Tuesday, May 31, 2016

No. 164: Executive Compensation in the Insurance Industry—2015 Data from Filings with the New York Department of Financial Services

In No. 163 (posted May 23, 2016), I showed a tabulation of 2015 executive compensation in the insurance industry from filings with the Securities and Exchange Commission (SEC). That was my first major tabulation of executive compensation data since I ended publication of The Insurance Forum after the December 2013 issue.

Another Tabulation
Here I present another tabulation of 2015 data, this time from filings with the New York Department of Financial Services (DFS) by life companies and health companies doing business in New York. In the final seven years of the Forum, I included in the tabulations individuals who received $1 million or more each year. In No. 163 I included individuals who received $5 million or more in 2015 according to SEC data. Here I include individuals who received $3 million or more in 2015 according to DFS data.

The data are from Schedule G in the New York Supplement to the 2015 statutory financial statements filed with DFS in March 2016. DFS posts online most of the data from the New York Supplement, but does not post data from Schedule G. Therefore I obtained the data from DFS through a request pursuant to the New York Freedom of Information Law (FOIL). The new tabulation is at the bottom of this blog post.

Schedule Gs for life companies are assembled by the Life Bureau of DFS. Schedule Gs for health companies are assembled by the Health Bureau of DFS. 

Schedule Gs for the two types of companies differ. For life companies, Schedule G shows for each individual only one figure representing compensation attributable to service performed for or on behalf of the reporting company. Thus the figure omits compensation from any related company not operating in New York. The first section of the tabulation below shows for each individual the one figure from Schedule G. Where more than one individual is shown for a company, they are listed in descending order of compensation.

For health companies, Schedule G shows four figures for each individual. One figure is the amount paid by the reporting company. The second figure is salary paid by the company and all other companies in the same group. The third figure is bonus and all other compensation paid by the company and all other companies in the same group. The fourth figure is the total of the second and third figures. The second section of the tabulation below shows for each individual the fourth (total) figure. To avoid listing individuals more than once, I combined the members of company groups into a single entry for each group. Where more than one individual is shown for a company or group, they are listed in descending order of compensation.

The Struggle for Access to Data in New York
In No. 163 I mentioned that over the years I encountered efforts to block access to executive compensation data. The longest and most difficult struggle began in New York in 2000 and ended in 2008.

The Department's Stunning Action in April 2000
In November 1999 I filed with the New York Department of Insurance (now DFS) my routine FOIL request for all 1999 Schedule Gs to be filed in March 2000. In April 2000, in a stunning administrative action, the Department abruptly decided to black out the names, job titles, and compensation amounts of all but the directors and three top officers of each company. Executive compensation data had long been publicly filed with the Department pursuant to a state law enacted in 1906 after the Hughes-Armstrong investigation of 1905 and later amended from time to time to increase the disclosure threshold.

The April 2000 action was based on the Department's determination that disclosing the names constituted an "unwarranted invasion of personal privacy." That is one of several FOIL exemptions from disclosure. The Department took its action at the request of New York-domiciled Equitable Life Assurance Society of the United States and New Jersey-domiciled Prudential Insurance Company of America. Equitable obtained an elaborate legal opinion to support the request. However, there was no opportunity for anyone to submit a legal opinion in opposition to the request, because the Department made its decision in secret and without advance notice to the public. I knew nothing about the Equitable request, the Prudential request, the legal opinion, or the April 2000 action until after the fact, when I received the documents in response to my FOIL request for all documents relating to my November 1999 FOIL request.

In their requests that the Department take action to prevent the release of Schedule G data, Equitable and Prudential made clear that the requests were prompted by an Equitable agents' association that had posted on its website the entire Schedule Gs for 1999 of several major companies, including Equitable and Prudential. Thus the requests were not prompted by my tabulations, which by then I had been publishing for 25 years.

In July 2000, because the April 2000 action was a partial denial of my November 1999 FOIL request, I filed with the Department an appeal of the partial denial. The Department denied the appeal.

In December 2000 I filed in state court in New York a petition for judicial review of the partial denial. At my attorney's suggestion I had narrowed the request to individuals who received at least $600,000, which was my threshold at the time.

In September 2001 the court ordered the Department to honor my request. The court ruled that the Department had not made an adequate case to support its privacy claim. However, the court sidestepped the basic question: Did the Department have the right to deny public access to a portion of the annual statement, which was a public document long before the enactment of FOIL, and presumably still is a public document?

The Department changed its procedures after the court ruling. The Department began to require companies to file two versions of Schedule G. The first version showed (1) names and compensation of directors and (2) names, job titles, and compensation of all other individuals for which the threshold in the statute required disclosure of the data. The second version showed (1) names and compensation of directors and (2) names, job titles, and compensation of the three top officers and all other individuals who received compensation of $600,000 or more to comply with the court ruling and my disclosure threshold. Only the second version was provided to me and other persons who filed FOIL requests for Schedule Gs.

My Victory in 2007
In February 2007, in my routine FOIL request for 2006 data, I asked for Schedule Gs with no names blacked out. In other words, I asked for the first version mentioned in the preceding paragraph. With the request I enclosed an explanatory memorandum. By then the Department was under new management, and I felt the time had come to request a reversal of the April 2000 action.

