Tuesday, June 18, 2019

No. 318: Factoring Companies—A California Lawsuit and a Texas Order Focus Attention on the Sale of Income Streams

A recent state court lawsuit in California and a recent disciplinary order in Texas have refocused attention on the questionable business of factoring companies, which acquire and resell income streams from pensions and annuities. Here I discuss the lawsuit and the order, and present the views of securities regulators on the subject.

The California Lawsuit
DRB Capital is a Delaware LLC based in Florida. Its website (www.drbcapital.com) provides some information. DRB offers cash for structured settlements, annuities, and "pre-settlement funding." The site does not disclose the names of the DRB officers. However, it is clear that DRB is a factoring company in the business of reselling, perhaps to clients of insurance agents and financial advisers, streams of income that DRB acquires through assignments from payees of structured settlement annuities and retirement annuities.

On November 13, 2018, DRB filed a lawsuit against Robert Perez (a California resident), New York Life Insurance Company, and New York Life Insurance and Annuity Corporation (NYLIAC). Perez is the payee of an individual retirement annuity (IRA) he inherited. Under a proposed assignment, Perez was to receive from DRB a lump sum in exchange for assigning to DRB 89 monthly IRA payments of $683.57 each beginning January 22, 2020 and ending May 22, 2027. The payments amount to a simple total of $60,837.73.

The complaint did not include a a copy of the IRA.  Nor did it include a copy of the proposed assignment agreement between DRB and Perez. The complaint named both New York Life and NYLIAC as defendants, but NYLIAC issued the IRA. The complaint did not disclose the size of the lump sum DRB was to pay Perez in exchange for the assignment of the 89 IRA payments. Therefore, when the lump sum is viewed as a loan by DRB to Perez (which is precisely what it is), it is impossible to calculate the annual interest rate on the loan. DRB said NYLIAC will not honor the assignment of the payments without a court order. Thus DRB sought a court order declaring the assignment valid and enforceable.

On January 23, 2019, NYLIAC responded to the DRB complaint in a "demurrer." NYLIAC said New York Life was not the issuer of the IRA and therefore was not a proper party in the case. NYLIAC said "the express anti-assignment language in the annuity contract ... bars the relief requested by DRB in the Complaint." NYLIAC said "the relief requested by DRB in the Complaint is barred because it would contravene Section 408 of the Internal Revenue Code and materially increase the burdens and risks of both Mr. Perez and NYLIAC." NYLIAC asked the court to sustain the demurrer without leave to amend.

On May 31, 2019, California Superior Court Judge Kenneth J. Medel issued an order sustaining NYLIAC's demurrer without leave to amend. He also ordered New York Life removed from the case. The DRB complaint, the NYLIAC demurrer, and the court order are in the complimentary package offered at the end of this post. (See DRB v. Perez, Superior Court of California, County of San Diego, Case No. 37-2018-00057432-CU-MC-CTL.)

The Texas Disciplinary Order
On June 6, 2019, Texas Securities Commissioner Travis J. Iles issued a disciplinary order directed at an individual and a firm in Dallas who had sold stream-of-income investments to clients. Commissioner Iles reprimanded the individual and the firm. He also directed them to pay almost $89,000 (twice the commissions they had received) to certain clients. The Texas order is in the complimentary package offered at the end of this post.

The Warnings from Securities Regulators
In May 2013, the Office of Investor Education and Advocacy of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) jointly issued an "Investor Bulletin" entitled "Pension or Settlement Streams." The bulletin is mandatory reading for anyone considering a sale of or an investment in a pension stream. Here are the first two paragraphs of the bulletin:
Do you receive a monthly pension from a former employer? Are you getting regular distributions from a settlement following a personal injury lawsuit? If so, you may be targeted by salespeople offering you a lump sum today to buy the rights to some or all of the payments you would otherwise receive in the future. Retired government employees and retired members of the military are among those being approached with such offers. Typically the lump sum offered will be less—sometimes much less—than the total of the periodic payments you would otherwise receive.
After acquiring the rights to a future income stream (such as a retiree's pension payments), these pension purchasing or structured settlement companies, sometimes called "factoring companies," may turn around and sell these income streams to retail investors, often through a financial adviser, broker or insurance agent. These products go by various names—pension loans, pension income programs, mirrored pensions, factored structured settlements or secondary-market annuities. They may be pitched to investors with words like "guaranteed" and "safe"—and may tout robust returns that outpace more traditionally conservative investments such as CDs or money market accounts. The advertised returns may sound enticing, but investors should be aware that these investments can be risky and complex. FINRA and the SEC's Office of Investor Education and Advocacy are issuing this Investor Alert to inform anyone considering selling their rights to an income stream—or investing in someone else's income stream—of the risks involved and to urge investors to proceed with caution.
The North American Securities Administrators Association (NASAA) is an organization of state, district, and territory securities regulators in the U.S. and Mexico, and provincial securities regulators in Canada. On April 4, 2016, NASAA issued an "Informed Investor Advisory: Pension Advance Scams." The advisory explains how the "scam" works. The "bottom line" says: "Before making any decisions with your money, ask questions, do your homework and contact your state or provincial securities regulator."

