Thursday, October 25, 2018

No. 291: Phoenix Life's Plunging Dividends

Background
In 1992 Phoenix Mutual Life Insurance Company merged with Home Life Insurance Company and became Phoenix Home Life Mutual Insurance Company. In 2001 Phoenix Home Life demutualized and became The Phoenix Companies, Inc. (Phoenix). Phoenix subsidiaries include Phoenix Life Insurance Company and PHL Variable Insurance Company.

Immediately before the demutualization, Phoenix Home Life Mutual had a financial strength rating of A (Excellent) from the A. M. Best Company. From 2001 to 2008, the ratings of Phoenix Life and PHL Variable were A (Excellent). In 2009 the ratings were B++ (Good). From 2010 to 2013 the ratings were B+ (Good). Since then the ratings have been B (Fair).

Although the policy discussed later in this post is a participating second-to-die whole life policy, the declining ratings stemmed at least in part from Phoenix's ill-fated venture into the sale of huge amounts of universal life on elderly insureds. Many of the policies were stranger-originated life insurance policies destined for sale into the secondary market. When Phoenix began to increase the cost-of-insurance (COI) charges in many of the policies, especially large policies on the lives of elderly insureds, the companies became embroiled in many class action lawsuits. The situation became unsustainable.

The Nassau Re Acquisition
On June 20, 2016, Nassau Reinsurance Group Holdings L.P., a private equity firm, announced its acquisition of Phoenix, which became a wholly-owned subsidiary of Nassau. Nassau, as a private firm, does not file financial statements with the Securities and Exchange Commission (SEC). Also, all SEC filings made over the years by Phoenix since the demutualization have been removed from the SEC website.

According to its website, Nassau was founded in 2015. However, its comments suggest that in 2016 it acquired the 165-year history of Phoenix Mutual. Nassau's website mentions, among other things, the 1851 founding of American Temperance Life, the 1860 founding of Home Life, the 1865 insuring of Abraham Lincoln and two other top government officials with premiums "tendered to them as a gratuity," the 1906 launching of the first agent training course, the 1912 introduction of direct mail marketing, the 1955 introduction of reduced premium rates for women, and the 1967 introduction of discounts for nonsmokers.

Policyholder Dividends
I wrote extensively in The Insurance Forum about litigation involving COI increases by Phoenix Life and PHL Variable. As examples, major articles appeared in the October 2012 and December 2012 issues. Those articles are in the package offered at the end of this post.

I also have written extensively about Phoenix on this blog. As examples, see No. 103 (June 15, 2015), No. 266 (May 16, 2018), and No. 274 (June 28, 2018). No. 266 involved, among other matters, a class action lawsuit over COI increases imposed by Phoenix Life and PHL Variable subsequent to the acquisition of Phoenix by Nassau. The complimentary packages offered in those posts are still available.

The Plunging Dividends
In recent months, probably because of my blog posts about COI increases by Phoenix Life and PHL Variable, I received comments out of the blue from several individuals about the plunging dividends on their policies. Here I discuss one such policy. I describe the situation in such a way as to mask the identity of the policyholders.

Several years ago, prior to the 2001 demutualization, Mr. and Mrs. X purchased a participating second-to-die life insurance policy from Phoenix Home Life. The face amount is about $500,000, and the policy includes a term insurance rider. The plan was to pay for the cost of the rider from the dividends, with the excess used to buy paid-up additions.

Each year the policyholders received a letter from the company. In recent years the letters have been from Phoenix Life. Each annual letter shows such figures as the face amount, the annual premium, the current death benefit including the paid-up additions, and the amount of the dividend for the current year. Here are the approximate amounts of the dividends for some recent years:

2010
$8,000
2015
5,000
2016
3,500
2017
2,500
2018
300

The annual letters contain neither an apology nor an explanation for the plunging dividends. The dividends in recent years have not been large enough to pay for the cost of the term rider. Therefore the cost of the rider has been paid in part by surrendering some of the paid-up additions.

Mr. and Mrs. X recently filed a complaint with the state insurance department where they live. They have received an acknowledgment, but the department is awaiting word from the company before providing a substantive response  They also filed a complaint with the state insurance department where the company is domiciled for regulatory purposes; they have not yet received an acknowledgment of that complaint.

General Observations
I do not recall ever seeing such a precipitous decline in the dividends on a participating policy. I can think of only two possible reasons for it. First, it may be an effort to recoup the costs associated with the acquisition of Phoenix. Second, it may be an effort to increase the value of Phoenix in anticipation of a sale of Phoenix to another private equity firm. It will be interesting to see what Phoenix Life says to the state insurance regulators and what the regulators say in response.

Phoenix Mutual is one of a group of grand old companies in the life insurance business whose disappearance caused anguish among old timers in the business. Some of the other members of that distinguished group were Connecticut Mutual, Fidelity Mutual, Mutual Benefit Life, New England Mutual, Provident Mutual, State Mutual, and Union Mutual.

Available Material
I am offering a complimentary 10-page PDF consisting of the articles from the October 2012 and December 2012 issues of the Forum. Email jmbelth@gmail.com and ask for the October 2018 package about the Phoenix dividends.

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Thursday, October 18, 2018

No. 290: Transamerica Moves to Settle a Class Action Lawsuit Relating to Cost-of-Insurance Increases

In February 2016 California resident Gordon Feller and several others who had purchased universal life insurance policies from Transamerica Life Insurance Company filed a class action lawsuit against the company in a federal court in California. The case relates to large cost-of-insurance (COI) increases Transamerica imposed on owners of universal life policies. The case was assigned to Senior U.S. District Judge Christina A. Snyder. (See Feller v. Transamerica, U.S. District Court, Central District of California, Case No. 2:16-cv-1378.)

I wrote about the Feller case in No. 239 (October 23, 2017). Recently the plaintiffs filed a motion for preliminary approval of a proposed settlement of the case. Here I discuss the proposed settlement.

