Wednesday, December 17, 2014

No. 77: Life Partners—Latest Developments Relating to the Court-Ordered Death Sentence

Life Partners Holdings, Inc. (NYSE:LPHI) is a participant in the secondary market for life insurance. In No. 75 posted December 10, I said Senior U.S. District Court Judge James R. Nowlin handed down a "final judgment order" on December 2 in a lawsuit filed by the Securities and Exchange Commission (SEC) against LPHI and its two top officers: Brian D. Pardo, chief executive officer; and R. Scott Peden, general counsel. The order requires LPHI to pay the SEC $38.7 million (more than twice LPHI's total assets!) by December 16. I called the financial dimensions of the order a death sentence for LPHI. (SEC v. LPHI, U.S. District Court, Western District of Texas, Case No. 1:12-cv-33.)

Developments on December 10
On December 10, three things happened. First, Dana Livingston, a partner in the Austin firm of Alexander Dubose Jefferson & Townsend, appeared before the court as an attorney for LPHI.

Second, the defendants filed an "opposed emergency motion to extend stay of enforcement of the judgment." The motion is "opposed" because "the SEC is not willing to agree to any extension of the automatic stay [until December 16] at this time." The motion says the defendants intend to file by December 30 their post-judgment motions, such as motions to alter or amend the judgment and a motion for a new trial.

Third, Judge Nowlin granted LPHI's motion. He stayed execution of the judgment and any proceedings to enforce the judgment for an additional 14 days, until December 30.

Later Developments
On December 12, James Craig Orr, Jr., a partner in the Dallas firm of Heygood Orr & Pearson, sent a letter to Judge Nowlin on behalf of investors in LPHI's life settlements. Orr asks the judge to consider reducing the judgment against LPHI because the amount is far more than what LPHI possesses, and because LPHI would not be able to perform the ministerial services needed to protect the investors' funds.

On December 15, the court issued a deficiency notice because Orr's filing is in the form of a letter rather than a motion. The court asks Orr to refile immediately in the form of a motion.

LPHI's Nondisclosure

At the close of business on December 16, there is no press release on the LPHI website about the December 2 order. Also, there is no 8-K (material event) report on the SEC website, although such a report is supposed to be filed within four business days after the event.

LPHI's nondisclosure is not unusual. As I reported in No. 35 posted March 10, 2014, selective disclosure—prompt disclosure of good news and delayed disclosure of bad news—is standard practice at LPHI.

LPHI's Share Prices
Despite LPHI's nondisclosure, and despite the absence of news stories since shortly after the order, word got around. LPHI's share price declined sharply after the order—from a closing price of $1.43 on the day of the order to $1.10 the next day. Closing prices were $1.06 on December 4, $1.00 on December 11, $0.94 on December 12, $0.90 on December 15, and $0.78 on December 16.

Ministerial Fees
Meanwhile, in No. 74 posted November 25, I discussed LPHI's decision to begin charging its investors fees—through its newly formed subsidiary, LPI Financial Services, Inc.—for ministerial services relating to life settlements. On November 14, one month after the due date of the first annual fee payments, LPI sent investors a "past due" notice that reads:
PAST DUE. Please Disregard if Paid. Payment is due upon receipt. Delinquent payments will be subject to interest at the maximum rate permitted under law as well as reporting to credit bureaus. Failure or refusal may result in termination of access to platform services.
Available Documents
I am offering a complimentary 13-page PDF showing LPHI's seven-page motion for a stay, LPHI's one-page proposed order, the judge's one-page order granting a stay until December 30, Orr's three-page December 12 letter to the judge, and the court's one-page December 15 deficiency notice. In No. 75, I offered a complimentary 21-page PDF showing Judge Nowlin's December 2 final order; this PDF is still available. Send an e-mail to jmbelth@gmail.com and ask for the LPHI motion for stay, or the final order in the SEC lawsuit against LPHI, or both.

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Monday, December 15, 2014

No. 76: Daniel Stallings and an Update on the Case of Mrs. X

The March 2012 and January 2013 issues of The Insurance Forum contain articles about Daniel H. W. Stallings (Muncie, IN), who replaced life insurance policies and annuities owned by Mrs. X. Here I discuss some matters not mentioned in the Forum articles.

Background
The replacements occurred in the fall of 2010. At the time, Mrs. X was aged 81, was living in her home in Muncie, was the widow of a longtime member of the Ball State University faculty, was wearing an Exelon patch as medication for marked cognitive impairment, was a member of the Ball State Federal Credit Union, and had met Stallings through his position as "Our Expert" at the credit union. Stallings at the time was a registered representative of New England Securities, Inc. (a unit of MetLife, Inc.) through Financial Partners Group (Indianapolis).

Mrs. X owned two life insurance policies issued many years earlier on a standard basis by The Northwestern Mutual Life Insurance Company. One was a paid-up policy that was paying significant dividends. The other was a premium-paying policy on which the dividend each year was substantially larger than the annual premium. Stallings replaced the two policies with a policy issued by Massachusetts Mutual Life Insurance Company on a Table D substandard basis, with the rating apparently caused by Mrs. X's cognitive impairment. Mrs. X signed a "Letter of Instruction" (often called a "CYA letter") to Massachusetts Mutual in which she said she understood the effect of replacing the Northwestern Mutual policies and expressed her desire to proceed with the application to Massachusetts Mutual for the replacement policy. Later she had no recollection of the letter.

Mrs. X also owned several fixed annuities and variable annuities. They were issued many years earlier by The Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and Northwestern Mutual. Stallings replaced the annuities with two variable annuities issued by Metropolitan Life Insurance Company.

In the first Forum article about the case, I expressed the opinion that the replacements were not justified, and expressed hope that the companies would restore Mrs. X to her original financial position. In the second Forum article, I reported that Northwestern Mutual and Massachusetts Mutual had restored her to her original financial position with regard to the life insurance. I do not know what happened with regard to the annuities.

FINRA Involvement
In October 2011, Mrs. X's family filed a written complaint, which New England Securities reported to the Financial Industry Regulatory Authority (FINRA). The complaint related only to the annuity aspect of the case. According to FINRA's BrokerCheck reports on Stallings and Bryan Todd Baker (Indianapolis), here is the allegation:
Customer alleged that the representative's recommendation to transfer funds from contracts with no surrender charges into two new variable annuities with surrender charges, in September 2010, was not appropriate. No specific compensatory damages were alleged.
The complaint was settled in August 2012. The settlement amount was $3,000. Stallings (aka Dana Harris Wiltsey Stallings, CRD #4942231) paid $750, and Baker (CRD #4410211) paid $750. The reports do not say who paid the other $1,500; it may have been New England Securities.

