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.

ALAKSA, DEPARTMENT OF COMMERCE, COMMUNITY, AND ECONOMIC DEVELOPMENT, BY
LORI WING-HEIER, DIRECTOR

ARIZONA DEPARTMENT OF INSURANCE AND FINANCIAL INSTITUTIONS, BY EVAN G. DANIELS, DIRECTOR

ARKANSAS INSURANCE DEPARTMENT, BY ALAN MCCLAIN, COMMISSIONER

CONNECTICUT INSURANCE DEPARTMENT, BY ANDREW N. MAIS, COMMISSIONER

DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE, SECURITIES, AND BANKING, BY

KARIMA M. WOODS, COMMISSIONER

INDIANA DEPARTMENT OF INSURANCE, BY AMY L. BEARD, COMMISSIONER

IDAHO DEPARTMENT OF INSURANCE, BY DEAN L. CAMERON, DIRECTOR

DOUGLAS M. OMMEN, INSURANCE COMMISSIONER OF THE STATE OF IOWA

LOUISIANA DEPARTMENT OF INSURANCE, BY JAMES J. DONELON, COMMISSIONER

MARYLAND INSURANCE ADMINISTRATION, BY KATHLEEN A. BIRRANE, COMMISSIONER

MISSISSIPPI DEPARTMENT OF INSURANCE, BY MIKE CHANEY, COMMISSIONER

NEW HAMPSHIRE DEPARTMENT OF INSURANCE, BY CHRISTOPHER R.NICOLOPOULOS, COMMISSIONER

NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE, BY MARLENE CARIDE, COMMISSIONER

HON. RUSSELL TOAL, SUPERINTENDENT OF INSURANCE FOR THE STATE OF NEW MEXICO

NORTH CAROLINA DEPARTMENT OF INSURANCE, BY MIKE CAUSEY, COMMISSIONER

NORTH DAKOTA INSURANCE DEPARTMENT, BY JON GODFREAD, COMMISSIONER

OHIO DEPARTMENT OF INSURANCE, BY DAVE YOST, ATTORNEY GENERAL

OKLAHOMA DEPARTMENT OF INSURANCE, BY GLEN MULREAY, COMMISSIONER

TROY DOWNING, MONTANA COMMISSIONER OF SECURITIES AND INSURANCE AND STATE AUDITORRHODE ISLAND DIVISION OF INSURANCE, BY ELIZABETH KELLEHER DWYER, SUPERINTENDENT

SOUTH CAROLINA DEPARTMENT OF INSURANCE, BY RAYMOND G. FARMER, DIRECTOR

SOUTH DAKOTA COMMISSIONER OF INSURANCE, BY LARRY DEITER, DIRECTOR

UTAH INSURANCE DEPARTMENT, BY JONATHAN T. PIKE, COMMISSIONER

VERMONT DEPARTMENT OF FINANCIAL REGULATION, BY KEVIN GAFFNEY, DEPUTY COMMISSIONER

WEST VIRGINIA OFFICES OF THE INSURANCE COMMISSIONER, BY ALLAN L.MCVEY, COMMISSIONER

WISCONSIN OFFICE OF THE COMMISSIONER OF INSURANCE, BY MARK AFABLE, COMMISSIONER

WYOMING DEPARTMENT OF INSURANCE, BY JEFFREY P. RUDE, COMMISSIONER

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

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. 

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:

ARKANSAS INSURANCE DEPARTMENT, BY ALAN MCCLAIN, COMMISSIONER
CONNECTICUT INSURANCE DEPARTMENT, BY ANDREW N. MAIS, COMMISSIONER
IDAHO DEPARTMENT OF INSURANCE, BY DEAN L. CAMERON, DIRECTOR
DOUGLAS M. OMMEN, INSURANCE COMMISSIONER OF THE STATE OF IOWA
LOUISIANA DEPARTMENT OF INSURANCE, BY JAMES J. DONELON, COMMISSIONER
MARYLAND INSURANCE ADMINISTRATION, BY KATHLEEN A. BIRRANE, COMMISSIONER
MISSISSIPPI DEPARTMENT OF INSURANCE, BY MIKE CHANEY, COMMISSIONER
TROY DOWNING, MONTANA COMMISSIONER OF SECURITIES AND INSURANCE AND STATE AUDITOR
NEW HAMPSHIRE DEPARTMENT OF INSURANCE, BY CHRISTOPHER R. NICOLOPOULOS, COMMISSIONER
NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE, BY MAUREEN CARIDE, COMMISSIONER
HON. RUSSELL TOAL, SUPERINTENDENT OF INSURANCE FOR THE STATE OF NEW MEXICO
NORTH CAROLINA DEPARTMENT OF INSURANCE,
BY MIKE CAUSEY, COMMISSIONER
NORTH DAKOTA INSURANCE DEPARTMENT, JON GODFREAD, COMMISSIONER
OKLAHOMA DEPARTMENT OF INSURANCE, BY GLEN MULREAY, COMMISSIONER

