Heard at the D.C. Insurance Forums: To Go Global or not to Go Global or, Can a ‘Broken Chassis’ be Fixed?

Washington, May 17, 2022 –At recent insurance regulatory forums in Washington D.C, international insurance supervisors, state officials and other participants wrestled with the tensions of multi-national issues and whether the necessary responses should be global or not. 

The contrast between those talking about cooperation and consensus and those in the U.S. primarily focusing on local market solutions was stark on issues from climate change to international capital standards.

Federal Reserve Board Senior Associate Director Tom Sullivan, who has both banking and insurance supervision in his portfolio, compared the insurance capital standard (ICS), which will apply internationally active insurance groups (IAIGs) to a “broken chassis.”

No matter how one tries to rearrange the components or salvage the chassis to make it operate again, it is still broken, Sullivan said of the International Association of Insurance Supervisors‘ key financial solvency-monitoring tool according to multiple people in attendance. Sullivan spoke May 11 at the annual Networks Financial Institute’s insurance public policy summit sponsored by the Scott College of Business at Indiana State University and Faegre Drinker in Washington. The former Connecticut insurance commissioner stressed that the U.S. wants an ICS that respects the U.S. market.

The Fed, where Sullivan has served through the long development process, is developing a building block method of aggregation for a consolidated capital requirement for domestic IAIGs alongside work by the NAIC with its own solvency-monitoring Group Capital Calculation(GCC). The efforts of both organizations are tied together and bound as the aggregation method as they are built upon, or leverage, the state system of risk-based capital calculations to capture enterprise-wide risk. 

Two days later, Victoria Saporta, chair of the IAIS Executive Committee, which is shepherding the ICS through its five-year monitoring period that began in 2020, said the group is close to releasing a consultation paper and is closer on “equivalence” than it was in 2018.

Saporta was referring to the granting of the U.S. capital calculation method, also known as the aggregation method, to be “considered a viable alternative to the ICS for measuring group capital,” as the National Association of Insurance Commissioners puts it. The IAIS official, who serves as executive director, prudential policy, Bank Of England, spoke May 13 at the NAIC-sponsored annual international insurance forum, also held in the U.S. capital. 

Fitch Ratings recently noted that, in theory, the consolidated group-wide capital measurement standard known as the ICS whose most important principle is comparability of outcomes across jurisdictions for easier cross-border oversight and analysis “should improve comparability between insurance groups that operate under different solvency regimes” globally.

 “However, it will only be effective if all major jurisdictions implement it consistently,” Fitch stated in a May 10 release, just before the pair of Washington meetings got underway. 

Yet if what U.S. officials are saying continue to hold sway, challenges await.

NAIC President and Idaho Insurance Director Dean Cameron made it clear in public remarks at both forums that there are dark clouds gathering with regard to the ICS’ application and acceptance by U.S. regulators. 

“The NAIC is being forced into a decision where we will have to make some very tough decisions,” he said at the Networks Financial meeting. Cameron referred to an inferior product, in discussing the ICS while adding that it is “critically important “ that the NAIC does what it feels is right, whether it is in agreement with the IAIS or not. 

At the international forum, the NAIC president for 2022 continued to remark on concerns over the developing ICS process. 

Cameron “acknowledged the NAIC’s disappointment that we have been unable to reach agreement yet on comparability criteria that reflect a viable path forward for the Aggregation Method,” according to an NAIC website summary of his remarks. This lack of agreement directly threatens the foundation of the NAIC’s agreement with the IAIS in at its meeting in Abu Dhabi in November 2019, according to the NAIC.

The ICS Version 2.0 supposedly allows for comparable outcomes to be assessed during the five year monitoring period before 2025 implementation and enforcement. At the Abu Dhabi meeting, the IAIS agreed to allow for comparable outcomes to its ICS to include the U.S. methodology for computing group capital requirements for the IAIGs.

Whether there is a compromise on aggregation method/ICS comparability criteria by the time the IAIS meets in Croatia in mid-June — less than a month away — or whether the NAIC walks away remains to be seen, but the window is short and obstacles appear to be large.

Bryan Pickel, head of external affairs for Prudential Financial, Inc.,
said as part of a May 13 panel discussion on charting the future of insurance supervision in a rapidly changing world that the “end of globalization as we know it is something the IAIS should think about.” 

Pickel also pointed out that Prudential is a global company but not global in market-to market practice with bricks and mortar in many countries, responsive to the country it in which it is doing business.

The IAIS and U.K.’s regulator Saporta in her remarks March 13 at the NAIC forum discussed consensus on various aspects of handling climate change risk, and called the challenges of climate change very sobering, with a need for “action now.,” as delayed action is in itself a risk for the insurance sector. A panel moderated by Connecticut Insurance Commissioner Andrew Mais at the NAIC meeting also kicked off by identifying “consensus.”

Cameron had also spoken about consensus and working together on climate chance at the earlier Networks Financial forum, referring to collaboration among regulators and other parties on preventing and mitigating damage from wildfires and floods moving forward. 

However, the Idaho insurance director voiced his displeasure at thee Networks Financial summit on politics and duplicative efforts from different regulators. 

 The NAIC recently adopted an updated climate disclosure form standard for reporting climate-related risks, that is in alignment with the benchmark international Task Force on Climate-Related Financial Disclosures (TCFD).

Meanwhile, the Securities and Exchange Commission’s lengthy proposed disclosure rules on climate risk, announced March 21, are drawing some consternation from others in the sector, industry and presumable some state regulators as well. The SEC climate risk disclosure behemoth has been described as extensive and overly-prescriptive, and will face challenges from the industry, according to representatives attending the Washington meetings. Comments are due to the agency shortly, May 21, and many are anticipated. UPDATE week of May 20: Comment period has been extended through June 17.

However, even with fissures and concerns between nations, between organizations, between states and federal approaches and even among states themselves, there did seem to be more goodwill on climate risk issues than on international capital standard comparability and implementation.

As SHIP policyholder election deadline approaches, multiple states file cease & desist orders again rehab plan

March 3, 2022 –Claiming that only individual states have the authority to approve or deny insurance rates and forms for policies in their jurisdictions, a few states have begun issuing cease and desist orders against the rehabilitators of insolvent long-term care provider, Senior Health Insurance Company of Pennsylvania (SHIP).

