Wednesday, June 8, 2016

No. 165: Executive Compensation in the Insurance Industry—2015 Data Filed with the Nebraska Department of Insurance

In Nos. 163 and 164 (posted May 23 and May 31, 2016), I showed tabulations of 2015 executive compensation in the insurance industry from filings with the Securities and Exchange Commission (SEC) and the New York Department of Financial Services (DFS). They were my first major tabulations 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 Nebraska Department of Insurance. In the final seven years of the Forum, I listed individuals who received $1 million or more each year. In No. 163, I listed individuals who received $5 million or more in 2015 according to SEC data. In No. 164, I listed individuals who received $3 million or more in 2015 according to DFS data. Here I list individuals who received $3 million or more in 2015 according to Nebraska data. The tabulation is at the bottom of this blog post.

The Supplemental Compensation Exhibit
The Nebraska data are from a "Supplemental Compensation Exhibit" developed in 1984 by the National Association of Insurance Commissioners (NAIC). The exhibit is used in a few states that require executive compensation data from their domestic companies; in some of those states the data are confidential. Nebraska has an insurance company executive compensation disclosure statute that was enacted in 1913 as part of the reforms that grew out of the Hughes-Armstrong investigation in New York in 1905. The statute requires all insurance companies doing business in Nebraska to file executive compensation data with the Department.

The exhibit has ten columns: name and principal position, year, salary, bonus, stock awards, option awards, sign-on payments, severance payments, all other compensation, and totals. Data are shown for the current year and the two preceding years, and include data for the ten highest compensated individuals. Instructions for completing the exhibit were prepared by the NAIC. I used the "totals" column to prepare this tabulation. Where more than one individual is shown for a company, they are listed in descending order of compensation.

How To Obtain the Nebraska Data
For many years I obtained copies of the exhibits through a public records request filed with the Department. In recent years the Department prepared a CD containing the exhibits. Anyone desiring exhibits for one or a few companies should indicate the name or names. The CD containing all the exhibits may be obtained from the Nebraska Department of Insurance, 941 "O" Street, Suite 400, Lincoln, NE 68508. The cost is $80.

A Major Problem with the Exhibit
I have long been troubled by a major problem with the exhibit. In the case of a group of related companies, the exhibit allows a company to use either of two methods of disclosure: (1) the aggregate amount paid to each individual by all companies in the group, or (2) only the amount allocated to the company named on the exhibit. Most companies show the aggregate figures. However, companies who allocate create a serious problem for persons assembling the data.

For example, consider the Progressive group, which allocates. Glenn Renwick is the principal executive officer. I found exhibits for nine Progressive companies showing these amounts of compensation for him adding up to $3,909,234, the figure shown in my tabulation:

Progressive Direct Ins Co $1,132,773
Progressive Casualty Ins Co 601,629
Progressive Specialty Ins Co 552,281
Progressive Advanced Ins Co 511,239
Progressive Universal Ins Co 350,755
Progressive Preferred Ins Co 326,123
Progressive Northwestern Ins Co 226,439
Progressive Classic Ins Co 115,528
Progressive Max Ins Co 92,467

There are two serious problems in addition to the effort needed to assemble the data. First, in addition to the companies listed above, the group may have other companies that are licensed in Nebraska. Second, in addition to the companies listed above, the group may have other companies that are not licensed in Nebraska. Therefore, when a company allocates, some individuals' total compensation may be understated.

In assembling the data below, I did not make what would have been a Herculean effort to identify all the companies in each group that allocates. For that reason, some data in the tabulation may understate an individual's total compensation. Also, some individuals who received more than $3 million of total compensation may be omitted from the tabulation.

Consider another dimension of the problem. The Liberty Mutual group allocates, but indicates the percentage allocated to the company whose data are in the exhibit. For example, Liberty Mutual Insurance Company's exhibit says: "Effective January 1, 2014, allocation to the reporting insurer is 50% consistent with its governing intercompany pooling arrangements." Therefore, I doubled each total in the exhibit to calculate each individual's total compensation from all companies in the group.

There are two simple solutions to the problem. One is for the Department to instruct companies to show the total compensation paid to each individual by all companies in the group. Another solution is for the Department to add one more column to the exhibit to show the total compensation paid to each individual by all companies in the group.