Stallings was associated with New England Securities from July 2006 to August 2012. Since then he has been associated with American Portfolios Advisors, Inc. (Holbrook, NY).

The Credit Union
I wrote to Randy Glassburn, president and chief executive officer of the Ball State Federal Credit Union, and inquired about the situation. I enclosed the two Forum articles and mentioned the FINRA BrokerCheck reports on Stallings and Baker. In response, Glassburn said:
We had a relationship with Financial Partners Group, and over the course of time they had become much more sales focused, and much less service focused. Not the service base we wanted. In the process of waiting for our contractual obligations to expire with them, Daniel Stallings exited his relationship with them. And after we terminated our relationship with them, we brought Daniel back as an independent representative of American Portfolios. FINRA found no fault in your Mrs. X situation, and my members love working with Daniel. He takes a genuine member focused approach to each member he works with, and we are totally satisfied with that relationship.
The Indiana Department
In my first article about the case, I said Mrs. X's family filed a complaint with the Indiana Department of Insurance. Two consumer consultants in the Department dismissed the complaint in separate but identical letters.

Recently I wrote to the Department asking whether it had taken any disciplinary action in the case. In response, Doug Webber, chief of staff in the Department, said that no disciplinary action was taken, and that the Department was instrumental in getting the parties together to arrange for reinstatement of the original life insurance policies. He also said the Department concluded that the matter should be closed.

The NAIFA Chapter
The East Central Indiana (Muncie) Chapter of the National Association of Insurance and Financial Advisers (NAIFA) recently ran a newspaper advertisement showing the full text of the NAIFA Code of Ethics and photographs of the officers, directors, and several other members of the chapter. Stallings was identified as president of the chapter, and Katy M. Sargent-Combs was identified as president-elect.

NAIFA has published a booklet entitled "Keep It Legal," which among other matters describes the procedure for filing complaints against NAIFA members. The booklet says that complaints are handled at the chapter level, and describes in detail the procedures (including the hearing process) to be used in the investigation of a complaint. The possible results are dismissal of the complaint, a letter of reprimand, suspension of membership until a specified date, and revocation of membership. A complaint may be filed by "any person," but there is no mention of whether such a person who is outside NAIFA is notified of the result.

I sent a complaint by regular mail to Sargent-Combs. I expressed the belief that Stallings had engaged in conduct unbecoming a member of NAIFA and in violation of its Code of Ethics. I enclosed the two Forum articles and asked her to acknowledge receipt of the complaint.

Two weeks later, having received no acknowledgement, I sent a follow-up by regular mail again requesting acknowledgement. A week later, having received no acknowledgement, I sent an e-mail follow-up. Within minutes came this reply: "I have received both your letters and your e-mail and we as a board have no comment." I sent another e-mail asking: "Will you have a comment for me at some future date?" I received no further reply. I may never learn the result of the investigation, or even whether an investigation was conducted.

American Portfolios
Recently I wrote to Lon T. Dolber, president of American Portfolios. I enclosed the two Forum articles and mentioned the FINRA BrokerCheck reports on Stallings and Baker. I asked whether American Portfolios was aware of the case of Mrs. X when Stallings joined the firm. In response, Frank A. Tauches, Jr., executive vice president and general counsel, said:
Mr. Stallings disclosed the matter regarding "Mrs. X" prior to joining American Portfolios. Our Compliance Department, which reports to me, reviewed the matter. This matter was resolved as reported in FINRA's Broker Check during the same month that Mr. Stallings joined American Portfolios. Mr. Stallings remains a well-respected member of our firm who has had no customer complaints nor any regulatory issues since he joined us. I trust that this satisfies your inquiry.
General Observations
When I learned about the case of Mrs. X, I believed that the replacements were not justified, and that the life insurance aspect of the case was one of the most egregious replacements I had ever seen. In my first article about the case, I expressed the belief that commissions motivated the replacements, and that the transactions therefore involved churning. I think it is unconscionable that no significant punishment was imposed in the case.

I am offering a complimentary five-page PDF containing the two Forum articles. Send an e-mail to jmbelth@gmail.com and ask for the articles about the case of Mrs. X.

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Wednesday, December 10, 2014

No. 75: Life Partners Faces a Court-Ordered Death Sentence

On December 2, 2014, Senior U.S. District Judge James R. Nowlin handed down a Final Judgment Order in a lawsuit filed by the Securities and Exchange Commission (SEC) against Life Partners Holdings, Inc. (NASDAQ:LPHI); Brian D. Pardo, chief executive officer of LPHI; and R. Scott Peden, general counsel of LPHI. The financial dimensions of the order are a death sentence for the company. (SEC v. LPHI, U.S. District Court, Western District of Texas, Case No. 1:12-cv-33.)

Background
On January 3, 2012, the SEC filed a civil complaint in federal court alleging that LPHI and its top officers had violated securities laws and regulations. On February 3, 2014, after a four-day trial, the jury voted in favor of the SEC on some and in favor of LPHI on some of the alleged violations of securities laws and regulations. LPHI declared victory because the jury voted in favor of LPHI on what the company considered the most serious charges. I wrote about the case in the April 2012 issue of The Insurance Forum and on my blog in Nos. 22, 29, 35, and 37.

The Permanent Injunction
Judge Nowlin ruled that the conduct of the defendants warranted the entry of a permanent injunction. He said their conduct was egregious, they understood they were not complying with their obligations, their violations were recurrent rather than isolated, they refused to recognize their obligations, and there was a likelihood of future violations in the absence of an injunction. The judge permanently enjoined the defendants from future violations of securities laws and regulations.

The Disgorgement
Judge Nowlin ordered LPHI to disgorge its ill-gotten gains by paying $15 million to the SEC. He expressed the belief that the figure is sufficiently large (more than half LPHI's current market capitalization) to deter future wrongdoers, and that the figure does not overstate the amount of LPHI's ill-gotten gains.

