Thursday, July 5, 2018

No. 275: Athene, the New York Department, and the Victimization of Life Insurance Policyholders

On June 28, 2018, the New York State Department of Financial Services (DFS) issued a press release announcing an extraordinary regulatory action taken against Athene Life Insurance Company of New York (Athene) and First Allmerica Financial Life Insurance Company (FAFLIC). The regulatory action took the form of a consent order requiring Athene to pay a $15 million fine for insurance law violations and FAFLIC to take corrective actions totaling up to $40 million.

In No. 272 (June 21, 2018) I discussed an extraordinary regulatory action taken by the California Department of Insurance (CDI) 16 days earlier against Accordia Life and Annuity Company and Athene Annuity and Life Company. The CDI and DFS regulatory actions arose out of the same types of activities that have been victimizing life insurance policyholders. Here I discuss the DFS action.

The Market Conduct Examination
On April 28, 2017, after DFS received many life insurance policyholder service related complaints, Maria T. Vullo, DFS Superintendent of Financial Services, appointed an examiner to conduct a targeted market conduct examination of Athene. The examination period was from January 1, 2012 through March 31, 2017. As necessary, the examiner reviewed matters occurring after March 31, 2017. The report of the examination is dated February 2, 2018. According to the report, Athene committed seven violations of New York laws and regulations. Here are two of the violations:
  • The Company violated Section 3211(b) of the New York Insurance Law by failing to mail premium due notices to policyholders at their last known address.
  • The Company violated Section 3211(g) of the New York Insurance Law by failing to provide annual reports or cash surrender value notices to policyholders.
The examination report includes a section tracing the history of the companies involved in this regulatory action. Among the company names mentioned in that section are Gotham Life Insurance Company of New York, Bankers Life and Casualty Company of New York, Bankers Life Insurance Company of New York, Southwestern Life Insurance Company, Indianapolis Life Insurance Company, AmerUs Group Company, Libra Acquisition Corporation, Aviva plc, Aviva Life Insurance Company of New York, Aviva Life and Annuity Company of New York, Aviva USA Corporation, Aviva Life Insurance Company, Aviva Life & Annuity Company, First Allmerica Financial Life Insurance Company, Apollo Global Management LLC, Athene Life & Annuity Assurance Company of New York, and Athene Life Insurance Company of New York.

The full scope of the problems that prompted the complaints and led to the DFS targeted market conduct examination is staggering. The only way to understand the problems fully is to read the examination report.

The Consent Order
The consent order directed at Athene lists seven findings and various violations of New York laws and regulations. It also describes the steps Athene and FAFLIC must take to remedy the violations.

The consent order provides for Athene to pay a $15 million civil penalty to DFS. It also describes the remediation plan Athene and FAFLIC must undertake. The consent order was signed by President Grant Kvalheim of Athene, President Robert Arena of FAFLIC, DFS Executive Deputy Superintendent of Insurance Laura Evangelista, and DFS Superintendent Vullo.

General Observations
In No. 272 about the CDI regulatory action, I mentioned references to transfers of policies from one insurance company to another. That is a subject on which I have written extensively. In the DFS regulatory action against Athene and FAFLIC, there are references to assumption reinsurance agreements and the concept of novation. For discussions of those subjects, see No. 220 (June 1, 2017) and No. 262 (April 16, 2018).

Also, as I said in No. 272, the types of administrative problems that prompted the CDI and DFS regulatory actions are difficult to solve. Yet those types of problems are to be expected when private equity firms create or acquire long-term obligations of insurance companies in an effort to earn short-term profits for the benefit of their investors. At least two major state insurance regulatory agencies—CDI and DFS—have recently witnessed first hand some of the implications of the involvement of private equity firms in the business of insurance.

I do not know how much knowledge other state insurance regulatory agencies have about problems involving private equity firms. Nor do I know whether and to what extent the National Association of Insurance Commissioner has been looking into the problems.

Available Material
I am offering a complimentary 40-page PDF consisting of the DFS press release (1 page), the DFS market conduct examination report (24 pages), and the DFS consent order directed at Athene and FAFLIC (15 pages). Email jmbelth@gmail.com and ask for the July 2018 package about the DFS/Athene/FAFLIC case.

===================================