NAIC to discuss examining insurers’ use of data & potential oversight of 3rd-party vendors in confronting racial inequities in p/c sector

The Special (EX) Committee on Race & Insurance formed by the organization state insurance commissioners to reckon with barriers to diversity, accessibility and inclusion in the insurance sector is starting its work by posing many questions on current practices and data use.

While answers may be on the long-term horizon, regulators are digging into insurers’ manifold use of data and data mining — and even considering their own collection for future analysis, to help achieve racial equality.

The National Association of Insurance Commissioners is wrestling with a path forward on equitable application of all elements of insurance, from underwriting practices to hiring to analysis to agent licensing requirements.

One of the most far-reaching areas where regulation meant to ensure racial equality and fairness could potentially expand in a now data-driven world is in the use of this wealth of information.

Based on an NAIC list of potential issues for the special committee to consider in the property casualty sector is future regulation of third party vendors that create algorithm for pricing.

“Third-party vendors are often not licensed as advisory organizations in the states. These vendors provide supplementary rating information and rating and scoring models for clients but do not file with states,” the Oct. 29 NAIC document says.

The discussion list is part of the NAIC’s materials for a public discussion of p/c subject material Nov. 12. The p/c arena is one of five work-streams under the purview of the NAIC’s special executive level committee. These work-streams are listed below.

The NAIC could also consider collection of information from insurers in order to monitor discrimination and/or disparate impact on communities, according to the discussion points listed.

Another practice state regulators might examine is claims settlement.

For example, some commissioners of insurance might want to know if fraud detection techniques unfairly discriminate by using prior convictions which may be impacted by policing practices.

Regulators will also be discussing access to insurance among disadvantaged groups, and examine the affordability of auto and homeowners insurance looking at past studies and history compiled on the subject. The online shift of insurers and its effect on reaching economically disadvantaged groups will also be probed.

Details for the Thursday meeting are here.

The NAIC is also hosting a public call Nov. 18 to hear from interested parties on work-stream one.

This category includes discussions and statements on the current level of diversity and inclusion within the insurance industry, practices or barriers that potentially disadvantage people of color and/or historically underrepresented groups, steps state regulators and/or the insurance industry can take to increase diversity and inclusion and address practices that potentially disadvantage people of color and/or historically underrepresented groups.

The special committee’s five work-streams, based on the the NAIC’s website, are:

Work-stream One:
Research / analyze level of diversity and inclusion within the insurance industry. Make recommendations on action steps.

Work-stream Two:
Research / analyze level of diversity and inclusion within the NAIC and state insurance regulator community. Make recommendations on action steps.

Work-stream Three:
Examine and determine which practices or barriers exist in the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups in the p/c line of business. Make recommendations on action steps.

Work-stream Four:
Examine and determine which practices or barriers exist in the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups in the life insurance and annuities lines of business. Make recommendations on action steps.

Work-stream Five:
Examine and determine which practices or barriers exist in the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups in the health insurance. Make recommendations on action steps.

SHIP files amended rehab plan, factoring in opt-out states, reduced benefit scenarios; Covid-19 dynamics impacting liabilities

Oct. 23, 2020 — Rehabilitators for the insolvent long term care insurer Senior Health Insurance Company of Pennsylvania filed an amended rehabilitation plan proposal Oct. 21 with the Commonwealth Court of Pennsylvania that addresses options for policyholders in states that want to opt out of the plan, the effect of Covid-19 and changes to calculations and the scope and availability of benefit reductions.

These changes are update the initial April 2020 filed rehabilitation plan. The plan is effective when the court okays it. So far, there are a number of intervenors and the process can be lengthy even as the company, founded in 1887 as the Home Beneficial Society, sees its financial condition deteriorate. Prior to the filing for rehabilitation in January 2020, it was licensed in 46 states, the District of Columbia and the U.S. Virgin islands. It has not sold new policies since 2003 and was once part of Conseco Senior Health Insurance Co.

The funding gap is expected to be $1.2 billion as of the effective date of rehabilitation. SHIP’s financial condition continues to decline, according to the new document. It is estimated that SHIP’s funding gap is more than $1 billion, up from $916 million at year-end 2019.

The rehab plan is an attempt to square up the insolvent company’s claims with its liabilities through a policyholder menu of premium increases and benefit reductions so it does not have to go into liquidation. The goal is to significantly reduce the funding gap, a scenario best advanced under a combination of options presented to policyholders that would increase premiums and/or reduce the rich benefits in their LTC policies to more affordable but more slender coverage.