The Parties' Views
In No. 239, to provide a brief description of the plaintiffs' views, I showed four paragraphs from their second amended complaint. To provide a brief description of Transamerica's views, I showed nine paragraphs from the company's motion to transfer the case to the Northern District of Iowa, where the company is based. I also showed four paragraphs from Judge Snyder's denial of the motion.

Class Certification
In May 2016 the plaintiffs filed a motion for class certification. During discovery, Transamerica filed many documents under seal pursuant to protective orders. In December 2017 Judge Snyder granted the plaintiffs' motion for class certification. In March 2018 the Ninth Circuit granted Transamerica permission to appeal Judge Snyder's grant of the plaintiffs' motion for class certification. (See Feller v. Transamerica, U.S. Court of Appeals, Ninth Circuit, Case No. 18-55408.) In April 2018 the parties entered into mediation.

The Proposed Settlement
On October 4, 2018, the plaintiffs filed a motion for preliminary approval of a proposed settlement of the case, and a memorandum in support of the motion. The proposed settlement defines the class as "All persons or entities who own or owned a Policy encompassed by the MDR Increases during the Class Period," with certain exclusions. ("MDR" stands for "Monthly Deduction Rate.") The proposed settlement grew out of mediation overseen by David Geronemus of JAMS. (Originally JAMS stood for Judicial Arbitration and Mediation Services, Inc., but the firm now is JAMS Mediation, Arbitration and ADR Services.) Here are the key benefits to class members, as shown in the memorandum:
  • The creation of a $195 million Settlement Common Fund benefiting both In-Force Policies and Terminated Policies owned by the Class Members, plus payment by Transamerica of the first $10 million in attorneys' fees approved and awarded by the Court.
  • Transamerica's agreement that it will not impose any additional MDR increase(s) on any Class Policy within five (5) years of the Execution Date, unless ordered to do so by a state regulatory body (a development that is considered highly unlikely).
  •  Transamerica's agreement that any future MDR increase(s) on the Class Policies after the five-year freeze will be based only on the collective effect of the cost factors assumed when the Policies were originally priced and will not increase the expected future profitability of Policies within the same plan to a higher level than projected based on original policy pricing assumptions, which is intended to ensure that Transamerica does not recover past losses.
  • Transamerica's agreement not to seek to void, rescind, cancel, have declared void, or otherwise deny coverage on death claims submitted by Settlement Class Members based on any alleged lack of insurable interest or misrepresentations made in connection with the original application process.
The plaintiffs also filed the proposed notice to be sent to class members. It includes a few other aspects of the proposed settlement.
  • Subject to applicable regulations, Transamerica has agreed to provide Settlement Class Members, upon request and at no cost to the Settlement Class Member, an illustration depicting the impact of the Settlement Relief on the anticipated future performance of their respective in-force Class Policies. Settlement Class Members may make such a request by contacting the Settlement Administrator.
  • Settlement Class Members with in-force Settlement Class Policies will be paid their share of the Settlement Common Fund by deposit made by Transamerica directly into the accumulation value of each Policy.
  • Settlement Class Members with a Terminated Policy will be paid their share of the Settlement Common Fund by check.
  • No Settlement Class Member will receive a payment less than $100.
  • Plaintiffs' Counsel will seek an award for Plaintiffs' attorneys' fees of up to 25% of the value of the Settlement Common Fund (after any reduction for the amount of Settlement benefits that would have been paid to policyholders who exclude their Policies from the Settlement). Plaintiffs' counsel will also seek reimbursement of the litigation expenses they have advanced on behalf of the Settlement Class over the course of the litigation not to exceed $__________, to be paid out of the Settlement Common Fund. However as an additional important Settlement benefit, Transamerica has agreed to pay Plaintiffs' Counsel the first $10 million of the attorneys' fees and expenses awarded by the Court, separate and apart from the Settlement Common Fund.
General Observations
Feller and other COI cases with which I am familiar have led me to believe that universal life insurance policies are fundamentally defective unless they are managed with extreme care. The annual reports companies send to policyholders are so complex that the average policyholder—or even a sophisticated policyholder—will find it difficult to perform the management function adequately. A skilled and highly professional agent may be able to perform that function, but many policyholders do not have access to the services of such agents. I plan to write further on this in the near future. Meanwhile, I plan to continue following developments in the Feller case.

Available Material
I am offering a complimentary 58-page PDF consisting of the memorandum in support of the motion for preliminary approval of the proposed settlement (39 pages) and the proposed notice to be sent to class members (19 pages). Email jmbelth@gmail.com and ask for the October 2018 package relating to Feller v. Transamerica.

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Monday, October 15, 2018

No. 289: The Age 100 Problem—Our Personal Dilemma

In 2000 I received a letter out of the blue from an individual who owned two traditional participating whole life policies in different companies with a combined face amount of more than $5 million. He was in his 80s and in good health. He wanted his beneficiaries to receive the face amount after his death, but feared he would incur a large income tax obligation if he survived to the policies' terminal age of 100 and received the face amount himself. He wrote the companies asking how to avoid the potential income tax problem. He did not receive straight answers.

I wrote to the chief executive officers of 20 life insurance companies inquiring about the problem. I received responses from only three companies, and those three did not provide straight answers. I became convinced that life insurance companies did not want to discuss the subject. I wrote articles in the January 2001 and May 2001 issues of The Insurance Forum about what I called "the age 100 problem." Later, on my blog, I wrote five posts about the problem: No. 141 (February 1, 2016), No. 226 (July 20, 2017), No. 241 (November 17, 2017), No. 269 (June 6, 2018), and No. 277 (July 17, 2018).