The Department, without informing me, sent my request to the Life Insurance Council of New York (LICONY), an association of companies doing business in New York. LICONY obtained an elaborate legal opinion arguing that my request should be denied.

On June 13, 2007, in a lengthy legal memorandum, the Department informed LICONY that, effective June 25, the Department "will return to its prior and longstanding practice of producing [Schedule Gs] without redaction of names." I knew nothing about any of these developments until after the fact, when I received the documents in response to my FOIL request for all documents relating to my February 2007 FOIL request.

LICONY's Victory in 2008
LICONY was enraged by the Department's reversal of the April 2000 action. LICONY quietly arranged for bills to be introduced in both houses of the New York legislature in the spring of 2008 to decimate the then 102-year-old executive compensation disclosure law. I say "quietly" because I was unaware of the existence of the bills, on which there had been no debate, no hearings, and no publicity, until I received a tip from a "Deep Throat" informer after the proposed amendment had sailed through both houses and had been sent to Governor David Paterson for his signature. I rushed a package of material to the governor and asked him to veto the amendment, but he signed it into law.

The amendment required life insurance companies doing business in New York to disclose (1) names and compensation of directors, (2) names, job titles, and compensation of the chief executive officer and the next four highest compensated employees, (3) names, job titles, and compensation of the next five highest compensated employees, and (4) job titles and compensation, but not the names, of other employees below the top ten but whose compensation exceeded $750,000. Those requirements mean that, in large companies, there are many highly paid executives whose job titles and compensation are disclosed but whose names are blacked out. In the 2015 data, for example, there are 435 names blacked out where compensation was $1 million or more in 2015. Here are the 13 companies and the numbers of blacked out names:

Aetna Life Ins Co 98
AXA Equitable Life Ins Co 7
Guardian Life Ins Co of America 3
Lincoln Life & Annuity Co of NY 9
Massachusetts Mutual Life Ins Co 18
Metropolitan Life Ins Co 78
New York Life Ins & Annuity Corp 8
New York Life Ins Co 40
Northwestern Mutual Life Ins Co 6
Penn Mutual Life Ins Co 3
Principal Life Ins Co 14
Prudential Ins Co of America 134
Teachers Ins & Annuity Assn 17

How To Obtain Data from DFS
The DFS website contains a form with which to file an online FOIL request. Go to:
If you want Schedule Gs for only a few companies, indicate the names of the companies. If you want all the Schedule Gs, ask for the Schedule Gs filed by all life companies and all health companies. Asking in this way is important because, as mentioned earlier, Schedule Gs for life companies are assembled by the Life Bureau and Schedule Gs for health companies are assembled by the Health Bureau. Indicate in your request that you are willing to pay any fees. When I obtained the 2015 data recently, the Life Bureau charged a nominal fee of $1 for sending the Schedule Gs on a CD by regular mail. The Health Bureau charged nothing and sent the Schedule Gs by email in a zip file.

My May 2016 Letter to the Life Bureau
I have long been troubled by the format of Schedule G used by the Life Bureau. The problem is that the one compensation figure for each individual is for services rendered to or on behalf of the reporting company. Thus for many companies operating in New York through small subsidiaries, only a small percentage of the individual's total compensation is disclosed.

For example, as indicated in No. 163, the 2015 total compensation of Daniel Amos, AFLAC's chairman of the board, as reported in AFLAC's SEC filing, was $11,982,383. The figure for him in Schedule G of AFLAC's subsidiary, American Family Life Assurance Company of New York, was $72,055.

I have written to the Life Bureau previously on this matter, but my concern has not been addressed. On May 16, 2016, I wrote to the Life Bureau again. I inquired about the number of FOIL requests DFS received in recent years. A spokeswoman said both bureaus together received 49 FOIL requests in 2015 and have received 45 FOIL requests thus far in 2016.  I have not yet received a response to the major concern expressed in my letter about the format of the Schedule G the Life Bureau uses.

Available Material
I am offering a 13-page complimentary PDF that consists of articles from the July 2000, November 2001, October 2007, October 2008, and November 2009 issues of The Insurance Forum describing the April 2000 action and its aftermath, and my May 16, 2016 letter to the Life Bureau. Email jmbelth@gmail.com and ask for the May 2016 package relating to disclosure of executive compensation data in New York.