Some states have already won or filed injunctions as the controversial plan gears up for implementation. March 15th is the deadline for policyholder responses.

Commissioners in Connecticut and Washington State are among the latest jurisdictions to issue and cease and desist to prevent SHIP from sending the coverage selection package material or otherwise trying to get policyholders to choose among a menu of reduced benefits and higher rates which were not approved by them. These Pennsylvania Commonwealth Court court-approved rate structures, meant to offer choices to policyholders and help make up for the $1.2 billion shortfall SHIP’s balance sheet due to underpriced rates in years past, were approved by a court process for rehabilitation Pennsylvania  with the state insurance department as rehabilitator.

SHIP rehab Cease and Desist orders Injunction requests filed, pending or remandedIntervening states in Pa. court against SHIP rehab Disapproval of rates by insurance commissioner in Department filing
MaineLouisiana MaineMaryland
Washington State South Carolina (appealed by Pa. rehabilitator)Massachusetts 
Iowa denied SHIP’s requested rate filing  
ConnecticutNorth DakotaWashington State
District of Columbia
Iowa hearing March 9 via the state AG’s office


Utah*  pending confirmation

Massachusetts* pending confirmation

Table for ongoing SHIP rehab plan opposition actions; SHIP is licensed in 46 states as
well as the District of Columbia and the U.S. Virgin Islands.

The states issuing cease and desist orders against the rehab plan for the $1.2 billion-in-the-red LTC insurer are on both coasts, and in the Midwest and the West, according to sources. As the filings become public, they will be listed here. 

On March 1, Washington State Insurance Commissioner Mike Kreidler issued a cease and desist order against SHIP in rehabiliation to immediately stop soliciting signatures from Washington’s 1,200 plus policyholders for benefit and rate changes because they have not been approved. Maine took the same action last month under Insurance Superintendent Eric Cioppa for its long-term care insurance policyholders, whose average age is 86 and who face slices to their benefits or much bigger premiums under the rehab plan. 

A good majority of U.S. states are opposing the SHIP rehabilitation plan in one form or another, whether by signing on in support of the three intervening states —Maine, Massachusetts and Washington State —who have sued to stop it, by rejecting the imposition of its rate plan or by seeking, and in some cases winning ,temporary injunctions. There are injunctions filed in Louisiana, South Carolina, where there are temporary relief orders, and in North Dakota and Iowa.  The Iowa Attorney General’s Office, representing Insurance Commissioner Doug Ommen, filed a petition for an injunction in district court against SHIP to halt the implementation rehab until and unless SHIP “fully complies with the requirements of Iowa law.” A hearing is scheduled for March 9.

According to the Maine’s Cioppa, in total 30 jurisdictions have opposed the SHIP rehabilitation plan “as being unfair to policyholders.”

However, the states that have sued or entered orders like Washington’s account for about 12 % of the policies affected by the rehabilitation plan.

Louisiana Insurance Commissioner Jim Donelon said he was leading a group of 27 states that filed an amicus brief in support of a challenge filed by the three intervening states “that would declare the SHIP rehabilitation plan unconstitutional and block it from taking effect.”

Donelon has expressed concern about the erosion this rehabilitation would bring, if it prevails, to the nature of independent state insurance regulation. He also worried about the cascading effects for potential future similar restructurings, specifically naming Genworth Financial, with is 1.1 million LTC policyholders nationwide, in when announcing the successful court injunction Jan. 27.

Washington’s cease and desist order states that Harrisburg, Pa.-based SHIP is: “ordered to cease and desist” from disseminating, implementing, or enforcing the ‘Coverage Election Package,’ to policyholders in the state, … implementing any choice already made by a policyholder under the package or attempting to enforce these choices, or requesting that policyholders select rates or benefits different from those authorized by the insurance commissioner,” and otherwise making decisions or sending information to policyholders without the approval of the commissioner.

Kreidler, who is on of the three commissioners intervening in the SHIP rehab plan, now on appeal without a stay in the Supreme Court of Pennsylvania, and others do not want their policyholders facing reduction in benefits or significantly higher premiums at advanced ages and prefer the liquidation process. 

“State guaranty associations are set up in each state to pay claims when an insurer is placed in liquidation. Washington’s guaranty association pays claims up to $500,000 for a policyholder of a liquidated insurer,” Kreidler stated in a press release

The guaranty association would ” give some limited protection for policyholders but is no panacea. SHIP will not recover from its financial insolvency, but liquidating the company and triggering the states’ guaranty associations will offset some of the impact on policyholders,” Kreidler wrote.

To be sure, Washington State is more generous than the average state’s limit through the guaranty associations of $300,000. 

Maryland Insurance Commissioner Kathleen Birrane on Feb. 15 denied the rate package in an administrative filing after a hearing. She advised rates could be filed in the future consistent with her parameters and pre-rehab rating characteristics used by SHIP. 

“The threatened unilateral reduction in benefits also appears to have a potential permanent adverse effect on policyholders’ guaranty association benefits in the likely event that SHIP is place into liquidation at a later date,” Birrane wrote. Special Deputy Rehabilitator  [Patrick] Cantilo has admitted in previous testimony that ‘it is not likely that we will magically restore SHIP to solvency, but it is likely that the plan …would substantially reduce the deficit,’” she noted in her order. 

The SHIP actuarial memorandum shows that the plan’s premium increases are as high as 1,361% for Maryland policyholders, with an average rate increase for her state’s policyholders as 136. Maryland is one of the opt-out states objecting to the imposition of the out-of-state rehab plan’s rates and benefits changes. 

Packets containing a host of choices for future coverage  have already been mailed to policyholders throughout the U.S.

They directs SHIP policyholders to select one of five coverage options, with an accompanying premium change:Even though two of the options among the election packet —downgrading your policy and keeping your current policy—advertise that the Maximum Lifetime Benefit is “unlimited,” Kreidler alleged this claim to be misleading because he doesn’t think SHIP has the funds to fulfill this promise. 

The option selection package  postmark date is March 15th, and the rehabilitator hopes to begin the implementation of the actual rehabilitation in April.

SHIP was placed into rehabilitation in January 2020. Rehabilitators, led by recently departed Pennsylvania Insurance Commissioner Jessica Altman created a rehabilitation plan, which was amended after receiving input from stakeholders This was approved by the Pennsylvania Commonwealth Court  in August 2021 and adjusted I the fall. SHIP began mailing the options section package in January. 