The multi-phase plan is designed to provide policyholders what they would get, at a minimum, from state guaranty associations in the event of a liquidation.

If 100% of SHIP’s active and disabled policyholders choose two favored options during phase one of the rehabilitation, SHIP’s entire funding gap would be eliminated and the second phase wouldn’t be necessary, the rehabilitators said.

These options are roughly, keeping the current premium and downgrading benefits and taking basic policy endorsements at the so-called “if knew ” premium or the realistic cost if the actuaries who wrote the policies a few decades ago, or less, actually knew what the future held–longevity, lower interest rates, the endurance of chronic diseases and much higher cost of facility or home medical care.

The rehabilitation team, led by Pennsylvania Insurance Commissioner Jessica Altman and Special Deputy Rehabilitator Patrick Cantilo, looked at liquidation, according to the new document, but decided against it to instead offer policyholders additional choices to address their individual needs with the ability for current coverage to stay in place if they are willing and able to pay the much-higher premium rate increase.

The rehab team also looked at a “good bank-bad” bank scenario but found the process would be very complex and would require insurance licenses in the states, where most of those licenses have now been pulled.

In jurisdictions/states that will object to the proposed plan or opt-out, policyholders wouldn’t be permitted to select from th full menu of the plan’s options but still have choices, albeit with some policies downgraded to a lower benefit level. Some states have already filed to intervene in the proceedings.

Of interest is what SHIP is finding with respect to the virulent Covid-19 virus’s mortality and morbidity. Preliminary data indicates that COVID-19 might be causing a decrease in the number of claims filed, and, as expected, and an increase in the number of deaths among the aging population insured by SHIP.

The average SHIP LTC policyholder is 86 and the average claimant is 89 years-old, according to the document. Covid-19 mortality might “reduce slightly SHIP’s deficit,” the rehabilitator stated, but this effect could be temporary.

However, another feature of Covid-19 — the economy — is impacting the bottom line, too.

Many SHIP policyholders have delayed making their required premium payment, the document said, and while SHIP is allowing the delays per regulatory agencies to a degree, “these payments aggravate substantially SHIP’s financial difficulties.” The rehabilitator made clear this forgiveness of premium payments cannot go on forever, and will likely lead to an increased amount of terminations. In fact, there have already been a slight increase in such non-payment of premium terminations.

SHip’s policies and claimants are declining, as the amended document lays out. By June 30, 2020, SHIP had 42,559 of direct policies, of which 5,402 were on claim. Total of administered LTC policies was therefore 44,673, of which 5,753 were on claim.

At the end of 2019, SHIP had 45,518 of direct policies, with 5,776 on claim. SHIP was administering a total of 47,785 policies of which 6,152 were on claim.

The rehabilitators warned that generally, policyholders whose policies were issued in states that have not approved rate increases over preceding years will face higher premium increases or benefit reductions under the plan, to avoid cross-subsidization between and among states.

*SHIP is now known as SHIP in Rehabilitation, so is not an actual licensed insurer The National Organization of Life & Health Guaranty Associations notes that SHIP is obligated for the LTC policies of the following companies: • Transport Life Insurance Co. • American Travelers Life Insurance Co. • United General Life Insurance Co. • Continental Life Insurance Co. due to the fact they merged into or were acquired by the former Conseco.

Outgoing Texas insurance commissioner: NAIC must be accountable, responsive and transparent to assure state-based regulation survives & thrives

UPDATED with NAIC response given before publication; Commissioner Kent’s last day was Sept. 30. The governor is expected to announce a new commissioner soon.

Oct. 14 — A former insurance commissioner who has been actively involved with national insurance regulatory and modernization initiatives has penned a sharp critique of the National Association of Insurance Commissioners that questions its hefty growth over the years and the sufficiency of its oversight. 

“The NAIC is likely at a crossroads regarding its identity. It will need to decide whether it is a member services organization or primarily a monopoly service provider,” wrote former Texas Department of Insurance Commissioner Kent Sullivan in a September analysis that was prepared at the request of several state legislators. It was sent to all state commissioners, as well, a recipient noted.

Sullivan wrote the piece while he was still commissioner. His last day in office was Sept. 30, the Department informed.