Compensation Data for 2015 from New York
From Life Insurance Schedule Gs
Aetna Life Ins Co
Joseph Zubretsky $52,368,162
Mark Bertolini 27,542,563
Ronald A Williams 25,102,740
Karen S Rohan 7,706,330
Margaret McCarthy 6,271,956
Charles E Saunders 5,811,219
Shawn Guertin 5,032,462
William J Casazza 4,824,170
Jean LaTorre 3,819,331
AXA Equitable Life Ins Co
Mark Pearson 4,698,603
Guardian Life Ins Co of America
Deanna Mulligan 4,706,530
Lincoln Life & Annuity Co of NY
Dennis R Glass 41,665,850
Mark E Konen 8,206,770
Randal J Freitag 6,980,528
Ellen G Cooper 5,201,295
Charles C Comelio 5,120,505
Massachusetts Mutual Life Ins Co
Roger Crandall 24,539,221
Elaine Sarsynski 7,584,712
Michael Rollings 5,917,838
Michael Fanning 4,306,430
Mark Roellig 3,289,371
Andrew Moore 3,196,694
Metropolitan Life Ins Co
Steven Albert Kandarian 13,986,781
John C Hele 4,939,644
Maria R Morris 4,225,395
Mutual of America Life Ins Co
Thomas Moran 5,005,453
Mutual of Omaha Ins Co
Daniel P Neary 11,391,320
New York Life Ins Co
Theodore A Mathas 19,723,078
John Y Kim 9,670,600
Christopher O Blunt 6,670,600
Mark W Pfaff 5,290,450
Sheila K Davidson 4,396,353
Peter J McAvinn 3,941,692
John P Curry 3,392,886
John T Fleurant 3,309,062
Northwestern Mutual Life Ins Co
John E Schlifske 13,359,233
Gregory C Oberland 4,932,626
Ronald P Joelson 3,443,932
Penn Mutual Life Ins Co
Eileen McDonnell 4,820,694
Principal Life Ins Co
Larry D Zimpleman 7,953,746
James P McCaughan 6,348,503
Terrance J Lillis 3,888,109
Daniel J Houston 3,826,609
Prudential Ins Co of America
John Robert Strangfeld Jr 18,853,167
Mark Brown Grier 15,438,656
Charles Frederick Lowrey 13,228,637
James J Sullivan 10,962,810
David A Hunt 9,284,879
Michael K Lillard 8,225,170
Stephen Pelletier 5,744,932
David H Bessey 5,054,151
Robert Michael Falzon 4,223,137
John Vibert 3,929,850
Teachers Ins & Annuity Assn
Roger Ferguson 8,336,777
Edward Grzbowski 4,824,808
From Health Insurance Schedule Gs
Anthem Group
Joseph R Swedish 14,311,079
Wayne S Deveydt 5,239,542
Peter David Haytaian 4,658,183
Gloria M McCarthy 3,882,314
Brian Thomas Griffin 3,877,421
Martin B Silverstein 3,626,735
Thomas C Zielinski 3,562,612
Jose D Tomas 3,491,934
Douglas J Wenners 3,011,945
Eastern Vision Service Plan Inc
James Robinson Lynch 4,559,819
Humana Group
Eric C Rackow MD 4,761,724
Brian P LeClaire 3,417,341
Oscar Ins Corp
Brian J West 7,281,939
UnitedHealth Group
Robert Worth Oberrender 13,090,161
John Lawrence Larsen 7,759,091
Jeffrey Donald Alter 5,214,219
John William Kelly 3,756,621
Sanford Paul Cohen MD 3,453,977
William John Golden 3,369,904
Thomas Joseph McGuire 3,080,245


Monday, May 23, 2016

No. 163: Executive Compensation in the Insurance Industry—2015 Data from Filings with the Securities and Exchange Commission

The Insurance Forum began with the January 1974 issue. In 1975 I began publishing data on executive compensation in the insurance industry. Chapter 24 of my September 2015 book, The Insurance Forum: A Memoir, describes the history of my executive compensation tabulations and the efforts of the insurance industry to block my access to data.

Most efforts to block access involved two organizations. One was the New York Department of Insurance, which is now the New York Department of Financial Services. The other was the National Association of Insurance Commissioners. Some of the efforts were successful and some were unsuccessful. However, I never encountered problems with access to data filed by shareholder-owned insurance companies with the Securities and Exchange Commission (SEC).

Since ending publication of the Forum with the December 2013 issue, I have not posted tabulations of executive compensation, although some readers have been urging me to do so. An exception was No. 39 (posted April 7, 2014), where I provided some data for United Services Automobile Association (USAA) and its subsidiaries. The reason for that blog post was USAA's unsuccessful effort to repeal Nebraska's executive compensation disclosure law. Nebraska was one of the major sources of data for my tabulations.

A New Tabulation
I decided to assemble a new tabulation. During the final seven years of the Forum, I showed data for individuals who received at least $1 million in each year. In the new tabulation I show data, from filings with the SEC, for individuals who received at least $5 million in 2015. Each figure in the tabulation is the "Total" in the "2015 Summary Compensation Table."

The 2015 summary compensation table for most companies is in the definitive proxy statement filed in advance of the company's 2016 annual meeting of shareholders. In a few instances, the table is in a 10-K annual report. For each of the two Canadian companies—Manulife Financial and Sun Life Financial—the table is in a 6-K annual report. Where more than one individual in a company is shown, they are listed in descending order of compensation. The figures for the Canadian companies are in Canadian dollars. The new tabulation is shown below as a part of this blog post.

How to Access the SEC Tables
For readers who want to access the SEC summary compensation tables, go to:

Under "Fast Search," enter the ticker symbol if you know it. (Examples are AET for Aetna, AIG for American International Group, GNW for Genworth Financial, MET for MetLife, PRU for Prudential Financial, and PRI for Primerica.) If you do not know the ticker symbol, enter the "Company Name." If the name you use is incomplete, a list of companies with similar names may pop up, and you will need to select the one you want. That will take you to a list of documents in reverse chronological order by filing date. Select the most recent "DEF 14A" defnitive proxy statement. The proxy's table of contents may lead you directly to the summary compensation table. If it does not, you will need to search for it, but it is not hard to find.

