up having no cash value, perhaps when they reach 74 or 75.

--  Bruce E. Nickerson

1991 - Illustrations, Society of Actuaries - 20p

  • The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.
    • ...what bothers me is that I am afraid that this same misleading information may be the basis of my children's and grandchildren's ... planning... (p13)

--  Statement of Gloria Darleen Newberry, Policyholder

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

  • [Universal Life] ...afford(s) purchasers greater flexibility in designing their contracts so as to meet their individual needs. 

--  1981 0831 - ACLI - Statement of the American Council of Life Insurance Before the NASAA NAIC Joint Regulatory Insurance - 10p

1982-1, NAIC Proceedings

  • 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. - p448.

--  Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co.

1983 0510, 0511 and 0728 - GOV (House) - Tax Treatment of Life Insurance - [PDF-991p-GooglePlay,

  • Our sales illustrations are developed to comply with state laws and regulations.
    • While the expiration date of the policy is not required by law, it is an important feature because it lets the customer know how long the policy will remain in-force, based on guaranteed factors and planned premiums. (p187)

1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries - 142p

  • In fact, a UL policy will turn out to provide term life insurance, whole life insurance, or endowment insurance, depending on the premiums paid and other policy factors.
    • [Bonk: UL = Universal Life]

2015 - Book - Life Insurance, 15th Ed. - Black jr., Skipper, Black (Huebner Series) 

  • To: Commissioner Harold C. Yancey, From: John M. Coomans, Date: October 20, 1988 - Subject: Proposed disclosure statements for interest sensitive products
  • (p680) - 2. The guaranteed ending date of the policy.
    • A statement which says: Based on guaranteed interest rates, guaranteed mortality charges and the payment of the scheduled premiums, coverage will end on--------
    • RoseMarie is insisting that the Policy Schedule Page identifies the date when the policy will lapse based on paying the planned premium and guaranteed assumptions of interest and mortality rates.
  • (p889) - Verbal misrepresentation by omission involving these products occurs frequently.
    • It is assumed that the disclosure statements will be presented under the heading of Statement of Policy Cost and Benefit Information, according to the NAIC Life Insurance Solicitation Rule.
      • RoseMarie is insisting that the Policy Schedule Page identifies the date when the policy will lapse based on paying the planned premium and guaranteed assumptions of interest and mortality rates.
      • She is returning policy filings that do not clarify this.
        • She is doing this based on 31A-21-301 UCA, which refers to disclosing the beginning and ending dates of insurance protection.
        • RoseMarie Parkinson 

Consumer Disclosure Issues Working Group of the Product Development (A) Task Force

1989-1, NAIC Proc. (p673) - [Letters/ Feedback]

  • First, he will find that the usual notions of lapse, select mortality, maintenance expenses and the like begin to lose their meaning when applied to the ALI "class."
    • Is reduction of premium a partial lapse?
    • What about reduction of face amount, or reduction of the coverage period? 
    • ⇒ [Bonk: ALI = Adjustable Life Insurance]

--  J. Peter Duran

1979 - SOA -The Adjustable Life Decisions, Society of Actuaries - 18p

  • Because the flexibility of UL policies gives the policyholder premium options through time, the insurance company provides the policyholder information - through policy illustrations, the policy form and annual correspondence - showing how the flexibility in premium funding enjoyed by the policyholder affects the duration of coverage.
    • The policyholder then has the responsibility to review the information provided by the insurance company and take advantage of the premium flexibility to extend or reduce how long he or she may want coverage to last.

--  Expert Report - Defendant

2008 - Legal Case - Blumenthal v New York Life

Case 5:08-cv-00456-F Document 82-1 Filed 05/26/10 Page 5 of 24

  • Other policies may have special features which allow flexibility as to premiums and coverage.
    • Some let you choose the death benefit you want and the premium amount you can pay.
    •  The kind of Insurance and coverage period are determined by these choices.
  • One kind of flexible premium Policy, often called universal life, lets you vary your premium payments every year and even skip a payment if you wish.
    • The premiums you pay (less expense charges) go into policy account that earns interest and charges for the insurance are deducted from the account.
    • Here, insurance continues as long as there is enough money in the account to  pay the insurance charges.

