Monday, April 22, 2019

No. 310: Long-Term Care Insurance and the National Association of Insurance Commissioners

In No. 308 (posted April 11, 2019), I discussed the insolvency of Senior Health Insurance Company of Pennsylvania (SHIP), a long-term care (LTC) insurance company in run-off. On April 10, the National Association of Insurance Commissioners (NAIC) issued a press release entitled "NAIC Prioritizes Long-Term Care Insurance" and subtitled "State regulators form executive-level task force." The NAIC's press release is in the complimentary package offered at the end of this post.

The New Task Force
The chair of the new NAIC task force is Virginia Commissioner Scott A. White, and the vice chair is Colorado Commissioner Michael Conway. The first meeting of the task force is tentatively scheduled for Kansas City in connection with what the NAIC calls an "Insurance Summit" relating to "Where Innovation Meets Regulation." It is not surprising that insurance regulators in Florida (home of many retirees), Pennsylvania (home of Penn Treaty and SHIP), South Carolina (home of Kanawha), and Virginia (home of Genworth) are among those instrumental in forming the new task force.

On April 12, I sent No. 308 to the Virginia Bureau of Insurance and asked for confirmation of my belief that Commissioner White is chairing the new task force because Genworth is based in Virginia. In response, a spokesperson referred me to the NAIC. On April 15, I made the same request to the NAIC. An NAIC spokesperson responded, but did not answer the question I asked.

The Upcoming Virginia Hearing
On March 15, 2019, the Virginia Bureau of Insurance issued a press release announcing a public hearing to be held in Richmond on May 21. The Bureau said it is inviting public comment on recent LTC insurance premium rate increase requests the Bureau has received from numerous insurance companies. The Bureau said public comments for the hearing record may be submitted in advance by April 22. I am submitting this blog post for the hearing record. The Bureau's press release is in the complimentary package offered at the end of this post.

A Few Articles About LTC Insurance
I have been writing about LTC insurance for three decades. Several of the early articles appeared in my monthly newsletter, The Insurance Forum, which I began in 1974 and ended in 2013. Four of the Forum articles about LTC insurance are discussed briefly here, and are in the complimentary package offered at the end of this post.

My first article about LTC insurance was in the February 1988 issue of the Forum. It was in the form of an open letter to Danny Thomas, the legendary entertainer and philanthropist who founded St. Jude's Children's Research Hospital in Memphis. Thomas had endorsed an LTC insurance policy offered by Union Fidelity Life Insurance Company, but I felt the policy presented serious problems for anyone who purchased it. Thomas did not respond to my open letter, but a company officer told me the company was no longer selling the policy.

Within a few years, many companies had begun selling LTC insurance. The August 1991 issue of Consumer Reports, the magazine of Consumers Union (CU), contained a study entitled "Gotcha! The Traps in Long Term Care Insurance." CU identified some "fair" LTC insurance policies and some "poor" policies, but no "excellent" or "good" policies. I wrote about the CU study in the August 1991 issue of the Forum. I explained that an "excellent" or "good" policy could never be found, because the LTC exposure violates important insurance principles. For example, the potential loss should be of a type that is fortuitous; that is, the potential loss should be of a type that occurs by chance and should not be within the control of the insured person or family members. Another example is that the potential loss should be definite; that is, the potential loss should be of a type in which there is little room for dispute over whether a loss of the type covered by the insurance has occurred.

In the May 1997 issue of the Forum, I wrote about a promotional letter used by General Electric Capital Assurance Company in selling LTC insurance. The letter included this sentence, with the indicated underlining: "Your premiums will never increase because of your age or any changes in your health." I told a company officer that, although the sentence was technically correct, it was deceptive because the policy allowed the company to increase the premiums. The company officer explained why he thought the sentence was not deceptive. However, the company removed the sentence from its promotional letters.

In the July 2008 issue of the Forum, I expressed the opinion that the problem of financing the LTC exposure could not be solved through the mechanism of private insurance. There I expanded on what I had said earlier about the important insurance principles that LTC insurance violates. I also identified several other considerations that render private LTC insurance unworkable.

A Few Blog Posts about LTC Insurance
When I shut down the Forum, I started a blog on which I have continued to write about LTC insurance. Here I describe briefly three such blog posts, and provide links to them.

In No. 191 (posted December 9, 2016), I wrote about a looming catastrophe for the LTC insurance business. I discussed, among other matters, the financial problems at Penn Treaty, an LTC insurance company that had become insolvent in 2009. I also discussed a Congressional hearing that was prompted by sharp premium increases on LTC group insurance coverage purchased by federal government employees.

In No. 223 (posted June 23, 2017), I explained why it is wrong for state governments to help private LTC insurance companies sell the coverage to citizens of those states. I mentioned, among other matters, a mailing to residents of California over the signature of the California governor, and a similar mailing to residents of Indiana over the signature of the Indiana governor. The letters implied that LTC insurance coverage was endorsed by the respective states.

In No. 257 (posted March 12, 2018), I wrote about a major problem that had surfaced at General Electric. The company announced that, after a review of some old LTC insurance policies, the company had to increase its liabilities relating to those policies by about $15 billion. The announcement shocked the market and prompted intense discussion of the problems associated with LTC insurance.

General Observations
I believe that the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. In my view, there are only two solutions to the problem. One is through personal savings, an approach I described in the July 2008 Forum article.

The other solution is through mandatory coverage that would be part of a federal program of universal health insurance. I say mandatory, because we already have evidence that a national voluntary plan would not be workable. A national voluntary plan called "Community Living Assistance Services and Supports" ("CLASS") was part of the 2010 Patient Protection and Affordable Care Act. Experts in the Department of Health and Human Services tried, without success, to devise a workable voluntary CLASS program, but it never got off the ground and was quietly repealed.

The new NAIC task force is the most recent effort to address the problems associated with LTC insurance. I think it will meet with the same fate as earlier efforts unless it recognizes that "personal savings" and a "mandatory federal program" are the only workable solutions to the problem of financing the LTC exposure.

Available Material
I am offering a complimentary 14-page PDF consisting of the NAIC's press release (1 page), the Virginia Bureau's press release (1 page), and the four Forum articles mentioned in this post (12 pages). Email jmbelth@gmail.com and ask for the April 2019 LTC insurance package.

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Wednesday, April 17, 2019

No. 309: Greg Lindberg and Three Others Indicted by a Federal Grand Jury in North Carolina

On March 18, 2019, in a sealed indictment, a federal grand jury in North Carolina charged Greg E. Lindberg and three others with criminal wrongdoing. On April 2, a magistrate judge unsealed the indictment. On April 3, the case was assigned to U.S. District Judge Max O. Cogburn, Jr. President Obama nominated him in January 2011, and the Senate confirmed him in March 2011, (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5-19-cr-22.)

The Defendants and the Charges
Lindberg, a resident of Durham, North Carolina, is the founder and chairman of Eli Global, LLC, a Durham-based investment company, and the owner of Global Bankers Insurance Group (GBIG), a Durham-based managing company for several insurance and reinsurance companies. The other defendants, all residents of North Carolina, are John D. Gray, a Lindberg consultant; John V. Palermo, Jr., a vice president of Eli Global; and Robert Cannon Hayes, chairman of the state Republican party in North Carolina. All four defendants were charged with one count of conspiracy to commit honest services wire fraud and one count of bribery concerning programs receiving federal funds, and aiding and abetting. Hayes was also charged with three counts of false statements.

