Friday, December 31, 2010

S&P Looks at 2011

Standard & Poor’s Corp., New York, is reporting that 2011 will be a year for more optimism in the insurance industry, although not exuberant optimism.
The rating agency offered its assessment of different insurance sectors in commentaries released earlier this month. S&P’s take on 2011 is as follows:

Life Insurance
The life insurance market’s outlook is revised to ‘stable’ from ‘negative’ due to stronger balance sheets, recovering financial markets and less risky liability profiles. For instance, according to S&P, variable annuity writers have increased their hedging of older in-force business and have made new offerings less risky by lowering guaranteed benefit bases, making investment elections more restrictive and charging higher fees.

However, the good news is tempered by some sobering observations: fierce competition, the impact of low interest rates on profitability and the potential for commercial real estate losses.

Many companies are offering “commoditized products through independent distribution where competitive pricing and producer compensation are crucial to sales.” For instance, during 2010, some companies have seen sales of term life insurance rise or fall by 20% or more, reflecting their pricing actions or the actions of their competitors, according to S&P.

And, low interest rates could impact the interest margin between earned and credited rates for fixed annuities and universal life insurance as well as variable annuity writers. Most insurers have “room to maneuver before reaching contractual guaranteed minimum interest rates on more recent blocks of business, but “interest-sensitive products will be constrained until rates pick up.” Rates will be manageable in 2011 but could be a drag on earnings if rates don’t increase by 2012, the rating agency says.

In spite of these challenges, S&P maintains that there are bright spots for life insurers: retirement income and the underinsured middle market. The key for insurers will be to overcome the products’ greater risks than those presented by traditional life insurance products.


Property-casualty insurers faired pretty well during the recent economic downturn, according to S&P. However, this segment of the industry will continue to contend with issues such as lower interest rates and weak pricing, the rating agency adds.
There is a real divide between how commercial and personal lines are performing, according to S&P. While personal lines have shown improvement since 2008 because of factors including more favorable pricing, commercial lines are challenged by a sustained soft market marked by price cutting that is reducing profits, says S&P. Lower pricing and decreased investment income has strained earnings, the rating agency adds. And, it says, commercial lines with long-tails where companies usually don’t know about or settle claims for at least a year might be concealing “the unfavorable market's full effect on profitability.”


Health insurers performed better than expected in 2010, S&P says. And, going forward, industry risk appears to be moderating and business opportunities measured by growth and retention and access to capital are stabilizing, it continues. However, margins are expected to be thinner than 2010 results and even with an increase in payroll employment, growth is expected to be slow, S&P adds.

Workers Compensation

S&P offers its assessment of this segment of the industry by noting that “the U.S. property/casualty (P/C) workers' compensation insurance industry has reported underwriting losses in all but three of the past 20 years. And future underwriting profitability in this sector doesn't look promising, at least
over the next two years.”

Thursday, December 23, 2010

NAIC’s IIPRC and NIPR Bodies Elect Officers

Two affiliate bodies of the National Association of Insurance Commissioners, Kansas City, Mo., have held year-end elections.

The Interstate Insurance Product Regulation Commission (IIPRC) elected new 2011 officers during a special election Dec. 20. The new officers are: New Hampshire Insurance Commissioner Roger A. Sevigny, chair; North Carolina Insurance Commissioner Wayne Goodwin, vice chair; and Missouri Insurance Director John M. Huff, treasurer. The new officers assume their roles immediately.

And, the board of directors of the National Insurance Producer Registry (NIPR) elected its 2011 officers on Wednesday, Dec. 15 during a teleconference meeting.

Alaska Insurance Director Linda Hall was re-elected NIPR president. Hall has been a member of the NIPR board since June 2003 and served as president since December 2004.

William Anderson, senior vice president of law and government relations for the National Association of Insurance and Financial Advisors, Falls Church, Va., was re-elected vice president. Kentucky Insurance Commissioner Sharon P. Clark was elected secretary/treasurer.

NIPR is governed by a 13-member board of directors, with six members representing the NAIC and six members representing industry trade associations (including three producer trade associations). The NAIC Chief Executive Officer Terri Vaughan serves as an ex-officio voting board member.