On April 5, 2016, the day after NASAA issued its advisory, the Texas State Securities Board issued an "Investor Alert." It is entitled "Pitfalls of Pension Advance Schemes." The SEC/FINRA bulletin, the NASAA advisory, and the Texas alert are in the complimentary package offered at the end of this post.

My Writings About Factoring Companies
I wrote articles about factoring companies in the August 2011 and October 2011 issues of The Insurance Forum, my monthly newsletter. There I discussed the activities of such companies in detail, including the high annual interest rates associated with factoring transactions. The articles are in the complimentary package offered at the end of this post.

I also posted two blog items on the subject: No. 115 (September 11, 2015) and No. 190 (November 28, 2016). More recently, I posted No. 293 (November 1, 2018) about a tragic situation in which one element of the case involved the assignment of a portion of the proceeds from a structured settlement annuity.

General Observations
In the October 2011 Forum article mentioned above, I expressed the opinion that regulation of the secondary market for structured settlement annuities and retirement annuities did not exist. I referred to the situation as a "regulatory vacuum." What federal, state, and provincial securities regulators have been doing more recently is encouraging, but I think regulatory attention in this area remains inadequate.

Available Material
I am offering a complimentary 40-page PDF consisting of the DRB complaint (3 pages), the NYLIAC demurrer (13 pages), the California court order (2 pages), the Texas disciplinary order (9 pages), the SEC/FINRA bulletin (4 pages), the NASAA advisory (2 pages), the Texas alert (2 pages), and the two Forum articles (5 pages). Email jmbelth@gmail.com and ask for the June 2019 package about factoring companies.


Thursday, June 13, 2019

No. 317: Stranger Originated Life Insurance and the New Jersey Supreme Court

On June 4, 2019, the New Jersey Supreme Court handed down a 6 to 0 opinion that represents a major setback for stranger originated life insurance (STOLI). The opinion is "on certification of questions of law from the U.S. Court of Appeals for the Third Circuit," and draws on facts from the opinions of the Third Circuit and the U.S. District Court for the District of New Jersey. Chief Justice Stuart Rabner wrote the opinion. Justices Jaynee LaVecchia, Anne M. Patterson, Faustino J. Fernandez-Vina, Lee A. Solomon, and Walter F. Timpone joined in the opinion. Justice Barry T. Albin did not participate. The "syllabus" and the full opinion are in the complimentary package offered at the end of this post. (See Sun Life of Canada v. Wells Fargo Bank, Supreme Court of New Jersey, A-49 September Term 2017, 080669.)

Facts of the Case
The facts of the case resemble those of many cases issued during the heyday of STOLI. The application was for a $5 million policy. The application vastly overstated the insured's income and assets, and a phony inspection report verified the false information. Also, the application substantially understated the amount of life insurance already in force on the insured's life. The application named a trust as the sole owner and beneficiary of the policy. The insured's grandson signed the application as trustee. Sun Life issued the policy in July 2007. Five weeks later, the grandson resigned as trustee and appointed certain "investors," or what I call "speculators in human life," as successor co-trustees. The trust agreement was amended so that most of the benefits would go to the investors, who were also empowered to sell the policy. More than two years later, after expiration of the two-year period of contestability, the trust sold the policy. The investors received nearly all the proceeds from the sale. Wells Fargo Bank eventually acquired the policy in a bankruptcy settlement and continued to pay the premiums.