1984 - NAIC - Life Insurance Buyer's Guide - [Scribe = ACLI]

  • Let us assume that a customer wishes to buy insurance protection for a ten-year period and wants to pay level annual premiums.
    • He can purchase a ten-year term policy or a ten-year endowment policy.
    • From a consumer's viewpoint the savings element in the ten-year endowment policy is obviously the difference in premiums between the two contracts.
    • If a customer wants thirty years of protection, and wants to pay level annual premiums, then he might choose between two policies: a thirty-year term with minimum cash values and a thirty-year endowment policy.
    • Despite the fact that there are cash values in the thirty-year term contract, from a consumer's viewpoint it has no savings element.
    • All of the premium is required to provide the thirty years of protection.
    • The savings element in the thirty-year endowment is the difference in the premiums of the two contracts.

--  Paul Overberg

1973 - SOA - Price Disclosure and Cost Comparison, Society of Actuaries - 186p 

  • He said many consumers cannot distinguish between universal life and whole life.
    • He said a narrative explanation was needed because many did not understand the numbers or the fact that a universal life policy might drain the cash value until there was no coverage left. 

--  Mr. Barkacs, Western Southern 

1994-3. NAIC Proceedings

  • 2017 1115 - Letter - LIBGWG - NAIC - ACLI Redlined Draft - 12p
    • Unlike a term policy, which can end after a specified number of years, permanent life insurance will continue to the policy's maturity age so long as premiums are paid.
    • ------- (Note that this isn't exactly accurate for UL, where policies can continue as long as the cash value is sufficient to pay the policy charges. We may want to make that distinction.) -------
      • [Bonk: ACLI wording - Line through it]
  • The complications begin with a very simple question:
    • What's the premium for Universal Life?
      • It could be almost anything.
    • Then what's the cash value?
      • That depends on the premium.
    • It is the relationship between the premium and cash value that determines the product characteristics of Universal Life.

--  Ben H. Mitchell, [Bonk: a consulting actuary with Tillinghast in Atlanta - Years-?]

1981 - SOA - Universal Life (RSA81V7N412), Moderator: Samuel H. Turner, Society of Actuaries - 16p 

  • It's very possible to have a 25-year term with zero cash value, using a UL product.

--  Lawrence Silkes

1990 - SOA - Life Product Development Update, Society of Actuaries - 20p

  • UW-Madison / SOA
    • Question: Calculate the Level Annual Premium that results in an account value of 0 at the end of the 20th year.
    • VIDEO: Exam MLC Problem 297 "Learning Objective "Universal Life." 
    • [Bonk: Goal = Design a Universal Life policy as a 20-year term policy.]

Black Swans

  • Nassim Taleb
  • The Black Swan: The Impact of the Highly Improbable is a 2007 book by author and former options trader Nassim Nicholas Taleb. The book focuses on the extreme impact of rare and unpredictable outlier events-and the human tendency to find simplistic explanations for these events, retrospectively. Taleb calls this the Black Swan theory. (Wikipedia)
  • (p60) – David Schweikert – (R-AZ) – Are we going to wake up tomorrow and find out that the shadow on the horizon, the black swan was something that because of the concentration of the way you look at the world you completely miss?

2015 1208 – GOV (House) – Oversight of the Financial Stability Oversight Council (FSOC), Jeb Hensarling (R-TX)  —  [BonkNote]

  • No one ever thought GIC defaults could occur.
  • No one thought that the leading insurance companies that were carrying AAA ratings could default in a short period of time.

— Murray L. Becker

1999 – SOA – Insurance Company Failures of the Early 1990s – Have We Learned Anything?, Society of Actuaries – 25p

  • My last point is beyond interest rate risk.
  • The credit crunch was an event risk in the credit markets.
  • Even if you had the latest and greatest interest-rate-risk model, it did not envision this type of event risk.
  • The warning is to be careful for these “other risks.”
  • When you think you understand everything that can happen, something new happens.