SOUTH CAROLINA DEPARTMENT OF INSURANCE, BY RAYMOND G. FARMER, DIRECTOR
SOUTH DAKOTA COMMISSIONER OF INSURANCE, BY LARRY DEITER, DIRECTOR
UTAH INSURANCE DEPARTMENT, BY JONATHAN T. PIKE, COMMISSIONER
WISCONSIN OFFICE OF THE COMMISSIONER OF INSURANCE, BY MARK AFABLE, COMMISSIONER
WYOMING DEPARTMENT OF INSURANCE, BY JEFFREY P. RUDE, COMMISSIONER

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.

Only responsible buyers need apply: Allstate will entertain offers for its annuity blocks only if they are good for policyholders

Nov. 4, 2021 — The Allstate Corp. indicated that it would look at offers for the remains of its annuity business, but in the competitive word of private equity players vying for blocks of fixed and sometimes variable annuities, its CEO was clear about one thing. Although these blocks are a hot commodity, now, in the spirit of being a steward of insurance protections, Allstate won’t sell to or partner with just anyone.

Asset managers at private equity firms are hungry for the revenue streams these annuity businesses bring, and Allstate is”open to that … as long as it meets our two objectives,” stated president and CEO Tom Wilson during a call with analysts Nov. 5 to discuss third quarter earnings, according to The Motley Fool transcript.

Those who would acquire or reinsure Allstate’s annuities need to know a couple of things.

“One, you got to take care of our customers. So some of these customers are going to get paid for 30-plus years we don’t want to turn that somebody that’s going to take it all and go to Las Vegas and put it on red and then our customers are left [holding] the bag,” Wilson told analysts.

“One, you got to take care of our customers. So some of these customers are going to get paid for 30-plus years we don’t want to turn that somebody that’s going to take it all and go to Las Vegas and put it on red,” Wilson said.

The second thing is that any annuity deal benefit Allstate’s shareholder, of course.

The Illinois-based company has a couple chunks of annuity blocks left as it has been “whittling away” at its holdings for over decade. Wilson said that executives are open t ways to transfer the liabilities,, from “everything from reinsurance to sales, everything else.”

These annuity blocks “are becoming more scarce properties because you’ve seen the asset managers go out and they like having what I would call captive asset, Wilson explained on the call.

The company known for personal property and auto insurance has been but slowly but surely exiting the annuity business over the past 15 years. As executives described it, it reinsured the variable annuity business in 2006, exited the broker-dealer channel in 2010, and stopped issuing all remaining annuity products in 2014, and in the process sold off its Lincoln Benefit Life to Resolution Life Holdings, which has since sold it to a Nebraska company.

Back in January 2021, Allstate announced it would sell Allstate Life Insurance Co. (ALIC) to Blackstone managed companies for $2.8 billion. ALIC held 80% — or $23 billion– of Allstate’s life and annuity reserves. It generated net income of $467 million in 2019 and a net loss of $23 million in the first nine months of 2020, according to a company press release at the time.

The head of Blackstone Insurance Solutions added then that the firm’s skills with assets and its experience would significantly benefit policyholders and investors over the long term.

Annuity and life l now stand at $17.5 billion at the end of the third quarter, as opposed to $75 billion in 2005. The company lowered its long-term return assumptions for the business at the end of the third quarter after an actuarial review to match expectations of a continued low interest rate environment, reducing future investment income, it said.

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#ALL #PEFIRMS #ANNUITYBLOCKSFORSALE

Surge in LTC rates — part of insurers’ multi-year premium increase plans — coming soon

UPDATED Oct. 28th with Allianz filings from Georgia posted Oct. 27

Oct. 26, 2021 — Long-term care insurers are filing for sometimes hefty boosts in premiums for their policyholders, according to recent rate filings now showing up on state regulatory systems. These rate hike requests come as companies and regulators continue their attempts right-size the industry’s liabilities whiles the real-life costs of people living longer, with increased chronic medical conditions in a low-interest rate environment continue to trounce decades-old –or even more recent — actuarial assumptions.

Besides addressing the urgent solvency needs of many of these books of LTC legacy business, increases in rates toward more sustainable levels could nudge some LTC blocks into a more attractive space for risk transfer and private equity market, which has so far has not seen much in the way of pricing to take these blocks off the hands of insurers, according to industry analysts.