The insured died in 2014. Wells Fargo sought to collect the death benefit. Sun Life investigated, discovered the fraud, refused to pay, and sought a declaratory judgment that the policy was void ab initio (from the beginning). Wells Fargo counterclaimed for breach of contract and, if the court voided the policy, sought a refund of the premiums it had paid.

Federal District Court Ruling
The federal district court in New Jersey found that New Jersey law applied, that it was a STOLI transaction lacking insurable interest in violation of the state's public policy, and declared the policy void ab initio. The court also granted Wells Fargo a refund of the premiums it had paid, reasoning that Wells Fargo was not to blame for the fraud, and that allowing Sun Life to retain the premiums would provide a windfall to Sun Life.

Third Circuit Ruling
Both parties appealed to the federal Third Circuit. Finding no dispositive New Jersey case law, the Third Circuit certified two questions of law to the New Jersey Supreme Court. Here are the questions:
  1. Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio?
  2. If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?
New Jersey Supreme Court Ruling
The New Jersey Supreme Court answered yes to both parts of the first certified question. In other words, a life insurance policy procured with the intent to benefit persons who do not have an insurable interest in the life of the insured violates the public policy of New Jersey, and such a policy is void ab initio.

On the second certified question, the court ruled that a party may be entitled to a refund of premiums it paid on the policy, "depending on the circumstances." To decide the appropriate remedy, the court ruled that trial courts should develop a record and balance the relevant equitable factors, such as a party's level of culpability, its participation in or knowledge of the fraud, and its failure to notice red flags. A party may be entitled to a refund of premiums it paid, particularly a later purchaser who was not involved in the fraudulent conduct. The court noted that the district court had considered equitable principles and had fashioned a compromise award, but had not commented on the award.

Earlier STOLI Cases
My first article about the secondary market for life insurance was in the March 1989 issue of The Insurance Forum. My second article was in the March 1999 issue of the Forum, and was prompted by my first evidence of what later became known as STOLI. The articles are in the complimentary package offered at the end of this post.

I have also written extensively about STOLI on my blog. Four such posts, in chronological order, are No. 131 (12/9/15), No. 166 (6/15/16), No. 167 (6/20/16), and No. 228 (8/1/17).

General Observations
I think major life insurance companies have instituted sufficient safeguards to prevent significant amounts of new STOLI business from being initiated. The problem now is the handling of the huge volume of STOLI business that was initiated during the heyday of STOLI and is now moving around among a shrinking number of investors. I think the STOLI business will continue to generate litigation for many years.

Available Material
I am offering a complimentary 69-page PDF consisting of the syllabus and full New Jersey Supreme Court opinion (53 pages), and the articles about the secondary market in the March 1989 and March 1999 issues of the Forum (16 pages). Email jmbelth@gmail.com and ask for the June 2019 package about STOLI.


Monday, June 10, 2019

No. 316: John F. X. Mannion—A Memorial Tribute

John F. X. Mannion
John F. X. "Jack" Mannion, of Syracuse, New York, died on May 25, 2019, at age 86. He served for many years as Chairman and Chief Executive Officer of Unity Mutual Life Insurance Company, which was based in Syracuse.

Jack was born in the Bronx on December 6, 1932, during the Great Depression. He graduated at the top of his class at All Hollows High School. He then attended the University of Notre Dame, where he enrolled in the Air Force ROTC program. He was a lifelong supporter of both All Hollows and Notre Dame. He served in the U.S. Air Force during the Korean War. After his discharge with the rank of captain, he started his insurance career as an agent. Jack's wife, Stephanie Miner, served as Mayor of Syracuse from 2010 to 2018.

Although Jack and I were fellow Syracusans, we never met face to face. I left Syracuse in 1958 and returned only for personal family visits and later for the 50th reunion of my high school class. However, Jack and I became good friends not long after I started publishing The Insurance Forum, my monthly newsletter. Whenever he saw an article there that intrigued him, he would write or call to talk about it. I always enjoyed our discussions because they helped me understand the viewpoint of a prominent practitioner in the business.

My favorite personal story about Jack was a letter from him not long after we became acquainted. He told me that, whenever he received an envelope showing my return address, he would open it with trepidation. He explained he was fearful that I was considering an article critical of his company. I assured him that, if I ever considered an article about his company, critical or not, he would hear about it from me in advance and by telephone rather than by letter.

Our final exchange was less than a year ago, when Jack sent me an email commending me on a particular item I had just posted on my blog.  I thanked him and said his kind words meant a lot to me.