The intervening state commissioners argued  in a reply brief before the Pennsylvania Supreme Court Feb. 22 that  the “Rehabilitator contends there is no evidence of policyholder impact, but the whole Plan is expressly about reducing policyholder contract rights,”

The Pennsylvania Insurance Department and the rehabilitator have contended that SHIP’s plan is about giving policyholders options and have noted that despite the opposition, the plan will be accepted by the majority of the policyholders based on the population in  states that are not opposing the plan.

 While the rehabilitator argued that “there is no evidence of harm to the rate review process,” the three intervening state commissioners wrote in their Pennsylvania Supreme Court filing last month that “the Plan’s express purpose is to take control of rates nationwide and displace the existing state-based rate review process.” Others have used stronger language to suggest the displacement of the entire state-based system of regulation.

Before November 2008 SHIP  was known as Conseco Senior Health Insurance Co.  From 1997 to 2000, a number of other LTC companies merged into, or were acquired by Conseco. It filed for bankruptcy in 2002, but emerged from it a year later. The rates the company offered for LTC insurance proved woefully adequate, as they have for others in the business. This is because the original underwriters did not anticipate longevity, morbidity, low interest rates and minima lapse rates. 

As Maryland’s insurance commissioner noted in its administrative ruling, “Only a small fraction of SHIP’s original business remains in force.”

The average SHIP policyholder in Maryland is approximately 85 years-old and the average policyholder on claim is about 90. 

Policyholders for all remaining LTC companies or blocks of business have held onto their richer policies as if they were gold—and are now facing staggering premium increases whether or not their insurer is solvent.  

Key SHIP LTC rehab players, Altman and Cioppa, leaving posts as top insurance regulators

Feb.15, 2022 — Two key regulators involved in the rehabilitation proceeds surrounding insolvent insurer Senior Health Insurance Company of Pennsylvania are leaving their posts. 

Head SHIP rehabilitator and Pennsylvania Insurance Commissioner Jessica Altman is leaving as top regulator in the Commonwealth before leaving to become CEO of Covered California, the state’s individual health insurance marketplace. Altman’s last day will be Feb. 25, about six or more weeks before the SHIP amended rehabilitation plan, with its mix of higher premiums and reduced benefit options, is expected to go into effect, barring any legal action. 

Pennsylvania Gov. Tom Wolf has ask the Pennsylvania Insurance Department’s chief of staff Mike Humphreys to serve as acting commissioner for the remainder of the year, a department spokesperson said. 

Altman has been extensively involved in the Pennsylvania insurance marketplace, chairing the Pennsylvania Health Insurance Exchange Authority and in helping form the 2010 Affordable Care Act’s state-based marketplace.

Pennsylvania is the fifth-largest insurance market in the U.S. 

In Maine, Eric Cioppa, the insurance superintendent, former president of the National Association of Insurance Commissioners and one of the three states appealing the SHIP case to the Pennsylvania Supreme Court, is retiring in April. Cioppa is also the current NAIC representative to the U.S. Financial Solvency Oversight Council, a Dodd-Frank-Act-created multi-agency body that grew out of the 2008-2009 financial crisis.A state  insurance regulatory replacement has not yet been named.

Cioppa has been an insurance regulator or decades and served first as a statistician for the Maine Bureau of Insurance until becoming a trusted deputy and then appointed superintendent in 2011. Cioppa has been involved in all facets of state insurance regulation over the years and helped spearhead long-term care insurance solvency and oversight initiatives at the NAIC.

Cioppa has been joined by Washington State Insurance Commissioner Mike Kreidler and Massachusetts Insurance Commissioner Gary Anderson, along with 27 other state commissioners signing on as amici in intervening in the SHIP rehabilitation process against PID  and Altman as rehabilitator to stop  the plan in its tracks.

The intervening state insurance commissioners and their supporters argue that policyholders will be better off in a liquidation now rather naan forestalling one and that the position of rates by one state over another violates the tenets of state insurance regulation. An appeal is pending, but a stay pending appeal was recently denied by the state Supreme Court.

Of interest, three of the four current NAIC officers, President Dean Cameron Vice President Andrew Mais and Secretary-Treasurer Jon Godfread North Dakota, support the appeal of the intervening regulators plan as amici brief co-signers. Several of the amici are former NAIC presidents, Louisiana’s Jim Donelon, South Carolina’s Ray Farmer and Cioppa.  

A Pennsylvania department spokesperson has previously stated that “Commissioner Altman placed the interests of affected policyholders as the top priority in proposing the Plan. In pursuit of this goal, the rehabilitation plan: maximizes the choices available to policyholders and provides more options than a policyholder would have in a liquidation, allows policyholders to maintain their current level of benefits including when they are entitled to benefits above their state guaranty fund’s benefit cap that would be applied in a liquidation, and provides these options in a manner that is equitable across states and across policyholders.” 

The states that have okayed the plan include those with the largest number of policyholders. 

Here are NAIC’s tweets saying good-bye and thank you.

S.C and Louisiana win temporary injunctions against SHIP rehab plan; stay pending appeal in Pa is denied

Feb. 7 — South Carolina and Louisiana state insurance regulators have won temporary injunctions against implementation of the rehabilitation plan for insolvent insurer Senior Health Insurance Co. of Pennsylvania (SHIP), even as a broad multi-state effort to stay the controversial plan pending appeal failed.

S. C. judge thinks rehab plan might be overturned

The temporary injunction preventing the plan from being implanted in South Carolina used strong language pointing to state sovereignty, attempts to “supplant” the Palmetto State’s own laws  and invoked the McCarran-Ferguson Act which holds that the business of insurance be regulated by individual states. 

Photo by Miguel u00c1. Padriu00f1u00e1n on Pexels.com

Not only did Fifth Judicial Circuit for Common Pleas Court Chief Administrative Judge L. Casey Manning write that the amended rehabilitation plan “appears to be founded on a clearly erroneous reading of the law,” but the South Carolina judge added that it appears “likely” to be overturned on appeal.

Manning also expressed concern that the rate increases and benefit reductions will permanently cut into policyholders’ guaranty find benefits “in the likely event that SHIP is paced into liquidation” in the future.