Recent Developments
In June 2018 I conducted another survey by writing to the chief executive officers of 22 life insurance companies. I received responses from nine companies, but none responded to the heart of the survey. It involved a request from a hypothetical 93-year-old policyholder named Jones, who had purchased a $100,000 traditional participating whole life policy in 1975 at age 50. He had paid all annual premiums and had taken all dividends in cash. He had written to the company recently asking for assistance with a potential income tax problem should he survive to the policy's terminal age of 100. None of the responding companies provided information about the Jones policy. The survey and its results are described in No. 277 mentioned above.

Our Personal Policies
My wife and I have nine old traditional participating whole life policies issued many years ago by four life insurance companies. We have paid all premiums annually, have taken all dividends in cash, and, although we borrowed on the policies from time to time many years ago, we now have no policy loans outstanding. We are in our 80s. The cash values are getting close to the face amounts. Therefore, because the protection component of each policy (the face amount minus the cash value) is small, we now have little protection. We no longer need the protection, but we need to plan for the disposition of the policies. We do not identify the companies here because that is our private information.

Given the lack of adequate responses to the 2000 and 2018 surveys, I decided as a last resort to write to the four companies about our own policies. We knew they would have to respond, and we could complain to state insurance regulators if they did not. Our letters went out on July 9, 2018. Here I report on the progress thus far.

Company A
Company A has a small paid-up policy on my wife. We inquired about the current cash value and the amount of taxable gain that will be reported on a 1099 if she surrenders the policy in 2019. We also asked for a sample of the letter the company will send her as she nears the terminal age of 100 if she has not surrendered the policy. We think the letter will offer an option to keep the policy beyond the terminal age. The company provided the cash value figure and the amount of taxable gain, but declined to provide the sample letter.

On August 20 we filed a regulatory complaint. To date we have not received a reply from the insurance department or the company. At present we plan to surrender the policy in 2019 and pay the tax on the gain.

Company B
Company B has two small policies on my life. We inquired about the current cash values and the amounts of taxable gains if the policies are surrendered in 2019. We also asked for the sample letter.

Initially the company provided the current cash values, but did not indicate the taxable gains. Also, the company did not provide the sample letter. In response to our follow-up, the company still did not provide the sample letter. Also, instead of indicating the taxable gains on surrender in 2019, the company said this about each policy and the Internal Revenue Service (IRS):
The values in this policy do not meet [the company's] guidelines for tax reporting at this time, if the policy is surrendered for its cash value. The IRS does not require life insurance companies to calculate taxable amounts on policies that meet certain guidelines. This contract falls within those guidelines and [the company] will not send a tax notification to you or the IRS. Details of this transaction will be shown on your annual report, which you should receive after your next policy anniversary. If any changes are made to the policy between the calculation date and the transaction processing date, the values could change. If you should have additional questions regarding tax regulations, please contact your Tax Advisor.
We asked again for the sample letter, and requested the IRS guidelines. In response, the company again ignored our request for a sample letter, but provided these guidelines:
  1. Policy must be a nonqualified plan.
  2. Issue date must be before August 13, 1982.
  3. Gross cash value must be less than or equal to $5,000. Gross cash value equals the policy cash value including loans. Dividends are not factored into the equation.
  4. The rule only applies to surrenders and maturities.
The company cited "Treas.Reg.Sec.35.3405-1." I found that section, but do not fully understand it. The company again suggested contacting our tax advisor, and made this surprising comment:
It is the responsibility of the policy owner to determine "what," "if," and "how" to report the transaction to the IRS as part of their returns. We can only advise that the contract falls under the guidelines, which do not require us to review or report the transaction.
At present we plan to surrender the policies in 2019. We will follow our tax advisor's recommendation on how to report the transactions in our 2019 tax return.

Company C
Company C has three fairly large policies on my life and one small policy on my wife's life. We asked for a sample of the letter that would be sent to us if we should maintain the policies and approach the terminal age of 100. We also asked for estimates of the surrender values and estimates of the taxable gains that would be shown on the 1099s if we surrender the policies in 2019. On July 19 the company provided the surrender values but ignored our request for the sample letter and the estimates of the taxable gains.

On August 20 we asked again for the sample letter and the estimates of the taxable gains. On August 31 the company provided the face amounts and the surrender values, but again ignored our request for the sample letter and the estimates of the taxable gains.

On September 4 we filed a regulatory complaint. On September 10 the company provided the estimates of the taxable gains. Instead of providing the sample letter, the company provided copies of all four policies in their entirety and made these comments:
Please note that the policies in question do not have a stated maturity date; therefore, these contracts do not mature or terminate at age 100. These policies are not affected by the insured reaching age 100, and we don't have a sample letter to share with you.
Although the policies may not have a stated maturity date, they are based on mortality tables with a terminal age of 100. At this moment we do not know what will happen if we reach the terminal age; that is, we do not know whether the face amount will grow, whether premiums will continue to be charged, whether cash values will continue to grow, or whether dividends will continue to be paid. We do know that at present the amounts of life insurance protection in the policies are small, and the estimated taxable gains if we surrender the policies are substantial. At present we plan to surrender the small policy in 2019, but we do not know what to do with the three large policies.

Company D
Company D has one fairly large policy on my life and one fairly large policy on my wife's life. We asked for a sample of the letter that would be sent to us if we should maintain the policies and approach the terminal age of 100. We also asked for estimates of the surrender values and estimates of the taxable gains that would be shown on the 1099s if we surrender the policies in 2019. We received no reply.

On August 27 we filed a regulatory complaint. We received replies dated September 20 from the company and from the department. The company told the department and us that responses to our July 9 letter had been mailed to us on July 17, that we must not have received them, and that the company was now sending a more detailed response. The company's September 20 letter is signed by an officer who is a fellow of the Society of Actuaries. Here is the bulk of the letter:
You asked what will happen when the Insured reaches age 100. Your contracts do not specifically identify a maturity provision when the Insured reaches age 100. You can choose to leave the policies in force until death when the proceeds would be paid to your beneficiaries. Please note that under these contracts you would not receive any dividends beyond age 100 nor would any premiums be due. Alternatively, you could choose to access the cash surrender value via the options stated in your policy. It is not possible to accurately predict what the tax rules will be on your policy anniversary in 2034. [We] do not offer tax advice. You may want to consult your personal tax advisor regarding your particular situation.
The actuary's letter goes on to provide the projected surrender value in 2019 for each policy, along with the estimated taxable gain for each policy. We were astounded that, for each policy, the projected surrender value in 2019 and the estimated taxable gain in 2019 are identical.