I think the judge calculated the current market capitalization by multiplying the number of outstanding shares (18,647,468 according to the proxy statement filed July 2, 2014) by the closing price per share on December 1 ($1.43), the day before he filed the order. That calculation produces a figure of $26.7 million, and the $15 million of disgorgement is 56 percent of the market capitalization. However, the share price declined sharply the next day on heavy volume in the wake of the order, closing at $1.10, and closing on December 8 at $1.00. Using the latter figure means the $15 million was 80 percent of the reduced market capitalization. Furthermore, I believe that even the $1.00 price is inflated by the fact that LPHI has continued to pay dividends to shareholders (Pardo beneficially owns 50.3 percent of the shares) despite continuing and significant operating losses.

The Civil Penalties
The judge ordered LPHI to pay a civil penalty of $23.7 million to the SEC. That figure is twice LPHI's total shareholders' equity of $11.8 million as of August 31, 2014. Indeed, the civil penalty exceeds LPHI's total assets of $19.8 million, and the $38.7 million sum of the disgorgement and the civil penalty is almost twice the total assets!

The judge also ordered Peden and Pardo to pay civil penalties of $2 million and $6.2 million, respectively. Thus the sum of the disgorgement and all the civil penalties is $46.9 million.

Other Aspects of the Order
As the case progressed, LPHI repeatedly argued that, because its life settlements are not securities, the firm is not engaged in the securities business. LPHI in recent years has lost a number of legal battles over that question, including in the current case.

After the trial, the defendants argued that no punishment should be imposed. The SEC argued not only for a permanent injunction, but also for penalties that the judge described as "ranging from a low of $67,930,000 to a high of $1.5 billion."

In the order, Judge Nowlin focused on Pardo. Here is how the judge described Pardo's role:
Brian Pardo owns a controlling stake in LPHI and serves as its CEO. He and he alone possesses the power to make strategic decisions, and it was he who guided the company down the path it took despite numerous warning signs that doing so might entail violating the law. Likewise, Pardo has a history of violating securities laws that dates back to 1991. He is a repeat offender who shows no signs that he has learned his lesson. The evidence suggests that Pardo behaved recklessly.... Accordingly, the Court assesses civil penalties against him based on his rendering knowing and substantial assistance in LPHI's filing of seventeen separate, false reports, and his knowingly false certifications thereof, as discrete violations of five separate provisions of the Exchange Act...for a total of 85 individual violations....
Judge Nowlin said Pardo, as chief executive officer and controlling shareholder, had the power to strengthen LPHI's "oversight and compliance regime." The judge also said that "oversight and compliance at Life Partners were non-existent," even after the company's ouster from Colorado in the wake of charges by Colorado's securities regulators.

Judge Nowlin singled out the sworn trial testimony of Tad M. Ballantyne (Racine, WI), a director of LPHI since 2001. In what the judge called "remarkable" testimony, Ballantyne said that he had never read, seen, or even heard of a 2,100-word December 21, 2010 article in The Wall Street Journal about LPHI's practices, and that he does not regularly read the Journal. The judge said the testimony revealed Ballantyne to be "either profoundly dishonest or amazingly uninformed about the company whose shareholders he has a fiduciary responsibility to protect." The judge described as "telling" the fact that Ballantyne remains on the board even after the embarrassing and uninformed testimony.

General Observations
Most media stories about Judge Nowlin's order said LPHI had not replied to requests for comment. However, according to The Wall Street Journal, Pardo said that "all the defendants plan to appeal." Presumably that means they will head for the U.S. Court of Appeals for the Fifth Circuit, and if they lose there, they would petition the U.S. Supreme Court to review the matter. Thus final resolution of the case may be at least one or two years away.

Judge Nowlin said the disgorgement and the civil penalty against LPHI were to be paid within 14 days of the order, and the civil penalties against Peden and Pardo were to be paid within 30 days of the order. However, the defendants may try to obtain a stay pending appeal.

Meanwhile, it remains to be seen what LPHI will say in an 8-K (material event) report, which is supposed to be filed within four business days after the event. I think that means December 8 in this case. At 4:00 p.m. EST on December 9, I found no 8-K on the SEC website, no press release on the LPHI website, and nothing on the district court docket after the Final Judgement Order. Something has to happen by December 16, because that is the date by which Judge Nowlin ordered LPHI to pay $38.7 million to the SEC. Also, on January 15, 2015, LPHI is supposed to file its 10-Q report for the fiscal quarter ended November 30, 2014. I plan to report further developments.

Saying LPHI faces "bankruptcy" is too gentle a description, because the word often implies at least the possibility of a reorganization. Rather, I think the order is a death sentence for the company. The Journal story quotes an attorney for Pardo as saying: "Has the government tried to burn down the village in order to save it? Apparently, yes." It is hard to disagree with the attorney's comment, but it also appears that Pardo's actions brought on the overwhelming financial dimensions of the order.

I am offering a complimentary PDF containing Judge Nowlin's 21-page order. Send an e-mail to jmbelth@gmail.com and ask for the Final Judgment Order in the SEC lawsuit against LPHI.

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Tuesday, November 25, 2014

No. 74: Life Partners—A New Fund-Raising Scheme that Borders on Extortion

I wrote extensively in The Insurance Forum about Life Partners, Inc. (Waco, TX), an intermediary in the secondary market for life insurance and a subsidiary of Life Partners Holdings, Inc. (NASDAQ:LPHI). I also wrote about LPHI in Nos. 15, 22, 29, 30, 35, 36, 37, and 63. Here I discuss LPHI's new fund-raising scheme that apparently grew out of a desperate need for revenue and that I think borders on extortion.

The Continuing Losses
On October 15, 2014, LPHI timely filed its 10-Q report with the Securities and Exchange Commission for the fiscal quarter ended August 31, 2014, which is the second quarter of LPHI's fiscal year ending February 28, 2015. LPHI reported a net loss of a whopping $7.2 million for the quarter, compared to a net loss of $1.8 million in the corresponding quarter a year earlier. Quarterly losses over the preceding 13 quarters have consistently been under $2 million, with positive net income in only two of those quarters.