Policyholders are past 85 and face cuts, higher costs

The Pennsylvania Commonwealth Court-approved rehabilitation plan for the remaining 45,000 policies in force at SHIP is meant to right-size the insolvent long-term care insurer’s woeful $1.2 billion deficit through various options —called an election package —selected by policyholders. The elderly—the average age is 87 years old— policyholders will have to choose to pay substantially more for current coverage or get fewer benefits or few years of coverage or some combination of higher premiums and reduced benefits. 

SHIP was placed into rehabilitation in January 2020 and the Pennsylvania Commonwealth Court approved an amended plan of rehabilitation in August 21, and updated this plan Nov. 4. Notices have been sent to policyholders in most states and the plan is expected to go into effect except where there are injections in April, after policyholders elect their more expensive choices or take haircuts. The average policyholder actually on claim is aged 90, according to court documents. 

A majority of states oppose the Pa.-born SHIP rehab plan

More than half of all U.S. states plus Washington, D.C., filed amici briefs supporting the three state insurance commissioners who are appealing to the state Supreme Court of Pennsylvania to stop the plan. These commissioners favor a liquidation and the triggering of state guaranty funds to help make policyholders whole. These 27 jurisdictions filed to join on in opposition Dec. 27 in the appeal of the low Commonwealth Court’s decision to approve the plan.

However, the efforts of Maine, Massachusetts and Washington State regulators for a stay pending their ongoing appeal was denied on Jan. 31, so policyholders will get sent the rehabilitation plan places, except in the two states, Louisiana and South Carolina, that have successfully gotten a temporary injunction–for now.  

In South Carolina, SHIP’s rehabilitators, under the aegis of Pennsylvania Insurance Commissioner Jessica Altman, are prevented from communicating, implementing or enforcing or in any way interfering with the “rights” of SHIP long-term care insurance policyholders, including notifications about higher premiums or changes in benefits under the plan. 

S.C. and Louisiana judges: we reject (for now) rehab plan rates

The temporary injunction order in South Carolina, dated Jan. 20th says that the plaintiffs, led by Insurance Director Ray Farmer, have shown a “likelihood” of success on the merits. They have also satisfied the requirement that an injunction is necessary to prevent “irreparable harm” and there is no other adequate remedy available, Judge Manning wrote. 

“Enforcing Defendant’s apparent attempt to supplant the laws of South Carolina and others states risks adoption of a ‘policy of hostility to the public Acts’ of each of the forty-plus affected states. Resulting in a direct injury to their sovereignty,” Manning wrote. 

Similarly, but more briefly, the Nineteenth Judicial District Court for the Parish of East Baton Rouge issued an order Feb. 3 granting a preliminary injunction against any Louisiana policyholders for any increase in premiums rates under the rehab plan. 

However, Louisiana District Court Judge Timothy Kelley did cite an agreement allowing the defendants, to provide 21 days notice before any benefit reductions or other policy cuts are effective. Kelley added that he will allow the plaintiffs, led by Louisiana Insurance Commissioner Jim Donelon, to return to court to argue that these benefit reductions or other changes fall within the scope of the injunction. 

Rehabilitators launch strong language, as well

In opposing the attempt, lawyers for the rehabilitators last month called the temporary injunction tactic “part of an extraordinary collateral attack on a court-approved rehabilitation plan and the state officials implementing that plan.”

The Pennsylvania Insurance Department has previously stated in an email that “Commissioner Altman placed the interests of affected policyholders as the top priority in proposing the Plan. In pursuit of this goal, the rehabilitation plan: maximizes the choices available to policyholders and provides more options than a policyholder would have in a liquidation, allows policyholders to maintain their current level of benefits including when they are entitled to benefits above their state guaranty fund’s benefit cap that would be applied in a liquidation…” The spokesperson said these options are offered “in a manner that is equitable across states and across policyholders.” 

Behind the scenes, there is a lot at play

 Donelon has repeatedly expressed vociferous opposition to the rehab plan and claims in documents and interviews that it flies in the face of the tenets of state insurance regulation, as does Farmer.

Many of the 25 or so other states that have voiced more administrative opposition are waiting to see what happens. Some of these states have opted out of the rehab plan and when rates from the plan are imposed on their policyholders,  it has been suggested their state attorneys general might take legal action. Most of the state insurance commissioners that joined as amici didn’t clearly opt-out to set their own rates it is uncertain how they will act when the rates are implemented. 

 Of interest, three of the four National Association of Insurance Commissioners</s officers, President Dean Cameron Vice President Andrew Mais and Secretary-Treasurer Jon Godfread North Dakota, support the appeal of the intervening regulators plan as amici brief co-signers. Several of the amici are former NAIC presidents, like Donelon, Farmer and main appellant Maine Superintendent Eric Cioppa. The longest-serving insurance commission now, Mike Kreidler of Washington state, is also an appellant. 

The states that have okayed the plan include those with the largest number of policyholders. 

The SHIP LTC rehabilitation situation was discussed at the recent Commissioners’ annual winter conference, according to those with knowledge of the discussions.

Several large insurers, including Anthem Inc. and United Healthcare Insurance Co. support the rehab plan. The life and health insurers would pay into the state life and health insurance guaranty association funds in the event of a liquidation, which counsel for  intervening insurance regulate has written is unavoidable — but delayed by the plan. 

Sample page for SHIP rehabilitation plan options for 82 year-old Florida policyholder, from the SHIP rehabilitation plan, as amended.

Market Conduct Corner: State regulators seal up 2021 with fines of a few million for some life & health insurers: UnitedHealthcare, Athene & Pacific Life

Jan. 8, 2022 — Pacific Life Insurance Co., UnitedHealthcare Group and Athene Annuity and Life Co. are three life or health companies that resolved market conduct issues with state regulators toward the end of 2021.

The New York Department of Financial Services fined Pacific Life (PLIC) $3 million in mid-December following an investigation that began in May 2019. The NY DFS found that Nebraska-based PLIC had been conducting pension risk transfer business in New York without a specific state insurance license. Pacific Life transitioned its transactions to use its New York-licensed affiliate Pacific Life & Annuity Co.(PL&A)  to cover New York participants through the launch of a two-group annuity contract structure with PLIC and PL&A for future PRT transactions, according to the consent order. It is thus migrating state participants to a PL&A annuity contract.

