Monday, July 23, 2018

No. 278: Jon Meacham's New Book—A Priceless Gem

Jon Meacham is an American historian whose previous books include treatises about Thomas Jefferson, Andrew Jackson, George Herbert Walker Bush, and the "epic friendship" of Franklin Roosevelt and Winston Churchill. His latest book, which became my July 4th reading at the suggestion of a friend, is entitled The Soul of America: The Battle for Our Better Angels. Although I have not read his earlier books, I have seen him interviewed on television. His new book is a priceless gem.

Structure of the Book
The book is about 400 pages long, but the text is only about 250 pages with fascinating photographs sprinkled through it. The remainder of the book consists of notes, a bibliography, illustration credits, and an index. The titles and subtitles of the book's introduction, seven chapters, and conclusion provide a summary:
Introduction: To Hope Rather than to Fear
1. The Confidence of the Whole People: Visions of the Presidency, the Ideas of Progress and Prosperity, and "We, the People"
2. The Long Shadow of Appomattox: The Lost Cause, the Ku Klux Klan, and Reconstruction
3. With Soul of Flame and Temper of Steel: "The Melting Pot," TR and His "Bully Pulpit," and the Progressive Promise
4. A New and Good Thing in the World: The Triumph of Women's Suffrage, the Red Scare, and a New Klan
5. The Crisis of the Old Order: The Great Depression, Huey Long, the New Deal, and America First
6. Have You No Sense of Decency?: "Making Everyone Middle Class," the GI Bill, McCarthyism, and Modern Media
7. What the Hell Is the Presidency For?: "Segregation Forever," King's Crusade, and LBJ in the Crucible
Conclusion: The First Duty of an American Citizen
General Observations
Meacham's conclusion about "the first duty of an American citizen" is the need to "enter the arena" and "work in politics." He goes on to mention other duties of citizens: resist tribalism, respect facts, deploy reason, find a critical balance, and—as historians say—keep history in mind.

The entire book is superb, but I was most fascinated by Meacham's discussions of these subjects: the battle for women's suffrage; the struggles with the Ku Klux Klan and the new Klan; President Franklin Roosevelt's victories in our greatest depression and our greatest war, his mistake relating to the treatment of Japanese Americans after the attack on Pearl Harbor, and his failure to rescue more Jews from the Holocaust; President Harry Truman's efforts on civil rights despite his racist background; the rise and fall of Senator Joseph McCarthy; the contributions of Rev. Martin Luther King, Jr.; and President Lyndon Johnson's battles, despite his Southern roots, to persuade Congress to pass the Civil Rights Act of 1964 and the Voting Rights Act of 1965.

I came away from reading the book with an overpowering wish that President Donald Trump would read it. I have heard it said he does not read books, but perhaps that assertion is "fake news." I choose to hope that, even though we have strong evidence to the contrary, the book would have a profound influence on him.


Tuesday, July 17, 2018

No. 277: The Age 100 Problem—Results of a Survey

My most recent discussion of "the age 100 problem" was in No. 269 (June 6, 2018). There I provided an update on a lawsuit filed in July 2017 by Gary Lebbin, who became 100 years old in September 2017, against Transamerica Life Insurance Company. In that post I said I was planning a survey of life insurance companies about the age 100 problem. Here I describe the survey and the results.