My Recent Correspondence with the Department
I have written to the Department previously on this matter, but my concern has not been addressed. On May 16, 2016, I wrote to the Department again. On May 31, the Department denied my request. On June 3, I wrote to the Department accepting the decision, albeit with disappointment, and requesting a revision of the CD next year to address the problems associated with company groups that allocate.

Available Material
I am offering a 27-page complimentary PDF consisting of the NAIC's instructions for completing the supplementary compensation exhibit, six sample exhibits (Guardian Life, Liberty Mutual, Massachusetts Mutual, New York Life, Northwestern Mutual, and Progressive Direct), and three letters (my May 16 letter, the Department's May 31 letter, and my June 3 letter). Email jmbelth@gmail.com and ask for the June 2016 package relating to executive compensation disclosure in Nebraska.

Compensation Data for 2015 from Nebraska
Ace Property & Casualty Ins Co
John J Lupica $5,500,000
Acuity, A Mutual Ins Co
Benjamin M Salzmann 7,966,944
Aetna Life Ins Co
Mark T Bertolini 17,261,900
Gary W Loveman PhD 8,005,714
Karen S Lynch 7,758,787
Shawn M Guertin 6,414,029
Francis S Soistman Jr 5,219,831
Margaret M McCarthy 4,286,948
William J Casazza 3,391,462
Steven B Kelmar 3,044,200
Allianz Global Risks US Ins Co
Arthur Moossmann 3,261,660
Allied World Ins Co
John R Bender 3,157,833
Allied World National Assurance Co
Scott A Carmilani 16,096,208
Wesley D Dupont 5,785,271
W Gordon Knight 3,203,374
Allstate Ins Group
Thomas J Wilson 27,020,510
Don Civgin 16,571,629
Matthew E Winter 8,523,727
James DeVries 8,433,799
Judith P Greffin 8,133,223
Katherine A Mabe 5,850,830
Steven P Sorenson 5,627,705
Sanjay Gupta 5,205,825
Michael Roche 4,851,690
Suren Gupta 4,669,552
Steven E Shebik 4,435,082
Alterra America Ins Co
Francis Michael Crowley 3,674,828
Richard R Whitt III 3,130,512
Ambac Assurance Corp
Diana Newman Adams 3,461,184
American Bankers Ins Co of Florida
Gene Edward Mergelmeyer 4,297,746
Steven Craig Lemasters 3,232,383
American Family Ins Co
Jack C Salzwedel 7,677,663
American Family Life Assurance Co
Daniel P Amos 11,302,436
Kriss Cloninger III 6,317,098
John S Amos 5,954,082
Paul S Amos II 4,355,478
Eric M Kirsch 3,696,963
American Fidelity Assurance Co
David R Carpenter 4,311,128
American General Life Ins Co
Jay S Wintrob 4,120,000
Jana W Greer 3,193,854
American National Ins Co
Robert Lee Moody 8,266,699
American United Life Ins Co
James S Davison 3,017,501
Ameritrust Ins Corp
Robert Samuel Cubbin 3,205,159
Aspen American Ins Co
Mario Vitale 3,708,036
Assured Guaranty Corp
Dominic Frederico 12,172,263
James Michener 4,293,430
Robert Bailenson 3,368,468
Russell Brewer 3,068,032
Atlantic Specialty Ins Co
Timothy M Miller 4,773,465
Austin Mutual Ins Co
T Van Berkel 3,169,874
Auto Club Ins Assn Group
Charles Podowski 9,068,320
Steven Monahan 4,411,337
AXA Equitable Life Group
Mark Pearson 5,083,187
Chicago Title Ins Group
Raymond Randall Quirk 14,378,793
Peter Tadeusz Sadowski 8,422,950
Michael Louis Gravelle 5,828,544
Roger Scott Jewkes 3,262,636
Michael Joseph Nolan 3,103,853
Anthony John Park 3,094,933
Erika Meinhardt 3,091,795
Richard Lynn Cox 3,046,482
Cigna Health & Life Ins Co
Matthew Glenn Manders 3,978,547
CNA Financial Group
Thomas F Motamed 10,175,047
D Craig Mense 4,299,991
Jonathan D Kantor 3,716,504
Doctors Co an Interinsurance Exchange
Richard Elliott Anderson MD 8,745,532
Esurance Ins Co of NJ
Gary C Tolman 3,147,125
Everest Reinsurance Group
Dominic James Addesso 8,165,830
Barry Howland Smith 6,356,174
Frank Nicholas Lopapa 3,580,850
John Paul Doucette 3,444,096
Mark Stuart de Saram 3,165,446
Ronald David Diaz 3,162,513
