Monday, June 29, 2020

No. 379: The John Newton Russell Memorial Award and a Letter to NAIFA

The JNR Award
In each year since the 1940s, the National Association of Life Underwriters (NALU) and its successor, the National Association of Insurance and Financial Advisors (NAIFA), have been issuing the John Newton Russell Memorial Award (JNR Award). NAIFA describes the JNR Award as
the highest honor that can be bestowed upon an individual in the life insurance and financial planning industry. The award recognizes a lifetime of professional excellence, service to the industry, and commitment to ethical conduct.
About 60 years ago, when I first learned of the JNR Award, I was struck by the fact that it is given only to living recipients. That seemed odd in view of the huge contributions made by many deceased individuals.

The May 2018 Letter
I was deeply honored to receive the JNR Award in 2017. The honor was accompanied by the requirement that I serve on the nominating committee for three years. In that capacity, I considered writing to NAIFA to suggest giving the JNR Award occasionally to a deceased person. Before sending the letter, however, I ran the idea by a few old friends (all JNR Award recipients). They were receptive to the idea.

On May 22, 2018, I sent a letter to NAIFA and suggested giving the JNR Award occasionally to a deceased individual. Here are three sentences near the end of the letter:
One possibility would be to grant an award to a deceased person only once every five years. Another possibility would be to occasionally grant two awards in a single year—one to a living person and one to a deceased person. I might add that granting an award occasionally to a deceased person would serve the purpose of educating NAIFA members and others about the rich history of the life insurance business.
Attached to the letter were discussions of Elizur Wright (the first insurance regulator in the U.S.) and Charles Evans Hughes (counsel of the Armstrong investigation in New York in 1905). Also mentioned in the letter was Jacob Lyman Greene, who was chief executive officer of Connecticut Mutual during the tontine wars.

In response to the letter, a NAIFA official informed me the board had considered and rejected the idea. However, the official did not give a reason for the rejection.

General Observations
I think the occasional granting of a JNR Award to a deceased person is a reasonable suggestion. However, I would welcome readers' thoughts. My May 2018 letter and the attachments are here.

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Wednesday, June 24, 2020

No. 378: MetLife Agrees to Settle an Eight-Year-Old Federal Securities Lawsuit

On January 12, 2012, the City of Westland Police and Fire Retirement System filed a class action lawsuit against MetLife, Inc. (NYSE:MET) and several MetLife senior officers and directors. The classes of plaintiffs consist of MetLife shareholders who allegedly suffered losses as the result of defendants' violations of federal securities laws. The original complaint has three counts of such violations. On May 14, 2012, the plaintiffs filed an amended complaint containing five counts. (See City of Westland v. MetLife, U.S. District Court, Southern District of New York, Case No 1-12-cv-256.)

MetLife's Descriptions of the Case
After the original complaint was filed, MetLife included a one-paragraph description of the case in the company's 10-K report for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on February 28, 2012. The most recent description is in the company's 10-Q report for the quarter ended March 31, 2020, filed May 8, 2020. Those two short descriptions are in the complimentary package offered at the end of this post.

Recently I learned through news reports that the parties are settling the case. I asked a media relations person at MetLife whether the company has issued a statement about the settlement. The person referred me to another person, from whom I heard nothing. I followed up with the person who had made the referral. MetLife apparently has not issued a statement recently on the case (other than the short statement in the latest 10-Q report, which does not mention the settlement). The person provided the following statement, which apparently was prepared especially for me:
MetLife denies the claims brought forward in the lawsuit and strongly believes its conduct was at all times proper and in compliance with all applicable laws and regulations. The company is entering into this settlement to eliminate the burden and expense of further litigation.
On page 80 in the 10-Q report for the quarter ended March 31, 2020, MetLife said its board received six letters dated from March 2018 to April 2020 on behalf of individual shareholders. I asked the media relations person for copies of the letters. In response, another person said: "The 10-Q you reference is the public notification of those letters. The letters themselves are not public."

The Original Complaint
The court filings in the City of Westland case have been extensive throughout the eight years since the case began. Here is part of the "Summary of Action" in the original 22-page complaint (the full complaint is in the complimentary package offered at the end of this post):
This is a securities fraud class action alleging violations of the anti-fraud provisions of the federal securities laws on behalf of all purchasers of the common stock of MetLife, Inc. between February 2, 2010 and October 6, 2011, inclusive. The claims asserted herein are brought against MetLife and certain of its current and former officers and directors...
During the class period, the defendants engaged in a fraudulent scheme and multiple violations of the Securities Exchange Act of 1934 ... by making false and misleading statements concerning the Company's current and future financial condition in quarterly and year-end financial statements.
The Amended Complaint
The amended complaint is more elaborate than the original complaint. The first 13 pages of the 182-page document include a "Table of Contents" and an "Introduction and Review." The latter section, for example, alleges that MetLife used the Social Security Administration's Death Master File (DMF) to stop payments to supposedly deceased life annuitants, and did not use the DMF to identify and locate life insurance beneficiaries to whom death benefits may have been owed. In other words, the amended complaint alleges that the company did not adjust its reserves to reflect that it had unclaimed property subject to escheatment pursuant to state unclaimed property laws. The first 13 pages of the amended complaint are in the complimentary package offered at the end of this post.