The Survey
I sent the survey on June 8 by regular mail to the chief executive officers of 22 life insurance companies. The mailing consisted of a cover letter and an enclosure. The cover letter contained three assumptions and four questions. The enclosure was a reproduction of No. 269, which included links to three earlier posts on the subject. No. 269 and the earlier posts offered complimentary packages of information on the subject. The response date was June 29. Here are the assumptions and the questions:
Assumption 1. Mr. Jones purchased a $100,000 traditional dividend-paying whole life policy from your company in 1975 at age 50; the policy was not rated.
Assumption 2. He has paid annual premiums every year and has taken all dividends in cash.
Assumption 3. He has written to you in 2018 (at age 93) seeking your assistance with a potential income tax problem should he survive to the policy's terminal age of 100.
Question 1. Will you pay the death benefit to him at age 100? If so, please indicate the amount of taxable income you will report on the 1099. If you will not pay him the death benefit at age 100, please explain why you will not do so.
Question 2. What would you offer him as a way to avoid the income tax problem?
Question 3. If you offer him the option of postponing the payment of the death benefit beyond age 100, what would you say to him—in addition to advising him to consult his tax advisor—about the possibility of his being deemed in constructive receipt of the death benefit at age 100?
Question 4: No. 269 mentions the idea of a 1035 exchange into a more recent policy based on a mortality table with a terminal age of 121. What do you think of the idea?
The Responders
Nine companies acknowledged the survey in at least some fashion. However, some of them provided little or no information. Here are the responses, which I edited.

American United
An official requested the packages offered in the four blog posts. I sent the packages but received nothing further.

Gleaner Life
On question 1, President and Chief Executive Officer Kevin Marti said the society would send Jones a letter six months before the terminal date offering him the option of accepting an extended maturity endorsement (EME). On question 2, he said the EME reclassifies the surrender value as the new death benefit, and the cash value continues to earn interest until paid as an income-tax-free death benefit. He said he was not able to easily obtain the information to estimate the taxable gain, if any, in the sample scenario. He said he was fairly certain their dividend history would not be what an industry leader like Northwestern Mutual would have achieved. On question 3, he showed the full text of the letter offering the EME. On question 4, he said it may work in theory, but he expressed concerns. The society does not issue coverage at ages above 85, and he thought it might not be equitable to increase the net amount at risk at an advanced age without underwriting.

Guardian Life
President and Chief Executive Officer Deanna Mulligan said the company believes the intent of such policies is clear—protection for life. The company feels strongly that the right course is to keep that promise and allow the policy to remain in force and function as normal until death. A few months prior to the terminal date, the company informs the policyholder of the option to keep the policy in force. The company would pay dividends as usual, and the policy would perform as usual. If the policyholder chooses to surrender the policy for its cash value, the policyholder may do so at any time. There are many scenarios with tax and other financial implications, and given the complexity the company does not believe there is a one-size-fits-all answer. The company advises policyholders of the financial implications of their decisions, and encourages them to seek advice from their tax advisors as appropriate. One certainty is that it is our responsibility to keep the promise we made, adhere to the policy's intent, and provide protection for life that our policyholders expect and deserve. She thanked me for reaching out, and for bringing this important issue to light.

Massachusetts Mutual
An official said whole life policies issued by the company in 1975 do not have a maturity date. Once a policy is in paid-up status, the policy will continue in force and dividends will continue to be paid on the policy until either the insured dies and a death benefit is paid or the policyholder surrenders the policy.

Metropolitan Life
An official said the company spun off its retail business last year, it no longer sells individual life insurance, and the survey should be directed to companies still selling such insurance. I asked whether the company is still administering the business, and if not, for contact information at the company administering the business. I received no further response.

New York Life
On question 1, an official said no. The death benefit is payable to the named beneficiary at the time of the insured's death. What is available to the policyholder at the terminal age is the net cash value, which is the face value, plus any accrued dividend value, less any outstanding policy loans with interest. Based on the assumptions, when the policy reaches the terminal age of 100, the net cash value will be equal to the death benefit. At that time, if the policyholder chooses to surrender the policy and take a lump-sum cash distribution, the taxable income is the amount of the distribution that exceeds the policyholder's net premium cost. If the policyholder chooses instead to defer maturity and continue paid-up insurance coverage with no further premiums, there is no distribution until the insured's death and no gain is reported. On question 2, the official said the policyholder's decision whether to receive a cash distribution directly determines the amount of taxable gain realized from the transaction. If the policyholder chooses to defer the cash distribution until death, there is no gain to report. On question 3, the official referred to the response to question 2. On question 4, the official said the company chooses not to speculate or comment on the matter.