Available Material
To familiarize readers with the structure of summary compensation tables, I am offering a 28-page complimentary PDF containing the tables filed by Aetna, American International Group, Aon, Fidelity National Financial, Genworth Financial, MBIA, MetLife, Prudential Financial, Travelers Companies, and UnitedHealth Group. Email jmbelth@gmail.com and ask for the package of sample summary compensation tables.

Other Available Material
The Insurance Forum: A Memoir and all back issues of the Forum containing executive compensation tabulations are available from us; ordering instructions are on our website at www.theinsuranceforum.com. The memoir is also available from Amazon.

Compensation Data for 2015 from the SEC
Aetna Inc
Mark T Bertolini $17,262,879
Gary W Loveman PhD 8,005,714
Karen S Lynch 7,758,788
Shawn M Guertin 6,414,029
Francis S Soistman Jr 5,219,831
Daniel P Amos 11,982,383
Kriss Cloninger III 6,988,427
Paul S Amos II 5,452,762
Alleghany Corp
Weston M Hicks 6,892,685
Allied World Assurance Co Holdings
Scott A Carmalani 7,600,925
Allstate Corp
Thomas J Wilson 13,873,693
Matthew E Winter 5,659,605
American Financial Group Inc
S Craig Lindner 7,695,853
Carl H Lindner III 7,642,021
American International Group Inc 
Peter D Hancock 12,497,975
Philip Fasano 8,397,689
Kevin T Hogan 7,918,157
William N Dooley 7,591,563
John Q Doyle 7,232,376
David L Herzog 6,683,374
American National Insurance Co
Robert L Moody Sr 10,215,463
Ameriprise Financial Inc
James M Cracchiolo 20,670,971
Walter S Berman 7,265,868
William F Truscott 6,393,378
Colin Moore 5,986,836
Amtrust Financial Services Inc
Barry D Zyskind 13,942,205
Anthem Inc
Joseph R Swedish 13,604,681
Aon plc
Gregory C Case 29,735,220
Christa Davies 14,712,974
Stephen P McGill 9,275,750
Kristi Savacool 6,042,943
Arch Capital Group Ltd
Constantine Iordanou 10,614,241
Aspen Insurance Holdings Ltd
Christopher O'Kane 5,601,064
Assurant Inc
Alan B Colberg 8,274,225
Assured Guaranty Ltd
Dominic J Frederico 12,179,989
AXIS Capital Holdings Ltd
Albert A Benchimol 8,924,896
Centene Corp
Michael F Neidorff 20,755,103
William N Scheffel 6,611,489
Chubb Ltd 
Evan G Greenberg 20,381,147
John W Keogh 7,518,919
John J Lupica 5,871,847
Cigna Corp
David M Cordani 17,307,672
CNA Financial Corp
Thomas F Motamed 11,686,132
CNO Financial Group Inc     
Edward Bonach 7,226,638
Enstar Group Ltd
Richard J Harris 5,670,194
Everest Re Group Ltd
Dominic J Addesso 8,161,716
Fidelity National Financial Inc
William P Foley II 15,668,113
Raymond R Quirk 7,099,777
First American Financial Corp
Dennis J Gilmore 5,726,688
Genworth Financial Inc
Daniel J Sheehan IV 5,252,026
Hanover Insurance Group Inc
Frederick H Eppinger 5,220,755
Hartford Financial Services Group Inc
Christopher Swift 10,022,419
Douglas Elliot 7,431,487
Humana Inc
Bruce D Broussard 10,339,859
Lincoln National Corp
Dennis R Glass 12,015,334
Loews Corp
James S Tisch 5,278,399
Manulife Financial Corp
Donald Guloien 15,613,518
Roy Gori 11,798,452
Warren Thomson 9,859,463
Steve Roder 7,067,444
Paul Rooney 5,312,979
Marsh & McLennan Companies Inc
Daniel S Glaser 15,596,718
Peter Zaffino 7,796,754
Julio A Portalatin 6,156,802
MetLife Inc
Steven A Kandarian 15,700,881
John C R Hele 5,938,372
Martin J Lippert 5,652,545
William J Wheeler 5,351,518
MGIC Investment Corp
Patrick Sinks 6,582,543
Molina Healthcare Inc
J Mario Molina MD 10,265,657
National Western Life Group Inc
Robert L Moody 6,317,910
Principal Financial Group Inc
Larry D Zimpleman 10,271,549
Daniel J Houston 5,204,526
Progressive Corp
Glenn M Renwick 10,143,552
John P Sauerland 5,122,462
Susan Patricia Griffith 5,121,712
Protective Life Corp
John D Johns 6,061,661
Prudential Financial Inc
John R Strangfeld 16,673,171
Mark B Grier 15,273,166
Charles F Lowrey 10,957,831
Stephen Pelletier 9,477,773
Robert M Falzon 6,507,870
Radian Group Inc
Sanford A Ibrahim 6,065,537
Reinsurance Group of America Inc
A Greig Woodring 9,370,979
Anna Manning 5,528,729
RenaissanceRe Holdings Ltd
Kevin J O'Donnell 7,853,835
Jeffrey D Kelly 5,230,622
RLI Corp
Michael J Stone 5,884,386
Stancorp Financial Group Inc
J Greg Ness 8,103,406
Sun Life Financial Inc
Dean A Connor 7,884,879
Torchmark Corp
Gary L Coleman 5,832,462
Larry M Hutchison 5,797,620
Travelers Companies Inc
Jay S Fishman 20,013,433
Brian W MacLean 8,572,673
William H Heyman 7,036,063
Alan D Schnitzer 6,944,951
Jay S Benet 6,713,982
Doreen Spadorcia 6,436,539
Triple-S Management Corp
Ramón M Ruiz-Comas 5,698,957
UnitedHealth Group Inc
Stephen J Hemsley 14,518,164
Larry C Renfro 11,589,358
David S Wichmann 11,581,817
Marianne D Short 5,682,147
Universal Insurance Holdings Inc
Sean P Downes 25,032,334
Jon W Springer 7,905,552
Unum Group
Thomas R Watjen 8,277,205
Richard P McKenney 5,731,014
Validus Holdings Ltd
Edward J Noonan 5,333,313
Voya Financial Inc
Rodney O Martin Jr 11,244,442
Alain M Karaoglan 5,901,448
Jeffrey T Becker 5,044,207
W R Berkley Corp
William R Berkley 16,139,411
W Robert Berkley Jr 8,260,165
WellCare Health Plans Inc
Kenneth A Burdick 7,793,734
White Mountains Insurance Group Ltd
Raymond Barrette 8,129,080
Allan L Waters 8,038,448
David T Foy 5,380,237
Willis Towers Watson plc
Dominic Casserley 9,013,163
Nicolas Aubert 5,508,052
XL Group plc
Michael McGavick 12,712,353
Stephen Catlin 7,765,883

