Reasonable

  • Another issue mentioned was actuarial integrity or ethics. —  It might help to use an analogy.
  • Trying to assess the relative aggressiveness or integrity of illustrations is similar to determining whether people on a highway are driving at a reasonable and proper speed.
    • Driving between 50 and 70 miles per hour may be reasonable and proper, but there is still quite a difference in speed.
    • They will arrive at their destination at very different times.
  • Applying this example to illustrations, we can construct them with integrity and still not have something meaningful for Type B purposes, because there will always be too much variation in what is reasonable and proper.

—  John R. Skar, Fidelity Mutual

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • Commissioner David Lyons (Iowa) asked Ms. Faucett to describe the quotation by her that had recently appeared in the New York Times.
    • She said she was quoted as saying that if you put 10 actuaries in a room you would get 40 conclusions about what the numbers they were examining meant. 
    • She thought it was important for buyers to see how the policy would work but the current approach of the working group would not allow that to happen.
    • Ms. Faucet responded that people spend more time buying a microwave than they do an insurance policy.
    • [Bonk: Ms. Faucett = Judy Faucett, Actuarial Consultant to the NAIC] 
    • <WishList = NYT – New York Times Article – ” 10 actuaries in a room”>

1994-1, NAIC Proceedings

ACLI – Non-Guaranteed Cost Element

  • A couple of ACLI groups have also been studying various aspects of universal life insurance.
    • The Council’s Subcommittee on Cost Comparisons has proposed that cost disclosure requirements for universal life plans be generally similar to those for traditional life insuranceplans as provided by the NAIC Model Life Insurance Solicitation Regulation.
    • In addition, the Subcommittee is recommending disclosure for universal life plans in accordance with the “non-guaranteed cost element” concept endorsed by the Council as a modification to the model regulation.
      • The only special requirement recommended for universal life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions.
      • No post-sale disclosure requirements were deemed appropriate at this time.

—  Leonard E. Odell, ACLI

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

  • Since universal life insurance was then being marketed only on a very limited basis, the council task force’s proposals did not address this product.
    • The council has now developed a recommendation for universal life insurance, which we would like to present for your consideration.
  • The essence of the proposal is that universal life insurance be treated for cost disclosure purposes as a life insurance plan with a nonguaranteed cost element.
  • Thus, the policy summary would show for the prescribed policy years the anticipated premiums and, both on the guaranteed and currently illustrated bases, the death benefits, cash surrender values, and endowment amounts, if any.
    • The life insurance cost indexes would be calculated on the currently illustrated basis, using the anticipated premiums, and would be required to be shown along with corresponding nonguaranteed elements.
  • ⇒  An additional item of information that is recommended to be required in the policy summary is the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in the summary.

1982-1, NAIC Proceedings – 1981 1215 – Letter – ACLI to NAIC – Cost Disclosure for Universal Life, by the Special Task Force of the ACLI Cost Disclosure Subcommittee to NAIC Task Force on Life Insurance Cost Disclosure – 4p

Assumption Reinsurance

  • Life and health insurers have greater opportunity to transfer a set of policies from one company to another, using a transaction known as “assumption reinsurance” (a confusing term for what amounts to the sale of a block of policies with the “consent”-sometimes constructive-of each policyholder).105

2021 – LR – Uncertainty > Risk: Lessons for Legal Thought from the Insurance Runoff Market, Tom Baker – 51p