The DFS wrote that the continues to work with Pacific Life as it regards these New York group annuity participants. New York reminded in the consent order that its rules make clear that if a company is not specifically licensed in the state, it cannot make telephone calls, engage in any other manner of communication with any person in New York from outside New York, other than by mail note solicit, negotiate, or sell group annuity contracts through in-person meetings, telephone calls, mail, emails, access to web portals, or any other form of communication from a location in New York.

New York state insurance regulators continue to look at PRT transactions and the companies involved in taking on these contracts. For details, see: https://www.dfs.ny.gov/system/files/documents/2021/12/ea20211221_co_pacific_life.pdf

In Texas,Hartford-based United Healthcare and its affiliated companies, including UnitedHealthcare of Texas, Inc., were penalized $2.6 million by the state Department of Insurance in mid-November for various violations, many of them administrative or time-sensitive calendar violations uncovered in an exam. Many appeared to revolve around the time constraints involved in issuance of adverse determinations of claims and their reviews. The affiliated companies, which also include National Pacific Dental and Golden Rule Insurance Co., were included and NPD also paid $200,000 for violations found in the exam, which regulators say included repeats from a previous exam.

The companies agreed to come into compliance to address the violations found during these triennial examinations and to not issue policy forms to Texas consumers that are different from the forms filed with and approved by TDI. For more details, see: https://www.tdi.texas.gov/commissioner/disciplinary-orders/documents/20217092.pdf 

UnitedHealthcare and its three affiliates must each report to TDI on or before Jan. 31, 2022 to show how they are implementing their corrective plan for each exam.

Athene Annuity and Life also recently agreed to civil forfeiture of $30,000 in Illinois for violations in certain areas relating to accuracy or timeliness, sometimes surrounding communications with beneficiaries involving claims.

A wide-ranging state market conduct exam often found categories of business transactions where no violations were found. The Illinois Department of Insurance wrote that it had received Athene’s proof of compliance on Nov. 29, 2021. Examiners reviewed at producer licensing, claims and complaints . covered the business from May 1, 2018 through April 30, 2019 for claims, and Nov. 27, 2017 through April 30, 2019 for complaints/appeal file review. For details, see: https://www2.illinois.gov/sites/Insurance/Reports/Reports/Athene_Web_Report_11-29-2021.pdf 

Three states appeal SHIP LTC’s rehab plan to Pennsylvania Supreme Court; 27 other jurisdictions sign on as amici

Breaking, to be updated

Dec. 29 — Three state regulators filed an appeal in the Supreme Court of Pennsylvania Dec. 27th against the amended rehabilitation plan for insolvent long term care insurer Senior Health Insurance Company of Pennsylvania. They were joined by a whopping 27 state regulators as amici to the case, demonstrating that well over half of U.S. states oppose the novel plan.

Three of the four National Association of Insurance Commissioners‘ incoming officers for 2022, President Dean Cameron, Vice President Andrew Mais, incoming Secretary-Treasurer Jon Godfread, North Dakota, are included in their opposition to the plan as amici. Several are former NAIC presidents with years, if not decades, of service in state regulation.

The case is could potentially tee up a united opposition from 30 state attorneys general if the rehab plan goes into effect because the intervening appealing states charge that the plan “overrides individual states’ regulatory authority over premium rates” charged on policies issue in those states.

If the appeal fails, the plan is expected to go live in April 2022, once policyholders mail back their choices by March from among the menu of options given in the rehab plan. Once the rehab plan tries to institute rates in other states, the state AGs would be prompted to act, potentially, as the opposing jurisdictions beleive this rate action would violate state laws.

For many of these regulators, SHIP’s rehab plan threatens one of the foundations of state insurance regulation, the authority of the states to set and approve their own rates for their state-licensed insurers.

The states of Maine, Massachusetts and Washington State and the amici are claiming that the lower court erred in approving the plan, that it places the burden of insolvency solely on the policyholders in violation of statute and disregards the best financial interests of policyholders and the state guaranty system, among other things.

The three states, who previously intervened in the case in lower court, argue that the rehab plan “disregards the long-standing state-based system for approval of insurance rates and instead imposes rates set by the rehabilitator and approved by the Pennsylvania Insurance Department and the Commonwealth Court. They said they were not aware of any plan that has tried “to supersede state rate regulation and set rates payable by policyholders in other States without review and approval by the insurance regulators of those States” in their appeal.

“The Plan fails to minimize the harm to policyholders, and it certainly appears that the Rehabilitator’s goal is solely to reduce SHIP’s deficit before it is placed into liquidation which is wholly inconsistent with the goals and purposes of there habilitation process,” the 27 amici states said in their brief, filed Dec. 22.

“The rate increases under the Plan are extreme, in some cases more than double the amount of the current premium.This can be expected to force unnecessary policy lapses for elderly policyholders who have paid premiums for many years in contemplation of the need for long term care,” they wrote.

These opposing states favor liquidation and the triggering of the state guaranty funds to help cover SHIP’s deficits to policyholders. The rehabilitators have successfully argued thus far in state court that their plan gives policyholders more flexibility for chooses. No matter which way it is slice, policyholders face a reduction benefits nad/or soaring premium increases.

As of Dec. 31, 2020, SHIP had total assets of $1,369,908,000 and total liabilities of $2,592,415,000 with a negative capital and surplus of $1,222,507,000. Thus, SHIP’s deficit or “funding gap” is $1.2 billion. The Commonwealth Court approved the rehab plan, led by Commissioner Jessica Altman, in August 2021 and again, more formally, in September. Altman first filed a petition for SHIP’s rehab in January 2020, and the lower court placed it in rehabbing an order that month, awaiting a plan.

The three state insurance regulators appealed to the Supreme Court on Sept.21, 2021 and in early October, applied for a stay pending appeal. The Commonwealth Court denied the appeal and the stay, but a November request for a stay to the state Supreme Court is still pending.

A response from the Pennsylvania Insurance Department, as rehabilitation, is pending.

The 27 Departments of Insurance of the Amici Curiaei insurance regulators are, from the document are below.

The five jurisdictions that have joined since mid-November as amici appear to be Alaska, Arizona, the District of Columbia, Indiana, Ohio and Vermont.




