Northwestern Mutual
An official said the company does not automatically pay out the death benefit when the insured reaches the terminal age, although the company recognizes that other companies may handle the situation differently. The official said the Internal Revenue Service provided a safe harbor for policies to continue to qualify as life insurance after the insured attains age 100. The company urges policyholders to seek counsel from their tax advisors for any tax-related questions.

Prudential Insurance
An official said the company determined that my mailing was an unsolicited business submission from an outside party, and the company has a longstanding policy not to entertain such submissions. The official returned the mailing to me.

Sun Life Financial
An official expressed familiarity with my writings and appreciation for my dedication in providing information and perspectives on life insurance. The official said the company welcomes inquiries from policyholders and their representatives, but prefers not to answer hypothetical questions because of the many different kinds of life insurance policies. The official said any general answer could potentially misinform policyholders. For example, as a general matter, the company's participating whole life policies mature upon the death of the insured, not age 100, so coverage continues until the insured's death. The official said the company would have to review each policyholder's specific policy language to determine an actual response. Similarly, the company cannot say whether an adjustment to the terms of a policy is necessary or advisable. On question 4, the official said the company views this as a viable option well aligned with the regulatory intent of Section 1035, which allows deferral of taxation upon an exchange of one policy for a new policy that better suits a policyholder's needs.

The Nonresponders
Thirteen companies did not acknowledge receipt of the survey. Those companies are AXA Equitable, Great-West Life, Lincoln National, Manulife Financial, Minnesota Life, National Life (VT), Nationwide Life, Pacific Life, Penn Mutual, Phoenix Life, Principal Life, TIAA, and Western & Southern.

General Observations
I am disappointed that none of the companies assembled data for the Jones policy. I am also disappointed by the number of nonresponders. On the brighter side, I did better than on my survey 17 years ago, when I wrote to 20 companies and received responses from only three of them. It should come as no surprise to anyone who knows me that I am not deterred. I still think the age 100 problem is serious for life insurance consumers and the life insurance business. I plan to continue my efforts.

Available Material
I am offering a complimentary 11-page PDF containing a sample cover letter, the enclosure, and the addresses of the chief executive officers to whom I sent the survey. Email and ask for the July 2018 package about the age 100 survey.


Tuesday, July 10, 2018

No. 276: The New York Department's Attack on Reinsurance Arrangements at William Penn Life of New York

On May 3, 2018, the New York State Department of Financial Services (DFS) issued a press release announcing a consent order directed at William Penn Life Insurance Company of New York (WPNY) for improper reinsurance arrangements. DFS imposed a fine of $6.3 million against WPNY. The consent order was signed by WPNY President and Chief Executive Officer Bernard Leigh Hickman, DFS Executive Deputy Superintendent for Insurance Scott Fischer, and DFS Superintendent of Financial Services Maria T. Vullo.

The Consent Order
The opening sentence of the consent order says DFS conducted a targeted examination of WPNY's reinsurance operations and related financial reporting. The consent order refers to reinsurance arrangements with Legal & General Assurance Society (LGAS), a WPNY affiliate. The consent order says DFS found that some of those arrangements had not been approved by DFS and were in violation of New York law. The consent order also says WPNY made materially inaccurate statements to DFS in response to requests for information about the reinsurance arrangements. Here is one of the findings in the consent order:
[WPNY] on March 31, 2017, filed with [DFS] its Annual Statement as of December 31, 2016, which included an Exhibit of Captive and Offshore Affiliated Reinsurance Transactions which inaccurately certified that [WPNY] was not ceding reinsurance to LGAS, an affiliated entity.
My Public Records Request
I immediately submitted to DFS a public records request for the report of the targeted examination. On June 19, after almost seven weeks, DFS denied my request. Here is the DFS explanation:
[WPNY] desired to settle the issues cited in the May 3rd consent order prior to the rest of the examination being completed. At this time, the examination is still ongoing and no report has been generated. Accordingly, because no report currently exists, the Department has no record responsive to your request.
I think the response means there will never be a report of the targeted examination, and there will not be any details of the targeted examination until the public release of the ongoing regular financial examination of WPNY. I think the public release date of the next regular financial examination of WPNY is June 30, 2019.

