Illinois Insurance Director Michael McRaith addressed a number of pressing issues including new life settlement guidance, implementation of health care reform and a recent regulatory hearing on stranger-originated annuity transactions.
McRaith says that a bulletin will be issued within seven to 10 days at the latest to provide guidance for a new life settlement law that takes effect on July 1. The bulletin will provide sufficient guidance so that life settlement companies will be able to comply with the law’s requirements, he said during an interview.
Part of the implementation requires providers to state their intention of doing business in a letter to be filed with the Department by June 1. When asked about the tight time frame, McRaith said that during the law’s implementation phase, “it is not the department’s intent to be punitive” as efforts are made to develop clarity around the new requirements. He explained that during the transition period, the department is willing to accommodate reasonable requests but it will not accommodate non-compliance of any new requirements.
When asked how the industry should prepare for these new requirements, he recommended that “the industry should become very well acquainted with the terms of the law and expectations in the law.”
On the issue of health care, McRaith says that the department is making good progress in implementing guidance such as one on endorsements which will in effect on September 23. McRaith says that there has been an increase in unreasonable rate increases including high deductible plans which he says was designed with the objective of providing affordable, consumer-driven health care.
Illinois has not had the authority to regulate rate increases based on state law, he said. But the new federal law, the Patient Protection and Affordable Care Act, gives the department greater authority to control rates, McRaith continued. The Department is in the process of developing a process to receive rate increases from health insurers and review those requests, he added. The state has a file and use process which he says works for some lines of insurance such as property-casualty coverage. However, “it is completely dysfunctional in the health care market,” he added.
On his take away from a recent hearing held by the National Association of Insurance Commissioners, Kansas City, Mo., McRaith said that “as regulators, we need to continue to explore and learn about this issue. We need to see if this is a one-off event or a pattern of abuse.”
Thursday, May 27, 2010
Friday, May 21, 2010
Senior Recounts Brush With STOA As Commissioners Determine Tools To Fight It
Washington
When Robert Mizzoni, an 83-year old truck driver from Rhode Island spoke before state insurance commissioners here, he put a face to an issue that is so new that it still does not go by one name.
During the hearing of the Life Insurance & Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo., those who testified call it by a number of names: Stranger-originated annuities, stranger-originated life annuities and stranger annuity transactions to name a few.
But Mizzoni cut to the chase in describing what he thinks happened when Joesph Caramadre approached his wife Elizabeth at their Cranstson, Rhode Island local Catholic parish and told her to have Mizzoni come and see him about an opportunity to earn some extra income.
Mizzoni told the table of more than 10 commissioners as well as state regulators that the $2,000 check he received and the promise of regular payments by the insurance agent he had known since childhood was making money on his body. “What if I die now? He’s going to collect. I don’t want to see him get that kind of money. Not for bodies. I’m not going to sell my body.”
If Mizzoni was clear on what he said happened to him and to others, regulators were also clear that there are enough tools for them to address any abuses that may surface going forward. And every industry group testifying was clear that STOA needs to be eradicated.
Connecticut Commissioner Tom Sullivan, chair of the “A” Committee, said that the NAIC’s Suitability in Annuity Transactions Model Act and the Viatical Settlements Model Act offered ample protection to consumers in their current state and said that he did not think that it was necessary to reopen either of the models. For instance, according to Sullivan, the Suitability model asks the question “What is the purpose for a purchase?” If there is a misrepresentation, the insurer and producer are not held responsible for their obligations under the contract, he explained.
Currently many states have enacted either the NAIC Viatical model act or the Life Settlement Model Act developed by the National Conference of Insurance Legislators, Troy, N.Y. , Sullivan added. States that do not yet have legislation in place need to adopt either one or the other, he continued.
New Jersey Commissioner of Banking and Insurance Tom Considine said that “the industry holds the solutions.” He asked why insurers were not evaluation life expectancy issues and health status issues. “It is almost as if the insurance industry is in a jail cell and holds the key. Insurance companies have what they need to help themselves, he said. “Companies have all the pieces and they can solve the puzzle. I almost dare to say that it is lazy to not use the tools that they have.”
One of the tools available, according to Ohio Director Mary Jo Hudson, is an April 2009 alert put out by the Ohio insurance department urging companies to put better detection methods in place such as better underwriting of applicants.
Hudson said that particularly if there is a very large death benefit associated with an annuity, the recommendations in the bulletin could help prevent fraud. She noted that in Ohio, there have been annuities that have been purchased to pay for life settlements. It ensures against a loss if the viator lives longer than expected. Such transactions are considered STOLI in Ohio and are discouraged, she continued. But Hudson underscored, there is a legitimate life settlement market. “As we looked at life settlements, there are legitimate ones and there is STOLI. We have to make sure not talking about bans on settlements because legitimate settlements.”
During a panel on insurance and securities, Jim Mumford, first deputy commissioner with the Iowa insurance department, suggested during testimony that current models be examined before there is a decision whether new regulatory tools are needed. He added, that if needed, a general bulletin or other guidance could be developed for producers and companies.
And, Lawrence Kosciulek, FINRA’s Director of Investment Companies Regulation, Washington, noted that although there has been an examination of variable annuities for several years, on February 8 FINRA Rule 23-30, a rule that is broader than just suitability requirements, was put in place. The rule covers annuities, life insurance and bonds, he said. “We have consistently stated that VA s are long-term investments and are looking for members to sell them in this manner.” FINRA members would clearly have to state that a product is an annuity and not leave language unclear, he added. Consequently, FINRA is looking into this matter, he said.
Other potential tools that were cited during the hearing were the Unfair Trade Practices Act as well as anti-rebating laws.
If it was clear from testimony, that the Rhode Island case had potential tools that could be used, it was also clear that there are a lot of gray areas that need further examination. For instance, Rhode Island Insurance Commissioner Joe Torti and Deputy Chief of Legal Services/General Counsel Beth Dwyer said that in the Rhode Island case, the department became aware of the issue when one insurer rescinded the policy and refused to refund the premiums. Dwyer said that the department has a strict rule that funds must be returned regardless of circumstances when a contract is rescinded.