On October 8 we asked the actuary how the company determined that the surrender values and the estimated taxable gains are identical. We also asked for confirmation of our understanding that, if we survive to the terminal age and leave the funds with the company, we would receive no interest on those funds. We also asked for the July 17 letters we did not receive. At present we do not know what to do with the two policies.

General Observations
When we purchased life insurance many years ago, it did not occur to us that we would encounter income tax problems if we were fortunate enough to survive into our 80s. Now that we are there, we have decided to surrender the four small policies and pay the taxes. We have not yet figured out what to do with the other five policies. Many of our readers are life insurance experts, and we would welcome any thoughts they might have on how we should dispose of the five policies.

Available Material
I offered complimentary packages in each of the five posts identified in the second paragraph of this post. The packages remain available. If you want to receive any of them, email jmbelth@gmail.com and ask for the ones you want using the language we used at the end of each post to describe the packages.
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Tuesday, October 2, 2018

No. 288: Edwin Sutherland: A Censorship Case

In No. 283 (August 23, 2018), in a review of Jesse Eisinger's 2017 book entitled The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives, I said he attributes the expression "white-collar crime" to the late Edwin Sutherland, a sociology professor at Indiana University (IU). Eisinger also says Sutherland's classic 1949 book entitled White Collar Crime was censored for many years. I was startled by the reference to censorship because, during my 56-year association with IU, I have considered the school a bastion of academic freedom. Here I discuss the Sutherland censorship case.

The 1939 Talk and the 1940 Paper
Sutherland was a prominent sociologist. Among the schools at which he taught were University of Illinois, University of Minnesota, and University of Chicago. Later, at IU, he chaired the sociology department. In 1939 he served as president of the American Sociological Society. On December 27, 1939, he delivered his Presidential Address at a joint meeting with the American Economic Association. The paper was published in the February 1940 issue of the American Sociological Review under the title "White-Collar Criminality."

The First Version of the Book
In 1949 Dryden Press published the first version of Sutherland's book. The original manuscript included citations to court rulings and regulatory commission findings, thereby identifying many prominent corporations as "criminals." Dryden, fearing lawsuits for damages, demanded deletion of names. The IU administration also pressured Sutherland, because it feared alienating major contributors. Sutherland agonized over the issue, and eventually agreed to make the deletions. He explained his decision in two paragraphs of a preface in the first version of the book:
The corporations, whose records before the courts and commissions are presented in this book, are designated by numbers and letters rather than by names. The identity of the corporations is thus concealed for two reasons. First, the identity of criminals is frequently concealed in scientific writings about living offenders. Second, the objective of the book, which is the theory of criminal behavior, can be better attained without directing attention in an invidious manner to the behavior of particular corporations.
Although these reasons for concealing the identity of the corporations which are discussed are convincing, certain losses result. First, it is not possible to present citations to decisions of courts and commissions, since these citations would reveal the identity of the corporations. Even if such citations were to be presented, they could be presented only in illustrative cases. The list of citations for all decisions used would occupy approximately one-fourth of the number of pages in this book. Anyone who is interested in the general principles stated in this book or in the statistical records of the large corporations can make his own statistical analysis from the sources which are described in Chapters II and XII. Second, although illustrative incidents have been presented without names of corporations and with some alterations in unimportant details, these do not give the impression of reality that would be given by documented descriptions of the decisions against well-known corporations. Finally, a person can get a vivid realization that the behavior of these corporations is criminal behavior only by reading many reports of decisions against them. Something is lost, in this sense, since many detailed and documented cases could not be presented without revealing the identity of the corporations. In spite of these losses which result from concealing the identity of the corporations, no essential part of the logic of the book is affected by the policy which has been adopted. [Blogger's note: In the first version of the book, Chapter II is entitled "The Statistical Record," and Chapter XII is entitled "Records of Fifteen Power and Light Corporations."]
Sutherland died the following year, on October 11, 1950, at age 67. While walking to his office, he suffered a stroke, fell, hit his head on a concrete walkway, and died on the way to the hospital.

The Second Version of the Book
In 1961 Holt Rinehart and Winston published the second version of Sutherland's book. It was identical to the first version, including Sutherland's preface. However, it also included a ten-page foreword by Donald R. Cressey. The foreword contained this footnote:
The original White Collar Crime manuscript contained court and commission citations and, thus, identified the various corporations involved. The original publisher's attorneys advised Sutherland that a corporation might sue the publisher and author on the ground that calling its behavior "criminal" is libelous. Sutherland withdrew the manuscript and prepared the present one. Had the original manuscript (which Mrs. Myrtle Sutherland still holds) been published, and had a libel suit been initiated, then Sutherland's contention that the listed offenses are in fact crimes might have been tested in a court of law—a corporation might have argued that the statement is libelous because its behavior is not crime, with Sutherland giving the arguments presented in this volume. I was one of Sutherland's research assistants at the time, and I urged that the manuscript be published for this reason, if for no other. However, my idealistic desire to see a scientific principle tested in a court of law was not tempered by any practical consideration such as having money riding on the legal validity of the scientific principle. This was not the case with either the publisher or Professor Sutherland.
On October 11, 1962, Mrs. Sutherland donated the original uncensored manuscript to the Lilly Library on the IU main campus in Bloomington. I looked at the manuscript there, and it is indeed the original 396-page double-spaced typewritten manuscript showing the names of the corporations. The manuscript includes no introduction, preface, foreword, or index. The title page, Mrs. Sutherland's letter, the table of contents, the list of tables, and Table 3 mentioned below are in the complimentary package offered at the end of this post.