Jack was a wonderful person, a strong supporter of my work, and a good friend. I will miss him greatly.


Monday, June 3, 2019

No. 315: Long-Term Care Insurance —A Lawsuit Relating to the Calculation of Inflation Benefits

On May 17, 2018, Gerald Issokson (Gerald), executor of the estate of his mother, Pearl Issokson (Pearl), filed a class action lawsuit against Connecticut General Corporation and three other firms. Pearl owned long-term care (LTC) insurance coverage under a group LTC policy. The policy included home health care benefits up to a lifetime maximum benefit of $10,000, and an inflation provision. Pearl's coverage was provided through a certificate effective November 1, 1988. (See Issokson v. Connecticut General, U.S. District Court, District of Massachusetts, Case No. 3:18-cv-30070.)

The Complaint
Pearl died April 20, 2015. At the time of her death she was aged 92 and had been receiving home health care since 1990 due to physical and cognitive impairments. She was eligible for home health care benefits from 1990 through 2013, but neither she nor her family collected those benefits. Gerald asked the company to look into the matter.

The company sent Gerald a check for $16,130 representing the sum of the $10,000 lifetime maximum benefit and $6,130 for the impact of the inflation provision. Gerald alleges in the complaint that the company calculated the impact of the inflation provision using simple interest, although the insurance certificate seems to require that the impact of the inflation provision should be calculated using compound interest.

The Inflation Provision
The inflation provision in Pearl's insurance certificate consists of one sentence. It reads:
The benefits will automatically be increased by the lesser of the percent of increase in the Consumer Price Index during the prior calendar year or 5 percent.
When Gerald requested an explanation of the inflation calculation, a company spokesperson responded in a letter dated February 4, 2016. The letter shows the yearly percentage increases in the Consumer Price Index (CPI) for the years 1990 through 2013. The simple total of the yearly percentage increases in the CPI is indeed 61.3 percent. According to my calculation, however, the total of the yearly percentage increases in the CPI, compounded annually,  is 82.98 percent. Thus the check should have included $8,298 rather than $6,130 for the impact of the inflation provision. The reason why the discrepancy was only $2,168 was that the yearly percentage increases in the CPI were small during the time period in this case. Gerald's complaint and the spokesperson's letter are in the complimentary package offered at the end of this post.

The Classes
Gerald seeks to represent four classes. They are: (1) a "damages class" consisting of all current and future policyholders, nationwide, of any of the defendants whose certificates of insurance contain the language quoted above, or similar language, (2) an "injunctive class" consisting of all current policyholders, nationwide, of any of the defendants whose certificates of insurance contain the language quoted above, or similar language, (3) a "Massachusetts damages class," and (4) a "Massachusetts injunctive class."

The Counts
The complaint consists of five counts. They are: (1) breach of contract, (2) violations of the Connecticut Unfair Insurance Practices Act, (3) declaratory relief, (4) bad faith breach of duty of good faith and fair dealing, and (5) violations of certain Massachusetts laws.

Progress of the Case
The defendants have not filed an answer to the complaint. However, on July 16, 2018, the plaintiff and the defendants filed a joint stipulation containing three items:
  1. This Court lacks personal jurisdiction over the claims of non-Massachusetts putative class members and all claims against Connecticut General Corporation.
  2. Plaintiff lacks standing to assert class action claims under the Connecticut Unfair Insurance Practices Act against Connecticut General Corporation.
  3. Plaintiff lacks Article III standing to seek declaratory relief.
On July 20, 2018, the judge commented on the joint stipulation. He said in part:
The court adopts the parties' proposal set forth in the Stipulation. Therefore, the court will treat the Stipulation as a fully briefed and opposed partial motion to dismiss, incorporating the identical arguments made in the briefing and oral argument regarding the partial motion to dismiss in Rain v. Connecticut General Corp., 17-cv-30115....
It is important to note that the subject of the Rain case is not related to the subject of the Issokson case. The judge has not yet ruled on the partial motion to dismiss in either the Rain case or the Issokson case.

General Observations
The underlying issue in the Issokson case is whether the impact of the inflation provision in Pearl's certificate should be calculated on a simple basis or on a compound basis. The defendants have not yet said a word about that underlying issue.