Monday, May 16, 2016

No. 162: A STOLI Criminal Case Is Dismissed Without Prejudice

On July 20, 2013, the U.S. Attorney in San Diego filed a 23-count grand jury indictment against four individuals in a case involving stranger-originated life insurance (STOLI). The defendants were Byron Arthur Frisch, Kristian Marcus Giordano, Kasra Sadr, and Brenda N. Barrera Merriles. They were charged with one count of conspiracy to commit mail fraud and wire fraud, eight counts of mail fraud, and fourteen counts of wire fraud. I wrote about the case in No. 19 (posted January 9, 2014). (See U.S.A. v. Frisch, U.S. District Court, Southern District of California, Case No. 3:13-cr-2774.)

The Judge
The case was assigned to U.S. District Judge Janis L. Sammartino. On January 29, 2016, she dismissed the indictment without prejudice (subject to possible reprosecution). Judge Sammartino was nominated by President George W. Bush in March 2007 and confirmed by the Senate six months later. She received her law degree in 1975 from the Notre Dame Law School. She served as a state court judge in San Diego from 1995 to 2007.

The Criminal Charges
The 12-page indictment charged the defendants with deceiving life insurance companies into issuing large life insurance policies to unqualified applicants, obtaining millions in commissions, and selling the fraudulently obtained policies to purchasers unaware of the fraud involved in the issuance of the policies. To accomplish those purposes, the defendants, among other things,
recruited elderly individuals to apply for life insurance policies with death benefits ranging from $1.5 million to $9.5 million with the promise that there would be no cost to the applicant; promised applicants that they would receive two years of coverage at the face value of the life insurance policy, followed by a payment of a part of the sale price of the policy when it was sold to a third party after two years; [and] prepared and submitted to life insurance companies applications for life insurance that intentionally contained false representations and omitted material facts regarding the applicant's net worth, income, source of premium payments, and intent to sell the policy....
Brief Summary of Developments
Pleas of not guilty were entered and the defendants were released on bond. Initially the trial was scheduled to begin February 7, 2014. Later it was postponed to April 25, 2014, then to August 15, 2014, then to October 3, 2014, then to December 19, 2014, then to March 27, 2015, then to July 10, 2015, then to September 4, 2015, and then to May 2, 2016.

On December 31, 2015, Giordano filed a 17-page motion to dismiss the indictment based on violations of the Speedy Trial Act (U.S. Code § 3161). The motion included a discussion of the provisions of the Speedy Trial Act that supposedly were violated. Giordano also asked that the indictment be dismissed with prejudice (permanently). The other defendants joined in the motion. Here, without citations, is an introductory paragraph in Giordano's motion:
The indictment in this case was filed on July 13, 2013. From November 15, 2013 until September 5, 2014 the hearings in this case were continued without the Court making specific findings that the continuances were necessary to serve the ends of justice. As a result, the speedy trial clock expired without the parties noticing on Thursday March 6, 2014. By the time of the September 4, 2015 hearing when the trial date was set, 241 days of unexcused delay had already elapsed. Because Mr. Giordano was not brought to trial within the time limits of the Speedy Trial Act, the indictment must be dismissed.
On January 22, 2016, the government opposed the motion and also said that, if the indictment is dismissed, it should be dismissed without prejudice (subject to possible reprosecution). Here is an introductory paragraph in the government's 17-page opposition:
After requesting nearly two-and-half years of continuances for the purpose of reviewing discovery, filing substantive motions, and preparing for trial, Defendants now claim—for the first time—that their right to a speedy trial has been violated, arguing that they were entitled to a trial starting on or before February 3, 2014. Defendants' argument centers on a series of written continuance motions—each prepared by the defense—that moved the motions hearings date from November 2013 through September 2014. These motions and the corresponding continuance orders did not include the words "ends of justice" or otherwise explain the reasons for granting a continuance. As a result, Defendants argue that the orders failed to toll the Speedy Trial clock, and time expired well before substantive motions were filed. The record makes it clear, however, that the "ends of justice" fully supported each of the court's orders—given the complexity of the case, the volume of discovery, and the need for adequate preparation by all parties.
On January 26, Giordano filed an eight-page response to the government's opposition. On January 29, Judge Sammartino issued a one-page dismissal of the indictment without prejudice. She provided no explanation for her ruling.