—  Anthony Dardis

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

  • Unknown unknown risks are the Black Swans, things that happen but cannot be prepared for.
  • Unknown knowns are another form of emerging risk that reflects ignorance of the future.
    • This can reflect instances where historical data is not predictive, but also includes risks without data where a practitioner or theorist is not able to provide useful techniques to analyze the risk in the future.
  • A risk may be an unknown known for one analyst and a known known for another.1 (p5)

2018 – SOA – 11th Survey of Emerging Risks, Society of Actuaries – 138p

Mergers and Acquisitions

  • 1969 – LR – Insurance Mergers and the Clayton Act, Yale –14p
  • 1971 – LR – Section 7 of the Clayton Act as a Tool to Curtail Conglomerate Acquisitions of Insurance Companies, by Roland W. Johnson – 44p
  • 1977 – LR – The Impact of Increased State Regulation of Insurance Mergers and Acquisitions on on Federal Antimerger Regulation, by Ronald A. Jacks – 14p
  • 1980 – LR – The Federal Trade Commission and Insurance Mergers, by Stephanie Kanwit – <WishList>
  • 1985 – LR – The Unconstitutionality of State Insurance Takeover Statutes: An Unfortunate but Not Necessairly Final Result, by John M. Sheffey – 61p
  • More than 150 life insurers now own brokerage or investment firms, according to the National Association of Securities Dealers.
  • ”The franchise value of a major securities firm is something that is clearly established,” said George L. Ball, chairman of Prudential-Bache Securities. ”Insurance is a steady parent for the more volatile investment arm, making a very nice link.”

1986 1227 – NYT – Why Insurers Covet Brokers, New York Times – [link]

  • The big transaction in this year to date was my parent company’s sale of Travelers Life and Annuity to MetLife for $11.5 billion.

—  Steve Fromm with Citigroup Investment Banking

2005 – SOA – Where Did All the Mergers and Acquisitions Go?, rsa05v31n161pd – Society of Actuaries – 21p

  • EF Hutton
  • Farmers Insurance / BATUS (British American Tobacco US)
    • British parent, BAT Industries PLC
  • First Capital – 1991/NOLGHA
  • Life of California
  • Tenneco to Conseco
  • 1978 – SOA – Actuarial Appraisal Valuations of Life Insurance Companies, by Samuel H. Turner, tsa78v305 – Society of Actuaries – 30p
  • 1982 – SOA – Diversification of Life Insurance Companies, rsa82v8n318 – Society of Actuaries – 20p
  • 1995 – SOA – International Consolidation of the Life Insurance Industry, Society of Actuaries – 20p
  • 1999 – SOA – Industry Convergence-Bank Participation, Society of Actuaries – 18p
  • My question revolves around the notion that it seems as if we talk about the life insurance company as acquiring other services which it will offer in some basket of services.
    • But when we talk about the financial services industry and the life insurance  business, the reality is that the other financial services industries are miles ahead of us in their flexibility of systems, their sales compensation and a host of other things, and they are really acquiring us. 

—   J. Ross Hanson

1982 – SOA – The Financial Services Industry And Its Responses To Inflation And Deregulation, Society of Actuaries – 36p 

  • 2003 – SOA – Merger of the Actuarial Education and Research Fund and The Actuarial Foundation – [link] 
    • Within the next few weeks, the Actuarial Education and Research Fund (AERF) and The Actuarial Foundation will be merging. The named of the merged organizations will be The Actuarial Foundation (TAF).
    • Woodall Group and ACLI
  • 1982-2, NAIC Proceedings – Re: Revised Memorandum on Issues and Problems Surrounding the NAIC Model, Insurance Holding Company Act – ATTACHMENT FIVE-A
    • To: Members of NAIC, Securities and Insurance, Regulation (EX) Task Force, From: Scott Shaffer, Date: March 26, 1982
    • Summary
      • In the decade of the 1960’s, insurance companies reacted to economic factors such as inflation and the corresponding shift in the allocation of peoples’ savings dollars from life insurance to equity based investments by diversifying through the formation of upstream, parent holding companies.
      • This memorandum pinpoints problem areas of the Model Act which have arisen as a result of recent court decisions declaring similar provisions of state corporate takeover and state insurance holding company acts to be unconstitutional.
  • I will start by discussing the expansion and consolidation of the U.S. life insurance industry.
    • Table 1 shows the development, in five-year intervals, of the number of companies in the U.S. since the end of World War II.
    • At the end of World War II, we had 473 life insurance companies in the U.S. (a relatively modest number) of which only one-third were mutual companies, or roughly 160.
    • There was rapid expansion and the number of companies quintupled from 470 in 1945 to 2,300 in 1988 before we began a severe consolidation.
  • Why were so many new companies added in this postwar period?
    • First of all, banks, finance companies and auto dealers formed life insurance companies that were basically credit life and health insurers.
    • A number of reinsurance companies were formed in Arizona, and a number of limited surplus companies were formed in Texas.
    • Both these states have small surplus requirements, which enabled companies to get into the business with very modest capital contribution.