The Statutory Annual Statements
I obtained WPNY's statutory annual statements for the years ended December 31, 2016 (the 2016 statement) and December 31, 2017 (the 2017 statement). The 2017 statement was executed on February 16, 2018. I reviewed the "Notes to Financial Statements" in the 2016 and 2017 statements. I found no mention of the reinsurance arrangements that are at the heart of the consent order. I also reviewed the reinsurance exhibits in the 2016 and 2017 statements. Although there are indications of reinsurance ceded to LGAS, I found no information relating to the findings in the consent order.

The Amended 2017 Statement
Shortly after reviewing the 2017 statement, I learned that WPNY filed an amended 2017 statement. The amended 2017 statement was executed on May 24, 2018. It includes two changes relevant to the reinsurance arrangements that are at the heart of the consent order.

First, a two-paragraph statement appears at the top of a separate page that precedes the jurat page (normally the first page) of the 2017 statement. Here are the two paragraphs, which were not in the original 2017 statement:
The New York State Department of Financial Services has undertaken a targeted examination of William Penn Life Insurance Company ("WPNY") and identified violations by the company in failing to obtain approval for certain affiliate reinsurance agreements from 2014-2018 from the Department. WPNY, its ultimate shareholder (Legal & General Group Plc) and the Department have engaged in discussions on these matters, and as a result WPNY has executed a Consent Order to resolve these issues in which it agreed, among other things, to pay a civil penalty in the amount of $6,300,450.
Since the conditions were present during 2017 that resulted in the execution of the Consent Order and remittance of the civil penalty, the most appropriate accounting treatment was to amend the 2017 Blue book to include an accrual of the penalty within the 2017 financial statements.
Second, a few relevant comments appear in the "Notes to Financial Statements" on page 19.9 of the amended 2017 statement, under paragraph 22 entitled "Events Subsequent." Here are the comments, which were not in the original 2017 statement:
The Company has performed an evaluation of subsequent events through May 24, 2018, which is the date that these financial statements were available to be issued. The following Type 1 recognized subsequent event was identified:
The Company accrued and subsequently remitted a $6,300,450 civil penalty related to reinsurance transactions with affiliates imposed by and paid to DFS in connection with a Consent Order executed on May 3, 2018.
I also reviewed the reinsurance exhibits in the amended 2017 statement. Although there are indications of reinsurance ceded to LGAS, I found no information relating to the findings in the consent order.

The Quarterly Statement
When I obtained the 2017 statement, I also obtained the statutory statement for the quarter ended March 31, 2018. The quarterly statement was executed on May 14, 2018. In the quarterly statement I found no information relating to the findings in the consent order.

The Amended Quarterly Statement
I subsequently learned that WPNY filed an amended quarterly statement for the first quarter of 2018. The amended quarterly statement was executed on May 24, 2018. The amended quarterly statement includes the same note quoted above on the page preceding the jurat page of the quarterly statement. The amended quarterly statement also includes the second paragraph quoted above under "Events Subsequent."

The New York Supplement for 2017
Companies doing business in New York file an annual "New York Supplement" to the annual statement. I reviewed WPNY's New York Supplement for 2017, which was executed on February 22, 2018. I found no information in the Supplement for 2017 relating to the findings in the consent order.

I believe that WPNY later filed an exhibit to the Supplement for 2017, and that the exhibit contains information relating to the findings in the consent order. I have filed a public records request with DFS seeking the exhibit. When and if I receive the exhibit, and if it contains information relating to the findings in the consent order, I will prepare a follow-up to this post.

General Observations
The press release and the consent order suggest that WPNY was using phony reinsurance with an affiliate to improve the appearance of WPNY financial statements. It reminds me of "shadow insurance," about which I have written extensively. Much of my writing on the subject has focused on certain accounting practices that are "permitted" for companies domiciled in Iowa and certain other states, but which would never be permitted for companies domiciled in New York.