Based on my reading of the wording of the inflation provision in Pearl's certificate, I think the company should have used the compound calculation rather than the simple calculation. Even if one believes the opposite, the language in the certificate is certainly ambiguous on the subject, and an ambiguous provision is supposed to be interpreted against the party that drafted the provision.

Available Material
I am offering a complimentary 29-page PDF consisting of the Issokson complaint (22 pages), the company spokesperson's letter (2 pages), and the joint stipulation (5 pages). Send an email to jmbelth@gmail.com and ask for the June 2019 package about the Issokson LTC insurance case.


Wednesday, May 29, 2019

No. 314: Indexed Universal Life Policies—The Views of Two Prominent Professionals About the Risks for Buyers

During the years of The Insurance Forum, and more recently on my blog, I have never written an article about indexed universal life (IUL) policies. I have been asked by many readers to write on the subject, but have not done so. The reason is simple. I have obtained and looked closely at samples of IUL policies. However, I have not understood them well enough to feel comfortable writing about them, and I have always avoided writing on topics I do not understand. Promoters of IUL policies have occasionally said I am too stupid to recognize a good thing when I see it. My response to such promoters is that they are welcome to their opinions.

Recently I have seen articles by two professionals for whom I have the highest regard: Lawrence Rybka and Richard Weber. I have obtained permission from them to share the articles with my readers. Here I introduce the authors briefly. I also show executive summaries and in one instance a few comments from the article. The full articles are in the complimentary package offered at the end of this post.

Lawrence Rybka
Lawrence J. Rybka, JD, CFP, is Chairman and Chief Executive Officer of Valmark Financial Group, which includes a broker dealer, an investment advisor, and Executive Insurance Agency (the nation's first producer group). Valmark serves 120 premier independently-owned and independently-run wealth management/transfer firms in 31 states and has helped place over $60 billion of life insurance death benefits while managing insurance policies with a cumulative cash value of over $8 billion. Valmark's affiliated Registered Investment Advisor, Valmark Advisors, has over $6 billion in assets under management, including about $3 billion in variable sub-account assets within its TOPS funds. He earned his Bachelor's degree with honors in Finance from the University of Akron, and his Juris Doctorate from Wake Forest University.

Richard Weber
Richard Weber, MBA, CLU, AEP, is President and primary consultant for The Ethical Edge, Inc., providing fee-only insurance analytics and consulting services to family offices and high net worth individuals. He holds an MBA from the Haas School of Business at the University of California at Berkeley with a specialty in Insurance and Finance. He served for 11 years as an Instructor of Insurance at the University of California at Berkeley's Program in Personal Financial Planning. From 1993 through 1998, he served as Adjunct Professor of Ethics at The American College. He currently serves as Senior Adjunct Professor of Risk and Insurance in California Lutheran University's MBA program and is on the faculty of Texas Tech University's Personal Financial Planning degree program.

The Rybka Article
The Rybka article is entitled "How to Retire in the Magical Retirement Income Castle in the Clouds," and subtitled "What looks too good to be true, usually is." Here is the executive summary, followed by the first paragraph of the article:
Executive summary: This article examines the use of premium financed Indexed Universal Life (IUL) policies to provide retirement income for clients. It explores the major assumptions in the IUL policies and in the bank loans used to finance them. Most importantly, it reveals undisclosed risks often taken by clients in these transactions.
I recently attended a top meeting in the U.S. life insurance industry. During it, I experienced no less than three sessions where insurance agents shared presentations of major sales they claimed to have made during the year, each of which generated hundreds of thousands of dollars in commissions. All three presentations were variations on the recommendation that clients borrow significant sums to finance the premiums on IUL policies. The proposals showed that the loans would be paid back using projected policy cash values and have plenty remaining in the policy to provide a lifetime income of hundreds of thousands of dollars a year to the policyholder and a multi-million-dollar death benefit at the end. The presentations proposed the clients borrow money from major commercial banks who were willing to lend $2 to $3.5 million to each client over five to seven years to purchase these policies. These proposals are not outliers but part of massive sales efforts by some insurance companies and banks to push products that may be good for them, but carry significant risk for the client.
The Weber Article
The Weber article is entitled "Are You in Good Hands?" It was published as a newsletter on May 14, 2019 by Leimberg Information Services, Inc. The article discusses not only risk tolerance questions in IUL policies, but also risk tolerance questions in whole life policies, guaranteed death benefit universal life policies, universal life policies, and variable universal life policies. The technical editor of the article is Ben G. Baldwin, Jr., CLU, ChFC, CFP. Here is the executive summary:
Long associated within the financial practitioner community for addressing and attempting to overcome policy illustration abuse, Dick Weber began his decades-long exploration of these issues when assuming the Chair of the Society of Financial Service Professionals (FSP)'s Illustration Questionnaire (IQ) Committee. IQ emphasizes that the "illustration is not the policy," and educates its members about the responsible use of policy illustrations. Yet Indexed Universal Life (IUL) products have created new challenges for professionals seeking to apply a customer-focused standard of care to their recommendations for policies designed for a lifetime. IUL is most often characterized as giving owners the best of both worlds by offering investment upside potential, a minimum guaranteed growth feature and underlying life insurance protection. These features, along with the (largely incorrect) slogan "Zero is the Hero" has made IUL the fastest growing permanent life insurance product of the past decade.
Recent regulations intended to moderate the calculation and display of non-guaranteed benefits projected in IUL policy illustrations have largely backfired, inspiring what objectively appear as unachievable promises of future performance. How should insurance and non-insurance professionals react and respond? This newsletter goes beyond just the potential for misusing policy illustrations and delves into the suitability and fiduciary issues of serving a client's best interest.
Available Material
I am offering a complimentary 37-page PDF consisting of the full Rybka article (12 pages) and the full Weber article (25 pages). Email jmbelth@gmail.com and ask for the May 2019 package about IUL policies.