Torti said that although there is a guaranteed death benefit on these variable annuity contracts, they are generally not treated as life insurance and he is not sure if such treatment would have tax implications. And, he said there are significant differences among states on insurable interest statutes and that it would make sense to look at states with good laws.
Another gray area that was discussed is the issue of who is the consumer. Iowa’s Mumford said that Iowa considers the person who purchased the annuity as the consumer and a suitability analysis would not be appropriate for an annuitant who did not put money in the transaction. FINRA’s Kosciulek said that FINRA considers the investor the contract’s owner.
Other panelists offered the following testimony.
--Cande Olsen, representing the American Academy of Actuaries, Washington, discussed how STOLA will require companies to redesign products with guaranteed death benefit riders by increasing charges or underwriting for health, which will in turn increase charges. This will be needed to reflect different investor behavior. She said that for non-STOLA products, the initial mortality rate is 1 percent but for STOLA cases, it approaches 100 percent. STOLA contracts may generate one year of charges, she said. However, non-STOLA contracts may generate ten times that amount over an annuitant’s expected lifetime. The result, she continued, is 1,000 times the average benefit-to-cost relationship.
--From the IRI, Washington, Lee Covington, senior vice president & general counsel, discussed the need to make sure that variable annuities are available to Americans as they prepare for retirement. Karen Alvarado, vice president of regulatory affairs & compliance with the IRI, discussed how some insurers are adding application questions about the relationship of the agent and the annuitant as well as enhanced monitoring if a death occurs within a year.
--From the life settlement industry, Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., stated the organization’s opposition to STAT schemes, noting that “they are illegal and must be banned to the extent that they are not banned already. Our members do not participate in them.” He said that insurers need to take accountability for not putting in place sufficient safeguards to detect the practice and said that STAT should not be confused with the legitimate life settlement market. Head recommended that suitability standards should require an evaluation of the health of the annuitant. As a worst case scenario, a new model prohibiting STATS could be developed, he said. However, the viatical model law should not be reopened, Head continued.
Brian Staples of RIGHT LLC, Versailles, Ky., urged regulators to distinguish between the GLB property rights issue discussed during the development of Compact Commission standards and STAT which and STAT which he said is an entirely different issue.
His remarks were followed by Kathleen Birrane, general counsel with Maple Life Financial, Bethesda, Md., who said that STAT and STOLI should be condemned but the secondary market should be preserved. She also noted that there is no “discernible secondary market for annuity products.”
--From Gary Sanders, vice president for securities and state government relations of the National Association of Insurance and Financial Advisors, Falls Church, Va., came a call to develop more clarity before changing any laws and to be aware that a few more questions on an application will not stop misrepresentation.
While Caleb Callahan, vice president of investment services with ValMark Securities, a broker/dealer and life general agency based in Akron, Ohio, which works in both the primary and secondary market, also cautioned against creating new laws citing both insurance and securities laws that can effectively minimize the situation.
--Representatives of the life insurance industry also suggested that new laws may not be needed at this point. Rather, existing models should be studied and enforced, according to Kelly Ireland, senior counsel with the American Council of Life Insurers, Washington. Ireland said that insurers are taking steps to prevent STOA including changing business processes, underwriting standards, examining an applicant’s health as well as education and training for distribution channels.
Michael Lovendusky, associate general counsel with the ACLI expressed concern that STOA is not limited to the Rhode Island incident but goes far beyond that. It raises the question of whether STOLI is moving to annuities, he continued.
He said that more data is needed from the secondary market and a recent decision pitting Coventry against the Florida insurance department which found that Florida can collect data, should help make that possible. So, it will be possible, he said, to find out questions including: how many policies were settled; how many insured lives were settled; how many were settled through premium financing; the total face value of policies settled and how many settled contracts have face amounts of $1 million or more.
Iowa’s Mumford asked Lovendusky whether insurable interest should be applied to annuities and the tax implications and Lovendusky said that the ACLI is studying the issue and intends to have recommendations possibly by the August NAIC meeting and definitely by year end.
When Robert Mizzoni, an 83-year old truck driver from Rhode Island spoke before state insurance commissioners here, he put a face to an issue that is so new that it still does not go by one name.
During the hearing of the Life Insurance & Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo., those who testified call it by a number of names: Stranger-originated annuities, stranger-originated life annuities and stranger annuity transactions to name a few.
But Mizzoni cut to the chase in describing what he thinks happened when Joesph Caramadre approached his wife Elizabeth at their Cranstson, Rhode Island local Catholic parish and told her to have Mizzoni come and see him about an opportunity to earn some extra income.
Mizzoni told the table of more than 10 commissioners as well as state regulators that the $2,000 check he received and the promise of regular payments by the insurance agent he had known since childhood was making money on his body. “What if I die now? He’s going to collect. I don’t want to see him get that kind of money. Not for bodies. I’m not going to sell my body.”
If Mizzoni was clear on what he said happened to him and to others, regulators were also clear that there are enough tools for them to address any abuses that may surface going forward. And every industry group testifying was clear that STOA needs to be eradicated.
Connecticut Commissioner Tom Sullivan, chair of the “A” Committee, said that the NAIC’s Suitability in Annuity Transactions Model Act and the Viatical Settlements Model Act offered ample protection to consumers in their current state and said that he did not think that it was necessary to reopen either of the models. For instance, according to Sullivan, the Suitability model asks the question “What is the purpose for a purchase?” If there is a misrepresentation, the insurer and producer are not held responsible for their obligations under the contract, he explained.
Currently many states have enacted either the NAIC Viatical model act or the Life Settlement Model Act developed by the National Conference of Insurance Legislators, Troy, N.Y. , Sullivan added. States that do not yet have legislation in place need to adopt either one or the other, he continued.
New Jersey Commissioner of Banking and Insurance Tom Considine said that “the industry holds the solutions.” He asked why insurers were not evaluation life expectancy issues and health status issues. “It is almost as if the insurance industry is in a jail cell and holds the key. Insurance companies have what they need to help themselves, he said. “Companies have all the pieces and they can solve the puzzle. I almost dare to say that it is lazy to not use the tools that they have.”