The arrest warrants were issued in Charlotte in March. Each warrant described the offense as follows:
did knowingly combine, conspire, confederate, & agree with one another, and with others known and unknown to the Grand Jury, to devise & intend to devise a scheme and artifice to defraud and to deprive, by means of material false and fraudulent pretenses, representations, & promises, & to transmit and cause to be transmitted by means of wire communication in interstate commerce, any writings, signs, signals, pictures, & sounds for the purpose of executing the scheme & artifice to defraud & deprive, that is, to deprive North Carolina & the citizens of N.C. of their intangible right to the honest services of the COMMISSIONER, an elected State official, through bribery, in violation of 18 U.S.C. §§ 1343 & 1346
The defendants were arrested and arraigned on April 2. They pleaded not guilty, were released with conditions, and each posted an unsecured appearance bond of $100,000. Pretrial reports were filed under seal on April 3. A docket call is set for July 1. The arrest warrant for Lindberg is in the complimentary package offered at the end of this post.

The Indictment
In most states, the insurance commissioner is appointed by the governor. North Carolina is one of the minority of states in which the insurance commissioner is elected. Commissioner Mike Causey heads the North Carolina Department of Insurance (NCDOI). Paragraph 4 of the indictment reads:
GBIG managed several insurance companies across the United States and was subject to regulation by the NCDOI. Beginning in or about September 2017, and continuing through in or about February 2018, GBIG was subject to an ongoing periodic examination conducted by the NCDOI pursuant to North Carolina General Statute § 58-2-131, which provides that the NCDOI shall conduct a financial examination of every domestic insurer when "prudent for the protection of the policy holders or the public," but "not less frequently than once every five years." Following the periodic investigation, GBIG was subject to a remediation agreement it signed with the NCDOI in or about May 2018.
I asked the NCDOI for the remediation agreement. A spokesperson said it is confidential. I also asked for the examination reports. The spokesperson sent me reports for two Lindberg companies: Colorado Bankers Life Insurance Company (a report that is in the complimentary package offered at the end of this post) and Southland National Insurance Corporation. Both reports are as of December 31, 2015, and dated May 10, 2017. I found no reference to a remediation agreement in either report. Other companies mentioned in the reports are:
Colorado Benefits Administration, LLC
Colorado Benefits Administrators, LLC
Dearborn National Life Insurance Company
North Carolina Mutual Life Insurance Company
Preferred Financial Corporation, LLC
SNG Holdings & Reinsurance Company, Inc.
Southern Financial Life Insurance Company
Southland Benefit Solutions, LLC
Southland National Holdings, Inc.
Southland National Reinsurance Corporation
Paragraphs 14, 30, and 31 of the indictment are important. They read as follows:
14. The defendants corruptly gave, offered, and promised things of value to [Causey], including millions of dollars in campaign contributions and through an independent expenditure committee, in exchange for specific official action favorable to GBIG, including the removal of the Senior Deputy Commissioner of the NCDOI responsible for overseeing the regulation, including the pending periodic examination, of GBIG ("Senior Deputy Commissioner A").
30. On or about February 14, 2018, Lindberg and Gray met with [Causey] in a private conference room at the Concord Regional Airport in Concord, North Carolina. Leading up to the meeting, Gray explained that the meeting would be secret, and told [Causey] that Gray and Lindberg would enter the facility through a different door from [Causey] so that nobody would see them together.
31. During the meeting, Lindberg complained about various issues with the NCDOI, including Senior Deputy Commissioner A. Lindberg stated that she was "deliberately and intentionally and maliciously hurting my reputation with other regulators," and that she's "been lying to you to, to hurt my bad name." [Blogger's note: The end of paragraph 31 is exactly the way it reads in the indictment.]
On the website of the NCDOI, the "leadership" section includes a photograph and biographical information for Chief Deputy Commissioner Dr. Michelle Flynn Osborne. There are no other women in the NCDOI leadership. I asked NCDOI whether I am correct in my belief that "Senior Deputy Commissioner A" is Dr. Osborne. The spokesperson said "need to contact FBI." I have not done so, because I know the FBI would have no comment. The indictment is in the complimentary package offered at the end of this post.

Media Coverage
On March 1, 2019, The Wall Street Journal (WSJ) carried a 2,480-word story entitled "Insurance Tycoon Diverts $2 Billion—Greg Lindberg's business practices have little precedent and are under investigation." The reporters were Mark Maremont and Leslie Scism. Here are the opening sentences:
Soon after Greg Lindberg moved into the insurance business, the North Carolina entrepreneur went on a spending spree. He bought nearly 100 companies around the globe, an estate in the Florida Keys, an Idaho lakeside retreat, a Gulfstream jet and the most expensive mansion ever sold in Raleigh, N.C. In September 2018 he added a 214-foot yacht with room for a dozen overnight guests. He also became the largest political donor in North Carolina and lavished money on other races around the country. The cash came, at least in part, from huge sums Mr. Lindberg diverted from the group of life insurance firms he began assembling in 2014, a Wall Street Journal investigation found.
On March 3, Lindberg spokespersons responded to the WSJ story. They said the story omitted key facts and contained numerous inaccuracies.

On April 3, WSJ carried a 591-word story entitled "Financier, State GOP Chairman Indicted," by the same reporters. Here are the opening sentences:
Greg Lindberg, a North Carolina entrepreneur who lent at least $2 billion from insurers he controlled to his own enterprises, was indicted on federal criminal charges of conspiring to bribe the state regulator overseeing his insurers. The indictment rocked North Carolina's Republican Party. One of Mr. Lindberg's three co-defendants in the case is party Chairman and former Congressman Robert "Robin" Cannon Hayes, who allegedly agreed to direct $250,000 from state party coffers to the state insurance commissioner on Mr. Lindberg's behalf. Mr. Hayes, 73 years old, is also alleged to have lied about the scheme to the Federal Bureau of Investigation.
On April 5, WSJ carried an 869-word story entitled "Commissioner Helped Spot Alleged Bribery," by the same reporters. Here are a few of the opening sentences:
In the fall of 2017, Mike Causey, a Republican who had been elected North Carolina's insurance commissioner the year before, was trying to get up to speed on medical-insurance scams. He attended a seminar on the issue in Charlotte, N.C., organized by federal prosecutors. As the event was ending, Mr. Causey said in an interview Wednesday, he mentioned to one of the prosecutors that his department was struggling to understand complex transactions at a couple of life insurers. The prosecutor followed up, requesting more information on the matter. By early 2018, Mr. Causey was secretly recording conversations for the Federal Bureau of Investigation, The Wall Street Journal previously reported, citing people familiar with the matter.
On April 5, The New York Times carried a 1,468-word story entitled "G.O.P. Agenda in North Carolina Is Bruised by a Bout With Scandal." The reporters were Alan Blinder and Richard Fausset. The story included discussions of major political missteps by both political parties, but mostly by Republicans. The story referred to such scandals as the Republican-backed bill limiting the bathroom choices of transgender people, the court-rejected gerrymandering plan, and the recent harvesting of absentee ballots. The story also mentioned that the Republican National Convention in 2020 is scheduled for Charlotte.

General Observations
This is a disturbing case. The details on how the defendants are alleged to have tried to bribe Causey are presented in clinical detail in the indictment. I plan to follow the case, but it is likely to take a long time unless the defendants reach a plea agreement with the federal prosecutors.

The hero in the case is Causey, who tipped off the prosecutors about what was going on, and later cooperated in building the case. It remains to be seen what happens in the case and to Causey's political career.

Available Material
I am offering a complimentary 47-page PDF consisting of the arrest warrant for Lindberg (1 page), the indictment (24 pages), and the examination report on Colorado Bankers Life (22 pages). Email jmbelth@gmail.com and ask for the April 2019 Lindberg package.

