Thursday, June 21, 2018

No. 272: Accordia, Athene, the California Department of Insurance, and the Victimization of Life Insurance Policyholders

On June 12, 2018, the California Department of Insurance (CDI) issued a press release announcing an extraordinary action against Accordia Life and Annuity Company and Athene Annuity and Life Company (Respondents). The announcement by Insurance Commissioner Dave Jones refers to an "Order to Show Cause and Accusation" against the Respondents "for failing to service over 50,000 policies issued to California consumers and imperiling the benefits to which they are entitled." The key document accompanying the press release describes one of the strongest state insurance regulatory actions I have ever seen.

Introduction in the Key Document
The key document consists of an "Order to Show Cause" (including a hearing notice and a statement of charges), an "Accusation," and "Relief Requested" (including a cease and desist order, monetary penalties, a request for a declaration of unfair methods, acts, or practices, and a suspension of certificate of authority). Here is a lightly edited version of the five-paragraph introduction in the key document:
  1. In 2013, Accordia, a relatively new entrant into the life insurance market, acquired a $10 billion book of life insurance business—consisting of approximately 500,000 policies nationwide, approximately 50,000 of which were issued to Californians—from Aviva USA through a complex, multi-step transaction involving other parties and the creation of numerous captive reinsurers. Instead of purchasing the business directly from Aviva USA, Accordia acquired the life business through an assumption reinsurance agreement with another company, Athene, who had bought both the life insurance and annuity business of Aviva USA. Pursuant to the terms of the agreement, Athene requested its policyholders to consent to the transfer of their policies from Athene to Accordia.
  2. In late 2014, Accordia sent a notice of transfer to the policyholders, apprising them of the acquisition and requesting their consent to the transfer of their policies from Athene to Accordia. Those policies for which the policyholders either affirmatively consented or consented by silence were transferred from Athene to Accordia. For those policyholders who rejected the transfer, their policies remained insured with Athene, but are administered by Accordia under a third-party administrator agreement between the two entities.
  3. From the very start of administering the policies, Accordia faced numerous substantial difficulties. In 2013, Accordia had transitioned the administration of its life policies to a third-party administrator, Alliance-One Services. Due to compatibility issues between Alliance-One's policy management system and the policies to be converted, in late 2015, the vast majority of the policies were "restricted," such that they could not be converted to the system and could only be administered on a manual basis. As a result, policyholders did not receive their statutorily-mandated annual statements, nor could they receive bills, pay premiums, or access any of the benefits of their policies. Over two years have passed since the conversion issues first surfaced and policies still remain restricted.
  4. Even after a policy gets "unrestricted" and is being electronically administered, problems continue for policyholders, raising questions as to whether their policies are being serviced properly. For instance, policyholders still are not receiving their up-to-date annual statements. Some face risk of lapse because premiums were not billed or collected while their policies were restricted, which created unpaid past premium obligations amounting to thousands of dollars in some cases. Without the benefit of their annual statements, these policyholders cannot make a fully-informed decision as to whether to pay the back premiums and keep their policies in force. Other policyholders have suffered accounting issues, with premium payments being improperly applied or not at all. Others have expressed concerns that they feel stuck with their policies due to advanced age.
  5. CDI, therefore, seeks an order that the Respondents cease and desist from engaging in the conduct set forth below, an order suspending Respondents' certificates of authority, and requests that Respondents be fined under California Insurance Code section 790.035.
Remainder of the Key Document
The background section of the key document describes "Accordia's Corporate History," which includes references to Goldman Sachs, Global Atlantic, Aviva USA, Aviva plc, and Presidential Life. It also describes "Accordia's Multi-Step Purchase of the Life Policies." The latter subsection describes how Accordia was able to purchase Aviva USA's life business with the help of a "permitted practice" and "limited purpose subsidiaries" (LPSs) based in Iowa, Delaware, and Vermont.

The statement of charges section describes how the "Respondents 'Restrict' the Policies, Causing Them to Be Frozen in Time." It also describes how the "Respondents Fail to Provide Timely Annual Reports" and how the "Respondents Fail to Administer the Policies in Good Faith."

The order to show cause and notice of hearing sections describe the relevant California code sections. The remainder of the key document describes the accusation and the relief requested.

Attached to the key document is an exhibit listing 109 complaints received by CDI. Each entry shows the consumer's first name, the initial of the consumer's last name, in some instances the alleged violations of California law, and a brief description of the violations. Also attached to the key document is a notice of defense, a statement to respondent, and the texts of the relevant California statutes.

General Observations
In recent years I received emails from several Accordia/Athene policyholders telling me about their problems. I had not written squarely on the subject, and I was not able to help them. By coincidence, I saw the CDI announcement while I was working on a generalized post about servicing problems faced by universal life policyholders. I stopped working on that post in order to work on the CDI regulatory action taken against Accordia and Athene.

Regular readers of my blog are aware of my longstanding efforts to obtain information about the use of LPSs, especially those based in Iowa. Until I saw the CDI action, I was not aware of the connection between those LPSs and the situation involving Accordia and Athene. Among the entities about which I have written are Cape Verity I, Cape Verity II, Cape Verity III, and Tapioca View, LLC.

Another aspect I found interesting was the transfer of policies from Athene to Accordia. I wrote many articles in The Insurance Forum about policy transfers, and devoted Chapter 23 of my 2015 book, The Insurance Forum: A Memoir, to that subject.

I sympathize with those who purchased policies from companies such as Aviva USA, AmerUs Life, Athene, and Accordia. Those persons paid premiums in good faith. However, they are now in limbo with no information about the status of their policies, no way to learn what premiums they need to pay, and no way to access the benefits of their policies.

The sort of administrative problems that prompted the CDI action may be extremely difficult or even impossible to solve. Yet those types of problems are to be expected when private equity firms are allowed to acquire the long-term obligations of insurance companies in an effort to earn short-term profits for the benefit of their investors. I think state insurance regulators are aware of insurance company acquisitions by private equity firms. In my opinion, however, state insurance statutes have been drafted by the insurance industry in such a way as to force regulators to approve such acquisitions.

Available Material
I wrote about the regulatory situation in Iowa in numerous blog posts. Five of them are available at the following links: No. 44 (April 22, 2014), No. 71 (November 6, 2014), No. 72 (November 12, 2014), No. 73 (November 19, 2014), and No. 109 (July 13, 2015). I offered complimentary packages of material in each of those posts, and the packages are still available.

Now I offer a complimentary 27-page PDF consisting of the CDI press release (1 page) and the entire key document (26 pages). Email and ask for the June 2018 package about the California/Accordia/Athene case.