Many of the premium hikes on these policies for older Americans will be implemented over a period of a few years, if approved and many reflect a newer book of business, written in the aughts. Most companies are not longer marketing traditional LTC, as insurers try to modernize retirement offerings with hybrid annuity or life products with LTC riders.

Genworth Life Insurance Co. has asked for a premium rate increase of 62.6% for policies with lifetime benefits and 31% for policies with limited benefits on certain LTC policies in North Carolina. This request is part of its ongoing multi-year rate action plan which involves getting approval for a cumulative premium rate increase of 163% over the period of three to six years for policyholders with lifetime benefits and 95% over the period of three to six years for policyholders with limited benefits.

Genworth is also proposing options for policyholders to adjust their benefit coverage down to decrease their rate hikes. Under one new option, policyholders would have a three-year benefit period based on an industry consultant’s study that showed that average duration for an LTC event is about three years.

GLIC had already sought mid-high double-digit in previous rounds of its rate action plan, according to its senior actuary’s rate filing and public documents on its rate action plan progress in the past few years.

Above: Genworth multi-state rate increase request filing memo

United of Omaha Life Insurance in Nebraska filed in Ohio this past summer, asking for a nationwide increase for certain LTC policies in the range of 6.7% to 155.4% over three years, with an overall average increase over that period of 118.8%. For example, the proposed rate increase for 2022 will range from 0.0% to 38.0%, with an average increase of 34.9%, the actuarial filing explained.

This effort is to raise premiums in the state to the nationwide level, according to the actuary’s filed memo. United of Omaha policyholders will also be offered options to reduce the impact of the proposed rate increase, including a reduction in the maximum daily benefit and a reduction in the inflation option as well as a reduction in the benefit period. The premium increase target implementation date for the first round of increases premium increase is Jan. 1, 2022, and yearly for the next two years after that.

Allianz Life Insurance Company of North America is filing in multiple states for sizable increases, including in Georgia on Oct. 27 for 103% hike effective June 2022. In a filing, it said even with the increase granted, it would still suffer a whopping 168.2% loss ratio–but its loss ratio would be closer to 200% without the increase. The rate increase requests for the products, which include Future Select, Allianz LTX and Secure Senior sold between 1994 and 2002 would have rate increases ranging from 43% to 83% to 113% depending on the length of the benefit period, according to a form filed this month. The highest increase would go to the policies with lifetime benefits.

Demonstrates Allianz Life's rate filing request in the state go Georgia  for certain LTC insurance policies
Georgia filing submitted in October by Allianz Life for rate increases in certain LTC policies

“These forms are in need of a premium rate increase due to past and projected future experience that continues to be more adverse than previously expected and originally priced for,” Allianz wrote in its memo.

In Maine, Allianz Life has asked for rate increases of 20% to 65% for policies underwritten in the state between 2004 to 2006, noting the lifetime loss ratios without the increases will be well over 100%.For actuarial modeling purposes the requested rate increase is assumed to be effective December, 2021. The company has been going back-and-forth with regulators, according to filed memos, to provide additional rationale and data backed by actuarial analysis to justify the request, which is still pending state action, according to the SERFF database.

Bankers Life is asking the state of Rhode Island for a 40% rate increase on LTC policies “due to higher than anticipated future and lifetime loss ratios.” The company pointed to lower than expected mortality experience on these policy forms, resulting in inadequate premium rates over the lifetime of its LTC policy forms. These policies were generally sold between 2005to 2009.

CMFG Life Insurance Co. is asking Kansas and other states where its individual LTC policy was issued for a 36.8% rate increase or with an initial 11% rate increase followed by an additional 11% increase one year later and another 11% rate increase in the third year “because the current estimate of the nationwide lifetime loss ratio is in excess of expected.” It is also offering a reduction in benefits menu to policyholders.

Continental General Insurance Co. filed for a 15% increase in Texas. However, the company aid it believes that a 21% increase is actuarially justified. However, it wants to be in alignment with the insurance department’s expedited review process, according to its filing with the Texas Department of Insurance. Continental added that given that the requested rate is less than the justified rate, it does anticipate requesting future rate increases on these LTC policies which were originally sold under the name Loyal American Life Insurance Co. or United Teacher Associates Insurance Co. It is assuming a June 2022 implementation date.