Sullivan, who had been Texas insurance commissioner since October 2017 and who, in August, notified the governor he would be stepping down when a replacement has been found, has been active in many high-profile NAIC life insurance, solvency and actuarial committees and also served on an advisory committee at the Federal Insurance Office.

The former private practice litigation lawyer and appeals court justice offered his views on challenges such as organizational consistency, accountability clarity, transparency and speed of change which he thinks the NAIC must address in order to maintain the primacy of state insurance regulation.

This comes at a time when this apparatus, fixed under the 1945 federal McCarran-Ferguson Act, is “increasingly challenged domestically by the authority of the Federal Reserve and the Treasury Department, and from abroad by such groups as the International Association of Insurance Supervisors and the Financial Stability Board,” Sullivan wrote.

Issues of friction between state sovereignty over insurance oversight and NAIC positions on interstate or national matters are one of the focuses of the critique. 

Sullivan raised an instance of NAIC support for an amicus brief on behalf of the multi-state compact for insurance regulation, funded by an NAIC loan, a position the Texas Department declined to support due to a lack of details. States were just expected to just sign on without knowledge of the NAIC’s underlying legal position, Sullivan alleged. The organization then came out in support of the larger compact over a conflicting state statute in Colorado, he wrote.

Sullivan made references to other opaque areas of the $124.5 million budgeted, almost-500 person organization, from its tax filings to how its membership is sometimes kept in the dark, to the detriment of transparency and potentially states’ needs.

However, when a coordinated, multi-state approach is indeed needed, the NAIC can take precious time, though, he argued, pointing to inconsistency in state actions as contributing to the long-term care insurance solvency crisis. He noted his department had, along with others, urged a national approach, but that states continue to await final work product and recommendations from” an executive level task force made up of insurance commissioners. 

The NAIC LTC Task Force has reported making progress on its workstreams such as multi-state rate coordiantion and is scheduled to meet virtually at the organization’s fall national meeting Dec. 4th.

The commissioner, who will be returning to private practice, expressed frustration with a Texas Department initiative, too, involving a thwarted artificial intelligence solution that was at first supposed to address “immediate and serious problems” there in reviewing policy forms. He said the NAIC’s primary technology, named SERFF, is antiquated.

Yet, after spendings “hundreds of hours of time” on the project between the Department and NAIC commissioners in leadership positions within the organization, the AI project suffered an “abrupt (and unilateral) change in direction” when the NAIC delayed the modernization project, he said. The results of this project have yet to be furnished. 

The NAIC responded by stating that “we whole-heartedly share former Commissioner Sullivan’s assessment that the NAIC needs to survive and succeed.’  To that end, we will keep working collaboratively with our members and legislative colleagues to aggressively protect consumers and ensure that the U.S. remains a world-class insurance market now and into the future.”

The Texas department website notes that it regulates the second-largest insurance market in the nation and the seventh-largest globally. Sullivan’s leadership on modernization”has led to faster service in complaint resolution and agent licensing, an increase in online licensing applications, and a major organizational restructuring,” it touts.

Sullivan also included as an attachment in his critique then-Connecticut insurance commissioner Tom Leonardi’s well-publicized invective against the NAIC’s from December 2013, which famously began, “We have met the enemy and he is us!

Sullivan noted that Leonardi’s letter referred to the NAIC officer selection process as “student council elections.” He wrote that in his experience, these “elections still lack meaningful discussion of important substantive issues.”

However, in 2020, the NAIC leadership did respond quickly to member concerns on national crises, events, and structural inequities with its CoronaVirus Resource Center, “a place where everything every state has done for bulletins, to directives, to regulations, to any alert is in one central location,” as a recent podcast conversation between NAIC CEO Michael Consedine and NAIC President and South Carolina Insurance Director Ray Farmer pointed out. In July, it then created a special committee on Race and Insurance in which “everything is on the table,” according to Farmer.

SHIP’s proposed rehab plan could bring a lot of hands on decks while cutting some reinsurers cut loose

Sept. 16, 2020

Updated with Washington state’s permission from the court to join as an intervenor, Sept. 18 .

The court overseeing the rehabilitation plan for insolvent insurer Senior Health Insurance Co. of Pennsylvania, (SHIP) has some items of note to consider now that the deadline for comments and extended intervenor applications closed Sept. 15. 

The Maine superintendent of insurance and the Massachusetts commissioner of insurance have asked to intervene in the SHIP case and court documents reveal there are concern about rate increases in the future and ones not granted in the past from various insurance regulators involved.