I delayed preparing this post until I received a response to my May 2018 public records request to DFS. When my request was denied, I decided not to wait another year until the regular examination report on WPNY hopefully will become available. I also decided not to wait another two months for the response to my June 2018 public records request to DFS for the exhibit I think WPNY filed as an addendum to the New York Supplement for 2017. Instead, I plan to write a follow-up post when and if any useful additional information appears in public documents.

I am frustrated by the lack of information relating to the findings in the consent order. Unlike the situation in No. 275, where the examination report provided detailed information, no details have yet been made public about the findings in the consent order. Furthermore, I am not optimistic that detailed information will ever be made public. In other words, WPNY's decision to enter into the consent order before completion of the targeted financial examination resulted in delaying and possibly forever shielding the details from public scrutiny. I am not surprised by that result, because I know companies take a hard line about what they consider (wrongly in my view) confidential trade secret information that should be exempt from public disclosure.

Available Material
I am offering a complimentary 27-page package consisting of the DFS press release (1 page), the consent order (8 pages), and selected pages from the 2016 statement, the original 2017 statement, and the amended 2017 statement (18 pages). Email and ask for the July 2018 package about the DFS/WPNY consent order.


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 and ask for the July 2018 package about the DFS/Athene/FAFLIC case.


Thursday, June 28, 2018

No. 274: The Phoenix-Wisconsin Settlement of a Long Dispute Over Cost-of-Insurance Increases

During and after the 2004-2007 heyday of stranger-originated life insurance (STOLI), PHL Variable Life Insurance Company and its affiliates (collectively, Phoenix) issued many universal life insurance policies destined for sale into the secondary market for life insurance policies generally, and for sale into the STOLI market specifically. Many of the policies had face amounts of at least $1 million, and were on the lives of insureds aged at least 68. Many eventually became owned by Fortress Investment Group, a global asset management firm that invests in the secondary market for life insurance. When market interest rates declined after the Great Recession, the policies became unprofitable to Phoenix, which then imposed cost-of-insurance (COI) increases.

COI Increases
In 2010 PHL singled out certain STOLI policies for large COI increases. Fortress, by then the owner of many such policies, filed complaints with state insurance regulators. California, New York, and Wisconsin found the 2010 COI increases to be in violation of their insurance laws. PHL disagreed with that finding. The California Department of Insurance took no further action, and the 2010 COI increases imposed on California policyholders remained in effect.

Developments in New York
What was then the New York State Department of Insurance ordered PHL to rescind the 2010 COI increases and return the money, with interest, to the owners of policies issued in New York. PHL did so.

In 2011 PHL implemented new COI increases only on policies issued in New York. The New York Department did not object to the 2011 COI increases.

Developments in Wisconsin
The Office of the Commissioner of Insurance (OCI) of Wisconsin ordered PHL to rescind the 2010 COI increases on policies issued in Wisconsin. PHL refused to do so, and began what turned out to be a long legal battle. Here I describe the dispute and the settlement agreement that ended it.

The Hearing Notice
On April 30, 2013, OCI Attorney Richard B. Wicka notified PHL there would be a prehearing conference on May 20, 2013, followed by a hearing on June 26, 2013, before Administrative Law Judge (ALJ) Alice M. Shuman-Johnson. The notice said OCI had received a complaint from Fortress on February 9, 2012 alleging the 2010 COI increases were discriminatory because they targeted investor-owned policies, were not in accordance with the terms of the policies, and the marketing materials misled consumers. The hearing notice said PHL issued nine Wisconsin policies subject to the 2010 COI increases, and seven were still in force. The notice also explained why OCI determined that the 2010 COI increases violated Wisconsin insurance laws. On June 7, 2013, Commissioner of Insurance Theodore K. Nickel of Wisconsin ordered that the ALJ's decision would be the OCI final decision.