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Thursday, April 11, 2019

No. 308: Long-Term Care Insurance and the Insolvency of Senior Health Insurance Company of Pennsylvania

On April 3, 2019, I obtained the statutory annual statement of Senior Health Insurance Company of Pennsylvania (SHIP) for the year ended December 31, 2018. SHIP has been running off the long-term care (LTC) insurance business of the former Conseco Senior Health Insurance Company (CSHI) since 2008. I wrote four articles in The Insurance Forum about the transfer of CSHI's LTC insurance business to SHIP; the articles are in the complimentary package offered at the end of this post.

The Insolvency
SHIP's 2018 statement (on pages 2 and 3) shows that total liabilities of $2.66 billion exceed total admitted assets of $2.22 billion by $0.44 billion. Thus the company is insolvent. Also, the statement (on page 4) shows that the company incurred a net loss of $0.5 billion in 2018. Those pages are in the complimentary package offered at the end of this post.

I have posted several items about SHIP on my blog, and have commented from time to time about the worsening financial condition of the company. My most recent prior post, based on the company's 2017 statement, is in No. 260 (April 2, 2018).

A Puzzling Sentence
SHIP's 2018 statement (on page 19.2) contains this sentence: "There is not substantial doubt about the Company's ability to continue as a going concern." I find puzzling the inclusion of such a sentence in the financial statement of an insolvent company. Page 19.2 is in the complimentary package offered at the end of this post.

The Jurat
In the SHIP statement I obtained, the jurat section at the bottom of page 1 shows the names of three officers: Barry Lee Staldine, President and Chief Executive Officer; Ginger Susan Darrough, Chief Financial Officer and Treasurer; and Kristine Tejano Rickard, Secretary. However, there were no signatures of those officers, the notary section was blank, and there was no indication of when the Pennsylvania department received the statement. I contacted the department, and a spokesperson promptly sent me a copy of page 1 showing the signatures, the notarization dated February 26, and the department's March 5 receipt stamp. Both versions of page 1 are in the complimentary package offered at the end of this post.

Directors and Affiliates
The directors listed on page 1 in SHIP's 2018 statement are Staldine, Darrough, Julianne Marie Bowler, Cecil Dale Bykerk, John Martin Morrison, Gregory Vincent Serio, and Thomas Edward Hampton.

According to page 19.12 in the 2018 statement, SHIP is affiliated with Fuzion Analytics, Inc., and both are wholly owned subsidiaries of the Senior Health Care Oversight Trust. SHIP and Fuzion have a management agreement under which SHIP paid $15.5 million to Fuzion in 2018. According to page 19.11 in the 2018 statement, SHIP, Fuzion, and the Oversight Trust file consolidated federal income tax returns. Pages 19.11 and 19.12 are in the complimentary package offered at the end of this post.

Risk-Based Capital
When I discuss risk-based capital (RBC) ratios, I refer to the ratio where the numerator is total adjusted capital and the denominator is company action level RBC, and where the RBC ratio is expressed as a percentage. According to page 22 in SHIP's 2018 statement, the company's RBC ratios were 108 in 2014 (red flag zone), 80 in 2015 (company action zone), 82 in 2016 (company action zone), and 71 in 2017 (regulatory action zone). For 2018, total adjusted capital is minus $466.8 million, authorized control level RBC is $51.3 million, and company action level RBC (twice the authorized control level RBC) is $102.6 million. Thus the RBC ratio for 2018 is minus 455 percent (minus $466.8 million divided by $102.6 million), which means the company is deep in the mandatory control zone. I described the history and nature of RBC ratios in the August 2011 issue of the Forum. Page 22 of the statement and the relevant pages from the August 2011 issue are in the complimentary package offered at the end of this post.

The Surplus Note
In 2015 SHIP issued a $50 million surplus note, which has an impact on the financial condition of the company. Without the note, the company's RBC ratios at the ends of 2015, 2016, and 2017 would have been in the mandatory control zone. SHIP has not repaid any portion of the principal of the note, and has not paid any interest on the note. At the end of 2018, according to page 19.13 in the 2018 statement, the amount of unpaid interest on the note is $11.55 million, so that the total amount of the note is now $61.55 million. I wrote about the note in No. 260. Page 19.13 is in the complimentary package offered at the end of this post.

My Requests
When an insurance company becomes insolvent, it is common practice for the insurance commissioner in the company's state of domicile (Pennsylvania in this case) to seek state court permission to assume control of the company and place it in rehabilitation. When I learned of SHIP's insolvency, I wrote to the Pennsylvania department. I said I was planning a blog post, and asked for a short statement suitable for inclusion in the post. In reply, a spokesperson said:
In terms of the financial statement, we can say we are aware of the company's financial situation from their annual statement. Beyond that, we are prohibited by law from discussing a company's financial status.
I sent a similar request to the National Organization of Life and Health Guaranty Associations (NOLHGA). In reply, a spokesperson said:
It has been reported that the Pennsylvania Insurance Department has given the Senior Health Insurance Company of Pennsylvania 90 days to submit a plan for the continued operation of the company. We continue to monitor the situation, and our member life and health insurance guaranty associations stand ready to provide protection to policyholders should the need arise.
General Observations
SHIP has been a run-off company from its inception, and therefore does not sell new policies. Also, the company's financial condition has been worsening for many years. For those reasons it is possible that the company, for all practical purposes, has been under the direct control of the Pennsylvania commissioner for many years. Thus the commissioner may have felt there was no need to ask the court's permission to formalize control. That is why I sought comments from the Pennsylvania department and from NOLHGA.

With regard to the response from NOLHGA, I do not know how SHIP can erase a deficit of almost half a billion dollars. Further, in view of the current distressed state of the LTC insurance market, I believe that any efforts to rehabilitate the company, or to sell part or all of the company, are doomed to failure. I think the Pennsylvania commissioner will seek court permission to liquidate the company.

A Late Note
Just before this item was posted, I saw a report that SHIP entered into a letter agreement in February 2018 with the Pennsylvania department regarding the company's financial condition (probably the matter referred to in NOLHGA's statement to me). The report also said the company has filed its "Management's Discussion and Analysis" (MD&A) relating to the 2018 statement. I immediately requested the letter agreement and the MD&A from the Pennsylvania department. With regard to the letter agreement, the department spokesperson said the department "does not confirm information regarding a company's financial status unless and until formal action occurs."  The spokesperson sent me the MD&A.  I have reviewed it, and have no comment on it.  However, I am including it in the complimentary package offered at the end of this post.

Available Material
I am offering a complimentary 37-page PDF consisting of the four articles in the Forum about the transfer of CSHI's LTC insurance business to SHIP (10 pages), relevant pages about RBC ratios from the August 2011 issue of the Forum (6 pages), pages of SHIP's 2018 statement from which I drew information for this post (10 pages), and the company's MD&A (11 pages). Email jmbelth@gmail.com and ask for the April 2019 SHIP package.

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Thursday, April 4, 2019

No. 307: Nixon and Trump

Introduction
In a blogger's note in No. 300 (December 17, 2018), I said I was taking a vacation for two or three months. What I did not mention was the reason for the vacation, which was to read extensively about the investigation of President Richard Nixon in the 1970s and the investigation of President Donald Trump during the past two years.