  • [Both Dates PDF-629p-GooglePlay, 0428-No Video / 0505-VIDEO-CSPAN- Insurance Policy Transfers]
  • 1996 – SOA – An Alternative to Assumption Reinsurance, rsa96v22n324pd – Society of Actuaries – 27p
  • NAIC – Assumption Reinsurance Model Act – 830 – 8p
  • 2008 0721 – NYSID – RE: Assumption Reinsurance/Novation – OGC Op. No. 08-07-15 – The Office of General Counsel issued the following opinion on July 21, 2008, representing the position of the New York State Insurance Department. 
  • 2016 08 – OSFI – Office of the Superintendent of Financial Institutions (Canada) – [link]
  • (p287) – Senator Howard Metzenbaum: Assumption reinsurance is a misnomer; it is an incorrect description.
    • You are not being reinsured. Your policy has been transferred to another company without your consent.
    • Your original company has turned you into a commodity to be sold to another company without your consent. The new company, the one that you might not know you are with, may have a lower credit rating, may not be licensed to engage in the business of insurance in your State, and may not even have your policy records. It might even be teetering on the brink of insolvency. It could be that you have never even heard of your new company before.
  • (p288) – Senator Howard Metzenbaum: In some cases, the transfer is not only to an unrated or lower rated company, but to one that soon becomes insolvent, such as Mutual Security Life of Indiana.  In mid- 1988, Mutual Security Life was in financial trouble. To make matters worse, a lot of Mutual Security Life’s annuities were about to mature and there wasn’t enough cash to pay them off.
  • How to get the cash? —  Enter assumption reinsurance.
  • Mutual Security bought 92,000 policies from Capitol Life of Colorado in an assumption reinsurance transaction.
    • The 92,000 policy holders had paid an accumulated $136 million in premiums to Capitol Life.
    • That money transferred with the policies when they went to Mutual Security in Indiana.
  • But I said Mutual Security was in financial trouble, so how could it pay for the policies?
    • Mutual Security just gave back to Capitol Life $35 million of the $136 million Capitol Life had given to Mutual Security.
  • What happened to the 92,000 policyholders?
    • Most had purchased their policies when Capitol Life was rated A or better.
    • They were transferred to Mutual Security Life, a C+ rated insurer teetering in insolvency.
    • Neither Capitol Life nor Mutual Security asked the policyholders what they thought.
    • The deal was done and the money gone months before the policyholders were notified.
  • The Colorado and Indiana insurance departments let the transfer occur without the policyholders’ consent. Then, in 1990, Mutual Security was declared insolvent, leaving the 92,000 policyholders in limbo. 
  • (p392-393) – Senator Orrin Hatch (R-UT) – ….again I come back to my original statement.
    • Why is State contract law an insufficient remedy?
    • The answer to that, in my opinion, is it is a sufficient remedy.

Terms of Art

  • (p5) – They allege that “cost of insurance” is an industry term of art…

2013 0102 – LC – Freeman v Pacific Life – 09-55513, D.C. No. 8:08-cv-01134-DOC-AN, OPINION – 15p

  • There is a general rule of statutory construction that terms of art used in the statute that are particular to a specific industry are interpreted consistently with that industry’s understanding of the meaning.  (p26)

—  Peter Winslow

2015 – SOA – Taxing Times, /tax-2015-vol-11-iss2 – Society of Actuary’s – 56p

  • THE COURT: But they clearly describe those types of charges as non-guaranteed.
  • MARTENS: Well, the question isn’t whether they’re non-guaranteed. The question is whether or not they meet the statutory definition of non-guaranteed elements.
    • In other words, non-guaranteed elements is a term of art in the statute.
    • So the question, is it a premium, benefit, value, credit, or charge?  (p30)

Walker v Life Insurance Company of the Southwest – 2017 1211 – DOC 876 – TRANSCRIPT for proceedings – 61p

  • The term “cede” or “ceded” is a term of art used in the insurance context when an insurance company (the “ceding company”) transfers a risk or risks in a policy to another company (the reinsurer). (p4)

2022 0811 – Vermont – Final Proposed Filing, 22-P12 – Coversheet  – 118p

Demand Deposit

  • Demand deposits are funds on deposit with banks; they are subject to immediate withdrawal and are classified as cash. (p434)

1988-2, NAIC Proceedings – Life and Health Actuarial (EX5) Task Force 

  • 1988 0411  (Draft) – RE: Proposed Regulations Concerning the Valuation of Universal Life Insurance Plans – ATTTACHMENT TWO-B
    • The regulation provides for the pre-funding of cash values, so that the amounts will be available upon policyholder demand, and will not be contingent upon sufficient surplus being available at that time to cover what is the equivalent to a demand deposit.  (p434)

1988-2, NAIC Proceedings

  • 2014 0520 – GOV (House) – Legislative Proposals to Reform Domestic Insurance Policy – [PDF-128p
    • p17 – ACLI – Gary Hughes

Wildcat

  • Perhaps no abuse in recent years has been productive of more financial loss than than the sale of stock in wildcat insurance enterprises…  (p88)

1912-0, NAIC Proceedings

  • Nor are financial panics the only cause for concern.
  • Financial markets have also long exhibited a vulnerability to manipulation, swindles, and fraud, including:
    • William Duer’s notorious attempt to corner the market for United States government bonds in 1791-92,
    • ⇒  the ”wildcat” life insurance companies of the early nineteenth century (which took premiums from customers but disappeared before paying any claims), 
    • the infamous pyramiding scheme of Charles Ponzi in 1920,
    • and the highly suspect practices of New York’s National City Bank and its chairman, Charles Mitchell, in the runup to the Great Crash of 1929.
    • The apparent massive Ponzi scheme of Bernard Madoff that has recently unraveled in 2008 is only the latest in a long series of such financial scandals.  (p7-8)

2009 02 – COP – Report – Modernizing the American Financial Regulatory System, Congressional Oversight Panel – 118p

Write-Downs

  • 1994 – FRB – Announcements of asset-quality problems and contagion effects in the life insurance industry, by George W. Fenn and Rebel A. Cole, First version August 1992, final version October 1993, Federal Reserve Board – 29p
  • AIG Securities Lending / Life Insurance – 50-55 Billion
    • mp3 interview – Dixie / 
  • [Contagion / Writedowns] – (p139) – 677 One analysis of the contagion effects on other insurers of announcements by First Executive in January 1990 of a write-down in its bond portfolio, and by Travelers in October 1990 of losses on its CRE portfolio, concluded that “the primary significance of the write-down announcements to the market was their anticipated effect on policyholders’ behavior [at other insurers].”
    • George Fenn and Rebel Cole, “Announcements of Asset-Quality Problems and Contagion Effects in the Life Insurance Industry,” Journal of Financial Economics volume 35, issue 2 (1994).  