The Class Notice
On June 17, 2020, as part of the filing of a request to the judge for preliminary approval of the proposed settlement, the plaintiff submitted as an exhibit a proposed notice to be sent to the members of the various classes. The notice has not yet been sent out, because the judge has not yet approved the form of the class notice. Nonetheless, the proposed notice is helpful because of its description of the case. Part of the beginning of the "Statement of Class Recovery" in the proposed notice reads:
Pursuant to the Settlement described herein, an $84,000,000.00 settlement fund has been established (the "Settlement Amount"). The Settlement Amount together with any interest earned thereon is the "Settlement Fund." The Settlement Fund, less (a) any taxes, (b) any Notice and Administration Expenses, and (c) any attorneys' fees and litigation costs, charges and expenses (including any award to Lead Plaintiff of its costs and expenses in representing the Classes) awarded by the Court, will be distributed to Members of the Classes in accordance with a plan of allocation that is approved by the Court. The proposed plan of allocation (the "Plan of Allocation") is set forth on pages ___ below. Based on the Lead Plaintiff's estimate of the number of shares of MetLife common stock eligible to recover, the average distribution under the Plan of Allocation is roughly $0.26 per common share, before deduction of any taxes on the income earned on the Settlement Fund, Notice and Administration Expenses, and allowable attorneys' fees and expenses (including any award to Lead Plaintiff) as determined by the Court. Members of the Classes should note, however, that these are only estimates [emphasis in original].
The proposed class notice consists of 22 pages. It is included in full in the complimentary package offered at the end of this post.

General Observations
The lengthy court docket in this case reveals that the parties fought the case intensely during the entire eight years since it was filed. During that time, they met three times with a retired judge in unsuccessful efforts to mediate the dispute. Now that the matters prompting the lawsuit are ancient history, the parties are settling the case as quietly as possible. Among those matters, for example, are investigations by state insurance regulators into the failure of companies to pay certain life annuity benefits and life insurance death benefits, and investigations by state unclaimed property officials into the failure of companies to escheat unclaimed property to the states. I think the case provides an important history lesson for persons keenly interested in the life insurance business.

Available Material
I am offering a complimentary 58-page PDF consisting of MetLife's short descriptions of the case (1 page), the original complaint (22 pages), the beginning of the amended complaint (13 pages), and the proposed class notice (22 pages). Email jmbelth@gmail.com and ask for the June 2020 package about the case of City of Westland v. MetLife.

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Monday, June 15, 2020

No. 377: Long-Term Care Insurance—A Further Update on the Skochin Class Action Lawsuit Against Genworth

No. 371 (May 13, 2020) includes an update on a class action lawsuit against Genworth Financial, Inc. (Genworth) relating to premium increases on long-term care (LTC) insurance policies. Here I provide a further update on the case. (See Skochin v. Genworth, U.S. District Court, Eastern District of Virginia, Case No. 3:19-cv-49.)

Rejection of the Indiana Effort
As reported in No. 371, the Indiana Department of Insurance filed a motion to intervene for the purpose of filing a motion for a temporary stay of the proceedings because of the pandemic. On June 3, 2020, the judge issued a memorandum opinion in which he granted the motion to intervene but denied the motion for a temporary stay. An important reason for the denial of the motion for a temporary stay was the fact that Indiana was the only state to seek a temporary stay. The memorandum opinion is in the complimentary package offered at the end of this post.

Motion for Attorney Fees
On May 25, 2020, the plaintiffs filed a motion for entry of an award of attorney fees and expenses. They also filed five declarations in support of the motion. They sought
attorneys' fees in the amount of $2,000,000 relating to the injunctive relief achieved for the Settlement Class, and an additional contingent payment of 15% of certain amounts related to Special Election Options selected by the Settlement Class, in an amount no less than $10,000,000 and no greater than $24,500,000, as well as payment of litigation expenses of $64,398.66, to be paid in accordance with the terms of the Joint Stipulation of Class Action Settlement and Release....
The above language is similar to what appeared in the stipulation I saw earlier, and which I found ambiguous. I could not tell whether the range of $10 million to $24.5 million refers to (a) attorneys' fees, or (b) 15 percent of certain amounts related to Special Election Options. I looked at the declarations and concluded that the range referred to (b) above. The motion for attorney fees and expenses is in the complimentary package offered at the end of this post.