The Investigation of Nixon
As the investigation of Nixon progressed in the early 1970s, I followed it, but not in depth. I read about it in newspapers, read All the President's Men, saw the movie, and a couple of years later read The Final Days. I have now completed my reading about the investigation of Nixon by rereading All the President's Men, rereading The Final Days, and reading about the investigation from the viewpoints of several others associated with the investigation: prosecutors (Ben-Veniste, Frampton, Jaworski), historians (Farrell, White), journalists (Bernstein, Doyle, Woodward), and wrongdoers (Dean, Ehrlichman, Haldeman, Nixon).

I did not read all of Nixon's 1,120-page 1978 Memoirs. I was turned off by his incomplete description of the infamous 18½-minute gap on the June 20, 1972 tape recording (three days after the Watergate break-in). Although some evidence points to Nixon personally as having made the erasure, here is how he continued the cover-up on pages 631-632:
I met with Bob Haldeman twice on Tuesday [June 20, 1972]: from 11:26 A.M. until 12:45 P.M., and again from 4:35 until 5:25 in the afternoon. What was said during the morning meeting will never be known completely because the tape of that conversation is the one with the 18½-minute gap. Some of what we talked about during those 18½ minutes can be reconstructed from the notes Haldeman took. According to them, one of my first reactions to the Watergate break-in was to instruct that my EOB [Executive Office Building] office be checked regularly to make sure that I [italic in original] was not being bugged by anyone. They also indicate a concern about the political ramifications of the Watergate incident and a desire to divert its impact by mounting our own counterattack.
On the other hand, I was deeply impressed by Theodore White's 1975 book, Breach of Faith: The Fall of Richard Nixon. Many years ago I read his impressive Making of the President series, for the first of which he received the 1962 Pulitzer Prize for General Nonfiction. The style of his book about Nixon reminds me of the style of my favorite writer, Robert Caro, who received the 1975 Pulitzer Prize in Biography for The Power Broker: Robert Moses and the Fall of New York, and the 2003 Pulitzer Prize in Biography for Master of the Senate (the third volume of Caro's multi-volume biography of Lyndon Johnson).

White, who died in 1986, would have had a field day with the investigation of Trump. To provide a glimpse of White's style, here are a few excerpts from his description of what happened in the U.S. Supreme Court on the day Chief Justice of the United States Warren Burger announced the 8 to 0 decision in U.S. v. Nixon:
Wednesday dawned with an overcast in Washington—hot, sticky, threatening to rain—July 24th, 1974. And the flag over the Supreme Court was at half-staff, in memory of Earl Warren....
Oyez, Oyez, Oyez—the words echoed out of the medieval French and the particular system of justice the Normans imposed almost a thousand years ago on conquered England, from which had developed that common law which still governs Americans and Englishmen. This system of justice holds that the law must act on evidence; to get at that evidence, all the power of the state may be mobilized. What was at issue this day was whether those close associates of Richard Nixon, President of the United States, under indictment at that moment, could be fairly judged in court without necessary facts; and the highest court in the land had been summoned to judge the President's authority to withhold those facts. Oyez, Oyez, Oyez—Give Ear, Give Ear, Give Ear. Listen! And then the Justices, eight out of nine (Justice Rehnquist had disqualified himself from hearing this case), silently materialized from behind the wine-red velvet drapes to take their seats on the bench.
The Chief Justice, Warren Burger, leaned forward in his black leather chair and spoke for a moment of his predecessor, Earl Warren, who had just died. Earl Warren had enlarged the power of the Court more than any other Justice of the twentieth century. Now, Burger was to enlarge that power yet further as he proceeded to speak to Case No. 73-1766, United States against Nixon, and the cross-petition, Case No. 73-1834, Nixon against the United States.
White described Chief Justice Burger's reading of the decision, and what happened immediately thereafter:
Silence. Then the clack of a gavel. And then the Justices swiveled in their chairs, rose and, like ghosts of an olden drama, disappeared through the burgundy drapes behind them, the thwack of the gavel still echoing. It was 11:20 in the morning in Washington, only 8:20 in San Clemente, California, where Richard Nixon had secluded himself. Eight hours later would come the next thwack of a gavel, as Peter Rodino, chairman of the Judiciary Committee of the House of Representatives, would call to order in Room 2141 of the Rayburn House Office Building those members of his committee who, for the next six days, must act to define power—theirs, the people's and the President's—in rolling, vivid and brilliant debate for all the world to see and hear.
"Fiat justitia, ruat coelum," the Roman lawmakers had said, "Let Justice be done, though the heavens fall." Justice, at every level of American power, was now under way: in two weeks a President would fall.
I had lunch within an hour of the decision with Leon Jaworski, whose authority as Special Prosecutor Chief Justice Burger had just affirmed as sovereign. But as Jaworski sat at table, breaking his custom in order to celebrate with a carafe of white wine, there was little of sovereign manner about him. He was an old man, today weary, tufts of white hair above the face of a friendly goblin, the voice firm, now precise, then again grandfatherly, and no elation in his voice about the victory....
"What happened this morning," said the tired man, "proved what we teach in schools, it proved what we teach in colleges, it proved everything we've been trying to get across—that no man is above the law." Jaworski was living now in a two-room-and-dinette suite at the Jefferson Hotel, his wife cooking for him, far from the comforts and pleasant estate of his life in Texas. But he intended to go through with this to the end, he said, he had to, not for reward nor for fame, but simply because of the young people. This case, said Jaworski, would shape what the young of America would think or say or do in this system for all of the next generation. Unless the young people believed, really believed in our institutions, the system simply would not work. He quoted Disraeli; according to his recall, Disraeli had said, "The youth of the nation are the trustees of posterity." His clients were the youth of the nation, his prosecution a defense of the system.
The Investigation of Trump
By coincidence, I completed my reading about the investigation of Nixon during the weekend of March 22-24, 2019, when Special Counsel Robert S Mueller III gave his report on the investigation of Trump to Attorney General William Barr. That same weekend Barr sent two letters to the Senate and House Committees on the Judiciary.

When Trump burst on the political scene, followed by the investigation of him, I thought the investigations of Nixon and Trump had significant similarities. I also thought they had significant differences.

The Similarities
One similarity is the "Road Map" placed under seal on March 1, 1974, and unsealed by a federal judge on October 11, 2018. (See No. 295, posted November 9, 2018.) Another similarity is that both investigations were looking into possible efforts to subvert the U.S. Constitution.

Still another similarity is that both investigations reveal the crucial importance of close associates of Nixon and Trump. After Trump's nomination and before his election, I could not imagine, if he should win, how he would be able to attract highly qualified and capable individuals to serve in his cabinet and in other important positions in his administration.

The Differences
An important difference in the two investigations is that Nixon had extensive political experience—in the House, in the Senate, and as vice president—while Trump had no political experience. Another important difference is that Nixon was an avid reader, while Trump reportedly reads nothing and obtains his information by watching television.

Origins of the Investigations
Some think the investigation of Nixon began with the Watergate break-in on the night of June 16-17, 1972. However, the seeds went much farther back—to Daniel Ellsberg's leaking of The Pentagon Papers in 1971, and even farther back to the techniques Nixon used to win election to the House in 1946 and the Senate in 1950.

As for the investigation of Trump, some think it began with the firing of FBI Director James Comey on May 9, 2017. For me, however, it goes back much farther than that. I was bewildered and angered by Trump's early claim that President Barack Obama was not eligible to hold the office. Trump's antipathy toward Obama continues unabated today.

My second major problem with Trump began with his criticism of immigrants when he began his primary campaign. I took those comments personally, because my beloved grandparents (all four of them) immigrated to our great country through Ellis Island about 120 years ago to escape persecution in eastern Europe and make a better life for their descendants.