The Motions for Summary Judgment
On January 31, 2014, PHL and OCI filed motions for summary judgment. On October 16, 2014, after the motions had been fully briefed, the ALJ issued a decision granting in part and denying in part the motions for summary judgment. On January 13, 2015, the ALJ issued a preliminary order. On March 23, 2015, the ALJ issued a final order requiring PHL to pay restitution in the aggregate amount of about $535,000, including interest, to the owners of the seven policies. The ALJ also required PHL to pay $40,000 to the State of Wisconsin.

The Petition for Judicial Review
On April 1, 2015, PHL filed in the Dane County (Wisconsin) Circuit Court a petition for judicial review of the preliminary order and the final order. On April 16, 2015, PHL and OCI entered into a stipulation staying enforcement of the preliminary order and the final order during the judicial review. While the judicial review was ongoing, PHL made three escrow payments to the Dane County Circuit Court clerk totaling about $79,000.

The Public Records Dispute
On July 2, 2015, PHL filed a complaint in the Dane County Circuit Court alleging OCI and Commissioner Nickel had violated Wisconsin's Public Records Law. The public records dispute had begun on January 6, 2015. On September 15, 2015, the Circuit Court judge stayed the petition for judicial review pending resolution of the public records dispute.

The Settlement Agreement
By way of a settlement agreement signed by an OCI official on June 19, 2017 and by a PHL attorney the next day, OCI and PHL settled the matter. Also, PHL and the policyholders have resolved their differences. The agreement provides no information about the financial aspects of the settlement. Two key paragraphs of the agreement read:
10. In light of the foregoing, the Parties wish to resolve all complaints, claims, charges, grievances and appeals, demands and liabilities arising specifically under the Preliminary Order, the Final Order, the Judicial Review Action, and the Public Records Action.
11. The Parties enter into this binding Settlement Agreement to resolve all pending disputes from the beginning of time to and including the effective date of this Settlement Agreement, and solely to avoid expense and further litigation in court.
General Observations
I think few state insurance departments have the human and financial resources necessary to carry on an extended legal battle with a major insurance company. Wisconsin is one of them, but the dispute described in this post illustrates the limits even there. I have written this post in part to illustrate why states with limited resources are reluctant to take on a major insurance company.

I express my thanks to OCI officials, who responded promptly and thoroughly to the public records requests I submitted when the dispute began. Thereafter I did not follow developments closely. When I learned recently about the settlement agreement, OCI officials again responded promptly and thoroughly to my public records requests.

Available Material
I wrote in The Insurance Forum about Phoenix COI increases, and I have written about the subject on my blog. For example, I refer interested readers to No. 9 (11/21/13), No. 26 (1/29/14), No. 103 (6/15/15), and No. 266 (5/16/18). The complimentary packages offered in those posts are still available.

Now I offer a complimentary 43-page PDF consisting of the OCI hearing notice (6 pages), the ALJ decision on motions for summary judgment (22 pages), the ALJ preliminary order (3 pages), the ALJ final order (5 pages), and the settlement agreement (7 pages). Email and ask for the June 2018 package about the Phoenix-Wisconsin dispute.


Monday, June 25, 2018

No. 273: Trump and His Latest Atrocity

For almost 60 years I have focused in my writings on matters of concern to persons with a professional or consumer interest in insurance. I have deviated occasionally, such as a blog post on President Donald Trump's executive order imposing the original travel ban, and in a later blog post on his executive order requiring that two regulations be withdrawn for each new regulation adopted. Now it is time for another deviation in view of his zero-tolerance policy relating to refugees seeking asylum in our country from life-threatening conditions in Central America.

Recently I have seen numerous comments on the situation written by persons more qualified and skilled than I am. Two examples stand out.

One was written by Stephen R. Leimberg. He is a professional fine art, portrait, and wildlife photographer in Amelia Island, Florida. He previously taught law at Temple and Villanova University Schools of Law in their Tax Masters programs. In the interest of full disclosure, he is a long-time close friend of mine.

The other was written by Robert Weissman. He is president of Public Citizen, a nonprofit consumer advocacy organization founded in 1971 that champions the public interest in the halls of power. In the interest of full disclosure, the Public Citizen Litigation Group has represented me pro bono on several occasions, and I am a regular donor to the organization.