Objections by Class Members
The class consists of about 207,000 policyholders. The judge ordered the administrator to mail the class notice on April 14, 2020. The final approval hearing is set for July 10, 2020. In the above mentioned No. 371, I said seven class members had filed objections with the court. As of June 10, the number has grown to 17, distributed geographically as follows: Arizona (1), California (1), Colorado (1), Florida (3), Georgia (1), Idaho (1), Iowa (1), New York (1), North Carolina (1), Ohio (1), Pennsylvania (1), Texas (1), and Virginia (3). Several of the objections are in the complimentary package offered in No. 371.

General Observations
I am an Indiana resident. I was impressed by and grateful for my home state insurance department's effort to obtain a temporary stay. I thought the request was eminently reasonable, and I am disappointed that the judge denied the request. I have noted earlier that the Eastern District of Virginia has a reputation as the fastest federal civil trial court in the U.S. That may have played a role in the judge's action, but I do not know whether the action would have been different if many other state insurance regulators had made a similar request.

As for the settlement itself, I do not understand it well enough to feel comfortable expressing an opinion about its fairness. It would not surprise me, however, if the judge approves the settlement shortly after the fairness hearing.

Available Material
In No. 371, I offered a complimentary 81-page PDF containing documents relating to the case. That May 2020 Skochin package remains available.

Now I offer a complimentary 12-page PDF consisting of the judge's memorandum opinion (9 pages) and the plaintiffs' motion for attorney fees and expenses (3 pages). Send an email to jmbelth@gmail.com and ask for the June 2020 package about Skochin v. Genworth

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Monday, June 8, 2020

No. 376: Trump's Plan for November 2020

On February 27, 2019, Michael Cohen, who is President Donald Trump's former personal attorney, testified before the Committee on Oversight and Reform of the U.S. House of Representatives. The hearing was chaired by Elijah Cummings (D-MD). (When Cummings died six months later, he became the first African American lawmaker to lie in state at the U.S. Capitol.) Cohen made these comments during his testimony:
My loyalty to Mr. Trump has cost me everything: my family's happiness, friendships, my law license, my company, my livelihood, my honor, my reputation and, soon, my freedom. And I will not sit back, say nothing, and allow him to do the same to the country. Indeed, given my experience working for Mr. Trump, I fear that if he loses the election in 2020 that there will never be a peaceful transition of power, and this is why I agreed to appear before you today.
Cohen's comments have stayed with me, and I have wondered precisely what he meant by his statement that "there will never be a peaceful transition of power." Now, given the massive demonstrations over the murder of George Floyd, and given the events in Lafayette Square next to the White House, I think I know what Cohen meant.

If Trump loses the election—irrespective of the margin—I think he will declare that the election was rigged. Then, as commander-in-chief, he will order U.S. military forces to "dominate" our states, cities, towns, and countryside. In his attempted coup, he will have the support of his lap dogs in the White House, the Pentagon, the Department of Justice, and the Senate.

Carolyn Maloney (D-NY) succeeded Cummings as Chair of the House Committee on Oversight. She recently said:
I am horrified by President Trump's statements and actions. The President deployed federal police against American citizens peacefully protesting the unjust murders of Black people—for a photo opportunity. He commanded the use of tear gas and rubber bullets on innocent men and women—tactics employed by white segregationists in the 1960s. His actions are despicable, and as Americans, we will not stand for them. He should resign immediately.
James Mattis, until recently, was our Secretary of Defense. He has weighed in with a strong statement entitled "In Union There Is Strength." His statement is here.

With the presidential election only five months away, urgent action is needed. I think the House of Representatives should take the steps necessary to make Trump the first president in our history to be impeached twice.

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Monday, June 1, 2020

No. 375: A Viatical Is Ruled Illegal After 21 Years

In January 1999, a predecessor to Jackson National Life Insurance Company issued a $500,000 ten-year term insurance policy on the life of Kelly Douglas Couch. Recently a federal judge in Georgia declared the policy void ab initio (from the beginning) as an illegal human life wagering contract. The case illustrates the long-term consequences of viaticals issued during the AIDS crisis. (See Jackson v. Crum, U.S. District Court, Northern District of Georgia, Case No. 1:17-cv-3857.)