One of the tools available, according to Ohio Director Mary Jo Hudson, is an April 2009 alert put out by the Ohio insurance department urging companies to put better detection methods in place such as better underwriting of applicants.
Hudson said that particularly if there is a very large death benefit associated with an annuity, the recommendations in the bulletin could help prevent fraud. She noted that in Ohio, there have been annuities that have been purchased to pay for life settlements. It ensures against a loss if the viator lives longer than expected. Such transactions are considered STOLI in Ohio and are discouraged, she continued. But Hudson underscored, there is a legitimate life settlement market. “As we looked at life settlements, there are legitimate ones and there is STOLI. We have to make sure not talking about bans on settlements because legitimate settlements.”
During a panel on insurance and securities, Jim Mumford, first deputy commissioner with the Iowa insurance department, suggested during testimony that current models be examined before there is a decision whether new regulatory tools are needed. He added, that if needed, a general bulletin or other guidance could be developed for producers and companies.
And, Lawrence Kosciulek, FINRA’s Director of Investment Companies Regulation, Washington, noted that although there has been an examination of variable annuities for several years, on February 8 FINRA Rule 23-30, a rule that is broader than just suitability requirements, was put in place. The rule covers annuities, life insurance and bonds, he said. “We have consistently stated that VA s are long-term investments and are looking for members to sell them in this manner.” FINRA members would clearly have to state that a product is an annuity and not leave language unclear, he added. Consequently, FINRA is looking into this matter, he said.
Other potential tools that were cited during the hearing were the Unfair Trade Practices Act as well as anti-rebating laws.
If it was clear from testimony, that the Rhode Island case had potential tools that could be used, it was also clear that there are a lot of gray areas that need further examination. For instance, Rhode Island Insurance Commissioner Joe Torti and Deputy Chief of Legal Services/General Counsel Beth Dwyer said that in the Rhode Island case, the department became aware of the issue when one insurer rescinded the policy and refused to refund the premiums. Dwyer said that the department has a strict rule that funds must be returned regardless of circumstances when a contract is rescinded.
Torti said that although there is a guaranteed death benefit on these variable annuity contracts, they are generally not treated as life insurance and he is not sure if such treatment would have tax implications. And, he said there are significant differences among states on insurable interest statutes and that it would make sense to look at states with good laws.
Another gray area that was discussed is the issue of who is the consumer. Iowa’s Mumford said that Iowa considers the person who purchased the annuity as the consumer and a suitability analysis would not be appropriate for an annuitant who did not put money in the transaction. FINRA’s Kosciulek said that FINRA considers the investor the contract’s owner.
Other panelists offered the following testimony.
--Cande Olsen, representing the American Academy of Actuaries, Washington, discussed how STOLA will require companies to redesign products with guaranteed death benefit riders by increasing charges or underwriting for health, which will in turn increase charges. This will be needed to reflect different investor behavior. She said that for non-STOLA products, the initial mortality rate is 1 percent but for STOLA cases, it approaches 100 percent. STOLA contracts may generate one year of charges, she said. However, non-STOLA contracts may generate ten times that amount over an annuitant’s expected lifetime. The result, she continued, is 1,000 times the average benefit-to-cost relationship.
--From the IRI, Washington, Lee Covington, senior vice president & general counsel, discussed the need to make sure that variable annuities are available to Americans as they prepare for retirement. Karen Alvarado, vice president of regulatory affairs & compliance with the IRI, discussed how some insurers are adding application questions about the relationship of the agent and the annuitant as well as enhanced monitoring if a death occurs within a year.
--From the life settlement industry, Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., stated the organization’s opposition to STAT schemes, noting that “they are illegal and must be banned to the extent that they are not banned already. Our members do not participate in them.” He said that insurers need to take accountability for not putting in place sufficient safeguards to detect the practice and said that STAT should not be confused with the legitimate life settlement market. Head recommended that suitability standards should require an evaluation of the health of the annuitant. As a worst case scenario, a new model prohibiting STATS could be developed, he said. However, the viatical model law should not be reopened, Head continued.
Brian Staples of RIGHT LLC, Versailles, Ky., urged regulators to distinguish between the GLB property rights issue discussed during the development of Compact Commission standards and STAT which and STAT which he said is an entirely different issue.
His remarks were followed by Kathleen Birrane, general counsel with Maple Life Financial, Bethesda, Md., who said that STAT and STOLI should be condemned but the secondary market should be preserved. She also noted that there is no “discernible secondary market for annuity products.”
--From Gary Sanders, vice president for securities and state government relations of the National Association of Insurance and Financial Advisors, Falls Church, Va., came a call to develop more clarity before changing any laws and to be aware that a few more questions on an application will not stop misrepresentation.
While Caleb Callahan, vice president of investment services with ValMark Securities, a broker/dealer and life general agency based in Akron, Ohio, which works in both the primary and secondary market, also cautioned against creating new laws citing both insurance and securities laws that can effectively minimize the situation.
--Representatives of the life insurance industry also suggested that new laws may not be needed at this point. Rather, existing models should be studied and enforced, according to Kelly Ireland, senior counsel with the American Council of Life Insurers, Washington. Ireland said that insurers are taking steps to prevent STOA including changing business processes, underwriting standards, examining an applicant’s health as well as education and training for distribution channels.
Michael Lovendusky, associate general counsel with the ACLI expressed concern that STOA is not limited to the Rhode Island incident but goes far beyond that. It raises the question of whether STOLI is moving to annuities, he continued.
He said that more data is needed from the secondary market and a recent decision pitting Coventry against the Florida insurance department which found that Florida can collect data, should help make that possible. So, it will be possible, he said, to find out questions including: how many policies were settled; how many insured lives were settled; how many were settled through premium financing; the total face value of policies settled and how many settled contracts have face amounts of $1 million or more.