Also, the rehabilitation plan is seeking to exclude some reinsurance polices from joining in. 

LTC insurers face solvency challenges now because rates set in the past do not match the towering costs of paying claims now for a variety of reasons, including higher longevity accompanied by chronic and expensive health problems, suppressed interest rates and lower lapse rates than anticipated when policies were underwritten.

The quandary facing many state insurance regulators was and remains whether to allow enormous rate hikes that could eat into the pensions of aging policyholders or to help LTC insurers achieve loss ratios that would keep them afloat. Keeping rates artificially low to help policyholders avoid rate shock as liabilities mounted and outstripped assets brought about the insolvency of SHIP. 

Maine and Massachusetts insurance regulators have requested intervention on behalf of all other state regulators, according to documents filed with the Commonwealth Court of Pennsylvania. The proposed rehabilitation plan won’t be implemented until it is approved by the court. 

The rehabilitator appointed by statute Jan. 29, when the order of rehabilitation was filed, is the insurance commissioner of Pennsylvania, Jessica Altman.

The rehabilitator said she accepts Maine and Massachusetts regulators involvement “for the limited purposes of calling or examining witnesses or introducing exhibits at the hearing.”However, she asked the court that all other requests for relief be denied.

Her lawyers are refuting other states’ claims that her plan “purports to set aside laws and replace them for a process for setting rates on a nationwide basis.” 

Instead, the plan “is designed to protect the interests of the insureds, creditors and the public by proposing corrective action to restore SHIP as a financially self-sustaining long-term care insurance company. The Proposed Plan seeks to achieve these goals and objectives in a fair and equitable way for over 45,000 policyholders,” Altman told the court.

In a filing Aug. 21, the rehabilitator argues that SHIP, in business in Maine from 1991 until its license was suspended this March, had sought approval there for LTC policy rate increases between 2011 and 2019 but hadn’t gotten them for the most part.

 “SHIP’s proposed rate increases for 2011 and 2019 were disapproved by Maine, Altman’s filing pointed out. She argued the rate requests were not excessive and denied claims that SHIP “failed to demonstrate that the requests met required standards and/or applicable regulations.” 

Altman also noted that the Maine superintendent approved SHIP’s 2016 rate increase but at a at a level lower than requested. 

The top insurance regulators from Maine and Massachusetts have requested that the court “extend the time for other state insurance regulators to join” beyond the deadline, with a letter attached from Washington State Insurance Commissioner Mike Kreidler addressed to Maine Superintendent Eric Cioppa and Massachusetts Insurance Commissioner Gary Anderson.

Washington state’s intervention request was approved by the court Sept. 18. The judge ordered that Washington can join with the intervention of the Maine superintendent of insurance and the Massachusetts commissioner of insurance.

It has submitted comments, which reflected the same policyholder premium increase concerns as Massachusetts and Maine.

“The Court should permit Maine and Massachusetts to intervene in this proceeding, but the Court should deny their eleventh-hour request (purportedly on behalf of all other state insurance regulators) to extend the Court’s deadline for seeking intervention,” she argued. 

The intervening states are concerned about the effect of the rehabilitation on policyholders, and want to delve into the actuarial models used to find out more about how customers in their states would be impacted –and have a say in any changes.

The rehabilitator said she wouldn’t oppose the Washington commissioner’s application to intervene if it filed by Sept. 15, 2020.

Legal representatives for Maine and Massachusetts and the special deputy rehabilitation did not return emails request for comment.

It is unclear from the docket whether he has. 

Other groups that have filed to intervene include policyholders, agents and brokers, the health insurers Aetna Life Insurance Co., Anthem, Inc., Health Care Service Corp., Horizon Blue Cross Blue Shield of New Jersey, and UnitedHealthcare Insurance Co., as well as the National Organization of Life and Health Insurance Guaranty Associations and Transamerica Life Insurance Co. Transamerica did not return an email query.

The health insurers point out that the guaranty associations will be triggered upon a liquidation order and they will together be responsible for 27% of assessments from that liquidation. 

A SHIP liquidation will cost the companies “hundreds of millions of dollars,” in guarnaty fund assessments, the health insurers stated in their July 31 application to intervene. 

Liquidation will occur if the rehabilitation plan can’t close the liability funding shortfall of between $500 million and $1 billion. 