On page 11 of the 26-page 10-Q, LPHI gave a detailed discussion of its continuing legal struggle with a German bank that loaned LPHI money in exchange for an interest in some life settlements. The uncertainties associated with the litigation prompted LPHI to record an impairment to the investment value of its interest in those settlements. On page 17 of the 10-Q, LPHI mentioned the impairment in its brief explanation for the large loss in the second fiscal quarter. LPHI said:
The net loss for the Second Quarter of this year was primarily due to the recording of an impairment reserve against the value of the investment in life settlements trust of $6,648,478. Without this reserve, we would have realized a net loss, before taxes, of $838,857 for the Second Quarter of this year.
On top of the continuing losses, LPHI reported an average of slightly fewer than ten new life settlements per quarter during the 14 most recent fiscal quarters. During the most recent five quarters, LPHI reported an average of slightly fewer than four new life settlements per quarter.

Despite the continuing losses and the lack of new life settlements, LPHI has continued paying shareholder dividends. Slightly more than half the dividends go to Brian Pardo, LPHI's chief executive, who beneficially owns slightly more than half the outstanding shares. Prior to 2012, the quarterly dividends were 20 cents per share. LPHI reduced the dividend to 10 cents per share in the next five quarters, and to 5 cents per share since then. At one spot on page 21 of the 10-Q, LPHI said: "We may have to decrease our stock dividends and may make further cuts." At another spot on the same page, LPHI said: "We may reduce or eliminate the dividends for the remainder of fiscal 2015 and for 2016 to conserve working capital until we can realize improved operating results."

The New Fund-Raising Venture
On page 21 of the 10-Q, near the end of a lengthy paragraph explaining how "the operating losses we experienced in fiscal 2014 have eroded the strength of our financial condition," LPHI disclosed a new fund-raising venture. Here is the relevant sentence:
Beginning in the Third Quarter of this year we will bill our life settlement investors for policy monitoring costs in order to recover the expenses of tracking policy premium payments and maturity payouts through the life settlement process.
The First Pardo Letter
On October 14, Pardo sent a one-page letter to clients informing them of the fund-raising venture. Pardo said the company provided important ministerial functions to 23,500 clients without charge for 24 years, but the company can no longer provide those functions without charge. He said a new subsidiary, LPI Financial Services, Inc., will provide those functions "at a very reasonable cost to you."

Pardo said the "cost will be a base charge of $240 per year for each account plus an incremental monthly charge per active life settlement position" of $1.25 for one position, $1.75 for each of two positions, $2 for each of three positions, $2.25 for each of four positions, and $2.50 for each of five positions or more. He said the cost "will be billed in arrears starting with this notice." The word "arrears" means the charge will be for services performed during the past year rather than for services to be performed during the coming year.

An invoice was enclosed with the letter. For example, a client with three positions was asked to remit $312: the base charge of $240 plus a monthly charge of $72 ($2 times 3 positions times 12 months).

The Second Pardo Letter
On October 27, Pardo sent a three-page follow-up letter prompted by what probably was a large number of complaints. He apologized for not providing more details. He said the initial fee charged by Life Partners when the policies "closed" was a fee "for acquisition services." He explained in greater detail than in the first letter the "monumental administrative and technically intense task which requires a small army of full time programmers and IT experts to maintain and manage."

An Unanswered Question
The Pardo letters do not explain what would happen if a client ignores the bill. For example, clients have fractional interests, and it is not clear what would happen if some with interests in a policy pay the bill and some with interests in the same policy do not pay the bill. I asked Life Partners to address the question, but received no reply.

General Observations
The agreements that clients entered into with Life Partners did not provide for ministerial fees. Nonetheless, I think many clients will pay the bills to avoid the possibility of losing everything they invested. I think billing for ministerial fees borders on extortion.

I am offering a five-page complimentary PDF consisting of the one-page first letter, the one-page invoice, and the three-page second letter, with redactions to conceal client identity. Send an e-mail to jmbelth@gmail.com with a request for the Life Partners package.

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Wednesday, November 19, 2014

No. 73: Iowa and Nebraska—More on Frightening Accounting Rules

In No. 71 posted November 6, 2014, I focused on a $1.837 billion parental guarantee that Iowa-based TLIC Riverwood Reinsurance, Inc. (Riverwood), a "limited purpose subsidiary" (LPS), received from Aegon USA and recorded as an admitted asset in accordance with Iowa's frightening insurance accounting rules. In No. 72 posted November 11, I provided further information about Iowa's LPS rules and mentioned the existence of similar rules in Georgia, Indiana, Nebraska, and Texas. Here I present information about Iowa's five other LPSs and Nebraska's three LPSs. At the outset, however, I comment on the aura of confidentiality surrounding LPS accounting rules.

The Confidentiality Mystery
As mentioned in No. 71, I encountered confidentiality concerning certain aspects of Iowa's LPS accounting rules. In working on this follow-up, I encountered a confidentiality provision in Nebraska's LPS law that prevented me from obtaining financial statements and independent auditor reports for Nebraska's LPSs.

I was unable to learn the rationale for the confidentiality provision in Nebraska's LPS law. Not a word about the provision is in the legislative committee's statement about the bill, in the committee's statement about the intent of the bill, or in the transcript of the hearing on the bill.

In July 2013, the Captive and Special Purpose Vehicle (SPV) Use Subgroup of the Financial Condition Committee of the National Association of Insurance Commissioners (NAIC) released a white paper with many references to confidentiality. However, the paper did not identify the rationale for confidentiality. Here is an example of how the writers of the paper danced around the issue:
The Subgroup recommends that the NAIC study the issue of confidentiality related to commercially owned captives and SPVs more closely. This study would pursue greater clarity regarding the specific reasons for and against the use of confidentiality for such entities. The Subgroup believes it may be necessary to develop a framework that would provide greater uniformity in this area. More specifically, it may be appropriate to consider the type of information that should, and should not, be held confidential.
I asked people with knowledge of the matter, but they declined to explain the rationale. They did not make clear whether they do not know the rationale, or whether they know it and will not explain it to me.

Therefore I will speculate on the rationale. I think the confidentiality provision in the Nebraska LPS law and certain confidentiality provisions in Iowa's LPS rules are designed to prevent the public from learning the facts about LPS accounting rules. I think LPS accounting rules allow the operation of a shell game in which the players cannot allow full disclosure of the facts because disclosure would destroy the game. In other words, I think LPS accounting rules allow the creation of a house of cards, the collapse of which will cause severe losses to many innocent people.

Iowa's Other LPSs
Iowa has five LPSs other than Riverwood. They are Cape Verity I, Inc., Cape Verity II, Inc., Cape Verity III, Inc., MNL Reinsurance Company, and Solberg Reinsurance Company.