Iowa’s Mumford asked Lovendusky whether insurable interest should be applied to annuities and the tax implications and Lovendusky said that the ACLI is studying the issue and intends to have recommendations possibly by the August NAIC meeting and definitely by year end.
Thursday, May 20, 2010
CML, Real Estate Losses, the One Cloud in a Sunnier Forecast
Several interesting reports have recently been released by rating agencies. One of the common threads is the impact of commercial mortgage loans and real estate on insurers.
Standard & Poor’s Corporation, New York, addressed the topic and how it would affect insurance groups. The rating agency said that it had lowered its ratings on three North American life insurance groups and their subsidiaries: NLV Financial Corp; Pacific LifeCorp and Principal Financial Group.
The actions followed a review of U.S. life insurance groups using stress scenarios based on an updated methodology for incorporating different economic events into its assessment of capital adequacy. For instance, S&P took a rating such as an insurer financial strength rating of ‘AAA’ and applied a stress scenario consistent with that rating: the Great Depression. It then examined whether the company withstood the scenario that matched its current rating. The stress test is just one of a number of factors such as liquidity that are used to assess a company’s capital adequacy, according to S&P.
Commercial real estate was the main reason that the ratings were lowered. During a conference call, S&P analyst Kevin Ahern noted that as an example Pacific Life had exposure to commercial real estate in the form of construction loans and high-end properties that totaled $6 billion.
S&P also affirmed its rating of Teachers Insurance & Annuity Association of America, New York, at ‘negative.’ The company’s exposure to commercial mortgage-backed securities and commercial whole loans was $15 billion, according to the rating agency.
However, S&P also noted that TIAA’s earnings power and financial flexibility will enable it to restore capital adequacy to an ‘AAA’ level within two years.
But S&P revised its outlook on New York Life Insurance Co. to stable from negative and affirmed its ‘AAA’ rating. While NYL has $10 billion in CMBS, it has outperformed the industry in high quality CMBS, according to Ahern. The rating agency expects that the company will restore its ‘AAA’ capital adequacy through organic earnings within one year.
The ratings on MetLife Inc. and subsidiaries remain on CreditWatch, where they were placed on Feb. 3 of this year.
From Moody’s Investors Service, New York, comes a report announcing that the U.S. life insurance outlook has returned to ‘stable.’ The report, authored by the analyst team of Laura Bazer, Ann Perry and Scott Robinson, starts by noting improving economic trends such as elevated stock market values will help life insurers’ variable annuity portfolios and pension and asset management fees. Lower corporate defaults and bond rating downgrades are also a positive prospect going forward, according to Moody’s.
These more positive indicators will help improve the ratings of many companies, according to the report. Currently, roughly a third of Moody’s rated life insurers have negative outlooks, the report finds.
The one cloud darkening this sunnier forecast is higher-than-average asset losses in 2010-11 from commercial mortgage loans, CMBS and other housing-related assets, according to Moody’s. Still, these losses should remain “manageable” over the medium term due to improved operating earnings and capital generation. And, if a second downturn occurs, life insurers are more equipped to handle it due to more liquidity and better levels of capital, the rating agency noted.
Even so, Moody’s estimates that life insurers’ commercial mortgage loan (CML) delinquencies, foreclosures, impairments and valuation allowances will “rise significantly” over historical averages over the next 2-3 years. CML expected and stress case losses could reach 3 percent and 10 percent respectively, it continued. Those losses could total between approximately $6 billion-$25 billion respectively.
For CMBS, ultimate lifetime losses could rise to 2% from 1% with a possible $2 billion to $13 billion of additional losses anticipated.
Moody’s says that bad news for troubled residential housing asset classes could impact life insurers’ RMBS securities and add roughly $15 billion of losses with a stress test case of approximately $45 billion.
The good news, the rating agency underscores, is that while CML, CMBS and RMBS losses could lead to losses, it will probably not lead to downgrades.
Standard & Poor’s Corporation, New York, addressed the topic and how it would affect insurance groups. The rating agency said that it had lowered its ratings on three North American life insurance groups and their subsidiaries: NLV Financial Corp; Pacific LifeCorp and Principal Financial Group.
The actions followed a review of U.S. life insurance groups using stress scenarios based on an updated methodology for incorporating different economic events into its assessment of capital adequacy. For instance, S&P took a rating such as an insurer financial strength rating of ‘AAA’ and applied a stress scenario consistent with that rating: the Great Depression. It then examined whether the company withstood the scenario that matched its current rating. The stress test is just one of a number of factors such as liquidity that are used to assess a company’s capital adequacy, according to S&P.
Commercial real estate was the main reason that the ratings were lowered. During a conference call, S&P analyst Kevin Ahern noted that as an example Pacific Life had exposure to commercial real estate in the form of construction loans and high-end properties that totaled $6 billion.
S&P also affirmed its rating of Teachers Insurance & Annuity Association of America, New York, at ‘negative.’ The company’s exposure to commercial mortgage-backed securities and commercial whole loans was $15 billion, according to the rating agency.
However, S&P also noted that TIAA’s earnings power and financial flexibility will enable it to restore capital adequacy to an ‘AAA’ level within two years.
But S&P revised its outlook on New York Life Insurance Co. to stable from negative and affirmed its ‘AAA’ rating. While NYL has $10 billion in CMBS, it has outperformed the industry in high quality CMBS, according to Ahern. The rating agency expects that the company will restore its ‘AAA’ capital adequacy through organic earnings within one year.
The ratings on MetLife Inc. and subsidiaries remain on CreditWatch, where they were placed on Feb. 3 of this year.
From Moody’s Investors Service, New York, comes a report announcing that the U.S. life insurance outlook has returned to ‘stable.’ The report, authored by the analyst team of Laura Bazer, Ann Perry and Scott Robinson, starts by noting improving economic trends such as elevated stock market values will help life insurers’ variable annuity portfolios and pension and asset management fees. Lower corporate defaults and bond rating downgrades are also a positive prospect going forward, according to Moody’s.
These more positive indicators will help improve the ratings of many companies, according to the report. Currently, roughly a third of Moody’s rated life insurers have negative outlooks, the report finds.