United of Omaha Life Insurance Co.'s
ACTUARIAL JUSTIFICATION OF PREMIUM RATES, Policy Series LTC06UI for Ohio, October 2021
From United of Omaha Life Insurance Co.’s actuarial justification of premium rates, Policy Series LTC06UI in Ohio, October

The National Association of Insurance Commissioners has been trying to make rate increase approaches more consistent across states so some jurisdictions allowing for higher premiums to reflect ongoing claims costs are not subsidizing others who have granted anemic increases. This review is meant to result in actuarially appropriate increases being granted by the states in a timely fashion while getting removing cross-state rate subsidization. 

While rate hikes are not popular or welcome, of course, with the public or state insurance regulators, the NAIC has noted, along with many other industry experts that “misestimation of initial pricing assumptions has made it necessary for insurers to increase LTCI rates to ensure their future solvency.” 

Options for varying levels and years of rate increases and reduced benefits are also the centerpiece of the now-approved amended rehabilitation plan of Senior Health Insurance Company of Pennsylvania, or SHIP. The insolvent insurer, beleaguered by years of insufficient premiums, would have otherwise faced liquidation of assets.

FSOC tasks insurance industry authorities to make climate risk a bedrock of their oversight

FIO will undertake extensive work in coordination with states as FSOC points to international coordination efforts a guide

Oct. 22, 2021 — The Federal Insurance Office at the U.S. Treasury Department will suit up on orders from the Financial Stability Oversight Council to examine how climate change will affect both insurance and reinsurance coverage, especially in those regions of the country most affected by climate change.

And there is no time to waste–FIO “should act expeditiously,” said FSOC, which is led by Treasury Secretary Janet Yellen.

This is one of many recommendations made by the Treasury-led panel of top financial regulators as part of its new report on climate-related risk released Oct. 21. It is a tall order, and includes investments made in bonds, equity markets, real estate and private funds and financial vehicles as well as pricing issues and availability of insurance in hard-hit and historically underserved and financially vulnerable areas.

The report, part of the Biden Administration action plan for addressign climate change also calls for more internal investment in staff and climate change, risk and tech experts from all member agencies or groups and sharing, methodology, coordination of standardization of data and analystical tools so everyone is speaking the same language with regard to climate risk scenarios.

One recommendation that couldpotentially change the data-sharing practices of both the insurance industry’s and its state insurance regulators is to have FSOC members make “all climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.”

The FSOC will also birth a new staff-level committee, the Climate- related Financial Risk Committee (CFRC) within the next two months. The CFRC will have its own hand-picked advisory committee and will serve as as a coordinating body for the eforts of the members and interested parties, helping it hthe standardization of data language and tools across the member agencies. The Office of Financial Research at Treasury will help form a data backbone for the new committee as it identifies, hosts and gathers climate risk and fianncial data to analyze.

The recommendations are extensive and span about seven pages to conclude the report, create building blocks to the final goal of assessing and mitigating climate risk and to financial stability and providing coverage to all who need it, if not through the private insurance market, than through state or federal pools or backstops.

The report also gave props to international efforts in climate change financial risk assessment and preparations as well as pointed out international regualtory or financial stability forum analysyes that had found short-comings or data gaps here in the U.S.

“FSOC members will likely need to procure or collect and use data with which they may have limited experience, such as climate-related data, projections (or scenarios) of climate risks, and scenarios of financial and economic outcomes based on climate scenarios,” the report stated. FSOC’s 15 members, 10 of whom have voting power, “will need to take steps to ensure data is in a usable format—for example, addressing data inconsistencies or data aggregation challenges. They will also need to utilize new methodologies and metrics to quantify physical and transition risks that do not have generally accepted definitions and standards,” the report stated.

The Council recommended that its members, who include the chairs of the Securities and Exchange Commission and the Federal Reserve Board, a state insurance regulator sometimes represented by an National Association of Insurance Commissionersexecutive and an independent member with insurance expertise, “coordinate with their international regulatory counterparts, bilaterally and through international bodies.” One of the goals is to address data gaps and work toward the goal of standardizing data formats and structures to promote comparability.

The report did make reference to efforts out of the NAIC and the SEC in 2010.

The SEC “remind[ed] companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents to be filed with us and provided to investors” 11 years ago while the NAIC adopted the Insurer Climate Risk Disclosure Survey, adopted by the NAIC in 2010.

California, Connecticut, Minnesota, New Mexico, New York, and Washington now require U.S. insurers or insurance groups that, on an annual basis, write more than $100 million in direct premiums to complete the survey.With eight additional states plus the District of Columbia added to the roster, the survey participant coverage will extend to 78% of U.S. direct premiums written, according to the FSOC report, citing the NAIC. The eight additional states are Delaware, Maine, Maryland, Massachusetts, Oregon, Pennsylvania, Rhode Island, and Vermont.