There was another early incident that turned me against Trump. It was the horrible insult that Trump, a Vietnam War draft dodger, directed at Senator John McCain, a Vietnam War hero. To this date, months after McCain's death, Trump continues to attack McCain.

Moreover, I have had many other concerns about Trump.  A few of those are his defense of Nazis, his affinity for dictators, his remarks about women, his sexual indiscretions, his vicious attacks on the media, his nasty comments about those he perceives as his enemies, and, above all, his constant lies.

General Observations
I have been following the investigation of Trump closely through newspapers and other media outlets. During my vacation I read extensively about the investigations of Nixon and Trump. Before listing the books, I have some general observations.

For anyone interested in the investigations of Nixon and Trump, I strongly recommend Theodore White's 1975 book. It is not only a superb analysis of the investigation of Nixon, but one through which anyone with knowledge of the investigation of Trump can see important similarities and differences in the two investigations.

I consider the recent books by James Comey and Andrew McCabe mandatory reading. They describe the operations of the FBI and explain why it is vital for the FBI to maintain its independence from the White House. It is regrettable that Trump will never read them.

I am troubled by Attorney General William Barr's March 22, March 24, and March 29, 2019 letters to the House and Senate Judiciary Committees. I think they represent the beginning of a major cover-up of the results of the now completed 22-month investigation by Special Counsel Mueller.

I think the Barr letters, which Trump and his supporters are using to declare victory through the results of the Mueller report, will exacerbate the already extreme political partisanship over the Mueller report. A vivid illustration occurred at the beginning of a public hearing on March 28, 2019 before the House Permanent Select Committee on Intelligence on "Putin's Playbook: The Kremlin's Use of Oligarchs, Money and Intelligence in 2016 and Beyond." The committee consists of Chairman Adam Schiff and 12 other Democrats, and Ranking Member Devin Nunes and eight other Republicans. Following his opening statement, Schiff invited comments from Nunes, who yielded to K. Michael Conaway, who read a letter to Schiff from the nine Republicans requesting that Schiff resign as chairman of the committee. The letter is in the complimentary package offered at the end of this post.

Schiff forcefully rejected the request in a statement that I think will go down in history as important. After delivering his statement, Schiff refused to recognize anyone from the committee. Instead he recognized the first hearing witness: Michael McFaul, a former U.S.Ambassador to Russia. I was not able to locate an official transcript of Schiff's statement, which should be available later. Meanwhile,  I have included in the complimentary package offered at the end of this post my rough transcript of the statement.

The List of Books
Richard Ben-Veniste and George Frampton, Jr. Stonewall: The Real Story of the Watergate Prosecution (1977, 410 pages). They were members of the Watergate special prosecution task force.

Carl Bernstein and Bob Woodward. All the President's Men (1974, 349 pages). A new edition was published in 2012 with an "Afterword." They were The Washington Post reporters who wrote extensively about the investigation of Nixon beginning on June 17, 1972.

James R. Clapper. Facts and Fears: Hard Truths from a Life in Intelligence (2018, 424 pages). He is a retired director of national intelligence.

James Comey. A Higher Loyalty: Truth, Lies, and Leadership (2018, 290 pages). He is a former director of the FBI.

John W. Dean III. Blind Ambition: The White House Years (1976, 415 pages). He was Nixon's White House counsel.

James Doyle. Not Above the Law: The Battles of Watergate Prosecutors Cox and Jaworski (1977, 420 pages). He was the press officer for the Watergate special prosecution task force.

John Ehrlichman. Witness to Power: The Nixon Years (1982, 432 pages). He was a top Nixon assistant. He died in 1999.

John A. Farrell. Richard Nixon: The Life (2017, 737 pages). He is a prominent historian.

H. R. Haldeman. The Ends of Power (1978, 326 pages). He was Nixon's chief of staff. He died in 1993.

Michael Isikoff and David Corn. Russian Roulette: The Inside Story of Putin's War on America and the Election of Donald Trump (2018, 338 pages). They are prominent journalists.

Leon Jaworski. The Right and the Power: The Prosecution of Watergate (1976, 306 pages). He was the second Watergate special prosecutor. He died in 1982.

Andrew G. McCabe. The Threat: How the FBI Protects America in the Age of Terror and Trump (2019, 274 pages). He is a former acting director of the FBI.

Richard M. Nixon. RN: The Memoirs of Richard Nixon (1978, 1,120 pages). He was the 37th president of the United States. He died in 1994.

John J. Sirica. To Set the Record Straight: The Break-In, the Tapes, the Conspirators, and the Pardon (1979, 394 pages). He was the federal district court judge in much of the Watergate-related litigation. He died in 1992.

Theodore H. White. Breach of Faith: The Fall of Richard Nixon (1975, 373 pages). He was a prominent historian. He died in 1986.

Michael Wolff. Fire and Fury: Inside the Trump White House (2018, 321 pages). He is a prominent journalist.

Bob Woodward. Fear: Trump in the White House (2018, 420 pages).

Bob Woodward and Carl Bernstein. The Final Days (1976, 470 pages).

Bob Woodward. The Secret Man: The Story of Watergate's Deep Throat (2005, 249 pages). In 2005, W. Mark Felt, deputy director of the FBI during the Watergate days, and his family disclosed that he was "Deep Throat." Felt died later in 2005.

Available Material
I am offering a complimentary 18-page PDF consisting of Barr's letter of March 22, 2019 (1 page), his letter of March 24 (4 pages), his letter of March 29 (2 pages), the March 28 letter from the Republicans on the House Intelligence Committee requesting Schiff's resignation as chairman of the committee (2 pages), my rough transcript of Schiff's response to the Republicans' letter (2 pages), the three Articles of Impeachment adopted in 1974 by the House Judiciary Committee (4 pages), and Nixon's resignation speech (3 pages). Email jmbelth@gmail.com and ask for the April 2019 package relating to Nixon and Trump.

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Monday, April 1, 2019

No. 306: Long-Term Care Insurance and the NAIFA Limited and Extended Care Planning Center

The NAIFA LECP Center
Recently I learned of the Limited and Extended Care Planning (LECP) Center created by the National Association of Insurance and Financial Advisors (NAIFA). Here is the December 2018 announcement that brought the LECP Center to my attention:
With over 10K people turning 65 every day, it's essential to know how to talk to your clients about plans for themselves, their parents and their family members. That's why we partnered with the industry's biggest players to create the Limited and Extended Care Planning (LECP) Center. It's the ultimate resource to help meet all of your clients' long-term planning needs. You will have unlimited access to: techniques you can use immediately to close more business and grow your practice, customized advice and solutions from the top leaders in the LTC space, and promotional materials you can use to easily show your clients the options for funding care whether for a limited, extended or long-term period. [Underlinings in original.]
The insurance company partners in the LECP Center are Genworth, Nationwide, New York Life, and Thrivent. The other partners are Advanced Resources Marketing, Certification in Long-Term Care, Intercompany Long Term Care Insurance Conference Association, LTCI Partners, and Target Insurance Services, Inc.

My Initial Inquiry to NAIFA
On December 20, 2018, I sent an email to Carroll Golden, executive director of the LECP Center at NAIFA headquarters. I said I have written extensively about long-term care (LTC) insurance. For example, I attached an article entitled "Shortcomings of Private Insurance in Financing Long-Term Care," which appeared in the July 2008 issue of The Insurance Forum. I also attached a copy of chapter 18 entitled "Long-Term Care Insurance" from my 2015 book, The Insurance Forum: A Memoir. I asked what the LECP Center recommends that agents say to prospective buyers of LTC insurance with regard to several problems that confront buyers and owners of LTC insurance policies, such as large future premium increases.