Tuesday, December 21, 2010

Citigroup Insurance Agencies Agree to Pay $2 Million Sales Practice Fine

Three Citigroup-affiliated insurance agencies have paid a $2 million fine to New York to resolve insurance law violations committed from 2003 to 2007, New York State Insurance Superintendent James J. Wrynn announced on Dec. 21.

The violations found by the department included failure to disclose required information comparing policies or contracts being replaced with their potential replacements, and inaccurate or incomplete disclosure of policy or contract values or surrender charges, according to the New York department.

The agencies included: Citicorp Insurance Agency, Inc.; Citicorp Investment Services; and SBHU Life Agency, Inc.

The violations involved the Department's Regulation 60. When a transaction involving the replacement of an existing life insurance policy or annuity contract is likely to occur, Regulation 60 requires the agent or broker to present to the applicant specific information including the primary reason for recommending the new life insurance policy or annuity contract and why the existing policy or contract does not meet the applicant's objectives. In addition, the agent or broker must have the applicant acknowledge that both forms have been received and read. This was not always done or not always done properly, the Department's examination found.

The Department examination also uncovered issues surrounding complaints filed by consumers after buying annuities or life insurance policies. The complaint process was flawed for various reasons, including that complaints were sometimes not reported to the insurance company that issued the annuity or policy; the reasons for denial of a complaint were not properly explained to consumers; supervisors with a financial interest in the outcome of complaints were allowed to rule on complaints; and proper documentation to allow Department review of complaint handling was not maintained.

In addition, the examination found that sales of some life insurance policies and annuity contracts were in violation of the agencies' own suitability standards.

The agencies are promising to take remedial action, according to the New York department. They have agreed to create policies and procedures to address the Regulation 60 violations, fix the complaint process, make sure all life insurance and annuity sales comply with applicable suitability standards and take any other steps necessary to prevent a recurrence of the violations. They will file reports with the Department within 90 days, with follow-up reports every 120 days as the Department deems necessary.

Monday, December 20, 2010

NAIC Adopts Retained Asset Accounts (RAA) Bulletin, Initiates PPACA Agent Group

State insurance commissioners finished up business and prepared to start new work as 2010 winds down.

During a conference call last week, the executive committee and the plenary of the National Association of Insurance Commissioners, Kansas City, Mo. took action on over 11 items including a controversial issue on how to better regulate retained asset accounts. RAAs and beneficiaries understanding of those death benefit options generated public debate starting in July of this year.

The bulletin includes a disclosure that RAAs are, in general, protected by state guaranty associations, according to Roger Sevigny, New Hampshire commissioner and former NAIC president. Sevigny spearheaded the RAA effort. The point had been debated because of concern that it could be used as a marketing tool but ultimately, it was decided that since the information is delivered at the point of claim, that would not be an issue.

Commissioners also passed a motion to establish a committee to look at the impact of the Patient Protection and Affordability Act (PPACA) on producers both before and after a medical loss ratio provision adopted by the NAIC earlier this year. The goal of the new group is to examine and ameliorate some of the impact on the marketplace and its agents who may lose commissions.

There was some discussion when New Jersey Insurance Commissioner Tom Considine expressed concern that the charge was overly broad because it would not just look at the impact on producers but also consumers and the insurance market. But Florida Insurance Commissioner Kevin McCarty emphasized that the focus would be narrow. As the discussion continued, three additional states, Delaware, South Dakota and Wisconsin asked to be added to the NAIC working group.

A third issue that was discussed was a recommendation to the U.S. Department of Health and Human Services on a rate filing disclosure form. The NAIC was charged with providing recommendations under the new PPACA law as detailed by Oregon Director Teresa Miller.

The discussion focused on two amendments: one technical removing a heading and a second offered by America’s Health Insurance Plans, Washington, and Blue Cross/Blue Shield, Chicago, which recommending rate filing form disclosure on a 12-month rolling basis rather than on a month-to-month basis.

Miller questioned the introduction of an amendment two days before a vote when the issue had been discussed and vetted for months. She said that the last minute nature of the proposal would not be fair because it would not give interested parties sufficient time to discuss the issue. She did not address the merit of the proposal.
South Carolina’s Scott Richardson said that the proposal did seem to have merit but New York regulator Lou Felice said that a month to month review could provide regulators with a tool for early detection of unfavorable trends.