Monday, May 20, 2019

No. 313: Long-Term Care Insurance and More on the Upcoming Hearing before the Virginia Bureau of Insurance

In No. 310 (April 22, 2019), I wrote about the May 21 public hearing to be held by the Virginia Bureau of Insurance (Bureau) on the subject of long-term care (LTC) insurance premium increase requests filed by many companies. April 22 was the deadline for filing public comments in advance of the hearing. On that date, I filed No. 310 as my comment. The Bureau posted on its website all the comments it received from the public, as well as information about the LTC insurance premium increase requests filed by many companies. This follow-up post is based on my review of the material posted on the Bureau's website.

Recent Bureau Approvals
The Bureau recently approved some substantial premium increase requests affecting substantial numbers of policyholders. Here are the companies and, in parentheses, the approved average premium increases expressed as percentages and the numbers of policyholders affected by the increases: American Fidelity Assurance (3%, 92), Jackson National Life (15%, 47), Kanawah Insurance (two plans) (48% and 44%, 1,204), Lincoln Benefit Life (35%, 257), Lincoln National Life (60%, 74), Mutual of Omaha (27%, 1,551), Northwestern Long Term Care (two plans) (28% and 27%, 2,710), Provident Life & Accident (102%, 734), RiverSource Life (35%, 1,305), Senior Health Insurance of Pennsylvania (25.0%, 633), and Virginia Insurance Guaranty Association (32%, 4,121).

Number of Comments
My tabulation suggests the Bureau received 177 comments from the public. I think the ten obscure public notices printed in newspapers around Virginia did not generate such a large number of comments. However, several articles about the hearing appeared in Virginia newspapers, and I think those articles prompted the large number of comments. One example is an excellent article entitled "Insurers now seeking huge increases in Virginians' premiums for long term care." The article, by reporter Dave Ress, appeared in the March 17, 2019 issue of the Daily Press (Newport News, VA).

Nature of the Comments
Many of the comments focused on the financial problems consumers are confronting because of increasing LTC insurance premiums. Many said that, when they purchased the insurance, they were not told the premiums would increase. Many said they were told that, if there were premium increases, the increases would be small and infrequent. Many expressed displeasure about being forced to absorb increases that were not their fault, but rather were caused by the companies' pricing errors. A few comments were from insurance agents who were upset because they had misled policyholders who trusted them.

Companies Identified
Seventy of the public comments did not identify the company with which the writer of the letter is or was a policyholder. Here are the 13 companies identified in 107 of the public comments, with the number of comments in parentheses: CNA Financial (2), CUNA Mutual (3), General Electric Capital (4), Genworth (36), John Hancock (44), Kanawha Insurance (3), Lincoln Benefit Life (1), Massachusetts Mutual (5), MetLife (3), Penn Treaty (2), TPM Life (1), Trustmark (1), and Unum (2).