The NAIFA Response
Golden responded three hours later. She did not mention my attachments or answer my questions. Here is what she said:
Overall, the Center does not recommend what agents or advisors should say to prospective buyers of LTC insurance, or any insurances or options that are included on the Center. The mission of the Center is to maximize professional and consumer awareness and the distribution of limited and extended care solutions through thought leadership, educational resources, research, networking, and advocacy. Using the power of a virtual, private online community, the Center brings solution and service providers, producers and thought leaders together to deliver trends, training, expert advice, communications, networking, and advocacy. The Center posts information, but does not recommend any one option over another.
Given the various informational categories, Education, Designations, Expert Advice (divided into three areas—Planning in Advance, Products and Services, and Point of Need), Networking and Community, Research and Trends, and Advocacy, the Center serves more as a repository than an advice center. We would like to encourage more people and professionals to include current and future care needs in their planning. We recognize that health care can be costly, not only financially but also emotionally. The Center hopes to provide information that starts more conversations and research into limited and extended care planning needs.
My Follow-Up Questions
Three hours later I sent Golden some follow-up questions. First, I asked whether she had read my July 2008 article and the chapter from my memoir, and if so, what thoughts she had on them. Second, regarding her statement that the Center posts information, I asked whether the Center posts information about the problems alluded to in my previous email. Third, to the extent the Center does not post information about those problems, I asked why the Center refrains from doing so, and whether the Center is saying there is no need for agents and consumers to know anything about those problems. She did not reply. On January 3, 2019, I asked the questions again; she did not reply.

My Survey
On March 12, 2019, I directed similar questions not only to NAIFA but also to the other partners who created the LECP Center. I asked them to acknowledge receipt promptly, and designated March 26 as the final date for a substantive response. The survey, which consisted of a cover memorandum and the July 2008 Forum article, is in the complimentary package offered at the end of this post.

In the cover memorandum I inquired about their objective in helping organize the LECP Center, and about how much they had contributed to help organize the Center. Also, because the Center appears to perform an educational function, I asked for their comments on what the Center will provide concerning seven problems that confront buyers and owners of LTC insurance policies: (1) large future premium increases, (2) future offers of large decreases in benefits, (3) endless correspondence when consumers file claims for benefits, (4) departures of companies from the LTC insurance business, (5) transfers of LTC insurance policies from one insurance company to another, (6) failures of LTC insurance companies, and (7) LTC insurance companies taken over by companies in foreign countries.

Two of the partners to whom I sent the survey acknowledged receipt and implied they would respond substantively. One of those two later said: "The team discussed internally and will decline to participate this time. Thanks again for the outreach." From the other one I received nothing further. A spokesperson for another of the partners said: "Following up on your email to us regarding NAIFA's LECP Center. Thanks for your interest but we're going to pass on this opportunity for now." None of the other partners acknowledged receipt, and I received nothing from them.

General Observations
For many years I have said that the problem of financing the long-term care exposure violates important insurance principles, that the problem therefore cannot be solved through the mechanism of private insurance, and that many who buy LTC insurance will be disappointed. A detailed discussion of the subject is in my article in the July 2008 issue of the Forum.

My conclusion from the unsuccessful survey is that the partners who created the LECP Center have no interest in educating prospective buyers of LTC insurance about the problems they will face if they buy LTC insurance. I think the failure of the partners to confront those important problems and disclose them to prospective buyers will lead to the disappearance of the LTC insurance business.

Available Material
I am offering a 7-page complimentary package consisting of the March 12 memorandum to the partners who founded the LECP Center (2 pages) and the July 2008 Forum article (5 pages). Email jmbelth@gmail.com and ask for the April 2019 package relating to NAIFA's LECP Center.

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Thursday, March 21, 2019

No. 305: William Neil Gallagher Faces State Criminal and Federal Civil Charges of Securities Fraud

William Neil "Doc" Gallagher, a radio personality in Dallas, is in bankruptcy proceedings. He also faces state criminal and federal civil charges of securities fraud. Here I discuss the charges against him.

The Texas Criminal Charges
On March 4, 2019, a grand jury in Dallas County issued a pair of indictments against Gallagher. One indictment identifies 20 victims of Gallagher's scheme. The other indictment contains this sentence:
That William Neil Gallagher, hereinafter called Defendant, on or about and between the 1st day of March, 2014 and the 31st day of January, 2019, in the County of Dallas, State of Texas, did then and there, pursuant to one scheme and continuing course of conduct, knowingly acquire or maintain an interest in, possess, transfer, and transport the proceeds of criminal activity, to wit: Securities Fraud, and the aggregate value of said funds was $300,000 or more.
The two indictments are in the complimentary package offered at the end of this post. (See State of Texas v. Gallagher, Indictment Nos. F1900119 and F1900138.)

The SEC Civil Complaint
On March 7, the Securities and Exchange Commission (SEC) filed, under seal, a civil complaint against Gallagher, Gallagher Financial Group, Inc. (GFG), and W. Neil Gallagher, Ph.D. Agency, Inc. (Gallagher Agency) charging them with violations of federal securities laws. (The complaint says Gallagher holds a Ph.D. degree from Brown University.) The same day, the court assigned the case to Senior Judge A. Joe Fish, who recused himself without giving a reason; the court then reassigned the case to Senior Judge Sam R. Cummings, and the SEC filed a motion for a preliminary injunction, a temporary restraining order, an asset freeze, and the appointment of a receiver.

The next day, the court appointed Cort Thomas, a Dallas attorney, as the receiver. The court also imposed a freeze on the receivership assets. On March 12, the court unsealed the complaint. (See SEC v. Gallagher, U.S. District Court, Northern District of Texas, Case No 3:19-cv-575.)

The first section of the SEC civil complaint is a six-paragraph summary of the case. Here is the first paragraph:
Since at least December 2014, Gallagher, a long-time radio personality in the Dallas/Fort Worth metroplex, who marketed himself as "The Money Doctor," has perpetrated an affinity-fraud investment scheme on investors through two North Texas-based companies he owns and controls, GFG and Gallagher Agency. Despite having no valid securities-industry credentials, Gallagher has offered and sold securities, raising at least $19.6 million from at least approximately 60 investors—ranging in age from 62 to 91—while claiming to be a fully licensed advisor offering investment advice and investment services. He has raised these funds by selling an investment product called a Diversified Growth and Income Strategy Account.
The full SEC complaint is in the complimentary package offered at the end of this post. It is a chilling document.

The SEC Litigation Release
On March 12, the SEC issued a litigation release entitled "SEC Charges Texas Radio Host 'The Money Doctor,' Halts Ponzi Scheme Targeting Elderly Investors." Here is the first sentence:
The Securities and Exchange Commission announced that it has charged Texas resident William Neil "Doc" Gallagher—the self-styled "Money Doctor" featured on three Dallas-area radio stations—in an emergency action to shut down a $19.6 million Ponzi scheme targeting elderly investors' retirement funds.
The TSSB Press Release
On March 13, the Texas State Securities Board (TSSB) issued a press release entitled "Dallas Investment Promoter 'Doc' Gallagher Indicted in $19 Million Fraud." Here is the first sentence:
William Neil "Doc" Gallagher, who promotes his investment business on Christian radio and in books like "Jesus Christ, Money Master," has been arrested to face first-degree state felony charges of securities fraud and money laundering in Dallas County.
The 1999 Disciplinary Order
The current criminal and civil charges against Gallagher are not his first confrontations with securities regulators. For example, on December 23, 1999, the Texas Securities Commissioner directed at Gallagher ("Respondent") a "Disciplinary Order Reprimanding an Agent." Here are three of the ten "Findings of Fact" in the order, which designated them as "fraudulent business practices" in violation of the Texas Securities Act:
3. During the course of an inspection of Respondent's offices by the State Securities Board, the Staff requested that Respondent produce receipt books for all checks received from investors for a defined period.
4. Respondent produced check receipt books to the Staff. Respondent did not disclose to the Staff that certain receipt books produced were, in fact, created at Respondent's direction after the Staff's request was received, and were not copies of receipts given to investors at the time of the receipt of their checks.
5. While registered as an agent of National Securities Corporation, Respondent represented to the public via advertising that he was a registered investment adviser, though he was not registered as an investment adviser.
The order reprimanded Gallagher and assessed an administrative fine of $25,000. He consented to the order "without admitting or denying" nine of the ten "Findings of Fact" in the order. The one "admitted" finding (the first of the ten) is shown in the order, which is in the complimentary package offered at the end of this post. (See "In the Matter of the Agent Registration of William Neil Gallagher," Order No. CAF-1380.)