The one cloud darkening this sunnier forecast is higher-than-average asset losses in 2010-11 from commercial mortgage loans, CMBS and other housing-related assets, according to Moody’s. Still, these losses should remain “manageable” over the medium term due to improved operating earnings and capital generation. And, if a second downturn occurs, life insurers are more equipped to handle it due to more liquidity and better levels of capital, the rating agency noted.
Even so, Moody’s estimates that life insurers’ commercial mortgage loan (CML) delinquencies, foreclosures, impairments and valuation allowances will “rise significantly” over historical averages over the next 2-3 years. CML expected and stress case losses could reach 3 percent and 10 percent respectively, it continued. Those losses could total between approximately $6 billion-$25 billion respectively.
For CMBS, ultimate lifetime losses could rise to 2% from 1% with a possible $2 billion to $13 billion of additional losses anticipated.
Moody’s says that bad news for troubled residential housing asset classes could impact life insurers’ RMBS securities and add roughly $15 billion of losses with a stress test case of approximately $45 billion.
The good news, the rating agency underscores, is that while CML, CMBS and RMBS losses could lead to losses, it will probably not lead to downgrades.
Friday, May 14, 2010
NCOIL, NAIC Comment on Senate Financial Reform Bill
With a vote on financial reform legislation nearing, state groups are weighing in on how S. 3217, the Restoring American Financial Stability Act of 2010 should be structured.
Today, the National Conference of Insurance Legislators, Troy, N.Y., urged Sens. Harry Reid, D-Nev., Christopher Dodd, D-Conn., and Richard Shelby, R-Ala., to oppose a proposed amendment that repeals the federal antitrust exemption for health insurers.
NCOIL, in a letter from its president, state Rep. Robert Damron, D-Nicholasville, Ky., reaffirmed its “our unwavering support for McCarran-Ferguson’s 1945 limited antitrust exemption, which in large part has contributed to the growth and health of our still-thriving insurance marketplace.”
NCOIL argued that it is not a “loophole” to avoid prosecution for violations of the law but rather a means to avoid “driving smaller insurers who depend upon sharing of loss history and other information—from the market.”
The National Association of Insurance Commissioners, Kansas City, Mo.; the Conference of State Bank Supervisors, and the North American Securities Administrators Association, both in Washington, expressed support this week for Senate Amendment 3754 to S. 3217, that would provide for non-voting membership for state banking, insurance and securities regulators on the Financial Stability Oversight Council (FSOC).
In a joint letter the three groups praised Sens. Patty Murray, D-Wash., and Susan Collins, R-Maine, for considering a comprehensive approach to addressing the accumulation of risk in the financial system.
“State regulators are uniquely positioned on the front lines of financial regulation and offer critically important perspective, expertise and regulatory data necessary to assess systemic risk,” said Jane L. Cline, NAIC president and West Virginia insurance commissioner. “The Council would benefit tremendously from the shared insights and knowledge of regulators who work vigorously each day to maintain an effective financial structure.”
The joint letter from leaders of the three regulatory groups stated, “In all financial sectors, state regulators gather and act upon large amounts of information from industry participants and from investors. State regulators would bring to the FSOC the insights of a team of ‘first responders’ who see trends developing at the state level, which have the potential to impact the larger financial system. Consequently, they serve as an early warning system identifying practices and risk-related trends that are substantial contributing factors to systemic risk.”
Today, the National Conference of Insurance Legislators, Troy, N.Y., urged Sens. Harry Reid, D-Nev., Christopher Dodd, D-Conn., and Richard Shelby, R-Ala., to oppose a proposed amendment that repeals the federal antitrust exemption for health insurers.
NCOIL, in a letter from its president, state Rep. Robert Damron, D-Nicholasville, Ky., reaffirmed its “our unwavering support for McCarran-Ferguson’s 1945 limited antitrust exemption, which in large part has contributed to the growth and health of our still-thriving insurance marketplace.”
NCOIL argued that it is not a “loophole” to avoid prosecution for violations of the law but rather a means to avoid “driving smaller insurers who depend upon sharing of loss history and other information—from the market.”
The National Association of Insurance Commissioners, Kansas City, Mo.; the Conference of State Bank Supervisors, and the North American Securities Administrators Association, both in Washington, expressed support this week for Senate Amendment 3754 to S. 3217, that would provide for non-voting membership for state banking, insurance and securities regulators on the Financial Stability Oversight Council (FSOC).
In a joint letter the three groups praised Sens. Patty Murray, D-Wash., and Susan Collins, R-Maine, for considering a comprehensive approach to addressing the accumulation of risk in the financial system.
“State regulators are uniquely positioned on the front lines of financial regulation and offer critically important perspective, expertise and regulatory data necessary to assess systemic risk,” said Jane L. Cline, NAIC president and West Virginia insurance commissioner. “The Council would benefit tremendously from the shared insights and knowledge of regulators who work vigorously each day to maintain an effective financial structure.”
The joint letter from leaders of the three regulatory groups stated, “In all financial sectors, state regulators gather and act upon large amounts of information from industry participants and from investors. State regulators would bring to the FSOC the insights of a team of ‘first responders’ who see trends developing at the state level, which have the potential to impact the larger financial system. Consequently, they serve as an early warning system identifying practices and risk-related trends that are substantial contributing factors to systemic risk.”
Wednesday, May 12, 2010
NAIC Unanimously Adopts PPACA Responses
State insurance commissioners completed the first step of over a dozen requirements under the new Patient Protection and Affordable Care Act law providing health insurance to all Americans.
Over 20 commissioners were on the executive committee/plenary call headed by National Association of Insurance Commissioners President and West Virginia Commissioner Jane Cline with the assistance of Sandy Praeger, Kansas Insurance Commissioner and chair of the NAIC’s “B” Health Committee.