The Third Version of the Book
In 1983 Yale University Press published the third version of Sutherland's book. It is not censored, omits Sutherland's unnecessary preface, includes a 25-page explanatory introduction by Gilbert Geis and Colin Goff, and remains in print today as a quality paperback.

The third version restores an entire chapter entitled "Three Case Histories," which was cut from the two earlier versions. That chapter discusses American Smelting and Refining Company, United States Rubber Company, and The Pittsburgh Coal Company. The chapter also identifies several other corporations related to those three.

The third version also restores the names of the many corporations whose names were previously deleted from various tables. Table 3, for example, is entitled "Decisions by Courts and Commissions against 70 Large Corporations by Types of Laws Violated." The column headings are "Corporation," "Restraint of trade," "Misrepresentation in advertising," "Infringement," "Unfair labor practices," "Rebates," "Other," and "Total." The corporations are listed alphabetically. Those with 25 or more decisions are American Tobacco, Armour & Company, Ford, General Electric, General Motors, Loew's, Montgomery Ward, Paramount, Sears Roebuck, Swift & Company, U.S. Steel, and Warner Brothers. In the first two versions of the book, the corporations listed in Table 3 were identified by numbers 1 to 70, and listed in declining order of "Total" decisions.

My Personal Kinsey Story
When I arrived at IU in 1962, I began work on a questionnaire to be sent to life insurance companies in connection with a research project. Professor J. Edward Hedges, who chaired the insurance area at the time, walked into my office one day and said he was headed to a meeting in the IU president's office. He said IU had received a complaint about me from a prominent alumnus in the insurance business. In response to my expression of concern, Hedges said: "Joe, you don't understand. IU is where Alfred Kinsey did his research." I was aware of the furor over Professor Kinsey's controversial research in the late 1940s and early 1950s on human sexual behavior and IU's staunch protection of him. After the meeting, the president's office asked for a copy of the questionnaire when I circulated it, and I never heard anything further on the matter.

My Personal Guest Lecture Story
A few years after I arrived in Bloomington, I received a call from a faculty member at a university in another state. He invited me to visit his school and give a guest lecture. He said his school might offer me a position. I accepted the invitation, gave the lecture, and met some people there. Shortly after my return to Bloomington, he called to thank me and said an expense check was in the mail. He also said he was embarrassed to tell me there would be no job offer. He said the chief executive officer of a major insurance company based in his state had learned of my visit and had told school officials there would be no further contributions to the school by the company if I was appointed to the faculty. My friend said the school had decided it could not afford to antagonize a major donor. I thanked him for telling me. I did not tell him my immediate thought: a financial threat by a donor to influence a faculty hiring decision is not tolerated by a great university, and I was grateful to have avoided a disastrous career move. That was the first and last time I considered leaving IU.

General Observations
Because of the nature of my research, over the years I learned first hand how IU protects its faculty against censorship. That is why I was surprised to learn about the Sutherland case. I am confident that, if a similar situation arose today, IU would stand behind its faculty member and would, if necessary, publish the research through the IU Press.

Available Material
I am offering a complimentary 9-page PDF consisting of the front matter (6 pages) and Table 3 (3 pages) of the original manuscript. Email jmbelth@gmail.com and ask for the October 2018 package about Sutherland.

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Monday, September 24, 2018

No. 287: Executive Compensation in the Insurance Industry in 2017

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 2015 book, The Insurance Forum: A Memoir, describes the history of my executive compensation tabulations and the efforts made by the industry and by insurance regulators to block access to the data.

A few years after ending publication of the Forum with the December 2013 issue, I posted on my blog some executive compensation data for 2015. The data from my three sources—the Securities and Exchange Commission (SEC), the New York State Department of Financial Services (DFS), and the Nebraska Department of Insurance (NDI)—are in No. 163 (May 23, 2016), No. 164 (May 31, 2016), and No. 165 (June 8, 2016). I have now assembled some executive compensation data for 2017.

During the final seven years of the Forum, I showed data for individuals who received at least $1 million in the year under study. For example, the final executive compensation tabulation in the Forum, showing data for 2012, was in the July 2013 issue. I am offering that tabulation on a complimentary basis at the end of this post. In the new tabulation in this post I show data for individuals who received at least $5 million in 2017. Where more than one individual in a company is shown, they are listed in descending order of compensation.

SEC Data for 2017
Each figure in the SEC data is the "Total" in the 2017 summary compensation table filed with the SEC by shareholder-owned public companies. The seven components of the "Total" are "Salary," "Stock Awards," "Option Awards," "Non-Equity Incentive Plan Compensation," "Change in Pension Value and Nonqualified Deferred Compensation Earnings," and "All Other Compensation."

The table for most companies is in the definitive proxy statement filed in advance of the company's 2018 annual meeting of shareholders. In a few instances, the table is in a 10-K annual report. For Canadian companies, the figures are in Canadian dollars, and the table is in a 6-K annual report. The documents referred to here are readily available to the public without charge at https://www.sec.gov/edgar/searchedgar/companysearch.html on the SEC website.