—  Frederick S. Townsend, Jr.

1995 – SOA – International Consolidation of the Life Insurance Industry, rsa95v21n4b15 – Society of Actuaries – 20p

Games, Gimmicks and Tricks

  • Why is this flimflammery allowed to continue?
  • Where are the laws to prevent companies from misleading people?  (p3)

—  Senator Howard Metzenbaum (D-OH)

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

  • It is my recollection and understanding that AG 49 was created in part due to a problem with ‘gamesmanship’ in IUL illustrations.

—  Letter – Mike Yanacheak (IA)

2014 1113, NAIC – IULISG – IUL Illustration Subgroup

We cannot play word games with policyholder money.

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

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

  • It is clearly time for action.
    • I admit to being dismayed by the disarray in the market, as a result of “illustration games.
  • “When my kids go outside to play games, I let them do so with the expectation that no one will get hurt.
    • With some of the illustration games being played today, my expectation is exactly the opposite.
    • I say that for two reasons, one of which is historical, and one of which is practical.
  • On the buyer’s side, there are two major sorts of harm that can befall the unwitting participants of illustration games. Neither is trivial.
    • 1. Bad buying decisions are more likely to occur. Bad buying decisions are inevitable whenever illustrations are not on a comparable basis. The existence of illustration games exacerbates the problem.
    • 2. The misdirection of an illustration game can leave the buyer in a position from which he simply cannot recover.
  • One of our competitors likes to talk about an illustration where a big premium increase at an advanced age is downplayed by saying, “Don’t worry, you’ll probably be dead by then.”
    • He calls it the pay-or-die illustration.
    • How can we expect an 80-year-old individual, who has been paying the level premiums illustrated for years but still finds himself out of cash and insurance, to replace what he thought was a permanent benefit?
  • The life insurance industry will also suffer because of illustration games. It suffered once before when unsound illustrations were prevalent — 100 years ago during the tontine wars. That is my historical reason for saying that both buyers and the industry will be hurt by unsound illustration practices.
  • Let me go back in time now, and try to retrace our steps from the tontine days to the present.

—  William C. Koenig, Northwestern Mutual

1991 – SOA – Disclosure Systems: Can an Ideal Method be Found?, Society of Actuaries – 22p

  • Mr. Morgan, referring to the report of the committee’ on assets and investments, spoke as follows:
    • Life insurance is a theme that should be approached and handled reverently and discreetly, and, I would add, with a fear of God, for it is little less than holy ground; hence, carelessness and  ignorance, empiricism and charlatanry, should be excluded from its high places.  (p30)

—  N.D. Morgan, President of the North America Life Insurance Company

1871-1, NAIC Proceedings

  • From several sources I have gotten the opinion that interest rate games used to be almost invincible in the early years of Universal Life.
  • Partial sophistication now has reduced their effectiveness, so that the emphasis is turning toward cost-of-insurance games.
  • Almost nobody can understand those yet.
  • They work wonderfully, at least for the next 10 years.

—  David H. Raymond

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • After the introduction of indexation, this was no longer a problem except for some “tricks”
  • e.g.,  At one point, indexation was only semi-annual and not monthly, so people took policy loans one day after the indexation day and repaid the loan prior to the next indexation day.
    • They made a lot of money out of these transactions.

—  Dr. Kahane, not a member of the Society, is Associate Professor and director of the insurance center at Tel Aviv University.

1982 – SOA – The Experience of Living Under Sustained Inflation, rsa82v8n19 – Society of Actuaries – 18p