Market Conduct Corner: Allstate fined $225,000 by the Green Mountain State

News on Relevant Enforcement Actions Around the Country

Dec. 10, 2021 — The Allstate companies received a $225,000 penalty from the Insurance Division of the Vermont Department of Financial Regulation after an exam on claims settlement practices of third-party auto liability claims found certain violations.

According to a consent order and stipulation dated Dec. 8, 2021, the exam focused on auto liability claims that involved comparative negligence to check whether they were handled correctly under Vermont law.

The regulators found Allstate failed at times to document evidence of implementing so-called “reasonable standards” for promptly investigating claims.

While the department did not find any instance in which Allstate didn’t implement these reasonable standards, the company’s apparent lack of “proper documentation” led the Insurance Division to conclude there was a failure to implement. Vermont cited it lacked “evidence to the contrary.”

Regulators simply could not tell how Allstate was measuring up in promptly investigating these liability claims.

Of note, Allstate must also pay restitution with interest to any third-party claimant whose claim was initially denied in part or fully because it was assigned comparative negligence liability when a further review of the claim determined the assignment of liability to be faulty.

It is unclear how much the total payout would be. Allstate did not respond to an inquiry. However, the department began the Allstate exam on July 9, 2018.

Under the consent order, Allstate must also “properly document how the procedures its adjusters are to use when making comparative negligence determinations have been implemented.”

Vermont regulators gave Allstate a set of actions and materials for these procedures, including training materials, conducting accident scene investigations from inquiries and photographic evidence and vehicle inspections and documenting the process.

The company has already implemented training measures and controls, according ot the consent order. It has until Jan. 31 2022, to show the Department certification of shared liability training of all licensed adjusted in Vermont.

Vermont regulators wrote that they might conduct a follow up exam within 12 to 24 months to check on compliance.

Allstate means in this instance: Allstate Fire & Casualty Insurance Co.Allstate Indemnity Co., Allstate Insurance Co., and Allstate Property & Casualty Co.

Peter Hartt, former FSOC member & NAIC macroprudential oversight leader, exiting NJ DOBI at year-end

Updated Jan. 25th with Hartt’s new job.

Hartt to take ‘early retirement’ after 21 years at NJ regulatory agency

Dec. 7, 2021 —

Key state insurance regulator Peter Hartt, who helped spearhead life insurance solvency oversight and expanded group supervision of Prudential Financial, will be ending his long career with the New Jersey Department of Banking and Insurance at the end of the year. 

Hartt will be joining Randall & Quilter Investment Holdings Ltd. as U.S. head of compliance and regulatory affairs. The dividend-paying non-life insurance group is domiciled in Bermuda, owns surety and other property casualty companies in the U.S. and Europe and buys discontinued books of non-life business and non-life (re)insurers and captives in run-off. It owns and manages both active and run-off businesses, often dissolving them, and also has operates as a fronting business, or conduit for capital providers in the insurance and reinsurance sphere.

Although he began his tenure at the Department in June 2000 as a public information officer. Hartt served as director of the division of insurance at the department during a critical time in state and federal relations involving solvency regulation

Hartt served as the state insurance representative on the U.S. Financial Stability Oversight Council from September 2016 to September 2018, a period when the Council was considering designating and de-designating large national life insurers as systemically important financial institutions. FSOC voted to remove the last insurance SIFI, New Jersey-domiciled Prudential, a month after Hartt left FSOC, based on work and findings he and other members contributed to the process.

Hartt also led the National Association of Insurance Commissioners’ Financial Stability Task Force and led on the initiate developed by state regulators to more broadly oversee and monitor life insurers’ financial health. He worked with global supervisory partners in developing international capital standards for large group insurers and on resolution issues as well, for orderly unwinding of assets.

Colleagues during his time on the insurance regulatory national stage were happy to praise his work in bringing understanding of the expanding state insurance solvency oversight system to his work on FSOC . 

“He was extraordinarily important for his work on FSOC, the right person at the right time,” said Eric Cioppa, Maine insurance superintendent and the current state insurance FSOC representative. Cioppa said Hartt was instrumental in establishing the macroprudential initiative at the NAIC, and contribute d a lot in this and other areas of oversight. He called Hartt a credit to the NAIC and FSOC. 

Tom Workman, the FSOC’s current presidentially appointed independent member with insurance expertise, whose tenure overlapped with Hartt’s in 2018, praised Hartt’s work. Workman said his FSOC colleague served with great knowledge, patience and grace at a critical time. This would have been during fraught deliberations on removing Prudential’s SIFI designation, when the state insurance regulator on the Council would have a strong voice but not a vote in deliberations.

Prudential was the largest U.S. insurance group in the U.S., the largest nonbank SIFI, and the last to lose its designation as such. Minutes of FSOC meetings show Harrt supported the de-designation of Prudential. Hartt was preceded at FSOC by John Huff and Adam Hamm, both former NAIC presidents.

Hartt became assistant director of the division in 2002 and acting director in 2011, according to an online bio The New Jersey state Senate confirmed him as director back in 2014.

No word yet on what Hartt will be doing next but look for more news in the new year.

Image of Peter Hartt, courtesy, NAIC via Twitter, 2016

FSOC grew out of the 2008-2009 financial crisis as pat of the Dodd-Frank legislation of 2010, to better oversee insurers’ and other financial institutions and mechanisms’ vulnerabilities in solvency and interconnectedness and to strengthen stability of the financial system.

19 states file amici intent with Pa SC to support Maine, Wash & Mass opposition to SHIP rehab plan

Breaking–will be updated with any comments, new information

Update: Nov. 16, 2021: States have answered the Nov. 15th deadline to opt in or out of the rehabilitation. While no count is available at this time to us, some opposing states are electing to not recognize the two choices given, with South Carolina calling the rehab plan a “tragic injustice” for its state’s policyholders and filing an injunction, claiming the”punitive nature of opt-out provision not only renders this feigned deference to state laws meaningless but it already increases the already adverse effect of the plan on affected policyholders.” Once rates are imposed on states refusing to accept the rehab plan, expect the issue to go to court, backed by state attorneys general. For more before further court action, see (Paywalled) article: https://www.lifeannuityspecialist.com/c/3408034/434274?referrer_module=searchSubFromLASP&highlight=SHIP

Nov 12, 2021 — Nineteen state insurance department commissioners, including the president-elect of the state regulators’ association, intend tp file legal letters of support — amici briefs — on behalf on the three intervening states who oppose the rehabilitation plan of insolvent Senior Health Insurance Company of Pennsylvania and want it to go into liquidation, instead, to support policyholders.