Cape Verity I
Cape Verity I is owned by Iowa-based Accordia Life and Annuity Company. Accordia carries Cape Verity I as an admitted asset at Cape Verity I's statutory net worth of $50 million.

Accordia is owned by Massachusetts-based Commonwealth Annuity and Life Insurance Company. Commonwealth's ultimate parent is Bermuda-based Global Atlantic Financial Group Ltd., which is 20 percent owned by Delaware-based The Goldman Sachs Group, Inc. and 80 percent owned by "Third Party Investors." The "Notes to Financial Statements" in Cape Verity I's 2013 financial statement say:
Pursuant to Iowa Administrative Code (IAC) Section 191-99.11(3), Limited Purpose Subsidiary Life Insurance Company, the Company [Cape Verity I] has included as an admitted asset the outstanding principal amount of a Variable Funding Puttable Note (contingent note) serving as collateral for reinsurance credit taken by an affiliated cedant [Accordia] in connection with a reinsurance agreement entered into between the Company [Cape Verity I] and the affiliated cedant [Accordia]. The contingent note was issued by Tapioca View LLC [a Delaware-based subsidiary of Accordia] and is held for the benefit of the affiliated cedant [Accordia]. The contingent note is not included as a risk-based asset in the Company's [Cape Verity I's] risk-based capital calculation.
The reconciliation accompanying the above paragraph shows that Cape Verity I's statutory net worth is $50 million based on Iowa's rules and minus $449.4 million based on statutory accounting principles (SAP) promulgated by the NAIC. The difference of $499.4 million is Tapioca's contingent note, which Cape Verity I recorded as an admitted asset under Iowa's rules.

A reinsurance exhibit in Cape Verity I's statement shows a $1.02 billion reserve assumed from Accordia. That reserve is the entire liability side of Cape Verity I's balance sheet.

Cape Verity I's independent auditor is the Des Moines office of PricewaterhouseCoopers (PwC). The appointed actuary is David E. Neve, FSA, MAAA, who is also the chief actuary of Accordia and Global Atlantic. Cape Verity I's financial statement includes this strange item:
The Company [Cape Verity I] issued a Variable Funding Surplus Note (surplus note) to Tapioca View LLC on October 1, 2013, with an initial outstanding principal amount of $0. As of December 31, 2013, the carrying value of the surplus note was $0. There were no interest or principal payments made during 2013.
Cape Verity I's total adjusted capital for risk-based capital purposes is $50.94 million, company action level risk-based capital is $11.14 million, and the company action level risk-based capital ratio is 457 percent. If Tapioca's contingent note had not been recorded as an asset, the risk-based capital ratio would have been significantly negative and far below the mandatory control level.

Cape Verity II
Cape Verity II's financial statement is similar to that of Cape Verity I. Cape Verity II's statutory net worth is $260 million based on Iowa's rules and minus $339.7 million based on the NAIC's SAP. The difference of $599.7 million is a Tapioca contingent note, which Cape Verity II recorded as an admitted asset under Iowa's rules. The reinsurance reserve that Cape Verity II assumed from Accordia is $1.82 billion. Cape Verity II's company action level risk-based capital ratio is 1,106 percent.

Cape Verity III
Cape Verity III's financial statement is similar to those of Cape Verity I and II. Cape Verity III's statutory net worth is $50.5 million based on Iowa's rules and minus $107.8 million based on the NAIC's SAP. The difference of $158.3 million is a Tapioca contingent note, which Cape Verity III recorded as an admitted asset under Iowa's rules. The reinsurance reserve that Cape Verity III assumed from Accordia is $483.4 million. Cape Verity III's company action level risk-based capital ratio is 725 percent.

MNL Re
MNL Re is owned by Midland National Life Insurance Company, which is owned by Sammons Financial Group, Inc. Another affiliate is Guggenheim Capital LLC. MNL Re carries as an admitted asset a $417.44 million "LLC Note Guarantee," which is described elsewhere in the statement as an "irrevocable standby letter of credit." MNL Re's statutory surplus is $78.8 million under Iowa's rules and the NAIC's SAP. Thus the letter of credit (LOC) is an admitted asset under Iowa's rules and the NAIC's SAP. I found no further information about the LOC, such as the identity of the issuer and the terms of the LOC.

MNL Re's assumed reinsurance reserves total $543.56 million from two affiliates—Midland National and North American Company for Life and Health Insurance. The independent auditor is the Des Moines office of PwC. The appointed actuary is Timothy A. Reuer, FSA, MAAA, who is also senior vice president and corporate actuary of Midland National. MNL Re's company action level risk-based capital ratio is 2,258 percent.

Solberg Re
Solberg Re is affiliated with Midland National, Sammons, and Guggenheim. Solberg Re carries as an admitted asset $411.5 million of "irrevocable standby letters of credit." The statutory surplus of Solberg Re is $170.5 million under Iowa's rules and the NAIC's SAP. Thus the LOCs are admitted assets under Iowa's rules and the NAIC's SAP. I found no further information about the LOCs.

Solberg Re's assumed reinsurance reserves total $456.3 million from the same two affiliates mentioned in the above discussion of MNL Re. Solberg Re's company action level risk-based capital ratio is 463 percent.

Nebraska's LPSs
As indicated in No. 72, Nebraska's LPS law is section 44-8216 of the Nebraska Revised Statutes. An official in the Nebraska department said Nebraska has three LPSs: BHG Life Insurance Company, Lancaster Re Captive Insurance Company, and Omaha Reinsurance Company. I filed a public records request with the Nebraska department for the latest annual statements and independent auditor reports for those companies. My request was denied pursuant to the confidentiality provision in Nebraska's LPS law. I had not noticed that provision, which is the last of the 12 subsections of the law. However, I have assembled a little information about Nebraska's LPSs.

BHG Life, according to the Nebraska department official, is owned by Berkshire Hathaway Life Insurance Company of Nebraska. I have not been able to obtain further information about BHG Life.

Lancaster Re was the subject of a qualifying examination by a Nebraska financial examiner. The report of the examination was as of March 26, 2014 and was filed two days later. The examiner recommended that the company be licensed to operate under section 44-8216. Lancaster Re is owned by Resolution Life, Inc., a Delaware corporation with its executive office in Rosemont, Illinois. Resolution Life completed the acquisition of Lincoln Benefit Life Company from Allstate Life Insurance Company in April 2014. Lancaster Re's incorporators are W. Weldon Wilson, chief executive officer of Resolution Life; Keith Gubbay, president and chief actuarial officer of Resolution Life; and Robyn Wyatt, chief financial officer of Resolution Life.