General Observations
This is a disappointing end to a complex, hard-fought criminal action over serious charges of wrongdoing in the STOLI market. I say "disappointing" because it would have been preferable for the case to run its course until a determination was made on whether the defendants' outrageous scheme constituted criminal activity warranting prison time for the perpetrators.

This case is my first encounter with the Speedy Trial Act. I do not know whether the result here is what the drafters of the Act had in mind.

On the question of possible reprosecution, consider three points. First, the defendants moved not only for dismissal, but also for dismissal with prejudice. Second, the government argued not only against dismissal, but also for dismissal without prejudice if the indictment was dismissed. Third, although Judge Sammartino sided with the defendants by dismissing the indictment, she sided with the government by dismissing the indictment without prejudice, and she also provided no explanation for her decision. Those points suggest at least the possibility that the government will reprosecute the case. Thus far I have seen no filings to indicate whether or not the government will reprosecute the case.

Available Material
I am making available a 55-page complimentary PDF consisting of the indictment, the motion to dismiss the indictment, the opposition to the motion, the response to the opposition, and the judgment of dismissal. Email jmbelth@gmail.com and ask for the May 2016 package relating to the Frisch case.


Monday, May 9, 2016

No. 161: MetLife Agrees to a Major Fine After a FINRA Investigation of Variable Annuity Replacement Activity

On May 3, 2016, as reported in major media outlets, the Financial Industry Regulatory Authority (FINRA) issued a two-page press release announcing the "largest FINRA fine relating to variable annuities." The press release is entitled "FINRA Sanctions MetLife Securities, Inc. $25 Million for Negligent Misrepresentations and Omissions in Connection With Variable Annuity Replacements." The payment consists of a $20 million fine and up to $5 million of restitution to customers "for making negligent material misrepresentations and omissions on variable annuity replacement applications for tens of thousands of customers." The FINRA investigation provides a lesson for those interested in regulation of life insurance and securities in general and commission-driven variable annuity replacement activity in particular.

Chapin and Birli

In May 1991, Patrick W. Chapin (CRD No. 2149171) entered the securities industry. In January 2001, he became associated with MetLife Securities, Inc. (CRD No. 14251) in Williamsville, New York. In April 2012, MetLife terminated him for "not fully disclos[ing] material information on new business applications." In October 2012, MetLife disclosed to FINRA a customer complaint that Chapin had "provided misleading directions regarding the transfer of retirement savings into variable annuities."

In March 2001, Christopher B. Birli (CRD No. 4366441) entered the securities industry and became associated with MetLife in Williamsville, New York. In April 2012, MetLife terminated him for "not fully disclos[ing] material information on new business applications." Later that month, MetLife disclosed to FINRA that Birli had made an inappropriate "recommendation to transfer funds from an existing variable annuity into a new variable annuity."

From July 2004 to December 2011, Chapin and Birli recommended that 45 employees of the State University of New York (SUNY) replace existing MetLife "Financial Freedom Account" (FFA) variable annuities inside the SUNY retirement plan with new MetLife "Preference Plus Select/MetLife Preference Premier" (PPS/MPP) variable annuities in MetLife individual retirement accounts (IRAs) held outside the SUNY retirement plan. MetLife generally did not allow the direct exchange of the FFA for the PPS/MPP, but Chapin and Birli devised a scheme to circumvent MetLife's rules.

The SUNY plan offered not only MetLife's FFAs but also products offered by Teachers Insurance and Annuity Association of America and College Retirement Equities Fund (TIAA-CREF). Chapin and Birli recommended that customers replace their FFAs with a product offered by TIAA-CREF, then wait at least 90 days, and then replace the TIAA-CREF product with the PPS/MPP in a MetLife IRA. Chapin and Birli moved about $21 million of funds from FFAs through TIAA-CREF products and into PPS/MPPs.

Chapin and Birli concealed the scheme from MetLife by submitting false and misleading paperwork. The scheme was not only unsuitable for the participants but also harmful to them in several ways. For example, the replacements often caused forfeiture of certain death benefits, forfeiture of certain income benefits, and forfeiture of certain investment options. By understating the value of the existing annuities and overstating the value of the replacement annuities, Chapin and Birli persuaded the participants to make the replacements. The scheme generated substantially increased commissions for Chapin and Birli.

The FINRA Complaint
On March 27, 2014, FINRA's Department of Enforcement filed a complaint against Chapin and Birli. FINRA had received complaints from participants in the SUNY retirement plan. The FINRA complaint included three causes of action: (1) unethical conduct, material misrepresentations, and material omissions; (2) lack of suitability; and (3) failure to cooperate with the FINRA investigation.

The FINRA Order
On July 1, 2014, FINRA's Department of Enforcement issued an order accepting an offer of settlement that Chapin and Birli had submitted. The order said they were "barred from associating with any member firm in any capacity." They consented to the order without admitting or denying the allegations in the complaint.