Their filing Nov. 12 with the Pennsylvania Supreme Court comes three days before the Nov. 15 deadline for states outside of the commonwealth to officially opt-out of the rehabilitation plan for the failed long-term care insurer. The filing demonstrates that almost half the U.S. states, or 22 jurisdictions oppose the SHIP rehabilitation in favor of a liquidation, which they see as inevitable anyway., At least one has already signed a letter to opt out.

“The instant appeal involves issues of due process and constitutional importance to proposed amici, policyholders of SHIP, and policyholders of future insurer insolvencies. The state-based system of regulation exists for the protection of insurance policyholders,” the 19 states said in their filing.

Two of the state commissioners among the 19 have sued the rehabilitators who are led by Pennsylvania Insurance Commissioner Jessica Altman. Louisiana Insurance Commissioner Jim Donelon‘s lawsuit against the SHIP plan and its architects was dismissed and South Carolina Insurance Director Ray Farmer’s case is pending instate court after being remanded by federal court.

Idaho Insurance Director Dean Cameron president-elect of the National Association of Insurance Commissioners and Connecticut Insurance Commissioner Andrew Mais is NAIC Secretary-Treasurer, two of the 19 states, have both signed the letter intending to file amici on appeal, supporting the intervenors against the rehabilitation plan. Both Donelon and Farmer, as well as intervening state leader, Maine Insurance Superintendent Eric Cioppa, are ex- NAIC president.

They claimed that the SHIP rehabilitation plan contains issues “of extraordinary national impact and importance for the protection of insurance consumers.”

The rehabilitators maintain in that the plan is the best option as it provides policyholders choice, that it addresses inadequate and uneven pricing and rate increase decisions over the years by the industry and regulators and keeps the state guaranty association funds from being triggered, potentially causing a tax issue as the life and health companies pay into the state guaranty funds and could get some tax relief from the states. They argue that some policyholders might want more coverage than the average $300,000 benefit limit allowed in most states, and that the rehabilitation plan offers that –with, of course, a premium hike.

Liquidation would also include a request for rate increases but would offer policyholders across 46 states and the District of Columbia $800 million of the $1.2 billion shortfall, the intervenors argue.

However, “the Amici believe, as do Appellants, that rehabilitation of SHIP is unlikely, liquidation is inevitable, and the Plan circumvents the guaranty fund system that exists for the very reason to protect policyholders from insurer insolvencies,” the 19 states said.

The 19 states as well as the intervenors believe worry about the reduction in the benefits of the policyholders in that state unless policyholders agree to continue to pay more for less benefits or select a nonforfeiture option.

The amici will only come into play if the high court accepts the appeal from the three intervening state regulators in Maine, Massachusetts and Washington State. The states filed a stay pending appeal Nov. 8. Without a stay, the rehabilitation will go forward, pending , appeal, with packets sent out to policyholders for them to elect options for their abridged or truncated policies. These would be due back by mid-March, with rehabilitation occurring sometime in April 2022, according to court documents. Policyholders in the jurisdictions that do opt out and don’t allow the plan’s new rates will see their benefits cut.

The lower trial court, the Commonwealth Court of Pennsylvania, approved the plan in August, more than a year and a-half after the Pennsylvania commissioner filed to place the long-term care company with $1.2 billion in unfunded liabilities in rehabilitation on Jan. 23, 2020.

The three intervening states argue that the rehabilitation plan is unconstitutional and unfair to the remaining 39,000 or fewer policyholders, now, because it makes them fund the $1.2 billion hole on their own through a myriad of benefit cuts and/or higher premiums. The average age of the SHIP policyholder is 86 and there are a few thousand less of them than there were in 2020, based upon court documents.

For more on the intervening states’ legal actions and the rehabilitation plan itself, see here, here, here and most recently, here.

The bipartisan group of state commissioners who intend to file amici for Maine, Massachusetts and Washington State, are below, as identified in the legal filing Nov. 12. The states with the highest amount of policyholders did not sign on. According to legal documents, the states with the most policyholders are Texas, Florida and Pennsylvania, where SHIP is domiciled, followed by California and Illinois:



For all SHIP court filings, see here.

SHIP rehab plan’s opt-out deadline fast-approaching for states

Unless intervening states win a stay pending appeal

UPDATE Nov. 18: A total of 12 states have opted out and a number of other states, likely about 10, have raised objections to the opt in/opt out question itself and are keeping open their legal options when and if the rehab plan is triggered

Nov. 11, 2021 — U.S. states have until Nov. 15th to decide whether to opt out of rate-setting provisions in the rehabilitation plan of insolvent long-term care insurer Senior Health Insurance Co. of Pennsylvania (SHIP) unless the Pennsylvania Supreme Court grants a stay pending appeal of the trial court’s approval of the plan.

Absent such a stay, the rehabilitators of SHIP –the Pennsylvania Insurance Commissioner Jessica Altman and special deputy rehabilitator Patrick Cantilo — will file rate increase applications with the opt-out states and then start by year-end 2021 sending SHIP policyholders their packet of five choices for coverage under two phases of the plan. These choices entail a combination of reduced benefits and coverages and/or higher premiums designed for different scenarios and have different coverage and cost outcomes.

Policyholders in the jurisdictions that do opt out and don’t allow the plan’s new rates will see their benefits cut.

The rehabilitator is arranging for video tutorials online to guide the policyholder through the election forms that will come with their packets, according to court documents. Decisions by policyholders among the options in the rehabilitation plan will be requested by mid-March 2022, with the rehabilaition plan going into effect for policyholders in April.

SHIP was licensed in 46 states as well as the District of Columbia and the Virgin Islands. According to legal documents, the states with the most policyholders are Texas, Florida and Pennsylvania, where SHIP is domiciled, followed by California and Illinois. Its rehabilitation plan, amended twice, was approved by the Commonwealth Court in late August.

The states of Maine, Massachusetts and Washington, who have strenuously opposed the rehabilitation plan in all its interactions, applied for a stay pending appeal with the state’s high court Nov. 8 after a stay attempt at the court which oversaw the rehabilitation proceedings. The Commonwealth Court of Pennsylvania rejected an expedited request from the three states Nov. 4th.

