The Iowa Statute and Regulation
The relevant statute, section 508.33A of the Iowa Code, was enacted in 2010. It allows an Iowa-domiciled company to create a "limited purpose subsidiary" (LPS). Riverwood, domiciled in Iowa, is an LPS that files financial statements only in Iowa. Transamerica Life Insurance Company, domiciled in Iowa, is the parent of Riverwood. Aegon USA is the parent of Transamerica Life. Aegon NV, based in the Netherlands, is the parent of Aegon USA.
The Iowa LPS statute requires adoption of a regulation, which was adopted in 2010. Here is the full text of the relevant subsection 191-99.11(3) of the Iowa Administrative Code:
Admitted assets of the LPS shall include proceeds from a securitization, premium and other amounts payable by a ceding insurer to the LPS, letters of credit, guaranties of a parent, and any other assets approved by the commissioner, which shall be deemed to be, and reported as, admitted assets of the LPS. The commissioner has the authority to reduce the amount of admitted assets previously approved by the commissioner, other than assets already covered by the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners, if the commissioner determines that the value of those assets has decreased. At least 30 days prior to reducing the amount of admitted assets previously approved, the commissioner shall notify the LPS and provide the LPS an opportunity to remedy the issues identified by the commissioner.
The words "any other assets" in the first sentence of the above subsection is amazing. It gives the commissioner the authority to permit anything to be recorded as an admitted asset of an LPS.
The Rules in Other States
Iowa was the first state to enact LPS rules, and by 2012 at least four other states had followed suit: Georgia, Indiana, Nebraska, and Texas. I do not know whether any other states have enacted LPS rules since 2012.
In Georgia, the statute begins with section 33-14-100 of the Official Code of Georgia. The "investments" component of the accompanying regulation (120-2-100-.12) uses language virtually identical to that in Iowa concerning what assets can be recorded as admitted assets. I do not know whether any LPSs have been created in Georgia.
In Indiana, the statute is in section 27-1-12.1 of the Indiana Code. There is no accompanying regulation because the LPS rules are in the statute. The "admitted assets" component of the statute uses language virtually identical to that in Iowa. An official in the Indiana Department of Insurance said no LPSs have been created in Indiana.
In Nebraska, the statute is in section 44-8216 of the Nebraska Revised Statutes. There is no accompanying regulation because the LPS rules are in the statute. The language about assets is similar but not identical to that in Iowa. An official in the Nebraska Department of Insurance said a small number of LPSs have been created in Nebraska. I have filed a public records request for the latest financial statements and independent auditor reports filed by those LPSs, and await the documents.
In Texas, the statute begins with section 841.401 of the Insurance Code. There is no accompanying regulation because the LPS rules are in the statute. The language about assets is similar but not identical to that in Iowa. I do not know whether any LPSs have been created in Texas.
The Role of Susan Voss
Susan E. Voss probably had a role in developing Iowa's LPS rules. She received a J.D. from Gonzaga University School of Law. She began her career in public service as an Iowa assistant attorney general. She became Iowa first deputy insurance commissioner in 1999. She served as Iowa insurance commissioner from 2005 to 2013. She served as president of the National Association of Insurance Commissioners (NAIC) in 2011. As chair of the NAIC's Life Insurance Committee, she led the development of the "principles based reserves" project.
In November 2013, Voss became vice president and general counsel of American Enterprise Group, Inc. (Des Moines, Iowa). In February 2014, she was named to the board of directors of United Fire Group, Inc. (Cedar Rapids, Iowa) "through the recommendation of current Board members who were familiar with her high profile work in the insurance industry." She was appointed to the compensation and risk management committees of the board. In May 2014, she was elected to a three-year term on the board. The 2013 total compensation of the non-employee directors of United Fire ranged from $58,000 to $107,000, with an average of $74,000.
I do not know the extent of Voss's involvement in the enactment of Iowa's LPS rules. Nor do I know the identity of the persons in the Iowa Division of Insurance who actually wrote the amazing language of the regulation. However, I believe, and I will continue to believe until I see concrete evidence to the contrary, that the language was written by representatives of the life insurance industry.
The Hamilton-Sidhu Article
Immediately after the adoption of the Iowa LPS rules, an article appeared in Lexology. The two co-authors are Lawrence R. Hamilton, a partner in the law firm of Mayer Brown LLP, and Vikram Sidhu, then of Mayer Brown and now a partner in the law firm of Clyde & Co. (Lexology is a web-based service for company law departments and law firms. It is a service provided by Globe Publishing Ltd., which operates out of London and Hong Kong.) The article contains this paragraph:
The admitted assets of an LPS can include proceeds from a securitization, premium and other amounts payable by a ceding insurer to the LPS, letters of credit, parental guaranties, and any other assets approved by the Iowa insurance commissioner. The ability to count letters of credit and even parental guaranties as admitted assets is a major regulatory development and is expected to provide significant capital relief for Iowa-domiciled life insurers that write substantial amounts of level premium term insurance and/or universal life insurance with no-lapse guarantees (referred to in industry parlance as "XXX" and "AXXX" business, respectively).
My Letter to the Regulators
In No. 71 I said I would send the item and a letter to Nick Gerhart, the current Iowa insurance commissioner, with some questions. I also said I would send copies of the letter to Adam Hamm, insurance commissioner of North Dakota and current president of the NAIC, and to Senator Ben Nelson, chief executive officer of the NAIC. I sent the letter on November 6, and asked for responses by November 21. I plan to prepare another follow-up to report their responses.
Meanwhile, I offer a complimentary PDF containing my two-page letter to the regulators. Send an e-mail to email@example.com and ask for the November 6 letter to Commissioner Gerhart.