On April 27, 2016, a MetLife official signed a 13-page Letter of Acceptance, Waiver and Consent (AWC). On May 3, 2016, a FINRA official signed the AWC. MetLife accepted and consented without admitting or denying the findings. MetLife consented to the imposition of censure, a $20 million fine, payments to customers totaling up to $5 million in the aggregate, and a certification concerning the review of supervision procedures and their revision as necessary.

The AWC says that, during the relevant period, MetLife sold at least $3 billion in variable annuities through 35,500 variable annuity replacements generating $152 million in gross dealer commissions. MetLife principals approved 99.79 percent of the replacements even though nearly three-fourths of the replacement applications contained at least one misrepresentation or omission of material fact. There were also compliance problems related to the disclosures required in Regulation 60 promulgated by the New York Department of Financial Services.

General Observations
Replacement activities have been a thorny problem ever since the beginning of the life insurance business in the U.S. during the first half of the 19th century. The underlying cause of the replacement problem is the commission-driven nature of life insurance and annuity sales activities. State insurance regulators have tried, with little success, to control the problem by imposing disclosure requirements such as those in New York's Regulation 60. I think investigations of variable annuity sales activities at other major insurance companies would reveal similar problems, although it is difficult to believe that the findings would be more serious than those revealed by the FINRA investigation of MetLife.

Available Material
I am making available a complimentary 15-page PDF containing the press release issued by FINRA about its investigation of MetLife, and the AWC entered into by MetLife and FINRA. Email jmbelth@gmail.com and ask for the May 2016 package on the FINRA investigation of variable annuity replacements at MetLife. I am not including the complaint and order relating to Chapin and Birli, but those documents are available through BrokerCheck on the FINRA website (www.finra.org).

Thursday, May 5, 2016

No. 160: Unclaimed and Unpaid Death Benefits—More on the "60 Minutes" Criticism of Life Insurance Companies

In No. 159 (posted April 27), I discussed the criticism leveled at life insurance companies in the lead segment ("the segment") of CBS's "60 Minutes" on April 17. The segment was directed at unclaimed and unpaid death benefits, and also accused companies of systematically destroying the equity that many policyholders had built up in their policies. The post generated considerable interest, and this follow-up is warranted.

The Varying Responses
No one expressed objections to my description of the historical background of unclaimed and unpaid death benefits, lost policies, and lost policyholders. There were no comments on the first opinion I expressed, but numerous objections to the second. Here are the two opinions:
On the positive side, the segment provided a public service by calling attention to the problems of lost policies and unclaimed and unpaid death benefits. On the negative side, the segment was slanted to shine an undeservedly harsh light on life insurance companies.
I consider the segment slanted in at least four ways. First, it did not mention the insuring agreement invariably found in life insurance policies. Second, it did not mention the automatic premium loan clause. Third, it did not provide air time for the spokeswoman designated to represent the American Council of Life Insurers (ACLI), a life insurance company trade association, while stating on air that no life insurance company had made a spokesperson available. Fourth, it provided only a few seconds of air time for a spokesman of the Insurance Information Institute, an insurance company trade association oriented more toward property-liability insurance than life insurance. (In No. 159, I said the ACLI spokeswoman, Mary Jo Hudson, was interviewed on the telephone by Lesley Stahl, the on-air commentator. A knowledgeable reader informed me the comment was incorrect because Hudson was interviewed on the telephone by Rich Bonin, the producer of the segment.)

In response to my comment that the segment shined an undeservedly harsh light on the companies, some readers said what the companies had done was so outrageous that people should be in jail. My comment grew out of my concern about the nature of the evidence presented in the segment. I think the documents mentioned probably were not seen by senior officials or mid-level personnel who would have understood the implications of the documents. Also, until I see evidence to the contrary, I cannot believe that knowledgeable company personnel would rub their hands with glee over cheating beneficiaries out of death benefits.

"Asymmetric" and "Symmetric" Use of the DMF
As mentioned in No. 159, the U.S. Social Security Administration maintains a Death Master File (DMF) that supposedly lists all deceased persons in the U.S. As I explained, several years ago there was widespread and embarrassing publicity about life insurance companies using the DMF to learn of deceased annuitants so that life annuity payments could be stopped, but not using the DMF to learn of deceased insureds so that death benefits could be paid where death claims had not been filed. I referred to the practice as "inconsistent" use of the DMF, and said the revelations prompted investigations by state unclaimed property agencies and state insurance regulators. The investigations referred to the practice as "asymmetric" use of the DMF. By contrast, where the DMF was used for both life annuities and life insurance, the investigations referred to the practice as "symmetric" use of the DMF.

Two Companies' Clean Bills of Health
After No. 159 was posted, several readers informed me that Massachusetts Mutual and its affiliates were found to be using the DMF in a symmetric manner, and the company therefore was not required to enter into a settlement agreement with regulators. Kevin McCarty, the Florida insurance commissioner, chaired the investigation by state insurance regulators and was featured in the segment. Here is an excerpt from a press release McCarty's office issued on August 20, 2013:
The examination of MassMutual, one of the largest insurers in the United States, found that it used information from the DMF to both make payments to the beneficiaries of life insurance policies as well as to stop annuity payments. As a result of this positive examination report outcome, a multistate regulatory settlement agreement was deemed unnecessary.
"The conclusion of this examination shows that despite industry practices to the contrary, MassMutual acted in an appropriate way by utilizing the DMF in an attempt to notify policyholder beneficiaries and provide them with the death benefits to which they were entitled," stated Commissioner McCarty.
When I looked further into the matter, I learned that United Services Automobile Association (USAA) and its affiliates also were found to be using the DMF in a symmetric manner, and USAA had not been required to enter into a settlement agreement with regulators. McCarty's office issued the press release about USAA on February 10, 2014. (On April 29, 2016, David Altmeier, a Florida deputy insurance commissioner, succeeded McCarty, who had been the Florida commissioner since 2003.)

