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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