My usual practice is to offer complimentary packages to readers and invite them to request the packages by email. In this instance I am offering the two statements, which I have edited slightly, as a part of this blog post.

by Stephen R. Leimberg

"Insane." "Close to Obscene." "Pure evil." These are not my words. They are the words of Father James Martin with reference to Jeff Sessions' citing of the New Testament to justify tearing children from the arms of their parents. He rightfully called Sessions' shameful statement "cherry picking," i.e., taking words out of context, and added, "It is wantonly cruel and targets the most vulnerable."

Ask yourself how you would feel as a parent—or as a child—if, after fleeing for your life and enduring a gut-wrenching months-long journey, you were suddenly ripped apart from your loved ones. What would you think if those who administered such unspeakable acts did not even keep track of where those children or parents were incarcerated—so that you could be reunited quickly at some point—even if such horrendous, heinous, morally barren actions were somehow necessary or appropriate? Yet these "follow orders from the top" "public servants" did not have the foresight or competence to establish a means or mechanism to put parent and child back together—or even allow them to keep in touch. How would you feel if—for weeks or even months—you had no idea where your child was taken—or what your child's physical or emotional condition is? More importantly for the long run, what should we think of the character and competence of those who engineered and carried out such atrocities—in our country?

Now you may be saying to yourself, "I was told that these rapist, drug dealing, foreigner migrants will infest our country, and that we cannot let these pests pour in!" Raise your hand if you have no relatives who immigrated to this country to gain religious freedom, escape tyranny, and literally save their lives, or who came to our shores with the hope of a better life for themselves and their families. But wait, you say, "Mine were different from these people. And that was a different time!" Really?

Were they Irish? Fleeing from famine and starvation, "these poor and disease-ridden folks"—according to newspapers of the time—"threaten to take away jobs from Americans and strain welfare budgets, practice an alien religion, pledge allegiance to a foreign leader, and bring crime with them." Yes, at one time America feared and despised the Irish!

Italian? In the late 1800s, it was written of Italian immigrants: "Those sneaking and cowardly Sicilians, the descendants of bandits and assassins, who have transported to this country the lawless passions, the cut-throat practices, and the oath-bound societies of their native country, are a pest without mitigation. Our own rattlesnakes are as good citizens as they are." Read your history. Italians were lynched in this country!

Polish? German? Jewish? Chinese? Japanese? Indian? Pakistani? Go to Google and type in: "your nationality's American Experience." Our country, unfortunately, has always had fearmongers willing to promote and perpetuate a legacy of lies, discrimination, and stereotyping designed to further their own agendas. What is different now is that it has seldom been the nation's highest elected leaders opening the Pandora's box of hate.

We have been awakened by the beyond-callous sheer barbarism of this governmental child snatching. But this mean-spirited morally corrupt action—the utter unraveling of decency—is just the tip of a (melting) iceberg of inexcusable ugliness. And it is not happening behind our backs. It is being thumbed at our very noses. And we have made a deal with a devil to hear or see no evil in return for false promises or lowered taxes for the ultra-wealthy (with trillions of dollars of debt passed on to our children) or the opportunity to make the already more than rich even richer.

Here is a short list of what you and your children are giving up. As you read the list, ask yourself what you are getting—really getting—in return, and give yourself an honest answer. Is it worth it? Is the bargain worth the loss of our country's soul?

Federal funding for science is being cut back. Federal agencies are being directed to ignore science-based evidence. The EPA is a cruel joke. Rules or funding for programs protecting us against harmful water and air pollutants such as car emissions are being emasculated. Threatened species of animals are losing their protections. Weather disasters are increasing. Seas are rising (yes, the seas and waters surrounding Amelia Island), yet FEMA does not seem to care. Offshore drilling is being allowed to expand—risking Florida's pristine beaches. Americans are continually massacred by bullets shot from AR-15/AK-47s and from pistols that can be purchased by those not subject to a universal background check—but no one in our government seems to care, or have the will or fortitude to do something about it. Workers' rights and basic human rights are being rolled back. The internet will be more expensive. Consumer protections are being weakened. Big banks are again being allowed to do some of the same things that triggered the great recession and economic collapse. Health care and food for our most needy in our country are being stripped away.