Of interest, the Pennsylvania Insurance Commissioner Jessica Altman and the Special Deputy Receivers for SHIP, Patrick Cantilo, have changed the proposed rehabilitation plan to exclude the reinsured LTC insurance policies of Transamerica Life, Primerica Life Insurance Co. and American Health & Life Insurance Co

SHIP currently reinsures and administers these policies and the original plan filed in April said they would be treated the same as policies issued by SHIP, the notice on SHIP’s website stated. 

“However, although the rehabilitator wants them out, the notice said it remains possible that SHIP, or its subsidiary Fuzion Analytics, Inc., will continue administering these reinsurance policies.

If this amended exclusion is granted, Transamerica, Primerica, and American Health & Life policies the reinsured policyholders will not be asked (or have the ability) to make elections under the Plan and SHIP will not be financially responsible for claims arising under these policies, according to the note. Also, SHIP won’t be able to count their policy premiums as assets if they are excluded. 

 If SHIP does indeed enter liquidation, policyholders won’t be getting benefits from any life and health insurance guaranty association. Instead, the companies themselves will be responsible for these policies and any claims covered by these policies.

After a series of high profile, multi-million unpaid benefits regulatory settlements, The Principal pays $145,000 for exam-related costs

Updated with number of remaining exams, per California.

Sept. 13, 2020 — Principal Life Insurance Co. and Principal National Life Insurance Co. and state regulators quietly settled a death benefits exam underway for seven and a half-years for $145,000, a small cost amounting to housekeeping compared with the multi-million dollar settlements incurred by other life insurers undergoing similar exams.

Without admitting “any liability whatsoever,” The Principal agreed to the amount to cover the “examination, compliance and monitoring costs incurred by the departments associated with the multi-state examination. 

The Principal’s exam began in December 2012, a spokesperson for the company and the California Department of Insurance confirmed. 

The action could indicate that the unpaid benefit exams for life insurers are now winding down after the enormous settlements and high-profile cases that emerged at the outset of the state regulatory process.

A settlement was reached in June and a copy filed with state insurance departments in July. The $145,000 remittance covered “the examination, compliance and monitoring costs incurred by the departments associated with the Multi-State Examination.”

A handful of state insurance departments launched Social Security Administration’s Death Master File targeted examinations of life insurers beginning back in 2011 to review practices into whether policyholders’ beneficiaries were getting paid when the contract holder died. 

The lead states in the DMF initiative are California, Florida, Illinois, New Hampshire, North Dakota, and Pennsylvania. •

They sought unpaid death benefits due under the insurers’ life insurance policies and annuity contracts as well as unpaid proceeds due under matured annuities.

These state regulators, with the use of the auditing firm Verus Financial LLC, combed through insurers’ policies and procedures and use of the DMF database for unclaimed property.

In the case of The Principal, the regulators stated they found only “potential concerns regarding the adequacy of the company’s policies and procedures” in getting insurance policies paid in timely manner to beneficiaries, according to the settlement. 

The company said it disputes any potential concerns identified by the Departments and denies any wrong-doing or engaging in any activities but said it wished to resolve and differences instead of creating or prolonging any further proceedings. 

The company agreed to use its best efforts to find and contact the beneficiary, making at least two attempts to contact the beneficiary in writing at the address maintained in the company records and other standard protocols as a matter of course. 

Life and annuity insurers had paid over $9.7 billion to life insurance beneficiaries nationwide,” as a result of the multi-state exams as of August 2018, the California department trumpeted in 2018 in detailed report of the multi-state exam process. The group of “insurers have escheated approximately $33 million in unclaimed benefits to state unclaimed property officials, the report stated.

The outside firm who auditing insurance companies to identify unclaimed property also got a percentage of the remittances to states’ unclaimed property funds. 

The first such multi-state settlement, in February 2012, was with Prudential Financial for $17 million, to be split among the states participating in the settlement. MetLife’s settlement followed, reaching $40 million, in August 2012.

State regulators in the lead states alleged that the life insurance industry “selectively used” the DMF database to cut off their payments to deceased annuity holders but did not use the database when it came to seeking information on the death of policyholders to whose beneficiaries they would owe payouts. 

In general, if insurers cannot not find the beneficiaries after searching for them, they are required to send the money to the state controller as unclaimed property. 

Many insurers adamantly denied they had done anything intentionally and vowed to proactively check the DMF database regularly. 

Over the next few years, many life insurers, representing 80% of the market followed Prudential and MetLife in settlements with the lead state regulators. 