Praeger detailed the work on two conference calls on May 11 and 12, during which the responses were discussed and finalized. She emphasized that what was being voted on was simply a response to questions put in the Federal Register by Secretary of the Department of Health and Human Services Kathleen Sebelius. PPACA requires the NAIC to develop a definition and calculation for medical loss ratios. That work is ongoing and will be addressed during a June 1 conference call, according to Praeger. The response to the questions in the Federal Register will be sent to Sebelius on or before the due date of May 14, this Friday.
During the conference calls several issues were raised. One was a decision to state that states’ past rate review processes should not affect grants to states and that all states be able to share in grants that the federal government is making toward implementation of rate reviews. The federal government is allocating $250 million to states to help with the rate review process, according to Praeger.
The call followed a May 12 joint call of the NAIC’s “B” Committee and the Financial Condition “E” Committee. Regulators running that call included Steve Ostlund of Alabama, Julia Philips of Minnesota and Rick Diamond of Maine.
During that call, the issue was raised that states which do the most work should receive a share of those grants because of the additional burdens of complying with the new law. However, it is difficult at this time to assess what should be allocated because it is uncertain what the costs or employee hours will be for these tasks, according to the discussion.
During the same call, Philips, who was heading up a subgroup on rate filings, said that states did not have a consensus on a definition of unreasonable rates. Since there is no bright line consensus, the response to the question leaves the concept as “potentially unreasonable,” she added.
Herb Olsen, a regulator from Vermont, said that company improvements to database systems, while not specifically medical improvements are system type quality improvements and should be considered in a medical loss ratio.
Lou Felice, a New York regulator on the “E” Committee, said that the matter could be considered during work on the medical loss ratio and possibly be included as part of the numerator in the calculation. Olsen responded that as long as consideration was given to the issue, that would be acceptable.
Joan Gardiner, a representative of Blue Cross/Blue Shield, Chicago, argued against having a checklist for unreasonable rates, petitioning for more general principles such as being “actuarially sound, not discriminatory, and being consistent with medical loss ratio requirements.”
However, Minnesota’s Philips said that she really thinks the question being put to regulators focused on what rates could be unreasonable.
Bonnie Burns, representing California Health Advocates, Scotch Valley, Calif.,and a funded consumer of the NAIC, Kansas City, Mo., raised the issue of minimum benefit plans and wording in the response. She expressed concern that the language assumes those plans will disappear but raised the possibility that some may remain. If those plans do not entirely disappear, she raised concern that some may fall into a gray area where they are not regulated. She urged that the language be tempered to reflect the possibility that they may not completely go away and that there may be a need to regulate them.
In response, regulators changed the wording, using the word ‘may’ to reflect uncertainty and leave open the possibility that oversight may be needed.
Over 20 commissioners were on the executive committee/plenary call headed by National Association of Insurance Commissioners President and West Virginia Commissioner Jane Cline with the assistance of Sandy Praeger, Kansas Insurance Commissioner and chair of the NAIC’s “B” Health Committee.
Praeger detailed the work on two conference calls on May 11 and 12, during which the responses were discussed and finalized. She emphasized that what was being voted on was simply a response to questions put in the Federal Register by Secretary of the Department of Health and Human Services Kathleen Sebelius. PPACA requires the NAIC to develop a definition and calculation for medical loss ratios. That work is ongoing and will be addressed during a June 1 conference call, according to Praeger. The response to the questions in the Federal Register will be sent to Sebelius on or before the due date of May 14, this Friday.
During the conference calls several issues were raised. One was a decision to state that states’ past rate review processes should not affect grants to states and that all states be able to share in grants that the federal government is making toward implementation of rate reviews. The federal government is allocating $250 million to states to help with the rate review process, according to Praeger.
The call followed a May 12 joint call of the NAIC’s “B” Committee and the Financial Condition “E” Committee. Regulators running that call included Steve Ostlund of Alabama, Julia Philips of Minnesota and Rick Diamond of Maine.
During that call, the issue was raised that states which do the most work should receive a share of those grants because of the additional burdens of complying with the new law. However, it is difficult at this time to assess what should be allocated because it is uncertain what the costs or employee hours will be for these tasks, according to the discussion.
During the same call, Philips, who was heading up a subgroup on rate filings, said that states did not have a consensus on a definition of unreasonable rates. Since there is no bright line consensus, the response to the question leaves the concept as “potentially unreasonable,” she added.
Herb Olsen, a regulator from Vermont, said that company improvements to database systems, while not specifically medical improvements are system type quality improvements and should be considered in a medical loss ratio.
Lou Felice, a New York regulator on the “E” Committee, said that the matter could be considered during work on the medical loss ratio and possibly be included as part of the numerator in the calculation. Olsen responded that as long as consideration was given to the issue, that would be acceptable.
Joan Gardiner, a representative of Blue Cross/Blue Shield, Chicago, argued against having a checklist for unreasonable rates, petitioning for more general principles such as being “actuarially sound, not discriminatory, and being consistent with medical loss ratio requirements.”
However, Minnesota’s Philips said that she really thinks the question being put to regulators focused on what rates could be unreasonable.
Bonnie Burns, representing California Health Advocates, Scotch Valley, Calif.,and a funded consumer of the NAIC, Kansas City, Mo., raised the issue of minimum benefit plans and wording in the response. She expressed concern that the language assumes those plans will disappear but raised the possibility that some may remain. If those plans do not entirely disappear, she raised concern that some may fall into a gray area where they are not regulated. She urged that the language be tempered to reflect the possibility that they may not completely go away and that there may be a need to regulate them.
In response, regulators changed the wording, using the word ‘may’ to reflect uncertainty and leave open the possibility that oversight may be needed.
Monday, May 10, 2010
GAO Report, RFI Request Raise Awareness on Retirement Crisis
It’s no secret that people are living longer and saving less than they need for retirement. Life insurers and many other financial services companies have been warning consumers for years and rightly so.
Last week the General Accountability Office at the behest of U.S. Sen. Herb Kohl, D-Wisc., reminded us that Americans have a problem on their hands.