Factory Mutual Ins Co
Thomas A Lawson 5,058,398
Jonathan W Hall 3,891,769
Farmers Ins Exchange
Jeffrey J Dailey 4,156,791
Federated Mutual Ins Co Group
Jeffrey E Fetters 4,971,881
Fidelity & Guaranty Life Ins Co
Christopher J Littlefield 3,010,770
First American Title Ins Co
Dennis J Gilmore 4,903,136
Stephen R Farber 3,778,697
James W McIntosh 3,512,360
Philip Salomon 3,297,063
Jeffrey S Mitzner 3,158,422
GEICO Ins Group
Olza Minor Nicely 14,641,954
William Evan Roberts 4,326,350
General Reinsurance Corp
Franklin Montross IV 6,411,286
Genworth Mortgage Ins Corp
Kevin Douglas Schneider 5,334,224
Daniel Joseph Sheehan IV 5,027,680
Great American Ins Group
Carl H Lindner III 7,844,281
S Craig Lindner 7,365,218
Stephen R Rosenthal 4,162,282
Great-West Life Assurance Co
Robert L Reynolds 3,424,039
Guardian Life Ins Co of America
Deanna Mulligan 5,508,527
Douglas Dolfi 3,090,653
Hanover Ins Co
Frederick Eppinger 5,014,308
Hartford Financial Services Group
Douglas G Elliot 4,442,211
Jonathan R Bennett 3,067,133
Health Care Service Corp
Patricia A Hemingway Hall 16,572,097
Colleen Foley Reitan 7,880,513
Paula A Steiner 5,654,068
Kenneth S Avner 4,652,391
Deborah Dorman-Rodriguez 4,538,952
John Cannon III 4,424,919
Austin J Waldron 3,471,211
Karen M Atwood 3,419,406
Bert E Marshall 3,078,084
Jimmy D Rodgers 3,009,492
Homesite Ins Co
Fabian John Fondriest 3,653,512
Humana Ins Co
Bruce D Broussard 6,263,682
Brian P LeClaire 3,417,341
James E Murray 3,327,387
Insurance Co of the West
Ernest Rady 7,956,444
Kevin Prior 4,454,879
Jackson National Life Ins Co
Michael A Wells 10,304,656
James R Sopha 8,097,116
Paul C Myers 6,964,194
Clifford J Jack 5,775,378
Kenneth H Stewart 4,352,581
Thomas J Meyer 3,431,363
Gregory P Cicotte 3,404,357
John Hancock Life Ins Co (USA)
Craig Bromley 4,088,568
Liberty Mutual Ins Group
David H Long 16,632,928
Timothy Sweeney 6,295,032
A Alexander Fontanes 6,200,578
J Paul Condrin III 6,047,350
Christopher L Peirce 4,035,076
Dennis J Langwell 3,919,476
Luis Bonell Goytisolo 3,011,310
Liberty National Life Ins Co
Michael W Pressley 6,843,502
Roger C Smith 6,666,032
Lincoln National Life Ins Co
Dennis R Glass 41,665,850
Mark E Konen 8,206,770
Randal J Freitag 6,980,528
Wilford H Fuller 6,762,676
Ellen G Cooper 5,201,295
Charles C Cornelio 5,120,505
Massachusetts Mutual Life Ins Co
Roger Crandall 12,056,510
Elaine Sarsynski 4,968,484
Michael Fanning 4,724,503
Michael Rollings 3,771,586
Melvin Corbett 3,532,761
Elizabeth Chicares 3,258,039
Andrew Moore 3,196,694
MBIA Ins Corp
Joseph W Brown 7,837,078
C Edward Chaplin 4,562,875
William Fallon 4,562,875
Medical Protective Co
Timothy Kenesey 6,403,446
Metropolitan Life Ins Group
Steven A Kandarian 13,986,781
John C Hele 4,939,644
Maria R Morris 4,225,396
Martin J Lippert 3,970,838
Paul Blanco 3,343,419
Steven J Goulart 3,296,913
Mortgage Guaranty Ins Corp
Curt Culver 10,707,386
Patrick Sinks 5,336,067
Jeffrey H Lane 3,138,079
Mount Vernon Specialty Ins Co
Thomas P Nerney 13,099,236
Munich Reinsurance America Inc
Anthony J Kuczinski 4,263,158
Mutual of America Life Ins Co
Thomas J Moran 5,005,453
Mutual of Omaha Group
Daniel P Neary 31,656,942
National Fire & Marine Ins Co
David N Fields 3,330,885
National Indemnity Co
Ajit Jain 11,785,006
National Life Ins Co (VT)
Mehran Assadi 4,620,347
National Western Life Ins Co
Robert L Moody 5,697,364
Nationwide Ins Group
Steve Rasmussen 7,976,240
Navigators Ins Co
Stanley A Galanski 3,086,067
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
Odyssey Reinsurance Co
Brian D Young 5,234,282
Philippe E Mallier 3,026,305
Pacific Life Ins Co Group
James T Morris 8,274,893
Khanh T Tran 3,910,035
Pan-American Life Ins Co
Jose Suarez Suquet 5,914,688
Carlos Fernando Mickan 3,107,233