Among the public comments, several of those who identified John Hancock as their company said they have coverage offered through the group LTC insurance program for federal government employees. I think many of the others who identified John Hancock without mentioning the group plan also have their coverage through the group plan.

There were two public comments that identified the company as the Virginia Life, Accident, and Sickness Insurance Guaranty Association. Those comments were references to Penn Treaty, where a court-ordered liquidation brought the Virginia Insurance Guaranty Association into the picture.

Most of the comments appear to have been from consumers. However, there were a few from agents, groups of agents, and other individuals writing on behalf of policyholders.

The ACLI/AHIP Letter
There were no comments from insurance companies. Instead, as usual, the companies hid behind their trade associations.

The American Council of Life Insurers (ACLI) is a trade association with approximately 290 member companies. America's Health Insurance Plans (AHIP) is a national association whose members provide coverage for health care and related services. ACLI and AHIP filed a joint six-page letter for the hearing record. The letter is over the signatures of Chuck Piacentini of ACLI and Amanda Matthiesen of AHIP. The letter is in the complimentary package offered at the end of this post. Here are the "Recommendation" and "Conclusion" paragraphs of the letter:
To ensure a stable regulatory environment that provides Virginia consumers with choice, transparency and protections for LTC insurance, we encourage the Commission to approve pending actuarially justified rate increases. Additionally, we encourage the Department of Insurance to adopt the most recent changes to the NAIC [National Association of Insurance Commissioners] LTC Insurance Model Regulation (NAIC Model), as well as issue the NAIC LTC Insurance Rate Increase Model Bulletin on Alternative Filing Requirements for LTC Premium Rate Increases (NAIC Bulletin).
We appreciate the opportunity to provide this statement and look forward to working with the State Corporation Commission and the Department of Insurance on creating a regulatory environment that ensures a robust private LTC insurance market that provides consumers with a choice of solid and dependable coverage for their LTC needs. We are committed to ensuring that consumers continue to enjoy the greater piece of mind that comes with knowing their coverage will be there when and for as long as they need it.
General Observations
It is not surprising that ACLI and AHIP "encourage the Commission to approve pending actuarially justified rate increases." The associations represent the companies, and would not be expected to encourage the Commission to deny or reduce the size of the requested premium increases.

The words "actuarially justified" should have been omitted from the "Recommendation" paragraph in the ACLI/AHIP letter.  Those words falsely imply that some premium increase requests are not actuarially justified.  Because company actuaries sign off on all premium increase requests, there is no such thing as a request that is not actuarially justified.  However, it is possible that a Bureau actuary might disagree with a company actuary.

As indicated in No. 310, for many years I have expressed the belief that the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. I explained in detail the reasoning behind that belief in an article in the July 2008 issue of The Insurance Forum. The article is in the complimentary package offered at the end of this post.

Now LTC insurance companies and their regulators are trying to figure out how to address the intractable problems they have created. I believe that nothing significant will emerge from the latest NAIC task force. I think it will "kick the can down the road," as several task force predecessors have done.

Available Material
I am offering a complimentary 11-page PDF consisting of the ACLI/AHIP letter to the Bureau (6 pages) and the July 2008 Forum article (5 pages). Email jmbelth@gmail.com and ask for the May 2019 LTC insurance package.


Wednesday, May 15, 2019

No. 312: Robert Caro's Magnificent Small Book

Robert A. Caro is one of my favorite authors. For his work he has received two Pulitzer Prizes and other major awards too numerous to count. His first book was his 1,246-page master work, The Power Broker: Robert Moses and the Fall of New York, published in 1974. For it he received his first Pulitzer Prize.

Robert Moses
Although I lived the first 25 years of my life in Syracuse, New York, I had only a vague knowledge of Robert Moses. When I read Caro's book many years ago, I came to understand the achievements of that unelected individual who had amassed enormous political power, and who, in exercising that power, had transformed not only New York City but also disrupted the lives of millions of people. Anyone who doubts that the acquisition of political power and the use of that power are Caro's lifetime focus need only note the titles of the last five of the seven major parts of The Power Broker: "The Rise to Power," The "Use of Power," "The Love of Power," "The Lust for Power," and "The Loss of Power."