Among other things, the report states that retirees have three primary options for lifetime income: those in defined benefit plans can receive their benefits as a lifetime annuity; retirees in defined contribution plans can purchase individual life annuities provided by insurance companies that offer retirement income on a lifetime basis; and enhancing the Social Security lifetime income stream by deferring retirement by a few years (up to age 70) in order to receive higher monthly benefits.
The third option is something that the American Academy of Actuaries, Washington, touched upon last year when it “recommended that increasing the retirement age be a part of any reform proposal.”
The GAO report discusses the use of annuities and note that about 6% of households owned individual annuities in 2007 and only 3% of the total annuities sold in 2008 were fixed immediate annuities, which provide lifetime income. The majority of annuities sold, according to a citation of the Insured Retirement Institute by the GAO, are deferred annuities which are not typically converted to lifetime income.
However, the report also notes that lifetime income annuities have several disadvantages including consumers who have the funds in hand to buy the annuities and a constant level of income or a fee for inflation riders that reduce the stream of income. And, it notes that annuities leave nothing to one’s heirs although the report does go on to say that there are annuities available with limited death benefits but at the cost of lower monthly payments.
The GAO report notes that delaying Social Security benefits is not an option for many who cannot work and lack sufficient assets to live in retirement without these benefits. And, the report says that workers with shorter life spans are less likely to be better off by delaying the start of benefits.
Last week, the American Council of Life Insurers, Washington, weighed in on the issue. Gov. Frank Keating, ACLI president and CEO, discussed the importance of Americans getting the retirement savings issue right as part of a discussion on the organization’s response to a request for information (RFI) by the departments of Treasury and Labor on the role that guaranteed lifetime income options can play in workplace retirement plans.
As part of its RFI, the ACLI included a study by Matthew Greenwald and Associates that it sponsored which found that 91 percent of Americans said they would like their employer to illustrate how much their savings would create per month for life. Moreover, the ACLI says, if the amount of monthly income is not enough, a strong majority said they would save more for retirement.
During a press conference to discuss the RFI and the strong need to provide employees with more options, Keating noted that in most cases Americans are grossly undersaved for their retirements and that the average American has on average $55,000 in cash assets not including 401(k) funds. Only 20% of Americans have pensions and in retirement the average Social Security check is $1,158, Keating added. He proceeded to explain why the option of using annuities to create a lifetime stream of income is necessary.
Greenwald then spoke of the study’s findings which found, among other things that 78%of 750 respondents would be interested in having an employer provide more information on what one can do with their retirement savings once they retire. The study found that 90% of those surveyed would strongly or somewhat favor an employer offering an option that would use some of retirement plan savings to produce guaranteed monthly savings for the rest of their lives.
James Szostek, ACLI’s vice president-taxes and retirement security, described the benefit of allowing partial annuitization of a retiree’s benefits, noting that “For in-plan arrangements, guidance should make clear that plans may permit participants to purchase guaranteed lifetime income with a portion of their account balance.”
The Insured Retirement Institute, Washington, is also submitting an RFI, is making four major conceptual requests of the administration:
1. Implement measures that will incentivize employers to make guaranteed lifetime income strategies available for employees inside employer-sponsored retirement plans;
2. Help to make guaranteed lifetime income solutions attractive for investors outside of employer sponsored plans, including in individual retirement accounts, by incentivizing their use and educating Americans about their benefits;
3. Simplify rules and relieve administrative burdens for employers who wish to include guaranteed lifetime income products as investment or distribution options in their retirement plans; and
4. Encourage the provision of high-quality educational materials to individuals by eliminating the current administrative barriers and regulatory uncertainty.
The Investment Company Institute, Washington, started the year with a release of a 3,000 household survey that found that over 73 percent of households surveyed indicated that they are confident that retirement plan accounts can help people research their retirement goals. But the ICI said that the survey indicated that 70 percent opposed the concept of a mandated annuity or government payout.
And, the Life Insurance Settlement Association, Orlando, Fla., says that for those who don’t need life insurance anymore, selling that contract is no longer wanted or needed is a way to raise money for life’s needs and provide for retirement.
The solution to this major, critical retirement issue may be one, some or perhaps, none of the above depending on individual circumstances. But given what is at stake, retirement security for Americans, none of these ideas should be dismissed or minimized and all need to be fairly considered.
Last week the General Accountability Office at the behest of U.S. Sen. Herb Kohl, D-Wisc., reminded us that Americans have a problem on their hands.
Among other things, the report states that retirees have three primary options for lifetime income: those in defined benefit plans can receive their benefits as a lifetime annuity; retirees in defined contribution plans can purchase individual life annuities provided by insurance companies that offer retirement income on a lifetime basis; and enhancing the Social Security lifetime income stream by deferring retirement by a few years (up to age 70) in order to receive higher monthly benefits.
The third option is something that the American Academy of Actuaries, Washington, touched upon last year when it “recommended that increasing the retirement age be a part of any reform proposal.”
The GAO report discusses the use of annuities and note that about 6% of households owned individual annuities in 2007 and only 3% of the total annuities sold in 2008 were fixed immediate annuities, which provide lifetime income. The majority of annuities sold, according to a citation of the Insured Retirement Institute by the GAO, are deferred annuities which are not typically converted to lifetime income.
However, the report also notes that lifetime income annuities have several disadvantages including consumers who have the funds in hand to buy the annuities and a constant level of income or a fee for inflation riders that reduce the stream of income. And, it notes that annuities leave nothing to one’s heirs although the report does go on to say that there are annuities available with limited death benefits but at the cost of lower monthly payments.
The GAO report notes that delaying Social Security benefits is not an option for many who cannot work and lack sufficient assets to live in retirement without these benefits. And, the report says that workers with shorter life spans are less likely to be better off by delaying the start of benefits.
Last week, the American Council of Life Insurers, Washington, weighed in on the issue. Gov. Frank Keating, ACLI president and CEO, discussed the importance of Americans getting the retirement savings issue right as part of a discussion on the organization’s response to a request for information (RFI) by the departments of Treasury and Labor on the role that guaranteed lifetime income options can play in workplace retirement plans.