Partner Reinsurance Co of the US
Theodore Walker 3,066,875
Penn Mutual Life Ins Co
Eileen McDonnell 4,820,694
Pennsylvania Ins Co
Sidney Ferenc 9,026,258
Steven Menzies 8,993,837
Pennsylvania Natl Mut Cas Ins Co
Kenneth R Shutts 5,433,541
Permanent General Assurance Corp
Randy P Parker 4,470,243
Primerica Life Ins Co
Richard D Williams 5,147,906
John A Addison 5,146,545
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
Proassurance Casualty Co
William Stancil Starnes 3,859,482
Progressive Ins Group
Glenn M Renwick 3,909,234
Protective Life Ins Co
John Dixon Johns 42,529,073
Carl Sitter Thigpen 9,074,528
Richard Joseph Bielen 8,190,998
Deborah Joyce Long 6,371,658
David Adams 5,234,714
Michael Gus Temple 4,340,230
Steven Glen Walker 3,867,768
John Robert Sawyer 3,715,538
Prudential Ins Group 
John Robert Strangfeld Jr 19,849,598
Mark Brown Grier 16,461,512
James J Sullivan 12,432,146
Charles Frederick Lowrey 12,329,632
Stephen Pelletier 8,603,581
Michael K Lillard 8,321,172
David A Hunt 7,434,483
Robert Michael Falzon 6,977,184
Garrett Sleyster 4,866,710
David H Bessey 4,618,476
Lori Dickerson Fouche 3,764,038
Christine Cannon Marcks 3,701,503
QCC Ins Co
I Steven Udvarhelyi MD 8,067,070
Daniel J Hilferty 4,361,976
Radian Guaranty Inc
Sanford A Ibrahim  6,309,913
Renaissance Reinsurance US Inc
H Elizabeth Mitchell 6,630,756
RGA Reinsurance Co
Albert Greig Woodring 7,215,798
Melville Jay Young 5,958,744
Jack Brien Lay 4,518,348
Paul Arthur Schuster 3,337,106
RiverSource Life Ins Co
Lynn Ann Hopton 14,795,047
Yvonne E Stevens 11,875,348
Steven B Staver 5,331,621
Bridget M Sperl 4,900,623
John R Woerner 4,543,077
Gumer C Alvero 4,324,124
RLI Ins Co
Jonathan E Michael 13,533,411
Michael J Stone 4,688,557
Craig W Kliethermes 4,558,001
RSUI Indemnity Co
David Leonard 3,361,193
Phillip McCrorie 3,016,926
Scor Reinsurance Co
Mark Kociancic 3,699,727
Selective Ins Co of America
Gregory E Murphy 4,518,164
John J Marchioni 3,119,570
Sentry Ins Group
Peter McPartland 5,812,178
Standard Ins Co (OR)
Floyd Fitz-Hubert Chadee 6,854,960
John Gregory Ness 4,241,832
Daniel J McMillan 4,036,026
State Farm Group
Edward Barry Rust Jr 13,339,940
Michael Leon Tipsord 7,069,474
Symetra Life Ins Co
Thomas M Marra 5,098,099
Teachers Ins & Annuity Assn
Roger Ferguson 17,850,547
William Riegel 6,112,266
Edward Van Dolsen 5,978,219
Thomas Garbutt 4,920,950
Edward Grzybowski 4,824,808
Ronald Pressman 4,711,739
Thomas Franks 4,678,149
Saira Malik 4,662,672
Stephen Gruppo 4,121,869
Thrivent Financial for Lutherans
Bradford L Hewitt 3,666,541
TIG Ins Co
Nicholas Bentley 3,192,746
Transamerica Life Ins Co
Mark W Mullin 3,467,017
Transatlantic Reinsurance Co
Michael C Sapnar 9,949,629
Steven S Skalicky 8,331,494
Paul A Bonny 3,406,126
Kenneth Apfel 3,018,387
Travelers Ins Group
Jay S Fishman 19,596,443
Brian W MacLean 8,176,212
William H Heyman 6,881,003
Jay S Benet 6,581,003
Alan D Schnitzer 6,507,322
Doreen Spadorcia 6,387,231
Gregory C Toczydlowski 3,834,757
Maria Olivo 3,236,213
Michael F Klein 3,039,299
Trustgard Ins Co
Thomas Howard Welch 3,681,323
Union Security Ins Co
John Steven Roberts 7,077,456
United Automobile Ins Co
Richard P Parrillo Sr 3,000,000
United States Fire Ins Co
Douglas Mendel Libby 13,615,153
Marc James Adee 5,074,145
Unum Group
Richard Paul McKenney 3,081,910
USAA Group
Steven A Bennett 5,470,340
Wesco Ins Co Group
Barry Zyskind 5,524,034
West Bend Mutual Ins Co
Kevin Alan Steiner 3,546,809
Western & Southern Life Ins Co
John Barrett 6,252,420
Wilton Reassurance Co
Chris Stroup 3,788,845
XL Life Ins & Annuity Co
Sarah Elizabeth Street 3,607,538
Zenith Ins Co
Kari L Van Gundy 3,633,988
Zurich American Ins Co
Michael Thomas Foley 4,352,109
===================================