SEC Compensation Data for 2017
Aetna Inc
Mark T Bertolini
$18,750,816
Gary W Loveman PhD
9,915,288
Richard M Jelinek
7,917,107
Karen S Lynch
7,666,746
Shawn M Guertin
6,022,155
AFLAC Inc
Daniel P Amos
22,830,984
Frederick J. Crawford
5,528,500
Alleghany Corp
Weston M Hicks
9,647,362
Allstate Corp
Thomas J Wilson
18,757,329
John Dugenske
10,163,895
Matthew E Winter
7,809,707
Steven E Shebik
7,271,292
Don Civgin
5,054,720
American Financial Group Inc
Carl H Lindner III
9,772,850
S Craig Lindner
9,602,149
American International Group Inc
Brian Duperreault
43,086,861
Peter D Hancock
24,208,608
Peter Zaffino
17,692,606
Robert S Schimek
16,454,821
Peter Y Solmssen
14,604,342
Douglas A Dachille
14,295,567
Kevin T Hogan
13,546,670
Siddhartha Sankaran
11,967,388
Ameriprise Financial Inc
James M Cracchiolo
23,900,309
Walter S Berman
8,169,090
William F Truscott
6,656,556
Colin Moore
5,885,105
Anthem Inc
Joseph R Swedish
18,553,317
Gloria M McCarthy
5,816,686
John E Gallina
5,478,983
Peter D Haytaian
5,422,957
Brian T Griffin
5,412,155
Aon plc
Gregory C Case
14,609,682
Stephen P McGill
7,679,793
Christa Davies
7,382,514
Kristi Savacool
7,209,668
Arch Capital Group Ltd
Constantine Iordanou
12,752,096
Nicolas Papadopoulo
8,888,674
Marc Grandisson
7,131,745
Assurant Inc
Alan B Colberg
9,274,743
Gene E Mergelmeyer
5,412,189
Assured Guaranty Ltd
Dominic J Frederico
13,526,784
AXIS Capital Holdings Ltd
Albert A Benchimol
7,045,778
Centene Corp
Michael F Neidorff
25,259,468
Cynthia J Brinkley
6,332,724
Jeffrey A Schwaneke
5,546,562
Chubb Ltd
Evan G Greenberg
19,116,401
John W Keogh
7,864,964
Paul J Krump
7,010,885
John J Lupica
6,163,883
Philip V Bancroft
5,051,966
Cigna Corp
David M Cordani
17,595,792
CNA Financial Corp
Dino E Robusto
10,635,782
Jonathan D Kantor
6,564,950
CNO Financial Group Inc
Edward Bonach
9,962,118
Enstar Group Ltd
Dominic F Silvester
16,871,090
Paul J O'Shea
10,288,997
Orla M Gregory
7,537,184
Everest Re Group Ltd
Dominic J Addesso
8,829,222
Fidelity National Financial Inc
William P Foley II
29,382,455
Raymond R Quirk
8,961,216
Brent B Bickett
7,303,777
First American Financial Corp
Dennis J Gilmore
8,330,344
Genworth Financial Inc
Thomas J McInerney
8,965,211
Kevin D Schneider
6,798,621
Daniel J Sheehan IV
6,576,254
Hartford Financial Services Group
Christopher Swift
13,115,285
Douglas Elliot
8,973,264
Humana Inc
Bruce D Broussard
19,768,525
Brian A Kane
5,658,476
Lincoln National Corp
Dennis R Glass
14,963,035
Loews Corp
James S Tisch
6,527,773
David B Edelson
5,583,273
Jonathan M Tisch
5,543,334
Andrew H Tisch
5,384,285
Kenneth I Siegel
5,110,749
Manulife Financial Corp
Roy Gori
12,756,342
Donald Guloien
12,188,265
Warren Thomson
7,155,985
Steve Roder
6,906,681
Marianne Harrison
5,962,698
Marsh & McLennan Companies Inc
Daniel S Glaser
17,011,341
Julio A Portalatin
7,401,281
John Q Doyle
6,929,455
Peter J Beshar
5,210,829
MetLife Inc
Steven A Kandarian
14,726,721
Michel Khalaf
6,325,447
John C R Hele
5,339,029
Martin J Lippert
5,899,896
MGIC Investment Corp
Patrick Sinks
7,033,794
Molina Healthcare Inc
Joseph M Zubretsky
19,739,108
J Mario Molina MD
16,998,004
John C Molina
8,013,953
National Western Life Group Inc
Ross R Moody
6,756,680
Principal Financial Group Inc
Daniel J Houston
11,958,736
James P McCaughan
6,033,877
Progressive Corp
Susan Patricia Griffith
9,274,439
Protective Life Corp
John D Johns
13,127,403
Richard J Bielen
8,002,361
Carl S Thigpen
5,548,577
Prudential Financial Inc
John R Strangfeld
27,111,399
Mark B Grier
17,561,490
Stephen Pelletier
15,973,459
Charles F Lowrey
11,799,322
Robert M Falzon
9,149,071
Radian Group Inc
Richard G. Thornberry
6,876,816
Sanford A Ibrahim
6,769,740
Reinsurance Group of America Inc
Anna Manning
7,041,523
RenaissanceRe Holdings Ltd
Kevin J O'Donnell
7,810,052
Sun Life Financial Inc
Dean A Connor
9,146,847
Stephen C Peacher
6,753,607
Torchmark Corp
Gary L Coleman
8,366,856
Larry M Hutchison
8,311,946
Travelers Companies Inc
Alan D Schnitzer
15,233,759
Brian W MacLean
8,088,067
William H Heyman
6,644,766
Jay S Benet
6,391,045
Avrohom J Kess
5,921,446
UnitedHealth Group Inc
Stephen J Hemsley
18,454,153
David S Wichmann
17,389,976
Larry C Renfro
14,236,877
John F Rex
7,930,845
Steven H Nelson
7,580,444
Marianne D Short
6,494,869
Universal Insurance Holdings Inc
Sean P Downes
19,252,897
Jon W Springer
8,469,821
Unum Group
Richard P McKenney
9,683,946
Voya Financial Inc
Rodney O Martin Jr
10,989,072
Alain M Karaoglan
5,621,947
Christine Hurtsellers
5,365,268
W R Berkley Corp
William R Berkley
12,214,097
W Robert Berkley Jr
10,279,539
WellCare Health Plans Inc
Kenneth A Burdick
11,327,735
White Mountains Insurance Group
Raymond Barrette
21,560,378
David T Foy
8,872,702
G Manning Rountree
6,633,124
Reid T Campbell
6,433,936
T Michael Miller
6,272,832

New York Data for 2017
The 2017 New York data are filed with DFS by life insurance companies doing business in New York, and by health insurance companies doing business there. The data are from a statutory annual statement exhibit called "Schedule G." The schedule for life companies differs from the schedule for health companies. Because the schedules are not readily available to the public, I obtained them through a public records request pursuant to the New York State Freedom of Information Law. The Life Bureau of DFS sent me the schedules for life companies, and the Health Bureau sent me the schedules for health companies.