Omaha Re was the subject of a financial examination as of December 31, 2010. The report of the examination was filed June 4, 2012. Omaha Re is owned by United of Omaha Life Insurance Company, which is owned by Mutual of Omaha Insurance Company. Omaha Re's independent auditor is Deloitte & Touche LLP. The balance sheet shows statutory net worth of $50 million as of December 31, 2010. The balance sheet shows a $133.1 million LOC as an admitted asset. Without it, the statutory net worth would have been minus $83.1 million. The report does not provide information about the LOC. Presumably some information about the LOC is in the financial statement and the independent auditor report, both of which are confidential by law.

An Available Document
I am making available a 91-page complimentary PDF containing the 2013 financial statement of Cape Verity I. I think the most important pages of the PDF are 1-4, 17, 22-23, 28, 35, 46, and 50-56. Send an e-mail to jmbelth@gmail.com and ask for the Cape Verity I financial statement.

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Wednesday, November 12, 2014

No. 72: More on Iowa's Frightening Insurance Accounting Rules

In No. 71 posted November 6, I focused on a $1.837 billion parental guarantee that TLIC Riverwood Reinsurance, Inc. (Riverwood) received from Aegon USA and recorded as an asset in accordance with Iowa's frightening insurance accounting rules. Since posting the item I have obtained some further information.

The Iowa Statute and Regulation
The relevant statute, section 508.33A of the Iowa Code, was enacted in 2010. It allows an Iowa-domiciled company to create a "limited purpose subsidiary" (LPS). Riverwood, domiciled in Iowa, is an LPS that files financial statements only in Iowa. Transamerica Life Insurance Company, domiciled in Iowa, is the parent of Riverwood. Aegon USA is the parent of Transamerica Life. Aegon NV, based in the Netherlands, is the parent of Aegon USA.

The Iowa LPS statute requires adoption of a regulation, which was adopted in 2010. Here is the full text of the relevant subsection 191-99.11(3) of the Iowa Administrative Code:
Admitted assets of the LPS shall include proceeds from a securitization, premium and other amounts payable by a ceding insurer to the LPS, letters of credit, guaranties of a parent, and any other assets approved by the commissioner, which shall be deemed to be, and reported as, admitted assets of the LPS. The commissioner has the authority to reduce the amount of admitted assets previously approved by the commissioner, other than assets already covered by the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners, if the commissioner determines that the value of those assets has decreased. At least 30 days prior to reducing the amount of admitted assets previously approved, the commissioner shall notify the LPS and provide the LPS an opportunity to remedy the issues identified by the commissioner.
The words "any other assets" in the first sentence of the above subsection is amazing. It gives the commissioner the authority to permit anything to be recorded as an admitted asset of an LPS.

The Rules in Other States
Iowa was the first state to enact LPS rules, and by 2012 at least four other states had followed suit: Georgia, Indiana, Nebraska, and Texas. I do not know whether any other states have enacted LPS rules since 2012.

In Georgia, the statute begins with section 33-14-100 of the Official Code of Georgia. The "investments" component of the accompanying regulation (120-2-100-.12) uses language virtually identical to that in Iowa concerning what assets can be recorded as admitted assets. I do not know whether any LPSs have been created in Georgia.

In Indiana, the statute is in section 27-1-12.1 of the Indiana Code. There is no accompanying regulation because the LPS rules are in the statute. The "admitted assets" component of the statute uses language virtually identical to that in Iowa. An official in the Indiana Department of Insurance said no LPSs have been created in Indiana. 

In Nebraska, the statute is in section 44-8216 of the Nebraska Revised Statutes. There is no accompanying regulation because the LPS rules are in the statute. The language about assets is similar but not identical to that in Iowa. An official in the Nebraska Department of Insurance said a small number of LPSs have been created in Nebraska. I have filed a public records request for the latest financial statements and independent auditor reports filed by those LPSs, and await the documents.

In Texas, the statute begins with section 841.401 of the Insurance Code. There is no accompanying regulation because the LPS rules are in the statute. The language about assets is similar but not identical to that in Iowa. I do not know whether any LPSs have been created in Texas.

The Role of Susan Voss
Susan E. Voss probably had a role in developing Iowa's LPS rules. She received a J.D. from Gonzaga University School of Law. She began her career in public service as an Iowa assistant attorney general. She became Iowa first deputy insurance commissioner in 1999. She served as Iowa insurance commissioner from 2005 to 2013. She served as president of the National Association of Insurance Commissioners (NAIC) in 2011. As chair of the NAIC's Life Insurance Committee, she led the development of the "principles based reserves" project.

In November 2013, Voss became vice president and general counsel of American Enterprise Group, Inc. (Des Moines, Iowa). In February 2014, she was named to the board of directors of United Fire Group, Inc. (Cedar Rapids, Iowa) "through the recommendation of current Board members who were familiar with her high profile work in the insurance industry." She was appointed to the compensation and risk management committees of the board. In May 2014, she was elected to a three-year term on the board. The 2013 total compensation of the non-employee directors of United Fire ranged from $58,000 to $107,000, with an average of $74,000.

I do not know the extent of Voss's involvement in the enactment of Iowa's LPS rules. Nor do I know the identity of the persons in the Iowa Division of Insurance who actually wrote the amazing language of the regulation. However, I believe, and I will continue to believe until I see concrete evidence to the contrary, that the language was written by representatives of the life insurance industry.