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:
https://myportal.dfs.ny.gov/web/guest-applications/ogc-foil-e-form
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

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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:

http://www.sec.gov/edgar/searchedgar/companysearch.html
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
AFLAC Inc
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
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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.

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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.

The FINRA/MetLife AWC
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).
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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.

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Wednesday, April 27, 2016

No. 159: Unclaimed and Unpaid Death Benefits—"60 Minutes" Criticizes Life Insurance Companies

CBS's "60 Minutes," in its lead segment on April 17, 2016 ("the segment"), criticized life insurance companies for not paying billions of dollars in death benefits, and for systematically destroying the equity that many policyholders had built up in their policies. The segment was entitled "Not Paid," Rich Bonin was the producer, and Lesley Stahl was the on-air correspondent.

The subject of unclaimed and unpaid death benefits is complex, and has a long and tortuous history that dates to the beginning of life insurance in this country. My primary concern about the segment is that it is impossible to provide, in 14 minutes, the background necessary for viewers to understand the subject. Here is some of the background.

The Insuring Agreement
The insuring agreement is the heart of any insurance contract. In a life insurance policy, the insuring agreement says the insurance company will pay the death benefit to the beneficiary upon receipt of proof of the insured person's death; that is, upon receipt of a death claim normally accompanied by a death certificate. (Similarly, in a fire insurance policy, the property owner must file a claim for fire damage to the insured property.) The insuring agreement has been approved by state insurance regulators and has long been required by state insurance laws. The segment did not mention the insuring agreement.