These three states’ insurance commissioners or superintendents allege that the plan is unfair to policyholders and defies insurance law and legal precedent and is unconstitutional.

The rehabilitation plan “places the entire $1.2 billion burden of the insolvency on 30,000 of SHIP’s remaining policyholders through benefit cuts and premium increases even though, in a liquidation, based on the rehabilitator’s comparison analysis, the policyholders would only bear a loss of $397 million, the stay request argues.

These three states argue instead for a liquidation of SHIP, under which state insurance GAs would provide over $837 million of additional support to policyholders, many of whom are elderly –the average policyholder age is 86 — and facing dire choices. They see a SHIP liquidation down the road as inevitable and worry about policyholders being locked into lower coverage choices should that happen.

The average and mean limits of the GAs in the states is $300,000, with a few outliers, some of which are as high as $500,000 (California). Under a liquidation, there could also be rate increases, at the discretion of the state guaranty association.

The legal argument for the intervening states claims that the policyholders’ best financial interest must be protected in an insolvency and that isn’t happening in most instances of the rehabilitation plan. They also argue that state regulators should control rates in their states, not an outside party.

The three states argue that the rehab plan is not feasible, that it won’t return SHIP to solvency, and is “an abuse of discretion and error of law because it violates the legal preened of Neblett v. Carpenter, which requires that policyholders are at least as good a position in rehabilaition as the would be in a liquidation. The three state intervenors also allege that the plan violates the”Full Faith and Credit Clause” of the U.S. condition by allowing one state’s regulatory authority over other states.

The rehabilitation team claims to bring policyholders choices not offered in liquidation by the state insurance guaranty associations, although their national organization argues that the GA system does indeed entail choices well. GAs have “flexibility in designing rate increase programs and offering benefit modifications to policyholders in the alternative—and have exercised that flexibility,” the National Organization of Life and Health Insurance Guaranty Associations argued in late June as an intervenor in the case.

The rehabilitates countered in court documents that the guaranty associations can’t offer options that maintain benefits above GA coverage limits, and some policyholders will still want such options.

The Commonwealth Court agreed with the rehabilitation team that since the SHIP’s policies were chronically underpriced –as most LTC policies have been since their inception — that historic liabilities and states’ patchwork of wildly varied LTC rate increases over the years, or lack thereof, must be right-sized to some extent, with policyholders taking a haircut on benefits and the value of their policy.

The rehab plan’s language to other insurance commissioners for the opt-out option states that calculations for reductions in benefits and rate increases “are performed individually for each long-term care policy.” The rehabilitator says that this”a key component of the Plan’s mechanism for eliminating discriminatory or inequitable premium rates and policyholder subsidization prospectively. In determining whether or not to “opt out” a state should carefully consider its ability to address the circumstances of each policy individually,” because the rehabilitator is already is doing this, too.

About 10 states through the MidAtlantic and the Midwest are expected to file amicus briefs on appeal if the state Supreme Court takes the case, even if it does not stay the rehabilaition itself, according to those familiar with the ongoing rehabilitation process.

Last year, two other state insurance commissioners sued the Pennsylvania insurance regulator as rehabilitation. Louisiana’s case has recently been dismissed. South Carolina’s case, brought Dec. 10, 2020, is now pending in U.S. District Court for the District of South Carolina. They argued that the plan wouldn’t protect the protect the contractual rights of policyholders of LTC policies in their states and that the imposition of the plan’s rates violates state insurance law and their jurisdictional authority to set and approve premiums.

Despite the fact that South Carolina gave SHIP requested rate increases over the past decade, some of its policyholders may face rate increases of over 400% in phase one of the rehabilitation and perhaps face additional increases in phase two, the insurance commissioner’s brief said.

Both Louisiana Insurance Commission Jim Donelon and South Carolina Insurance Commissioner Ray Farmer are former presidents of the National Association of Insurance Commissioners, as was intervenor Eric Cioppa, the Maine insurance superintendent.

Cioppa was instrumental in starting an executive level task force at the NAIC during his 2019 tenure as leader to address all the past, long-entrenched and current woes of the LTC industry and its future through various subcommittees and action strategies. Washington State Insurance Commissioner Mike Kreidler, who, like Donelon, holds elected office, is the longest-serving insurance commissioner in history, having been elected to a sixth term in 2020, 20 years after he was first elected to that office.

These three commissioners got letters of support filed in the docket from commissioners from Connecticut, Louisiana, Maryland, Mississippi, New Jersey, South Carolina, Vermont and Wisconsin earlier in the court case.

Sources indicate that a fair number of states are interested in the approved rehabilitation plan.

SHIP was placed into into rehabilitation in late January 2020 by the Pennsylvania insurance commissioner.

The Commonwealth Court judge, in her decision to approve the amended plan, said its aim is to increase revenues and reduce liabilities so as to narrow or eliminate the $1.2 billion funding gap through adjusting or modifying the 39,000 policies in force.

The judge reiterated that it is structured to”maximize policyholder choice, based on each person’s individual circumstances and preferences. ” Of interest, she noted that many policyholders have costly policies that provide far more coverage than the policyholders are reasonably likely to require, according to the rehabilitation, so part of the plan allows policyholders to remove coverages that are not essential or seen as necessary to cover reasonable expenses, cutting costs for both policyholder and the plan.

The average cost of a semi-private and a private room in a nursing home is a little under and a little above $100,000 annually accordign to Genworth Financial’s annual cost of care report. Homemaker serves, home health aides and assisted living facilities are roughly have that per year, according to the 2020 report.

SHIP was founded in 1887 as the Home Beneficial Society. Prior to the filing for rehabilitation in January 2020, it was licensed to do business by state regulators. It has not sold new policies since 2003 and was once part of Conseco Senior Health Insurance Co.

Other significant dates are below:

Sept. 30, 2021: Approved Rehabilitation Plan

May 3, 2021: Second Amended Rehabilitation Plan

Below are a few sample policyholder options presented in the exhibits in the second amended SHIP rehab plan.

They are three of 12 examples used by the plan to show how the various options would work for real-life policies. Following that is an exhibit from the three state insurance regulators as intervenors, asserting that under four of the five options, with the fifth one beinghigher premiums to keep present benefits, policyholders would be better off under liquidation.

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