The Hamilton-Sidhu Article
Immediately after the adoption of the Iowa LPS rules, an article appeared in Lexology. The two co-authors are Lawrence R. Hamilton, a partner in the law firm of Mayer Brown LLP, and Vikram Sidhu, then of Mayer Brown and now a partner in the law firm of Clyde & Co. (Lexology is a web-based service for company law departments and law firms. It is a service provided by Globe Publishing Ltd., which operates out of London and Hong Kong.) The article contains this paragraph:
The admitted assets of an LPS can include proceeds from a securitization, premium and other amounts payable by a ceding insurer to the LPS, letters of credit, parental guaranties, and any other assets approved by the Iowa insurance commissioner. The ability to count letters of credit and even parental guaranties as admitted assets is a major regulatory development and is expected to provide significant capital relief for Iowa-domiciled life insurers that write substantial amounts of level premium term insurance and/or universal life insurance with no-lapse guarantees (referred to in industry parlance as "XXX" and "AXXX" business, respectively).
My Letter to the Regulators
In No. 71 I said I would send the item and a letter to Nick Gerhart, the current Iowa insurance commissioner, with some questions. I also said I would send copies of the letter to Adam Hamm, insurance commissioner of North Dakota and current president of the NAIC, and to Senator Ben Nelson, chief executive officer of the NAIC. I sent the letter on November 6, and asked for responses by November 21. I plan to prepare another follow-up to report their responses.

Meanwhile, I offer a complimentary PDF containing my two-page letter to the regulators. Send an e-mail to jmbelth@gmail.com and ask for the November 6 letter to Commissioner Gerhart.

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Thursday, November 6, 2014

No. 71: Iowa's Frightening Insurance Accounting Rules

In a "parental guarantee," a parent company declares it will honor obligations of a subsidiary. The Iowa Insurance Division (Division) has in place frightening accounting rules that allow an Iowa-domiciled insurance subsidiary to show a parental guarantee as an asset on the subsidiary's balance sheet. However, the Iowa rules violate statutory accounting principles (SAP) adopted by the National Association of Insurance Commissioners (NAIC). Even more frightening is the asset value at which the Iowa rules allow the subsidiary to carry the parental guarantee. I think the Iowa rules relating to parental guarantees allow Iowa-domiciled companies to engage in improper accounting practices that significantly distort the financial condition of both the subsidiary and the parent.

Background
In No. 44 posted April 22, I wrote about Symetra Financial Corporation's stated reasons for redomesticating its operating life insurance subsidiaries from Washington State to Iowa. The redomestications were later approved routinely by both states and have been completed. Among the reasons Symetra gave for the redomestications was to take advantage of Iowa's "state-of-the-art statutes and regulations." I consider that expression a euphemism for Iowa's frightening accounting rules, including its rules relating to the accounting treatment of parental guarantees.

Transamerica Life's 2013 Statement
In No. 44, I mentioned the 2013 annual statement of Transamerica Life Insurance Company (Cedar Rapids, Iowa), whose parent is Aegon USA, and whose ultimate parent is Aegon NV, a Netherlands-based conglomerate. Transamerica Life's "Notes to Financial Statements" mention two Iowa "prescribed practices." One relates to the accounting treatment of a parental guarantee that Aegon USA provided to TLIC Riverwood Reinsurance, Inc. (Riverwood), a small, Iowa-domiciled, special purpose, wholly owned, captive reinsurance subsidiary of Transamerica Life. Riverwood has no employees, is located in Transamerica Life's office in Cedar Rapids, files financial statements in no states other than Iowa, and does not file financial statements with the NAIC. Treating Aegon USA's parental guarantee to Riverwood as an asset of Riverwood inflated Transamerica Life's statutory surplus by $751 million beyond what it would have been under the NAIC's SAP.

The other Iowa prescribed practice, which is beyond the scope of this discussion, relates to the accounting treatment for reserves associated with secondary guarantee reinsurance contracts. The latter prescribed practice inflated Transamerica Life's statutory surplus by $3.53 billion beyond what it would have been under the NAIC's SAP.

Riverwood's 2013 Financial Statement
In this follow-up to No. 44, I elaborate on the first of the above two Iowa prescribed practices—the one relating to the accounting treatment of the parental guarantee that Aegon USA provided to Riverwood. According to Riverwood's 2013 financial statement, Riverwood's $3.169 billion of assets at the end of 2013 consisted of a $1.837 billion parental guarantee from Aegon USA and $1.332 billion of other assets. The "Notes to Financial Statements" in Riverwood's statement include this comment:
The State of Iowa has adopted a prescribed accounting practice that differs from that found in the NAIC SAP relating to the admission of a parental guarantee as capital and surplus. As prescribed by Iowa Administrative Code 191-99.11(3), the Company [Riverwood] is entitled to admit as an asset, the value of the parental guarantee provided to the Company [Riverwood] by Aegon USA, LLC, whereas the Statement of Statutory Accounting Principles (SSAP) No. 97, Investments in Subsidiary, Controlled and Affiliated Entities—A Replacement of SSAP No. 88 would not allow the admissibility of such an asset.
A reconciliation relating to the above comment shows Riverwood's statutory surplus at the end of 2013 based on the NAIC's SAP was minus $1.086 billion, and Riverwood's statutory surplus based on Iowa's prescribed practice was $751 million. The discrepancy arose because Iowa allowed Riverwood to carry the Aegon USA parental guarantee of $1.837 billion as an asset.

Interestingly, yet another Iowa frightening accounting rule allowed Transamerica Life to value its ownership of Riverwood at an amount equal to the $751 million statutory surplus of Riverwood. In other words, Transamerica Life was allowed to report that its statutory surplus was inflated only by $751 million rather than by the entire $1.837 billion parental guarantee that Aegon USA provided to Riverwood.

I filed with the Division a public records request for the $1.837 billion parental guarantee that Aegon USA provided to Riverwood. The Division spokesman who denied my request said:
The Parental Guarantee is a confidential record. The parental guarantee is a part of the insurer's [Riverwood's] plan of operation.
Iowa Code section 508.33(2)(b) states that the plan of operation is a confidential record and to be treated the same as information obtained by or disclosed to the commissioner per Iowa Code section 521A.6 and 521A.7 respectively.
I have three comments on the spokesman's letter. First, he cited no support for the assertion in the second sentence above, and I question whether the parental guarantee is part of Riverwood's "plan of operation." Second, I question whether any parental guarantee carried as an admitted asset should be treated as confidential. Third, I think nonconfidential treatment is especially important when the asset is greater than the company's entire statutory capital and surplus.

I then asked Riverwood's "statutory statement contact" person for a copy of the parental guarantee. I received no reply.

Risk-Based Capital
Riverwood's risk-based capital (RBC) numbers are worthy of note. At the end of 2013, total adjusted capital for RBC purposes was $781.2 million, company action level was $77.4 million, and company action level RBC ratio was a high but meaningless 1,009 percent ($781.2 million divided by $77.4 million, with the quotient expressed as a percentage). Because total adjusted capital was massively inflated by the parental guarantee that Aegon USA provided to Riverwood, the RBC ratio without the parental guarantee would have been a large negative number.