State Unclaimed Property Laws
State unclaimed property laws, called "escheat" laws, require financial institutions, including life insurance companies, to turn over (escheat) to the state property that has been unclaimed by its owner for a period such as three years. Each state has an unclaimed property agency, which is under the auspices of the state treasurer or other state official. Usually the unclaimed property agency publishes in newspapers, once or twice a year, names of owners (but not amounts) of unclaimed property. The agencies also operate websites. Owners are urged to contact the agency and follow the steps necessary to retrieve the unclaimed property.

Most unclaimed property is never claimed and therefore is kept by the states in perpetuity. Thus states facing financial problems have an incentive to make sure all unclaimed property is turned over to them. The segment did not mention state unclaimed property agencies, despite the fact that some of the investigations to which the segment referred were initiated by those agencies. Major articles about unclaimed property were in the October 2010 and November 2010 issues of The Insurance Forum.

The Lost Policy Problem
The lost policy problem is as old as life insurance itself. A "lost policy," in this context, is a policy that a beneficiary "thinks" existed on the life of a deceased person, but the beneficiary does not know the name of the insurance company and has no significant information about the policy. The first article about lost policies in The Insurance Forum was in the August 1980 issue. The article mentioned a "lost policy search" service that had been operated for several years by the Institute of Life Insurance, a trade association, but the service was discontinued because of budget constraints and a low success rate.

Later a service was established by what is now the American Council of Life Insurers (ACLI), a life insurance company trade association. The ACLI service involved sending lists periodically (often once a month) to all ACLI member companies showing the information that purported beneficiaries had provided to the ACLI. When the ACLI service was mentioned in a popular consumer finance magazine, the ACLI was inundated with requests. ACLI's member companies protested because of the expense of the large number of searches and the small number of "matches." The ACLI eventually discontinued the service. The segment did not mention the lost policy problem.

Nonforfeiture Options
Nonforfeiture laws first came on the scene in the middle of the 19th century. Their purpose was to protect policyholders who discontinued their level-premium life insurance policies from forfeiting the equity built up in those policies. In the early days, the only nonforfeiture option was a reduced amount of paid-up life insurance. If premiums were not paid, the paid-up insurance eventually would become payable when the insured person died, or when the insured person reached the end of the mortality table on which the policy was based.

Cash values were added later, along with extended term insurance, as additional nonforfeiture options. In those policies, paid-up insurance was usually the automatic option. Therefore, if premiums were not paid, the paid-up insurance eventually would become payable.

In the 1940s, state insurance regulators instituted a significant change by making extended term insurance the automatic option. The change had the advantage that, if a premium was not paid, the full amount of life insurance (rather than a reduced amount) would remain in effect, but only for a limited period of time. Thus the change meant that the extended term insurance would expire without value at the end of the term period. Because of the change, it was possible for a company to assume that the insured person survived the term period, that no benefit was payable, and that the company would never have to turn over anything to state unclaimed property agencies. The segment did not mention nonforfeiture options.

Automatic Premium Loans
Around the middle of the 20th century, automatic premium loan (APL) provisions became what amounted to another nonforfeiture option. They were popular and widely used. When a life insurance policy has a cash value, and therefore a loan value, and when a premium is not paid, the company pays the premium automatically by lending the money to the policyholder under the loan clause. The idea is to prevent the policy from lapsing, on the theory that the policyholder's failure to pay the premium may have been inadvertent.

APL was usually inserted in a policy only at the request of the policyholder, and usually was requested in the policy application. Also, some APL provisions said the company would not pay more than one or a few consecutive premiums by APL. Today companies often pay premiums by APL continuously until the cash value is exhausted. The segment did not mention APL; indeed, the segment made it sound as though the companies were stealing money from their policyholders.

The Demutualization Phenomenon
During the late years of the 20th century and the early years of the 21st century, many mutual life insurance companies went through a process called "demutualization." In that process, a mutual company, which is owned by its policyholders, converts itself into a stock company, which is owned by its shareholders. State demutualization laws require the mutual company to obtain the permission of its policyholders (a majority of those voting). Also, to purchase the ownership interests of the mutual company's policyholders, the mutual company must pay them cash and/or give them shares of stock in the new stock company.