The schedule for life companies shows one figure for each individual. The schedule for health companies shows four figures for each individual: (1) "Salary Paid by Company and All Other Companies in Holding Company System," (2) "Bonus & all other Compensation Deferred or Paid by Company and All Other Companies in Holding Company System," (3) "Total Amount Paid by Company and All Other Companies in Holding Company System," and (4) "Amount Paid by or Amount Allocated by Company." The figure I show in this tabulation is the third of the four figures. When I obtained the 2017 data, each bureau charged a fee of $1 for sending the schedules on a CD by regular mail.

New York Compensation Data for 2017
Life Insurance Companies
Aetna Life Ins Co
Mark T Bertolini
$57,828,429
Shawn M Guertin 9,239,174
Jean LaTorre 6,231,385
Thomas J Sabatino 5,588,469
Globe Life Ins Co of NY
Ben Walter Lutek 8,553,779
Guardian Life Ins Co of America
Deanna Mulligan 8,014,882
Lincoln Life & Annuity Co of NY
Dennis R Glass 34,666,432
Randal J Freitag 8,163,992
Massachusetts Mutual Life Ins Co
Roger Crandall 6,269,018
Paul Blanco 5,228,315
Metropolitan Life Ins Co
Steven A Kandarian 10,453,756
New York Life Ins Co
Theodore A Mathas 20,594,949
John Y Kim 12,868,332
Christopher O Blunt 9,394,343
John T Fleurant 5,022,387
Northwestern Mutual Life Ins Co
John E Schlifske 12,204,273
Penn Mutual Life Ins Co
Eileen McDonnell 5,337,340
Phoenix Life Ins Co
James D Wehr 6,749,750
Principal Life Ins Co
James P McCaughan 14,059,569
Daniel J Houston 10,667,049
Karen Elizabeth Shaff 7,362,154
Karl W Nolin 5,601,332
Luis E Valdes 5,351,845
Prudential Ins Co of America
John R Strangfeld 11,064,539
Charles F Lowrey 9,891,275
Mark B Grier 6,494,780
Stephen Pelletier 5,058,979
Teachers Ins & Annuity Assn
Roger Ferguson 6,685,814
Ronald R Pressman 5,372,878
Health Insurance Companies
Anthem Group
Joseph R Swedish 17,098,146
Peter D Haytaian 5,054,085
Brian T Griffin 5,043,082
Gloria M McCarthy 5,006,223
Eastern Vision Service Plan Inc
James M McGrann 5,024,315
HIP Ins Co of New York
William C Lamoreaux 5,496,012
Humana Ins Co of New York
Brian A Kane 7,678,628
UnitedHealth Group
Robert W Oberrender 7,705,596
WellCare Health Ins of New York
Kenneth A Burdick 8,688,648
Andrew L Asher 5,583,010

Nebraska Data for 2017
The 2017 Nebraska data are on a "Supplemental Compensation Exhibit" filed by all insurance companies doing business in Nebraska. The figure I show is the "Total" for each individual. Components of the "Total" are "Salary," "Bonus," "Stock Awards," "Option Awards," "Sign-on Payments," "Severance Payments," and "All Other Compensation." When I obtained the 2017 data, NDI charged a fee of $80 for sending the exhibits on a CD by regular mail.