General Observations
When I hear of an affinity-fraud case such as this one, my first reaction is sadness for the victims of the fraud. They have no knowledge of investments, and the criminals take advantage of the religious faith of the victims. My second reaction is that there are probably not enough people in the law enforcement community to uncover and prosecute all the phony financial schemes perpetrated by large numbers of fraudsters.

Available Material
I am offering a complimentary 26-page PDF consisting of the two indictments (3 pages), the SEC complaint (16 pages), the SEC litigation release (1 page), the TSSB press release (1 page), and the 1999 disciplinary order (5 pages). Email jmbelth@gmail.com and ask for the March 2019 package relating to the Gallagher case.

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Friday, March 15, 2019

No. 304: NAIFA and the John Newton Russell Memorial Award

The National Association of Insurance and Financial Advisors (NAIFA) grants the John Newton Russell (JNR) Memorial Award each year. NAIFA describes the award as "the highest honor that can be bestowed upon an individual in the life insurance and financial planning industry, and recognizes a lifetime of professional excellence, service to the industry and a commitment to ethical conduct."

The Recipients
NAIFA (then the National Association of Life Underwriters) first granted several JNR awards in 1947. They represented the years 1942 through 1947, but were delayed because of World War II. The award for 1942 went to Professor Solomon S. Huebner of the University of Pennsylvania; he is often referred to as the "Father of Insurance Education." According to NAIFA's current list of JNR award recipients, the five oldest living recipients (by year of receiving the award) are Jack E. Bobo (1985), William V. Regan II (1990), Alan Press (1991), Robert W. Verhille (1994), and William B. Wallace (1995).

I was deeply honored to receive the JNR award for 2017. I am the fourth educator to receive the award. The first was Professor Huebner. The second was Davis W. Gregg (1961), who was long-time president of The American College. The third was Kenneth Black, Jr. (1999), who was at Georgia State University and was long-time editor of The CLU Journal.

My Suggestion
My receipt of the award automatically made me a member of the nominating committee for a few years. In that capacity, I informed NAIFA that I had long been troubled that eligibility for the JNR award is limited to living persons. I wrote a letter asking the NAIFA board of directors to consider the possibility of granting the award occasionally to a deceased person. I attached to the letter descriptions of the accomplishments of two towering figures in the history of the life insurance business: Elizur Wright and Charles Evans Hughes. The complimentary package offered at the end of this post contains my entire mailing to the NAIFA board.

In response, NAIFA said the board considered my suggestion. The spokesperson said the decision was made that the JNR award would remain restricted to those who are living.

I would welcome comments from readers on this matter. However, I suggest that anyone interested in commenting should first read my suggestion in its entirety.

Available Material
I am offering a complimentary 16-page PDF consisting of my letter to the NAIFA board (2 pages) and my descriptions of the contributions of Wright and Hughes (14 pages). Send an email to jmbelth@gmail.com and ask for the March 2019 package relating to the JNR award.

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Wednesday, March 13, 2019

No. 303: Genworth's 10-K Report for 2018 and Another Recent Development at the Company

On February 27, 2019, Genworth Financial, Inc. (GNW), based in Richmond, Virginia, filed its 390-page 10-K annual report for 2018 with the Securities and Exchange Commission. The report begins with an update on the status of GNW's agreement and merger with China Oceanwide; the agreement was entered into on October 21, 2016 and remains pending. The 10-K also lists the current financial strength ratings of GNW's insurance subsidiaries. In addition, after the 10-K, there was a development involving the distribution of certain GNW offerings.

China Oceanwide
In June 2018, the Committee on Foreign Investment in the United States completed its review of the agreement, and GNW and China Oceanwide agreed to implement a data security risk mitigation program. In October 2018, the National Development and Reform Commission in China accepted China Oceanwide's filing in connection with the agreement. In December 2018 and February 2019, GNW and China Oceanwide received the remaining approvals from U.S. state insurance regulators, subject to certain conditions. Closing remains subject to other conditions, such as regulatory approval in Canada and approval by the Financial Industry Regulatory Authority (FINRA), although closing may occur prior to FINRA approval. The complimentary package offered at the end of this post includes GNW's full discussion of the situation.

Financial Strength Ratings
The last time I wrote about the financial strength ratings of GNW's life insurance subsidiaries was in No. 144 (February 16, 2016), and I felt it is time for an update. The recent 10-K shows financial strength ratings as of February 14, 2019. The rating firms are Standard & Poor's (S&P), Moody's Investors Service, and A. M. Best Company. Here are the current ratings of GNW's principal life insurance subsidiaries:
Genworth Life Insurance Company
S&P B– (Weak)
Moody's B3 (Poor)
Best B– (Fair)
Genworth Life and Annuity Insurance Company
S&P B– (Weak)
Moody's Ba3 (Questionable)
Best B+ (Good)
Genworth Life Insurance Company of New York
S&P B– (Weak)
Moody's B3 (Poor)
Best B– (Fair)
The complimentary package offered at the end of this post includes GNW's complete list of ratings and GNW's discussion of the implications of those ratings. In that discussion, "PMIERs" stands for private mortgage insurer eligibility requirements. "GSEs" stands for government-sponsored enterprises such as Federal National Home Mortgage Association ("Fannie Mae)" and Federal Home Loan Mortgage Corporation ("Freddie Mac").

A Recent Bulletin
On March 7, 2019, GNW issued a bulletin entitled "Suspension of All Individual Long Term Care Insurance and Income Assurance Annuity Sales Through the BGA Channel Effective March 11, 2019." I learned of the bulletin from one of my readers. I am not providing it to my readers because it is marked: "For Producer/Agent Use Only. Not to Be Reproduced or Shown to the Public." Instead, I sought comment from a GNW spokesperson, who provided this statement:
Today we announced we are temporarily suspending sales of individual long-term care (LTC) insurance and Income Assurance Annuity products through brokerage general agencies (BGAs). Instead, we will be distributing these products directly to consumers through affinity and association programs and other distribution channels. We will continue to sell group LTC insurance through our traditional channels. Our commitment to helping Americans address the financial challenges of aging remains as strong as ever, and we look forward to bringing new products and services to market that will enable people who need care as they age live their lives as they wish, and how and where they prefer to receive that care.
Available Material
I am offering a complimentary 9-page PDF consisting of GNW's discussions of the status of the China Oceanwide agreement, the financial strength ratings of GNW's life insurance subsidiaries, and the implications of those ratings. E-mail jmbelth@gmail.com and ask for the March 2019 package relating to Genworth.