These are not "right or left," Republican or Democrat, issues. We can live our American dream under either party's normal push and pull. But what is happening now is very different. It is our moral compass that is deviating—and it is pointing south! We are at a crossroad. Wake up! It is ALL of us who are in this—together! What harms your neighbor harms you. We cannot allow our highest elected officials to deliberately and consciously misinform, distort, misrepresent, and mislead—or to turn us against each other. We need to decide who and what we want to be as individuals and as a country—and do what needs to be done to restore integrity and character and decency.

Cruel and Heartless!
by Robert Weissman

Thanks to growing public outrage, President Donald Trump has ended his cruel and heartless policy of ripping children of immigrant families away from their parents. But he proposes to replace family separation with family detention, leaving children in prison camps for an undetermined period of time. Now is the time when we have to intensify our pressure and deliver a roaring message about what we insist America should—and should not—be.

Public Citizen is joining with dozens of other organizations in sponsoring "Families Belong Together" demonstrations in Washington, D.C., and around the country on Saturday, June 30. Find a demonstration near you. This is how we speak out and make a difference.

Like you, over the past couple of weeks, I have been sickened and horrified by stories and images of children from families arriving at the U.S.-Mexican border being taken away from their parents. I've lost track of the number of conversations I've had with people asking: What's wrong with the people inside the Trump administration? Isn't this too much even for them? These are not rhetorical questions. We all are struggling to grapple with how this could happen and why.

This is my best explanation. While the people making policy in the Trump administration surely love their own children, they are utterly without compassion or concern for the children of people they don't know, especially for children of the immigrant families they have rhetorically dehumanized. On an individual level, that lack of compassion is a terrible character flaw. But at a policy level, lacking compassion and a readiness to treat groups of people as less than human can lead to truly grotesque outcomes. It is that combination that has underlaid many of the most horrible events in human history.

The good news in this story is that the American people have made clear they don't want to be complicit in policies that tear children from families. The intensifying disgust and fury has made a difference. Fueled by news coverage, the public engagement has kept the news media focused on the issue. Even in the alternative universe of Fox News and Rush Limbaugh, doubts have started to be raised. Trump saw his base of support eroding.

Then, on the very same day he said there was no alternative to taking children from their parents, Trump announced an end to the policy. Except, unsurprisingly, he proposed to replace it with yet more cruelty. Now Trump aims to keep children who are newly arriving immigrants with their parents—but in detention facilities—for undefined and potentially limitless periods. And the new Trump policy does nothing to reunite the 2,300 children already separated from their families. Here is what a group of the world's leading human rights experts said about this approach in December 2016, long before Trump's latest announcement: "Immigration detention is a clear child rights violation and States must prohibit it by law and cease the practice immediately....Let us be clear: immigration detention is never in the best interests of the child."

So we have not yet succeeded in ending the administrations's sadistic policy toward newly arrived immigrants. But we have shown that pressure can move Trump. Indeed, if you have ever doubted that protests and civic engagement make a difference—amid a torrent of Trump lies and his administration's appalling policies—be sure: They do.

So now it is time for us to turn up the pressure. Come to Washington or join a demonstration near you on June 30. Protest for children, and protest for our country. In just a few days, plans have come together for a demonstration at the White House and at least 450 other sites around the country. Hundreds of thousands of people have pledged to join, and the numbers are rising every hour. Together, we are going to force a modicum of humanity and decency on the Trump administration.

We can end family separation and family detention. We can end the administration's other barbarous anti-immigrant policies, including the separation of families that have been in the United States for more than a decade. Taking children away from their parents—or proposing to lock them up together indefinitely in cage-and-cement detention centers—are just the immediate, visible manifestations of an administration that has made cruelty a centerpiece of its agenda. It is up to us to reject this. We get to define what America is.


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.