“As a result of the state insurance regulator settlements, in addition to paying benefits to beneficiaries, insurers have paid approximately $180 million to states that participated,” the Californiadepartment said in its report. It has listed the many life insurance companies with which it had negotiated settlements. The report noted that the lead states had wrapped up, by then, exams and settled with 25 insurers. Lead state regulators have five remaining exams on life insurers still open, a spokesperson from the California department said Sept. 17.

California’s report identified two “small life insurers” who it accused of fighting regulators’ attempts to settle and instead, turning to litigation. The plaintiff insurers in these cases have said they felt there was no justification for an audit because there was no reason to believe they weren’t in compliance with state unclaimed property laws to begin with.

Thrivent Financial, one of these two life insurers referenced, prevailed in its lawsuit against the state of California in 2018 after arguing “that two California unclaimed property regulations were invalid,” according to JMS Advisors. This decision had repercussions for other states’ guidance.

China Oceanwide furnishes evidence of funding, preserving deal to acquire Genworth

UPDATED Sept. 1 with Hony Capital involvement

Aug. 31 — Genworth Financial Inc.’s proposed merger with China Oceanwide Holdings Group Co., Ltd. survived to live another day as the Chinese conglomerate gave the long- term care and mortgage insurer assurance that it could pay for the company, according to a late evening press release.

Genworth had given China Oceanwide an Aug. 31 deadline to furnish evidence of funding for the deal.

Genworth said that its board of directors and its management team looked at what China Oceanwide had furnished as evidence to show it had the necessary funding for Genworth’s previously-agreed-upon price tag of $2.7 billion and had found the information “satisfactory.”

Therefore, it said “Genworth therefore does not intend to exercise its right to terminate the merger agreement as of August 31, 2020.” 

However, no mention was made in the release of Hony Capital, China Oceanwide’s investment partner or from where the funding is coming.

Genworth spokeswoman Julie Westermann did add the following day that the company believes “Oceanwide will pursue the same funding path that was disclosed in August 2018, whereby approximately $1B will be funded from mainland China and the balance funded by a bridge loan facilitated through Hony Capital.”

Westermann noted that the specific information that Oceanwide provided to Genworth regarding its funding progress is confidential so the company cannot we cannot share additional details now. 

The proposed merger, first announced in October 2016, before the last presidential election, had been previously extended to Sept. 30, 2020, its 15th such extension. China Oceanwide was supposed to meet the interim funding milestones by showing evidence of $1 billion of country-approved funding for the transaction plus evidence of another additional $1 billion from Hony.

Specifically, China Oceanwide was to show Genworth’s management that it had about $1 from sources in Mainland China to fund the acquisition of Genworth; and that Hony and/or other acceptable third parties had committed to provide $1 billion or more from sources outside of China to fund the transaction.

The Richmond, Va.-based company’s executives have said previously that the Hony funding commitment, first reached in 2018, only became an issue after the COVID-19 pandemic roiled global capital and financial markets beginning this past winter.

“We believe the funding is progressing well and that Oceanwide is working to close the transaction by September 30, 2020,” said James Riepe, non-executive chairman of the Genworth Board in the release. He based this on what he called regular discussions over the past few months between himself, CEO Tom McInerney and China Oceanwide.

“The August 31st milestone was important to both inform Genworth’s ongoing review process as well as provide an important update to our shareholders ahead of the September 30, 2020 deadline, particularly in light of the market disruptions driven by the global pandemic,” McInerney stated.

LU Zhiqiang, chairman of Oceanwide, said the company had been constrained by the global Covid-19 pandemic, is making progress and is committed to bringing Genworth’s “long term care insurance expertise to China and the rest of Asia”

The U.S. regulatory approvals had formerly been sewn up, subject to confirmation from the Delaware Department of Insurance that the acquisition of its life and LTC unit can go forward proceed under the existing approval. 

Genworth disclosed also today in its release that they are speaking with the federal mortgage supervisors issuers Fannie Mae and Freddie Mac, both government- sponsored enterprises, “about their previous approval of the transaction,” indicating this is not completely settled yet.

China Oceanwide also needs to receive clearance for currency conversion and transfer of funds from SAFE. 

 Genworth has also been moving forward on plans to fulfill its near-term financial obligations, which include liabilities from an announced settlement with AXA S.A. on alleged mis-selling of policies belong to its self -off business and about $1 billion of debt maturing in 2021.