Companies Entering into Settlement Agreements
I also learned about all the companies (and their affiliates) that have entered into settlement agreements with regulators. Here is a chronological list showing the names of the companies and the dates of the press releases about the results of the investigations:
John Hancock (May 18, 2011)
Prudential of America (February 2, 2012)
Metropolitan Life (April 23, 2012)
Nationwide (October 11, 2012)
American International Group (October 22, 2012)
Teachers Insurance and Annuity (June 24, 2013)
ING America (August 19, 2013)
Aegon US (September 11, 2013)
New York Life (October 24, 2013)
Aviva (November 21, 2013)
Midland National (November 25, 2013)
Lincoln National (December 10, 2013)
Genworth (January 21, 2014)
Sun Life of Canada (November 13, 2014)
Symetra Life (November 25, 2014)
Allianz Insurance (January 8, 2015)
Guardian Life (March 23, 2015)
Pacific Life (March 23, 2015)
AXA Insurance (December 17, 2015)
Jackson National (December 17, 2015)
Major companies still under investigation are AFLAC, Allstate Life, American Equity Investment, American Financial, American National, American United, Ameriprise Financial, Citigroup, Great-West Life, Hartford Life, Minnesota Life, Northwestern Mutual, Ohio National, Principal Life, Protective Life, Stancorp, State Farm, and Western & Southern. There seem to be no investigations of Aetna Life, Berkshire Hathaway, Connecticut General, Knights of Columbus, Manufacturers Life, Penn Mutual, Primerica Life, and Thrivent Financial.

The Search Procedure
The settlement agreements include a four-page exhibit entitled "Rules for Identifying Death Matches." The exhibit includes three categories of matches: "Exact Match," "SSN [Social Security Number] Match," and "Non-SSN Match." The exhibit also describes "Fuzzy Match Criteria," "Reports of Matches," and "Other Matches and Mismatches."

The National Standard
In a statement the day after the segment aired, the ACLI said 20 states have adopted a "national standard" along the lines urged by the ACLI. The states are Alabama, Arkansas, Georgia, Idaho, Indiana, Iowa, Kentucky, Maryland, Mississippi, Montana, Nevada, New Mexico, New York, North Carolina, North Dakota, Rhode Island, Tennessee, Utah, Vermont, and West Virginia. Those states have enacted laws based on a model developed by the National Council of Insurance Legislators.

The New Florida Statute
On April 12, 2016, Governor Rick Scott of Florida approved Senate Bill 966 on unclaimed life insurance. The ACLI has expressed two major concerns. First, the ACLI says the new Florida statute seems to require payment of a death benefit unless the company can prove the insured person is still alive. Second, ACLI says the statute seems retroactive in a manner that may violate the contracts clause of the U.S. Constitution.

An ACLI Report
In September 2014, the ACLI issued a 36-page report entitled Life Insurance, Unclaimed Property and the Death Master File: Toward a Uniform National Framework. One of the authors was the previously mentioned Mary Jo Hudson. This sentence is in the introductory section of the report: "These issues have become some of the most contentious in the history of life insurance regulation in the United States."

General Observations
Life insurance companies and state insurance regulators are making significant progress in addressing problems associated with unclaimed and unpaid death benefits, as well as lost policies and lost policyholders. However, a substantial amount of work remains to be done.

A Personal Anecdote
Massachusetts Mutual's clean bill of health, as discussed earlier, reminded me of articles I wrote in the January 1976 and July 1976 issues of The Insurance Forum. They were about the claims practices of Connecticut Mutual, which later merged into Massachusetts Mutual. In the first article, I reported on a letter I had received from a Connecticut Mutual agent. He expressed great respect for his company, and told me about a situation where the company had bent over backwards to honor a claim. In the second article, I reported on a letter from a Connecticut Mutual official who provided further details on the case. In the letter, the official expressed the company's "claim policy" as follows:
Our claim policy, to the extent it can be expressed in a few words and in general terms, is simply that we expect to pay all benefits that are supposed to be paid when they are supposed to be paid. Whether or not a benefit has been claimed is beside the point—if we have information to suggest that a benefit might be due, we pursue the situation and determine whether or not it is. Our claim practice does not include maximizing profit as one of its objectives—that's the job of other parts of the Company.
Available Material
I am offering a complimentary 59-page PDF consisting of the press releases about the investigations of three major companies that grew up in the industrial life insurance business, the press releases about the two companies receiving clean bills of health, a sample exhibit showing the rules for identifying death matches, the Indiana statute as an example of an unclaimed benefit law, my two 1976 articles about the claims practices of Connecticut Mutual, and the ACLI report. Email jmbelth@gmail.com and ask for the May 2016 package about the "60 Minutes" segment.