As part of its RFI, the ACLI included a study by Matthew Greenwald and Associates that it sponsored which found that 91 percent of Americans said they would like their employer to illustrate how much their savings would create per month for life. Moreover, the ACLI says, if the amount of monthly income is not enough, a strong majority said they would save more for retirement.
During a press conference to discuss the RFI and the strong need to provide employees with more options, Keating noted that in most cases Americans are grossly undersaved for their retirements and that the average American has on average $55,000 in cash assets not including 401(k) funds. Only 20% of Americans have pensions and in retirement the average Social Security check is $1,158, Keating added. He proceeded to explain why the option of using annuities to create a lifetime stream of income is necessary.
Greenwald then spoke of the study’s findings which found, among other things that 78%of 750 respondents would be interested in having an employer provide more information on what one can do with their retirement savings once they retire. The study found that 90% of those surveyed would strongly or somewhat favor an employer offering an option that would use some of retirement plan savings to produce guaranteed monthly savings for the rest of their lives.
James Szostek, ACLI’s vice president-taxes and retirement security, described the benefit of allowing partial annuitization of a retiree’s benefits, noting that “For in-plan arrangements, guidance should make clear that plans may permit participants to purchase guaranteed lifetime income with a portion of their account balance.”
The Insured Retirement Institute, Washington, is also submitting an RFI, is making four major conceptual requests of the administration:
1. Implement measures that will incentivize employers to make guaranteed lifetime income strategies available for employees inside employer-sponsored retirement plans;
2. Help to make guaranteed lifetime income solutions attractive for investors outside of employer sponsored plans, including in individual retirement accounts, by incentivizing their use and educating Americans about their benefits;
3. Simplify rules and relieve administrative burdens for employers who wish to include guaranteed lifetime income products as investment or distribution options in their retirement plans; and
4. Encourage the provision of high-quality educational materials to individuals by eliminating the current administrative barriers and regulatory uncertainty.
The Investment Company Institute, Washington, started the year with a release of a 3,000 household survey that found that over 73 percent of households surveyed indicated that they are confident that retirement plan accounts can help people research their retirement goals. But the ICI said that the survey indicated that 70 percent opposed the concept of a mandated annuity or government payout.
And, the Life Insurance Settlement Association, Orlando, Fla., says that for those who don’t need life insurance anymore, selling that contract is no longer wanted or needed is a way to raise money for life’s needs and provide for retirement.
The solution to this major, critical retirement issue may be one, some or perhaps, none of the above depending on individual circumstances. But given what is at stake, retirement security for Americans, none of these ideas should be dismissed or minimized and all need to be fairly considered.
Monday, May 3, 2010
Dinallo’s Bid For New York AG Gets Boost
From The New York Times yesterday comes news that the former New York Insurance Superintendent Eric Dinallo won a straw poll from the New York Democratic Rural Conference in his quest to become the state’s next Attorney General.
The poll was announced after candidates submitted answers to a questionnaire from the DRC. Dinallo’s response starts with a description of his public service starting as an Assistant District Attorney in the Manhattan DA’s office and details his accomplishments through his recent tenure as superintendent.
Dinallo writes that “As Superintendent of Insurance, I ran a state agency of similar size and scope to the Attorney General's office, and became one of the insurance industry’s leading regulators nationwide.
“As Insurance Superintendent, I successfully fought for the people of New York and became a leader in consumer protection, helping to provide access to affordable health insurance coverage to 400,000 New Yorkers, including many children; helping secure the right of families to include their young adult dependents through age 29 on family health insurance coverage; implementing reforms of New York’s workers’ compensation system, including raising benefits for injured workers by 75% and saving businesses $1 billion annually; requiring New York insurance companies to extend benefits to same-sex couples who were married legally in other states; increasing access to surety bonding and, thus, large state construction contracts, for minority and women-owned businesses; ordering the reinstatement of homeowner’s insurance policies for more than 55,000 homeowners whose insurance had been wrongly terminated; saving over $500 million in auto insurance premiums for 130,000 New York policyholders; and resolving the longstanding $2 billion property insurance dispute over the World Trade Center so that we could finally begin to rebuild.”
His work following the financial meltdown that brought down American International Group, New York, also would be helpful experience. In fact, Attorney General Andrew Cuomo noted that effort in several press releases in March of 2009 when the issue of AIG bonuses came to a head.
And, the current Attorney General also noted efforts against fraudulent activity from an insurance agent, workers’ compensation fraud and an insurance fraud ring which infiltrated New York hospitals.
The poll was announced after candidates submitted answers to a questionnaire from the DRC. Dinallo’s response starts with a description of his public service starting as an Assistant District Attorney in the Manhattan DA’s office and details his accomplishments through his recent tenure as superintendent.
Dinallo writes that “As Superintendent of Insurance, I ran a state agency of similar size and scope to the Attorney General's office, and became one of the insurance industry’s leading regulators nationwide.
“As Insurance Superintendent, I successfully fought for the people of New York and became a leader in consumer protection, helping to provide access to affordable health insurance coverage to 400,000 New Yorkers, including many children; helping secure the right of families to include their young adult dependents through age 29 on family health insurance coverage; implementing reforms of New York’s workers’ compensation system, including raising benefits for injured workers by 75% and saving businesses $1 billion annually; requiring New York insurance companies to extend benefits to same-sex couples who were married legally in other states; increasing access to surety bonding and, thus, large state construction contracts, for minority and women-owned businesses; ordering the reinstatement of homeowner’s insurance policies for more than 55,000 homeowners whose insurance had been wrongly terminated; saving over $500 million in auto insurance premiums for 130,000 New York policyholders; and resolving the longstanding $2 billion property insurance dispute over the World Trade Center so that we could finally begin to rebuild.”
His work following the financial meltdown that brought down American International Group, New York, also would be helpful experience. In fact, Attorney General Andrew Cuomo noted that effort in several press releases in March of 2009 when the issue of AIG bonuses came to a head.
And, the current Attorney General also noted efforts against fraudulent activity from an insurance agent, workers’ compensation fraud and an insurance fraud ring which infiltrated New York hospitals.
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