Genworth announced Aug. 21that its indirect wholly-owned subsidiary, Genworth Mortgage Holdings, Inc. completed its $750 million offering of senior notes due 2025, with about $450 million of the proceeds distributed to GMHI’s direct parent, Genworth Holdings. Under its agreement with AXA, Genworth Holdings intends to repay or reduce upcoming debt maturities from the net proceeds of the senior note offering.

Reduced benefit option imbalances in LTC can impact Medicaid, cause finance issues and confuse consumers, groups warn

Aug. 23, 2020 — Life and health insurers’ representatives are warning state regulars that a reduction in benefits for long term care policies, part of a strategy to keep LTC blocks solvent, could impact state Medicaid budgets, among other undesirable and unintended effects.

The insurers’ groups also are worried about the solvency or financial stability of the remaining block of LTC business. That could happen if the choices policyholders make to even cease their contracts lead to adverse selection, they warn.

The insurers’ grapple with ill effects driven by regulatory reverse-engineering of LTC rates and once-rich policy benefits to fit the actuarial risk of today, not the risk actuaries in the past formulated in error for LTC insurance. Consumer advocates argue, though, that won’t happen if RBOs stick to actuarial equivalence in the overall rate for the coverage offered.

“State Medicaid budgets could be impacted to the extent that the policyholder becomes eligible for and starts receiving benefits under their policy and continues to need care after the benefits under their LTC policy are exhausted,” stated a letter written by two Washington trade groups to insurance regulators.

Those constructing the array of reduced benefit options must look at what happens to the remaining policyholders and the rest of the company’s finances if certain policyholders drop coverage or pay new amounts in premiums as well as on the impact on the state Medicaid budgets, said the American Council of Life Insurers and American Association of Health Insurance Plans.

Their letter is up for discussion by the National Association of Insurance Commissioners’ Reduced Benefit Options Subgroup of the Long Term Care Task Force.

“To what extent could anti-selection take place, placing the financial stability of the remaining block of business at further risk?” the Aug. 3 letter asked. 

Health insurers and life insurers pick up the tab for liquidations of LTC insurers through the state guaranty funds, in some states evenly, under recent legislation intended to even the burden, and in others, statutorily health insurers still have more of the onus. Taxpayers also end up paying.

The ACLI and AHIP are also asking about the “impact on remaining policyholders and company finances, and [the] impact on Medicaid budgets if regulators are driving reduced LTCI benefits.

“State Medicaid budgets could be impacted to the extent that the policyholder becomes eligible for and starts receiving benefits under their policy and continues to need care after the benefits under their LTC policy are exhausted,” the insurance groups explained. It’s a complex question that needs further analysis, they said in the letter signed by actuary Jan M. Graeber of ACLI and Ray Nelson, a consulting actuary for AHIP. 

The more people who have LTC insurance, rather than dropping their coverage, though, will actually help Medicaid budgets, argued NAIC consumer advocate from the Center for Economic Justice, Birny Birnbaum

The insurance groups also wrestled with the possibility of actually going current policyholders fewer choices to help manage the decision-making process.

“Should regulators, in some cases, encourage a company to offer fewer options to reduce the complication in decisions policyholders will face?” the insurance groups asked. They believe “too many options [such as multiple inflation choices] can cause consumer confusion with respect to the decision-making process.”

They agreed that each company should prioritize very clear communications to policyholders and make as many appropriate choices as possible available to them. This would be addressed during the rate and form filing with the state regulators. 

In its comment letter ACLI goes on at length about the differences in LTCI products, in LTC insurer marketing strategies and in LTC policyholder motivations culminating in ACLI’s demand for LTC RBO flexibility and for policyholders to “contact the carrier to understand the range of options that are available to them.”

However, Birnbaum said the group “completely” disagrees with insurers counseling policyholders on RBO choices due to potential conflicts of interest as the two parties will weigh them differently, but due to their past performances.

“LTC insurers have a pathetic track record of demonstrating they actually understand the products they are selling,” Birnbaum stated.

Instead, the RBO should be “based on the actuarial equivalence of the overall rate of the policy, not limited to expected claims, so anti-selection would not be an issue, according to Birnbaum. “Stated differently, the expected after-tax return on invested capital should be identical for the new, higher rate and any of the RBOs,” he wrote in his Aug. 11 letter.