Iowa Insurance Commissioner and NAIC President Elect Susan Voss reminded commissioners that these are just recommendations to HHS. Sandy Praeger, Kansas insurance commissioner, former NAIC president, suggested that a cover letter explain the proposal along with the NAIC work and say that this could be something the HHS may want to consider.

Wednesday, December 15, 2010

Employer Match a Real Incentive, LIMRA Finds

An employer matching contribution nearly triples the odds of employees contributing to their defined contribution plan, according to a new study by LIMRA, Windsor, Conn. It is the single most significant factor in determining whether employees contribute to a defined contribution plan, the study finds.

Age, household income and education had a fraction of the impact of an employer match for both not-for-profit and for-profit employees when it came to participating in DC plans,” according to Cecilia Shiner, a LIMRA analyst.

“While most employees we surveyed only contribute amounts equal to or less than their employer’s match, LIMRA found that for-profit employees are the most likely to contribute amounts greater than the amount necessary to receive the maximum employer match,” said Shiner.

Sixty-seven percent of employees who have a DC plan available to them participate in the plan; on average they contribute eight percent of their salaries. Employees who do not contribute to their DC plans say they cannot afford to do so; but 36 percent of those intend to start or resume contributing within the next 12 months.

Employees recognize the importance of saving for retirement. Besides emergencies and unemployment, employees cite retirement as the most important reason for saving. Yet 59 percent of employees believe they have not planned enough for retirement, and over 60 percent have less than $100,000 in household retirement savings.

LIMRA research found that women are especially ill-equipped for retirement. Although their participation rates are equal to those of men, their DC plan balances are significantly smaller. Half of women have $15,000 or less saved in their DC plan.

Female workers must confront the challenge of saving for extended average longevity, despite work disruptions for caregiving, as well as lower average salaries. Regardless of employer type, women are more likely to earn less than their spouse or partner.

The study examined almost 2,500 employees, who did not work for the federal government or military, were not self-employed, and were eligible to participate in a DC plan.

Monday, December 13, 2010

Donelon, McRaith Elected to NAIC Posts

Members of the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., held a special interim election during a conference call. Louisiana Insurance Commissioner James J. Donelon was elected NAIC Vice President and Illinois Insurance Director Michael T. McRaith was elected NAIC Secretary-Treasurer.

Donelon and McRaith join NAIC President Susan E. Voss and NAIC President-Elect Kevin M. McCarty, who were elected in October. The newly elected officers will assume their duties on Jan. 1, 2011.

Donelon was appointed Louisiana Insurance Commissioner in February 2006 and has been re-elected twice to the position. A retired State Judge Advocate for the Louisiana Army National Guard, Donelon’s career at the Department of Insurance includes serving as Chief Deputy Commissioner and Executive Counsel.

McRaith worked 15 years in private practice as an attorney in Chicago prior to his appointment as Illinois Insurance Director, most recently as a partner with an international law firm where he represented national and regional financial institutions. He serves as President of the Board of Directors for the Illinois Comprehensive Health Insurance Plan (a high-risk health insurance pool), and serves on the Board of Directors for the AIDS Foundation of Chicago and the American Foundation for Suicide Prevention, Chicago Chapter.

Sunday, December 12, 2010

New York Announces First Settlement Licenses

The New York insurance department announced on December 10 that two life settlement providers were the first to be licensed under the state’s new life settlement law. The providers are FairMarket Life Settlements Corp., St. Louis Park, Minn. and Magna Life Settlements Inc., Miami.

The Act was signed into law in Nov. 2009 and became fully effective on May 18, 2010. The law marks the first time the life settlement industry has been regulated in New York.

"This represents an important next step in protecting consumers by regulating the life settlement industry. The Department continues to review additional license applications and will issue more licenses as these reviews are completed," Insurance Superintendent James Wrynn says.

Twenty-nine other entities, which were doing business in New York legally before the new law took effect and have met specific requirements under New York's Life Settlement Act, may continue to operate as life settlement providers pending the disposition of their license applications. A complete list of these entities is available at this location on the Department's website, Settlement List

The law requires that an owner of a policy entering into a life settlement must receive a consumer information booklet and other disclosures providing the critical information that the consumer needs to make a decision to sell the policy. This information must include the amounts of all offers and counter-offers, as well as the fees paid to life settlement brokers, who are the entities or individuals that bring policy owners together with life settlement providers to complete transactions.