To obtain the permission of the policyholders to demutualize, and to pay them for their ownership interests, converting companies had to contact the policyholders by mail. When the companies sent the mail, huge numbers of mailings were returned by the postal service as undeliverable. In other words, the mutual companies had lost contact with millions of policyholders who had discontinued the payment of premiums.

In an interesting twist, the agencies who initially became most interested in the problem of lost policyholders were the state unclaimed property agencies rather than the state insurance regulators. Eventually, after publicity about the problem, state insurance regulators took an interest in the problem.

In the segment, one interviewee, when asked for names of insurance companies involved, mentioned John Hancock, Metropolitan Life, and Prudential as examples. Those three giant companies grew up in the so-called industrial life insurance business, which involved small policies and premiums collected weekly or monthly by agents going door to door. All three of those companies demtualized and found they had huge numbers of lost policyholders. John Hancock received a large amount of adverse publicity that caught the attention of the unclaimed property agency in John Hancock's home state of Massachusetts. The segment did not mention the connection between demutualization and lost policyholders.

The Investigations
Most of those interviewed in the segment have been investigating the practices of life insurance companies related to unclaimed and unpaid death benefits. The investigations have been and are being conducted on behalf of state unclaimed property agencies and state insurance regulators.

The first person interviewed in the segment was Kevin McCarty, the Florida insurance commissioner. He chaired the committee of the National Association of Insurance Commissioners (NAIC) that investigated unclaimed benefits. Also featured in the segment was Jeff Atwater, the Florida chief financial officer. He oversees the Florida unclaimed property agency and other state agencies. In the segment, both McCarty and Atwater criticized insurance companies who apparently knew some insured persons had died but had not paid the death benefits.

Verus Financial LLC (Waterbury, CT) is an auditing firm that has been retained by state unclaimed property agencies and the NAIC to investigate the practices of life insurance companies relating to unclaimed benefits. The segment featured two Verus investigators.

The Death Master File
The U.S. Social Security Administration maintains a Death Master File (DMF) that supposedly lists all deceased persons in the U.S. I have never seen the DMF and know little about it. However, life insurance companies apparently have been able to access it. I do not know the cost of access to the DMF or the terms to which a company must agree in order to use it. The segment mentioned the DMF prominently.

Life Annuities
A life annuity is a contract between a life insurance company and an annuitant under which the company promises to make periodic payments (usually monthly) to the annuitant for as long as the annuitant lives. Apparently some life insurance companies have long used the DMF in an effort to learn of deceased annuitants, so that the companies can stop sending payments to those annuitants. Companies undoubtedly were concerned that they were not being notified of annuitant deaths and that survivors were stealing annuity benefits. Indeed, criminal actions have been taken against some annuitant survivors.

Several years ago there was some embarrassing publicity about the fact that life insurance companies were using the DMF to stop life annuity payments, but were not using the DMF to find insured persons who had died and whose beneficiaries might have been eligible for life insurance benefits that had not been claimed. The inconsistent use of the DMF struck a raw nerve for many observers who viewed it as evidence of unfair and self-serving activity by life insurance companies. I think those revelations prompted state insurance regulators to start investigating the problem of unclaimed benefits several years after state unclaimed property agencies began investigating the problem. The segment mentioned annuities.

The Settlements
Several major life insurance companies have entered into settlement agreements with regulators. Under those settlements, the companies agree to use the DMF routinely to search for the deaths of insured persons whose beneficiaries have failed to file death claims and where death benefits consequently have not been paid. As a result of the agreements, some beneficiaries have been located, and some death benefits have been paid that otherwise would not have been paid. Several other companies remain under investigation and have not yet entered into settlements with the regulators. The segment mentioned the settlement agreements.

The Kemper Lawsuit
In No. 133 (posted December 16, 2015), I discussed three members of the Kemper group of insurance companies who filed a lawsuit in an Illinois state court against Verus Financial, the investigating firm, and against the Illinois state treasurer, who operates the Illinois unclaimed property agency. Two of the several allegations are that Kemper has no legal obligation to search the DMF for deceased policyholders, and that Verus and the state treasurer do not have the legal right to force Kemper to search the DMF. Kemper filed the complaint in October 2015. Thus far there have been no significant developments in the case.