The Lawsuit
In October 2017, Jackson filed a lawsuit against Sterling Crum, an investor (I call him a speculator in human life) in the secondary market for life insurance policies. Crum had eventually acquired the Couch policy, and had sought the death benefit after Couch's death.

Midland Life Insurance Company, a Jackson predecessor, issued the Couch policy in 1999, as mentioned earlier. Jackson, in its lawsuit, sought a declaratory judgment that the policy was void ab initio as an illegal human life wagering contract.

In November 2017, Crum moved to dismiss the complaint for failure to state a claim. The judge denied the motion. In April 2018, Crum filed a counterclaim against Jackson. In June 2018, Jackson answered the counterclaim. In March 2019, both parties filed motions for summary judgment. In April 2019, the judge denied both motions.

A bench trial began August 26, 2019, and ended August 29. The judge heard closing arguments on November 5. On March 2, 2020, the judge issued an Order declaring the policy void ab initio as an illegal human life wagering contract. The details of the policy's long journey from Couch to Crum are complex. Instead of trying to summarize them here, I am including the Order, which describes the details thoroughly, in the complimentary package offered at the end of this post.

The Appeal
On April 1, 2020, Crum filed a notice of appeal. At this time, dates for the filing of initial briefs have not been set. (See Jackson v. Crum, U.S. Court of Appeals, Eleventh Circuit, Case No. 20-11280.)

General Observations
Before I started this blog site in October 2013, I published The Insurance Forum, my monthly newsletter, from January 1974 through December 2013. Working on this blog post brought to mind some Forum articles I wrote about viaticals in 1999, the year the Couch policy was issued. I think readers of this blog who did not see those articles may find them interesting. The articles may help readers understand my long-time negative outlook on the secondary market for life insurance policies in general and on viaticals in particular. The Forum articles are in the complimentary package offered at the end of this post.

Available Material
I am offering a complimentary 50-page package consisting of the judge's March 2020 Order (24 pages) and the 1999 Forum articles about viaticals (26 pages). Email jmbelth@gmail.com and ask for the June 2020 package about Jackson v. Crum.

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Wednesday, May 27, 2020

No. 374: Time Insurance Company—Another Long-Term Care Insurer Heads for Rehabilitation

On May 18, 2020, the Wisconsin Office of the Insurance Commissioner (OIC) issued a press release about its petition to a state court for permission to place Time Insurance Company (Time) in rehabilitation. Because Time is a long-term care (LTC) insurance company, this is a significant development in view of similar actions relating to two other LTC insurance companies: the liquidation of Penn Treaty Network America Insurance Company (Penn Treaty) and the rehabilitation of Senior Health Insurance Company of Pennsylvania (SHIP). The first sentence and the second paragraph of the OIC press release read as follows (the full press release is in the complimentary package offered at the end of this post):
Insurance Commissioner Mark Afable took measures today to help protect nearly 200,000 individuals who have long-term care insurance or other insurance policies with Time Insurance Company....
"Our filing with the court today protects nearly 200,000 consumers across the country," said Commissioner Afable. "State law requires me to act when our office believes an insurer is in financial trouble and that is what we have done today."
The Petition
The "Notice of Verified Petition and Verified Petition for Order for Rehabilitation" of Time consists of an eleven-page text and a five-page attachment. The text describes the background, lists the grounds for rehabilitation, and explains why the OIC determined that "rehabilitation is the only remaining option." The petition also states: "The Commissioner intends to file a plan of rehabilitation within 60 days of the Court's entry of the Order for Rehabilitation."

The petition provides details of a change of Time's ownership, Time's redomestication to Puerto Rico and its later redomestication back to Wisconsin, OIC's concerns about Time's risk-based capital (RBC) levels, OIC's cease and desist orders, and other significant matters. The petition is in the complimentary package offered at the end of this post.

The Statutory Statement
The petition says Time filed its statutory annual statement for the year ended December 31, 2019 on April 3, 2020. The statement shows total admitted assets of $16.2 million, total liabilities of $12.7 million, and statutory net worth of $3.5 million. On page 19.1 of the statement, there is a discussion of whether the company will be able to continue as a going concern. Selected pages of the statutory statement are in the complimentary package offered at the end of this post.

The RBC Ratios
RBC data for the past five years are shown on page 22 of Time's statutory statement for 2019. The RBC ratio at the end of each year, with company action level as the denominator of each ratio, are as follows (the RBC ratios with authorized control level as the denominator are twice the ratios shown here): 238 percent in 2015, 431 percent in 2016, 273 percent in 2017, 152 percent in 2018, and 210 percent in 2019.