Nebraska Compensation Data for 2017
Accident Fund Ins Co of America
Elizabeth Haar
$6,642,686
ACE American Ins Co
John J Lupica
6,100,000
Paul J Crump
5,050,000
Acuity, A Mutual Ins Co
Benjamin M Salzmann
15,512,444
Aetna Life Ins Co
Mark T Bertolini
18,750,816
Gary W Loveman PhD
9,815,288
Richard M Jelinek
7,917,107
Karen S Lynch
7,666,746
Thomas J Sabatino Jr
7,321,633
Shawn M Guertin
6,022,155
Allied World National Assur Co
Scott A Carmilani
23,880,597
Wesley Dupont
5,309,124
Allstate Ins Co
Thomas J Wilson
54,184,408
Matthew E Winter
17,455,607
Judith P Greffin
8,152,152
Sanjay Gupta
7,513,203
Surender Gupta
7,033,822
Steven E Shebik
6,659,653
Steven P Sorenson
6,634,968
Susan L Lees
6,582,780
American Family Life of Columbus
Daniel P Amos
15,280,454
Paul S Amos II
6,184,321
Frederick J Crawford
5,279,845
American Family Mutual Ins Co
Jack C Salzwedel
9,617,184
American General Life Ins Co
Kevin Hogan
6,109,879
Jay S Wintrob
5,717,513
American Income Life Ins Co
Roger C Smith
14,343,009
Ben W Lutek
8,553,780
Assured Guaranty Corp
Dominic Frederico
13,596,579
Atlantic Specialty Ins Co
Timothy M Miller
9,295,572
Chicago Title Ins Co
Raymond R Quirk
8,959,129
Anthony J Park
6,097,163
Michael J Nolan
5,858,912
Peter T Sadowski
5,853,519
Clearwater Select Ins Co
Brian D Young
5,669,432
Doctors Co Interinsurance Exchange
Richard Anderson MD
11,726,099
Essent Guaranty Inc
Mark Casale
6,890,474
Everest Reinsurance Co
Dominic J Addesso
6,223,278
Fidelity & Guaranty Life Ins Co
Christopher J Littlefield
5,777,721
First American Title Ins Co
Dennis Gilmore
9,080,461
GEICO Indemnity Co
Olza Minor Nicely
14,541,402
Great American Ins Co
S Craig Lindner
9,726,202
Carl H Lindner III
9,673,500
Guardian Life Ins Co of America
Deanna Mulligan
8,772,047
Hanover Ins Co
Joseph Zubretsky
5,148,547
Health Care Service Corp
Paula A Steiner
10,179,367
Patricia A Hemingway Hall
6,487,164
Colleen Foley Reitan
5,876,344
Humana Ins Co
Bruce D Broussard
33,361,110
Brian A Kane
7,678,628
Insurance Co of the West
Kevin Prior
27,486,175
Ernest Rady
7,460,080
Jackson National Life Ins Co
Barry Stowe
7,568,499
James R Sopha
6,339,538
Paul C Myers
6,227,860
Liberty Mutual Ins Co
David H Long
21,026,728
Timothy Sweeney
8,287,284
Neeti Bhalla
7,155,742
J Paul Condin III
6,968,884
Christopher L Peirce
5,819,868
Dennis J Langwell
5,329,184
Lincoln National Life Ins Co 
Dennis R Glass
34,666,432
Randal J Freitag
8,163,992
Wilford H Fuller
6,261,016
Magellan Behavioral Health
Jeffrey West
7,678,675
Dan Gregorie
5,999,522
Massachusetts Mutual Life Ins Co
Roger Crandall
14,460,939
Paul Blanco
5,277,246
Michael Fanning
5,147,443
Medical Protective Co
Timothy Kenesey
5,324,898
MEMIC Indemnity Co
John T Leonard
11,340,488
Metropolitan Life Ins Co
Steven A Kandarian
10,453,756
Mortgage Guaranty Ins Corp
Patrick Sinks
6,315,629
National Indemnity Co
Ajit Jain
15,986,250
New York Life Ins Co
Theodore A Mathas
20,594,949
John Y Kim
12,868,332
Christopher O Blunt
9,394,343
John T Fleurant
5,022,387
Northwestern Mutual Life Ins Co
John E Schlifske
12,204,273
Pacific Life Ins Co
James T Morris
7,722,736
Pan-American Life Ins Co
Jose Suarez Suquet
5,542,464
Penn Mutual Life Ins Co
Eileen McDonnell
5,337,340
Thomas E Daley
5,099,635
Pennsylvania Ins Co
Sidney Ferenc
9,247,661
Steven Menzies
9,211,854
Phoenix Life Ins Co
James D Wehr
6,749,750
Principal Life Ins Co
James P McCaughan
14,059,569
Daniel J Houston
10,667,049
Karen E Shaff
7,362,154
Karl W Nolin
5,601,332
Luis E Valdes
5,351,845
Prudential Ins Co of America
John R Strangfeld Jr
8,727,787
Mark B Grier
7,198,970
Charles F Lowrey
5,070,897
Radian Mortgage Guaranty Inc
Sanford A Ibrahim
9,412,799
Richard Thornberry
6,144,254
RGA Reinsurance Co
Albert Greig Woodring
15,608,544
RiverSource Life Ins Co
Lynn Ann Hopton
17,335,404
Yvonne E Stevens
15,366,727
Steven B Staver
12,341,420
John R Woerner
7,596,970
David K Stewart
5,067,199
SCOR Reinsurance Co
Mark Kociancic
5,570,891
Security Benefit Life Ins Co
Michael Patrick Kiley
7,221,603
Standard Ins Co
John Gregory Ness
6,548,581
State Farm Group
Michael Leon Tipsord
8,502,235
Michael Steven Wey
5,005,858
Teachers Ins & Annuity Assn
Roger Ferguson
18,674,135
Justin Kelly
16,361,982
William Adams
12,695,571
Jon Bosse
11,796,431
Clark Winslow
10,507,082
Robert Doll
9,302,014
Ronald Pressman
8,182,928
James Boothe
7,320,974
Gunther Stein
7,058,340
Virginia Wilson
5,138,972
Transatlantic Reinsurance Co
Michael C Sapnar
8,517,759
Javier E Vijil
8,060,576
Travelers Casualty & Surety Co
Alan D Schnitzer
15,262,488
Brian MacLean
7,923,164
Willaim H Heyman
6,531,523
Jay S Benet
6,256,725
United States Liability Ins Co
Thomas P Nerney
19,652,848
Western & Southern Life Ins Co
John Barrett
7,678,251

General Observations
There can be no assurance the data shown here are complete and accurate, for at least four reasons. First, with regard to the SEC data, I did not have a complete list of shareholder-owned public companies in the insurance business, and some therefore may have been omitted.

Second, with regard to DFS data, the Schedule G for life companies may show compensation attributable only to that one company. In other words, on the schedule for a company that is a member of a group of companies, the figure shown for an individual may be compensation from only that one company rather than from the entire group of companies.

Third, with regard to NDI data, some groups of companies allocate the compensation for individuals among the members of the group. Thus the figures for individuals need to be added. There can be no assurance that I found all the members of those groups. Indeed, in some instances members of the group may not be licensed in Nebraska and therefore do not file the exhibits.

Fourth, an individual's compensation may differ among my three sources. Aside from the third problem mentioned above, the three sources have differing rules about precisely what must be included in an individual's compensation. For example, see the differences between DFS data and NDI data for Teachers Insurance & Annuity Association. I asked DFS to comment on the differences, but received no reply.

Available Material
To provide a frame of reference beyond the three posts showing executive compensation data for 2015, I am offering a complimentary 10-page PDF containing the final executive compensation tabulation in the Forum. It appeared in the July 2013 issue and showed data for 2012. Email jmbelth@gmail.com and ask for the executive compensation tabulation in the July 2013 issue of the Forum.


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