The Industry's Response
I have not seen any response to the segment by any life insurance company. However, I have seen comments from the ACLI and the NAIC.

The segment said no life insurance companies contacted would make anyone available for an interview. However, the segment did not mention that the ACLI arranged for Mary Jo Hudson, former Ohio insurance commissioner and currently an ACLI consultant on unclaimed death benefits, to be interviewed. Stahl interviewed Hudson by telephone on February 12, but "60 Minutes" chose not to interview her on camera.

After the segment aired, I obtained from the ACLI a statement it released on February 23 on unclaimed benefits, and a statement it released on April 18 after the segment aired. The April 18 statement does not mention the segment. Here are excerpts from the April 18 statement:
The life insurance industry is proud of its long history of honoring its obligations to policyholders. In the past ten years alone, insurers have paid more than $600 billion to beneficiaries of life insurance policies....
In a small percentage of cases, life insurance benefits go unclaimed because family members are unaware that they are listed as beneficiaries in existing policies. Life insurers want everyone to receive the benefits to which they are entitled rather than paying unpaid benefits to state governments. That is why the American Council of Life Insurers has advocated since 2012 for state legislatures to adopt a national standard on the issue. Twenty states have enacted laws based on this standard that requires all life insurers to use new technologies to identify policyholders who have died but whose beneficiaries have yet to make a claim. ACLI is urging all states to adopt this standard no later than the end of 2017.... [Underlining in original.]
I also obtained a statement issued on April 20 by John M. Huff, president of the NAIC and Missouri director of insurance. It does not mention the segment. Here is an excerpt:
State insurance regulators are coordinating to address the issue of unclaimed life insurance policy benefits, ensuring beneficiaries receive the benefits to which they are entitled. Coordinated through the NAIC, these efforts have so far resulted in $7.5 billion in benefits returned to consumers, clearing a backlog of unclaimed policies. Regulators continue to work on setting an appropriate and consistent standard regarding the fair treatment of insurance policyholders and beneficiaries. Additionally, the NAIC is currently working on a national system to help consumers locate lost insurance policies....
General Observations
I think it was the Kemper lawsuit against Verus and the Illinois treasurer that brought the subject of unclaimed death benefits to the attention of "60 Minutes." It remains to be seen what happens in the case.

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 have seen no mention of the segment in any major media outlet or in the insurance trade press. Thus the segment's impact, if there will be any impact, remains to be seen.

A Personal Anecdote
My keen interest in the subject of lost policies dates back to the early 1950s, when I was a life insurance agent in Syracuse, New York. One day I was out making cold calls in farm country near Syracuse. I told one farmer who answered my knock on the door that I would like to speak with him about life insurance. He said he would never consider life insurance. When I asked why, he invited me in to explain. He said he had bought a $1,000 policy on the life of his son when the son was born. He paid the premiums for several years, until he encountered hard times and could no longer pay the premiums. Years later his son died, and the farmer said the insurance company did not pay him a dime. I asked if he had filed a claim. He said he had not, because obviously the policy was worthless. I asked him to show me the policy. He said he had long ago thrown it in the incinerator. I asked the name of the company. He did not remember, but he did recall there was a picture of a rock on it. I said it must have been Prudential, and he said that was right. I obtained the necessary information about names and dates, and I wrote to Prudential. The company located the policy. It was for $500, not $1,000. When the policy lapsed, it went on extended term. The term expired a few years before the farmer's son died. I was disappointed, because I had envisioned great publicity by handing the farmer a belated check, including interest from the date of death.

Available Material
I am making available a complimentary 23-page PDF containing the following: the articles in the August 1980, October 2010, and November 2010 issues of The Insurance Forum, the February 23 ACLI statement, a February 24 email to Bonin from an ACLI spokesman, a transcript of the April 17 segment, the April 18 ACLI statement, and the April 20 NAIC statement. Send an email to jmbelth@gmail.com and ask for the April 2016 package relating to the "60 Minutes" segment.

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