The Ernst & Young Report
Ernst & Young LLP (E&Y) is Riverwood's independent outside auditor. Through a public records request to the Division, I obtained the May 30, 2014 Report of Independent Auditors addressed to Riverwood's board of directors by the Des Moines office of E&Y. The report includes the ten points quoted below. The numbering is mine.
  1. Management is responsible for the preparation and fair presentation of these financial statements in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa.
  2. As described in Note 1, to meet the requirements of Iowa the financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, which practices differ from U.S. generally accepted accounting principles [GAAP]. The variances between such practices and U.S. generally accepted accounting principles are described in Note 1. The effects on the accompanying financial statements of these variances are not reasonably determinable, but are presumed to be material.
  3. In our opinion, because of the effects of the matter described in the preceding paragraph, the statutory-basis financial statements referred to above do not present fairly, in conformity with U.S. generally accepted accounting principles, the financial position of TLIC Riverwood Reinsurance, Inc. at December 31, 2013 and 2012, or the results of its operations or its cash flows for the years then ended.
  4. However, in our opinion, the statutory-basis financial statements referred to above present fairly, in all material respects, the financial position of TLIC Riverwood Reinsurance, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with accounting practices prescribed or permitted by the Iowa Department of Financial Regulation.
  5. As discussed in Note 2 to the financial statements, the Company [Riverwood], with the permission of the Insurance Division, Department of Commerce, of the State of Iowa, has included as an admitted asset the value of the parental guarantee provided to the Company [Riverwood] by Aegon USA, LLC at December 31, 2013 and 2012.
  6. As admissible by the State of Iowa, the parental guarantee is reported as an admitted asset on the balance sheet but would not be under GAAP.
  7. The admitted value of the parental guarantee asset represents the guaranteed obligation of Aegon USA, LLC. The guaranteed obligation means all amounts payable by the Company [Riverwood] pursuant to the reinsurance agreement with TLIC [Transamerica Life Insurance Company] as of the reporting date. The parental guarantee is valued at the net assumed liability held by the Company [Riverwood].
  8. The State of Iowa has adopted a prescribed practice that differs from that found in the NAIC SAP related to the admission of a parental guarantee as an admitted asset. As prescribed by Iowa Administrative Code (IAC) 191-99.11(3), the Commissioner found that the Company [Riverwood] is entitled to admit as an asset, the value of the parental guarantee provided to the Company [Riverwood] by Aegon USA, LLC, whereas the NAIC SAP would not allow the admissibility of such an asset.
  9. If the Company [Riverwood] had not been permitted to include the parental guarantee in surplus, the Company's [Riverwood's] risk-based capital would have been below the mandatory control levels of $27,105 and $28,119 at December 31, 2013 and 2012, respectively.
  10. This report is intended solely for the information and use of the Company [Riverwood] and state insurance departments to whose jurisdiction the Company [Riverwood] is subject and is not intended to be and should not be used by anyone other than these specified parties.
My Comments on the Ernst & Young Report
Several of the points quoted above say Riverwood's accounting conforms to Iowa's accounting rules but does not conform to GAAP and does not conform to the NAIC's SAP. Thus E&Y's opinion is very limited in value because it is favorable only in relation to Iowa's rules.

E&Y says in number 2 above that the variances from GAAP "are not reasonably determinable." I disagree. I think E&Y is capable of calculating the size of the variances from GAAP and showing how "material" those variances are.

E&Y says in number 7 above that "The parental guarantee is valued at the net assumed liability held by the Company [Riverwood]." That astounding language apparently means the value at which Aegon USA's parental guarantee is carried as an asset on Riverwood's balance sheet is derived from the liabilities carried by Riverwood relating to reinsurance that Riverwood assumed from Transamerica Life.

E&Y says in number 9 above that if the parental guarantee had not been included in Riverwood's surplus, Riverwood's RBC ratio would have been below the mandatory control level. That is correct, but it would have been more meaningful to say that, without the parental guarantee, Riverwood would have been insolvent by $1.086 billion.

E&Y's statement in number 10 above is intriguing. It would be regrettable if its purpose is to prevent interested parties—such as Aegon NV shareholders and prospective shareholders, Transamerica Life policyholders and prospective policyholders, financial analysts, rating firms, and regulators other than in Iowa—from seeing E&Y's opinion. The last time I saw such a sentence was in an elaborate legal opinion about a "too-good-to-be-true" life insurance scheme.

My Letter to Gerhart
Nick Gerhart is the Iowa insurance commissioner. As soon as this blog item is posted, I will write to him and ask several questions. I will send a copy of the letter to Adam Hamm; he is the North Dakota insurance commissioner and the NAIC president. I will also send a copy to Senator Ben Nelson; he is the NAIC chief executive officer. Here are some but not all of the questions I will ask:
  1. Does Aegon USA have a liability on its financial statement for its $1.837 billion parental guarantee to Riverwood? If so, does Aegon USA have financial assets (such as cash, bonds, preferred and common stock, mortgages, and real estate) on its financial statement backing that liability? If Aegon USA does not have financial assets backing that liability, from what entity does Aegon USA have a parental guarantee?
  2. What regulatory agency has responsibility for supervising the financial condition of Aegon NV, the ultimate parent of Riverwood, Transamerica Life, and Aegon USA? Please provide me contact information for an appropriate person in that agency.
  3. Do you have in the Iowa Insurance Division documentary proof that Aegon NV and its subsidiaries have sufficient financial assets to meet their financial obligations? If so, please send me the documentary proof. If you do not have such documentary proof, please explain how you can assure the public that Aegon NV and its subsidiaries have sufficient financial assets to meet their financial obligations.
I plan to post a follow-up blog item reporting on the answers I receive from Commissioner Gerhart. I also hope to receive comments from Commissioner Hamm and Senator Nelson.

Available Documents
Meanwhile, I am offering a complimentary 146-page PDF that consists of Riverwood's 100-page financial statement for 2013 and the 46-page E&Y report on Riverwood dated May 30, 2014. I considered providing only selected pages, but decided to provide the documents in their entirety because of the importance of the subject. Send an e-mail to jmbelth@gmail.com and ask for the Riverwood documents.

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