An Omission
In The Insurance Forum (my monthly newsletter published from January 1974 through December 2013) and later on this blog site, I have written extensively about LTC insurance for 32 years. Recently a reader brought to my attention an important item on which I have not written.

My first article about LTC insurance was in the February 1988 issue of the Forum. It grew out of a solicitation I had received in the mail concerning a new LTC insurance product then being offered by Union Fidelity Life Insurance Company.

My second article about LTC insurance was in the August 1991 issue of the Forum. It grew out of an article in the June 1991 issue of Consumer Reports, the magazine of Consumers Union (CU). The CU article was entitled "An Empty Promise to the Elderly?" It described a CU study of 46 LTC insurance policies. None of the policies was rated "excellent" or "very good," but CU did not discuss the reason for those findings. In my August 1991 issue, I said "excellent" or "very good" LTC insurance policies would never be found because the problem of financing the LTC exposure violates insurance principles and therefore cannot be solved through private insurance.

In the July 2008 issue of the Forum, I elaborated on the discussion in my August 1991 issue. The July 2008 article is in the complimentary package offered at the end of this post.

What I have never discussed, because I have no recollection of ever having seen it, is a 16-page "Special Report" on LTC insurance published in the October 1997 issue of CU's magazine. The report included two pages of "ratings and recommendations" of 67 "comprehensive" LTC insurance policies and 47 "nursing home only" policies. The 67 "comprehensive" policies were ranked by "overall score." Six of them were rated as "very good," and none as "excellent." The top two policies on the list were "very good" Penn Treaty policies. My reader asserted that CU's October 1997 report created a huge demand for Penn Treaty's LTC insurance policies. I do not know whether his assertion is correct, but he may be right.

General Observations
I am not aware of anyone who has formally and publicly agreed with me that private LTC insurance cannot solve the problem of financing the LTC exposure. Nor am I aware of anyone who has formally and publicly disagreed with me. My views on the matter remain unchanged.

The previously mentioned July 2008 Forum article, entitled "Shortcomings of Private Insurance in Financing Long-Term Care," ends with this sentence: "I think many of those who try to address the problem [of financing long-term care] by purchasing private long-term care insurance will encounter disappointment."

Since October 2013, when I began this blog, I have received hundreds of emails from disgruntled owners of LTC insurance policies. For the most part, the complaints are about substantial premium increases or difficulties encountered in the handling of claims. Often the policyholders ask for my advice on what to do. In response, I have always said I am neither an attorney nor a consultant, and am not in a position to comment beyond what I have written. I then tell each person how to obtain, through the search box in the extreme upper left corner of the home page of my blog site, my posts relating to his or her company or about LTC insurance generally. I also sometimes suggest that the person contact the state insurance department in the person's home state. Each email from a disappointed LTC insurance policyholder has been a painful experience.

Available Material
I am offering a complimentary 30-page package consisting of the OIC press release (1 page), the OIC petition (16 pages), selected pages from Time's 2019 statutory statement (8 pages), and the July 2008 Forum article (5 pages). Email jmbelth@gmail.com and ask for the May 2020 package about the rehabilitation of Time.

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Thursday, May 21, 2020

No. 373: Texas Securities Commissioner Iles Issues an Emergency Order Directed At an Out-of-State Promoter

On May 15, 2020, Texas Securities Commissioner Travis J. Iles issued an Emergency Cease and Desist Order (Order) directed at Nickolas Steele (aka Nick Vop Steele aka Nick Steele). The Order shows addresses for Steele in Bellwood, Illinois, in Elmhurst, Illinois, and in Franklin, Wisconsin.

The Order relates to cryptocurrency trading during the COVID-19 pandemic. I reached out to the securities departments in Illinois and Wisconsin to see if they know of Steele. I was not able to contact Illinois; the department may be closed due to the pandemic. I received this email from a spokesperson in Wisconsin:
Our research since you contacted us indicates that Nickolas Steele may have resided in an apartment in Wisconsin from approximately 2016 to early 2018. The rest of his residential history is largely in Illinois. In August 2016, he was charged in Racine County with operating a vehicle while suspended, and he provided an Illinois address at that time. The Texas order does not allege any activities occurring in Wisconsin or any investors here. We have not located any Craigslist advertisements targeting Wisconsin investors by Steele. However, we will record this inquiry in our database and be on the alert for any Wisconsin activity past or future.
I contacted the North American Securities Administrators Association to see if they know of Steele. I am awaiting a reply.

According to the Order, Steele has 31 days to request a hearing. Any knowing violation of the Order is a criminal offense punishable by a fine of not more than $10,000, or imprisonment for two to ten years, or by both such fine and imprisonment. The nine-page Order is here.

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