The law also includes safeguards to protect against the unlawful release of information concerning the identities of insured individuals and policy owners and information about the medical or financial status of insured individuals.

Saturday, December 11, 2010

A Look Into the Future May Move You to Save More

One of the more interesting stories this week was one reported by John Berman and Jennifer Metz of ABC News with Diane Sawyer. It featured a virtual human interaction lab that offered a glimpse of what people will look like in retirement. (see ABC's Look into the Future)

The behavioral-finance researcher behind the work, Hal Ersner-Hershfield of Northwestern University's Kellogg School of Management, believes that a look into the future will give people the opportunity to see if they have saved enough for retirement. It allows people to develop empathy for their future selves. That connection with the future self makes future needs seem real and saving for retirement more necessary, he argues in the piece.

Ersner-Hershfield believes the connection is important enough to prompt him to develop a web-based tool and an iPhone app to offer everyone a glimpse of their future selves.

One can’t help but wonder what use insurers and their producers could make of this tool when they argue that a client needs life insurance or an annuity.

Monday, December 6, 2010

ILMA Releases Life Settlement Provider Best Practices

The Institutional Life Markets Association (ILMA), Washington, released life settlement provider best practices which it says focuses on disclosure and due diligence.

The best practices, according to ILMA, focus on on providers certifying the intermediary (broker, agent, financial advisor, or attorney); guidance to providers on transferred policies; whether policy premiums have been financed; anti-fraud plans including retention of a medical professional or underwriter capable of comparing policy applications to medical records for material discrepancies; and privacy policies; and direction on state and federal laws and regulations compliance.

ILMA’s provider best practices are “an important step toward standardizing life settlement origination practices,” said Jack Kelly, ILMA managing director. “Providers following the same, transparent procedures and diligence will protect consumers and investors while fostering confidence in this viable investment option.”

To view the complete document, go to: ILMA Best Practices

Saturday, December 4, 2010

ACLI Applauds KORUS Accord

An agreement between the United States and South Korea which will eliminate some barriers that will allow American companies to conduct more business is receiving kudos from the American Council of Life Insurers, Washington.

President Barack Obama announced the agreement on December 3. According to the ACLI, “The agreement would open the door for U.S. insurers to introduce new and innovative life insurance and retirement security products to South Korean consumers.”

ACLI explains that while the South Korean insurance market is the eighth largest in the world, it has long been dominated by government-owned companies. The disadvantage that private sector companies faced will be limited with the enactment of KORUS which would make all parties adhere to the same regulations.

Wednesday, December 1, 2010

NCOIL’s Keiser Takes Reins, Appoints Chairs

North Dakota state representative George Keiser took over as President of the National Conference of Insurance Legislators, Troy, N.Y. Keiser named NCOIL chairs to advance the work of the group of state insurance legislators through 2011.
The slate of incoming NCOIL officers also includes Sen. Carroll Leavell (N.M.) as President-Elect, Sen. Vi Simpson (Ind.) as Vice President, Rep. Charles Curtiss (Tenn.) as Secretary, and Rep. Greg Wren (Ala.) as Treasurer.

In one of his first duties as President, Rep. Keiser announced 2011 Committee Chair appointments:

Financial Services & Investment Products: Assem. Joseph Morelle (N.Y.)
Health, Long-Term Care & Health Retirement Issues: Rep. Barb Byrum (Mich.)
International Insurance Issues: Sen. Travis Holdman (Ind.)
Life Insurance & Financial Planning: Sen. Mike Hall (W.V.)
Natural Disaster Insurance Legislation
(Subcommittee): Sen. Dean Kirby (Miss.)
NCOIL-NAIC Liaison: Rep. Kathleen Keenan (Vt.)
Property-Casualty Insurance: Rep. Chuck Kleckley (La.)
State-Federal Relations: Sen. Keith Faber (Ohio)
Workers’ Compensation Insurance: Rep. William E. Sandifer, III (S.C.)

Keiser assumes the role from state Rep. Robert Damron, Ky., immediate past president.