Documents 85-2 and 85-3 – 2015 0930 – MetLife v. FSOC – 15-CV-45 – Documents 85-2 and 85-3 – 387p

  • “American International Group Inc plans to absorb losses for a dozen insurance units after their securities lending accounts suffered $13 billion of write downs tied to the subprime mortgage collapse during the past year.
    • The world’s largest insurer will absorb as much as US$5 billion of any losses on sales of investments, up from a previous commitment of US $500 million, said Christopher Swift, vice-president for life and retirement services.
    • AIG will also inject an undisclosed amount of capital into some of the subsidiaries, he said.
  • ⊗ Moody’s Investors Services and AM Best Co. both cited the write downs in May when they downgraded New York based AIG’s credit ratings.
  • State regulators in Texas said they didn’t know AIG was investing cash collateral from the securities lending business in subprime-linked assets and were concerned the insurance units hadn’t put aside enough capital to cover potential losses.

2008 0627 – Bloomberg – AIG to Absorb $5 Billion Loss on Securities Lending: Insurance Units Wrote Down $13B Tied To Mortgages, by Miles Weiss  —  [BonkNote]

Stays

2023 0908 – BetterWealth – Whole Life Insurance as Your Alternative Bank – [Garrett Gunderson] –  [VIDEO-YouTube-27:12]

  • The IAA notes that the exercise of any power to implement a stay on surrenders may have a cost to the reputation of the insurance industry and may result in conflicting positions between the prudential and conduct supervisors if they are separate.  (Page 180 of 264)
  • [Bonk: Reputational Risk]

—  501. International Actuarial Association International – IAA

2019 0614 – IAIS – Compiled Comments on Holistic Framework for Systemic Risk in the Insurance Sector, 14-Nov-18 to 30-Jan-19  —  [BonkNote]  —  264p

  • 1983 10 – SOA – New South Life: The Sequel, Ed. Note: This Contributors Identification is known to the Editor, The Actuary, act8310 – Society of Actuaries – 8p
    • Among Points for Actuaries to ponder:
      • The rescue operation might have failed especially if new policyholders had understood that the company might, as it did, go out of business.
      • Collectively policyholders fared well, but some, who would have preferred to take cash and accept their loss, and were entitled by statute to do so, suffered for the common good.
      • What, one wonders, is a policyholder’s obligation to other policyholders?
  • A. The Bankruptcy Rules That Would Have Applied to AIG
    • Generally, when a company files for bankruptcy, its creditors will be subject to an automatic stay or an injunction that prevents the creditors from taking further action to collect on their debts.889
    • Thus, the debtor’s assets will be protected while negotiations take place with creditors.  (p221)

2010 0610 – COP – Report – The AIG Rescue, Its Impact on Markets, and the Government’s Exit Strategy, June Oversight Report, Congressional Oversight Panel  —  [BonkNote] 

  • (p175) – 484. Institute of International Finance
    • Altering a company’s sales practices, imposing large exposure limits, restricting the transfer of assets, restricting the activities of a subsidiary, freezing assets, imposing stays on surrenders, or lowering the maximum rate of guarantees would likely result in grave harm to an insurer’s franchise and to the entire industry through the abrogation of contracts and reduced market and policyholder confidence
  • (p180) – 501. International Actuarial Association International
    • The IAA notes that the exercise of any power to implement a stay on surrenders may have a cost to the reputation of the insurance industry and may result in conflicting positions between the prudential and conduct supervisors if they are separate.  

2018 – IAIS – Compiled Comments on Holistic Framework for Systemic Risk in the Insurance Sector 14-Nov-18 to 30-Jan-19 – 264p

Life Insurance and Banking

  • Banking and insurance are related, but the insurance industry is fundamentally different, and our approach toward regulators must consider those differences.  (p2)

— Senator Jack Reed (D-RI)

2011 0914 – GOV (Senate) – Emerging Issues in Insurance Regulation – Congressman Reed (RI) – PDF-51p

  • 1998 – LR – The Law and Finance of Bank and Insurance Insolvency Regulation, David A. Skeel Jr – 59p