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Friday, March 1, 2019

No. 302: Universal Life—Transamerica Settles a Class Action Lawsuit Relating to Cost-of-Insurance Increases

In No. 239 (October 23, 2017) and No. 290 (October 18, 2018), I discussed a class action lawsuit filed against Transamerica Life Insurance Company in 2016 by California resident Gordon Feller and others. The case related to large cost-of-insurance (COI) increases imposed on owners of universal life insurance policies. In No. 290, I said the parties had filed a proposed settlement of the case. (See Feller v. Transamerica, U.S. District Court, Central District of California, Case No. 2:16-cv-1378.)

Recent Developments
On October 5, 2018, Senior U.S. District Judge Christina A. Snyder granted preliminary approval of a proposed settlement to resolve the Feller case and related cases that had been consolidated with Feller. On January 20, 2019, she conducted a fairness hearing. On February 6, 2019, she issued an order granting final approval of the settlement, finding that it represents a fair and complete resolution of all claims asserted.

The Settlement
The settlement class consists of more than 69,000 policies. Transamerica agreed to create a settlement fund of $195 million. The fund was reduced to reflect those class members who opted out of the settlement. There were 575 opt outs; those policy numbers are listed in an exhibit attached to the order. Payments from the fund to class members are based on the difference between the COI charges imposed during the class period (August 1, 2015 through February 6, 2019) and the COI charges that would have been imposed without the increases, subject to a minimum allocation of $100. Owners of in-force policies are paid their shares as increases in their policies' accumulation values. Owners of discontinued policies are paid their shares by check.

Transamerica agreed not to impose further COI increases on any class policy within the next five years, unless ordered to do so by a state regulatory body. However, the company will maintain the COI increases previously implemented. The company agreed to certain conditions relating to future COI increases in class policies, and also agreed not to seek rescission of the coverage in class policies.

In addition to creating the fund, Transamerica agreed to pay all settlement expenses, and also to pay the first $10 million of court-approved fees and expenses of the plaintiffs' attorneys. Judge Snyder approved payment, from the fund, of attorney fees of about $27.7 million and legal expenses of about $1 million, less the first $10 million that Transamerica agreed to pay. She also approved payment, from the fund, of service awards of $10,000 to each of eight named class representatives.

General Observations
Attorneys representing the plaintiffs and attorneys representing Transamerica negotiated extensively, and they utilized the services of a mediator. Yet, neither I nor any other outsider can be in a position to determine the adequacy or fairness of the settlement. In this regard, Judge Snyder quoted this famous 2014 statement by the Ninth Circuit:
Of course it is possible, as many of the objectors' affidavits imply, that the settlement could have been better. But this possibility does not mean the settlement presented was not fair, reasonable or adequate. Settlement is the offspring of compromise; the question we address is not whether the final product could be prettier, smarter or snazzier, but whether it is fair, adequate and free from collusion.
I have seen many class action lawsuits relating to COI increases. As far as I know, every one that survived early dismissal and won class certification was settled. I do not anticipate hearing of a case that goes to trial, reaches a verdict by a judge or jury, and completes the appellate process.

Available Material
I am offering a complimentary 32-page PDF showing Judge Snyder's final order approving the settlement. Email jmbelth@gmail.com and ask for the February 2019 package relating to Feller v. Transamerica.

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Monday, February 4, 2019

No. 301: Lost Pensioners—New York Comes Down Hard on Metropolitan Life

Blogger's Note
In a blogger's note in No. 300 (December 17, 2018), I said I was taking a vacation for two or three months. I decided, however, to report now on significant recent developments relating to lost pensioners.

Background
MetLife, Inc. is a major player in the pension risk transfer business, where employers transfer some or all of their employee pension obligations to insurance companies by purchasing group annuity contracts. Prudential Financial, Inc. is another major player in that business.

During 2018 I posted seven items about lost pensioners in general and about lost pensioners at Metropolitan Life Insurance Company, a subsidiary of MetLife, in particular: Nos. 246, 252, 254, 256, 259, 279, and 293. In No. 252 I reported MetLife's disclosure that it had informed the New York Department of Financial Services (DFS), which is Metropolitan Life's primary state regulator, about the company's problems with lost pensioners in the pension risk transfer business.

The New York Press Release
On January 28, 2019, DFS issued a press release announcing that MetLife will pay a $19.75 million fine and provide $189 million in restitution to group annuity contract certificate holders for failures related to the company's pension risk transfer business. The press release and the accompanying consent order are in the complimentary package offered at the end of this post.

The New York Consent Order
DFS performed a market conduct examination of MetLife for the period January 1, 2009 to February 21, 2018, and a supplemental review of the company's pension risk transfer business. DFS plans to issue a report on the examination.

The first section of the consent order is "Findings." It lists several failures by MetLife from 1992 to 2018. Among them, for example, are a failure in certain instances to reserve for outstanding group annuity contracts; a failure to locate, contact, and pay group annuity contract certificate holders; a failure to adequately search for New York group annuity contract certificate holders; and a failure to turn over unclaimed property to the appropriate state. The consent order also lists failures from 2009 to 2018. Among them are a failure to timely search for group annuity contract beneficiaries, a failure to confirm the deaths of group annuity contract holders, and a failure to turn over unclaimed property to the appropriate state.

The second section of the consent order is "Violations." It lists violations of many New York statutes and regulations.

The third section of the consent order is "Agreement." For example, it requires MetLife to maintain full statutory reserves for group annuity contracts, pay retroactive benefits with interest from the normal retirement date, and establish procedures to maintain accurate records of current and future group annuity contract certificate holders.

The Massachusetts Consent Order
In No. 279 I reported that the Enforcement Section of the Massachusetts Securities Division filed, on June 25, 2018, an administrative complaint against MetLife, Inc. relating to lost pensioners in the pension risk transfer business. On December 18, 2018, the Securities Division filed a consent order that is similar in many respects to the New York consent order discussed above. Massachusetts required MetLife to pay an administrative fine of $1 million and enter into undertakings similar but not identical to those in the New York consent order. The Massachusetts consent order is in the complimentary package offered at the end of this post.

General Observations
The New York consent order applies in most respects to group annuity certificate holders everywhere, and in some respects to group annuity contract certificate holders only in New York. The Massachusetts consent order applies only to group annuity certificate holders in Massachusetts. At this time, I am not aware of any regulatory actions taken by other states. However, the undertakings required in the New York consent order will have a significant effect on group annuity contract certificate holders everywhere.

MetLife's Public Filings
In its 10-Q report filed November 8, 2018 with the Securities and Exchange Commission (SEC) for the quarter ended September 30, 2018, MetLife disclosed the then ongoing investigations in New York and Massachusetts. The relevant excerpts from the 10-Q report are in the complimentary package offered at the end of this post.

As of the close of business on February 1, 2018 (four business days after New York issued its consent order), MetLife has not disclosed the consent order in an 8-K (significant event) report filed with the SEC. Nor has MetLife disclosed in an 8-K report the Massachusetts consent order issued December 18, 2018.

The next major report MetLife will file with the SEC is the 10-K report for the year ended December 31, 2018. That report will be filed on or about March 1, 2019, and probably will disclose details of the New York consent order and the Massachusetts consent order.

Available Material
I am offering a 28-page complimentary package consisting of the New York press release (2 pages), the New York consent order (12 pages), the Massachusetts consent order (13 pages), and excerpts from MetLife's 10-Q report for the third quarter of 2018 (1 page). Send an e-mail to jmbelth@gmail.com and ask for the February 2019 package about the New York and Massachusetts consent orders relating to lost pensioners.

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