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No brakes on PE deal-making for fixed & VA blocks with more transactions seen in months ahead

Update: Oct. 28, 2021 with Michael McRaith joining Brookfield

Oct. 14, 2021 — The fourth quarter is expected to maintain galloping pace of risk transfer deals as private equity firms expand their share of the life insurance market.

Fixed annuity blocks are capturing the attention of asset managers and analysts as buyers and sellers work out bid/ask prices and firms hire more deal-makers as life insurers seek to shed interest-rate sensitive long-term liability blocks.These blocks currently tend to be annuities and long-term care insurance blocks, although the latter, still heavily beleaguered by historically insufficient premiums despite occasional rate increases, are not finding buyers as readily.

The Federal Insurance Office at the U.S. Treasury is also paying attention to the exponential growth in the past few years to insurance liability risk transfer deals as insurers pivot to less capital-intensive products in this chronic low interest rate environment.

In its annual report delivered in late September, it pointed out that the cash and invested assets of PE-owned life insurers totaled more than $471 billion at the end of 2020 —that’s 11% of the U.S. life insurance industry total. FIO also estimated that the offshore reinsurance affiliates of these PE firms are over $137 billion. 

FIO expressed concern that some potential PE firms investments in reduced liquidity vehicles or investments in highly market sensitive areas such as residential mortgages or collateralized loan obligations “could diminish the insurer’s ability to meet unexpected cash demands.” The Dodd Frank (2010) Act-created office also expressed a touch of concern about “reliance on offshore captive reinsurers” and complex affiliated investments jacking up the complexity of the group’s structure.

Still, this federal monitoring of the deals and the state insurance departments oversight of them should not dampen the market’s enthusiasm or state insurance regulator’s approvals for deals. 

In fact, one person close to the PE interests noted that corporate lending has moved from regulated banks to private lenders who have better loan underwriting and oversight infrastructure, with investors expecting prudent use of capital. 

So, whose next?

MET is one of the only companies that has expressed interest in doing risk transfer on the legacy book without having done a transaction to date.”

The analysts’ review concluded that the risk transfer opportunities for MetLife likely involved smaller block deals in either life insurance or fixed annuities.

On Oct. 8th in an analyst note, Evercore’s Thomas Gallagher and his team also identified, in addition to MetLife, Ameriprise Financial, Principal Financial Group and Equitable Holdings as potentially next-at-bat to make a deal to sell or reinsure their annuity liabilities, as the “risk transfer engine keeps revving.”

Recent headline deals include Lincoln Financial Group’s mid-September agreement with a subsidiary of Resolution Life, to reinsure about $9.4 billion of in-force executive benefit and universal life reserves, resulting in about y $1.2 billion of capital. It plans to use much of the capital to buy back shares. Brookfield Asset Management Reinsurance Partners Ltd. just announced it had closed its previously-announced deal to reinsure up to $10 billion of annuity products issued by American Equity Investment Life Insurance Co., split between $4 billion in-force and another $6 billion liabilities on a flow basis. 

The banner year began with Allstate announcing it was selling off its life insurance unit to Blackstone for $2.8 billion. This followed 2020’s big summer splash when global investment firm’s KKR announced a deal to buy 60% of fixed annuity provider Global Atlantic, a deal valued at $4.7 billion, closing in early 2021. Based on preliminary financials at year-end 2020, the estimated value of its assets to be managed by KKR at closing was $90 billion, Global Atlantic stated in a Feb. 1 press release. 

Although not a PE transaction, Prudential Financial  did ink a deal with Fortitude Group Holdings, parent of Bermuda’s Fortitude Re, to sell a portion of its in-force legacy variable annuity block for $2.2 billion. Prudential explained in a Sept. 15 press release that the de-risking transaction for 17% of its annuity block will help it reduce exposure to traditional VAs with guaranteed living benefits and capital markets sensitivity.

To prepare for more expected deal-making, leading M&A firms are adding to their stable of insurance transactions and regulatory and legal experts. For example, Willkie Farr & Gallagher LLP announced Oct. 6th it had added Prakash “PK” Paran, as a partner in the Insurance Transactional and Regulatory Practice along with new expert reinsurance transaction counsel, adding to a slate of new partners added in April. 

And on Oct. 28, Michael McRaith joined Brookfield as vice chair of its insurance solutions business, a newly created role, where he will focus on providing capital and investment solutions for insurance balance sheets and policyholders, with a likely eye now on fixed annuity block risk transfers. The former first director of the Federal Insurance Office at the U.S. Treasury Department worked on the Allstate deal when he was at Blackstone.

Expect more additions to well-known brands.

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