Lyndon Johnson
Caro then turned to Lyndon Johnson, about whom he has written four volumes and is now working on the fifth and final volume. The 882-page first volume was The Years of Lyndon Johnson: The Path to Power, published in 1982. The 506-page second volume was The Years of Lyndon Johnson: Means of Ascent, published in 1990. The 1,167-page third volume was The Years of Lyndon Johnson: Master of the Senate, published in 2002, and for which he received his second Pulitzer Prize. The 752-page fourth volume was The Years of Lyndon Johnson: The Passage of Power, published in 2012. The fourth volume ends in the summer of 1964, during the first year of Johnson's presidency, after passage of the 1964 Civil Rights Act.

The fifth and final volume does not have a title or a publication date. Presumably it will cover Johnson's other "Great Society" achievements, including the 1965 Civil Rights Act, the 1965 Voting Rights Act, Medicare, and Medicaid. Presumably it will also cover the Vietnam War, Johnson's decision not to run for reelection, and his life after he left office.

Meanwhile, Caro has just come out with a magnificent 240-page book entitled Working: Researching, Interviewing, Writing, published in April 2019. It is a fascinating description of Caro's early life, how he got interested in Robert Moses and Lyndon Johnson, how his wife Ina serves as his principal helper, how they survived financially during the lean years when he was working on The Power Broker, how he does his research, how he conducts interviews, and how he writes. The book explains why he and Ina moved to the Hill Country of West Texas for three years, to get a feeling for the area where Johnson grew up, and to mingle with the people who knew Johnson and his family in the early years.

Theodore White's Views
In No. 307 (April 4, 2019), I quoted from a 1975 book entitled Breach of Faith: The Fall of Richard Nixon, by Theodore H. White. White died in 1986, but he remains one of my favorite authors. On the 1974 dust jacket of The Power Broker are ten strong endorsements from prominent authors and journalists. One of the endorsements was from White, who said this:
A masterpiece of American reporting. It's more than the story of a tragic figure or the exploitation of the unknown politics of our time. It's an elegantly written and enthralling work of art.
I agree with White. Caro's books are indeed works of art. Below I quote two paragraphs that appeared on page 6 of The Power Broker. They drew me in to read the entire book, and made me a Caro watcher.

The Paris Review Interview
The final section of Working is an interview with Caro entitled "The Art of Biography." It is reprinted from the Spring 2016 issue of The Paris Review. The interviewer is James Santel, whose sole function seems to have been to ask 14 brief questions and let Caro take it from there. In one of his responses, Caro quotes a portion of these two paragraphs from The Power Broker. They illustrate Caro's style and artistry:
Standing out from the map's delicate tracery of gridirons representing streets are heavy lines, lines girding the city or slashing across its expanses. These lines denote the major roads on which automobiles and trucks move, roads whose very location, moreover, does as much as any single factor to determine where and how a city's people live and work. With a single exception, the East River Drive, Robert Moses built every one of those roads. He built the Major Deegan Expressway, the Van Wyck Expressway, the Sheridan Expressway and the Bruckner Expressway. He built the Gowanus Expressway, the Prospect Expressway, the Whitestone Expressway, the Clearview Expressway and the Throgs Neck Expressway. He built the Cross-Bronx Expressway, the Brooklyn-Queens Expressway, the Nassau Expressway, the Staten Island Expressway and the Long Island Expressway. He built the Harlem River Drive and the West Side Highway.
Only one borough of New York City—the Bronx—is on the mainland of the United States, and bridges link the island boroughs that form metropolis. Since 1931, seven such bridges were built, immense structures, some of them anchored by towers as tall as seventy-story buildings, supported by cables made up of enough wire to drop a noose around the earth. Those bridges are the Triborough, the Verrazano, the Throgs Neck, the Marine, the Henry Hudson, the Cross Bay and the Bronx-Whitestone. Robert Moses built every one of those bridges.
Doing the Math
Caro watchers wonder whether Caro, now 83, will live long enough to finish the fifth and final volume on Johnson. Caro says they ask him to "do the math," and they wonder why he interrupted that effort to publish Working. He says he has done the math, there remain "several" more years of work on the fifth volume, and explains why he published Working now. Among elderly Caro watchers, there is the other math question of whether we will live long enough to read the fifth volume on Johnson.

For those who are not Caro watchers, I strongly recommend you read Working. I am confident you will find it enjoyable, and well worth the time. When you read it, you may join the ranks of Caro watchers.