The letters are addressed to Jessica Altman, Pennsylvania’s insurance commissioner and chair of the subgroup. The group is set to meet Aug. 24 on the response to the NAIC’s RBO Principle document, exposed in early July. The goal is to create a framework to provide guidance for policyholders as LTC insurers with claim payouts outstripping premium increases create RBO offers for them.

Consumer advocates are expressing worries about the plan going forward, as well.

“Our primary concern for policyholders is that long standing coverage be preserved and that the options they select to reduce cost maintain reasonable amounts and duration of coverage,” stated Bonnie Burns of California Health Advocates and an NAIC consumer representative. She told Altman that most of the policyholders that come to CHA or local groups are actually “confused about the information they received and worried about losing coverage or making the wrong choice.”

In fact, Burns noted, “some considered just giving up their coverage.”

 The charge of the parent task force is to develop a consistent nation approach for LTC premium rate increases as well as other options, such has reduced or otherwise modified benefits. Some states had long complained they were subsidizing others when they allowed rate hikes for the seriously under-priced insurance while other states did not allow much, if any, of a premium increase in order to protect the policyholders fro rate shock. This has led to instability in the LTC blocks as they struggle with solvency and financial stability issues.

LTC policies were initially underwritten in a time when interest rates were higher and assumed to stay that way, mortality was lower, health care costs were much lower and the percentage of people living a long time with chronic illnesses was not anticipated. Thus, rates were much lower than they needed to be.

Insurers have been reporting that Covid-19 deaths have benefitted quarterly earnings in the near-term from higher policyholder mortality and fewer amounts of submitted claims, but some say that there is a backlog of usage and nursing home and health care aide care that will kick in once the pandemic significantly eases its grip in the U.S. 

But, if the health crisis does allow for rate decreases because of mortality trends or more efficient, cheaper treatments, “policyholders who have selected a RBO because of higher rates should also have the option of reinstating original benefit levels if rates decrease,” Birnbaum told regulators. He said he wants to have policyholders have flexibility, too, and have an upside if experience does again shift, arguing that much of the fission has been one-sided, in favor of the insurer in recent discussions.

Genworth Financial shows off Genworth Mortgage’s clout as clock ticks on China Oceanwide funding for long-delayed deal

As Genworth Financial Inc. and China Oceanwide Holdings Group Co., Ltd. are facing down less than two weeks of time before it is time to fish or cut bait in their merger, based on a previously stated milestone for evidence of funding commitments, the insurance company is forging ahead with Plan B, involving its subsidiary, Genworth Mortgage Holdings Inc

Genworth Mortgage, led by the parent, rolled out a colorful and detailed 29-page investor presentation Aug. 17 touting the subsidiary company’s strengths, such as leadership, capitalization, risk management and operating performance over the years.

The presentation, led by Dan Sheehan, Genworth CFO and CIO, Genworth Mortgage CEO Rohit Gupta and CFO Dean Mitchell, served as a primer in the structure of the company, a lesson on private mortgage insurance and a statement on how Genworth’s mortgage insurance company it is definitely different than Genworth, the U.S.’s largest long-term care insurer.

The LTC and life and annuity insurance businesses are shown in grayish blocks while other segments are in bright colors. It also focused on future plans, mortgage unit’s financial results, how it is dealing with mortgage delinquencies under U.S. government forbearance programs put in place due to the Covid-19 pandemic. 

Genworth executives noted that the Covid-19 pandemic had created delays in the Chinese company’s funding plans. In fact, they called it “the primary factor currently holding up the transaction closing.”

The presentation said that Genworth Mortgage expected to reach an agreement “with the GSEs [Government Sponsored Enterprises] to maintain necessary PMIERs [private mortgage insurer eligibility requirements] at 115% of current requirements and for any near-term debt financing at GMI to be limited to $750mm, with a $300mm holdback to pay interest and support capital.”

It also pointed to the GSE’s “desire for Genworth to strengthen its financial profile or for [Genworth Mortgage] to gain greater independence, access to capital and improve ratings.”

This comes at a time when Genworth is considering a potential partial 19.9% IPO of its U.S. mortgage insurance business if the China Oceanwide transaction is terminated, which it could be if China Oceanwide doesn’t secure funding. Genworth has spent the better part of four years getting the necessary U.S. federal, international and state approvals or even selling stake in a subsidiary in Canada where a timely approval was not foreseen.

A couple of days after the presentation, on Aug. 19, Genworth proposed selling $750 million in debt in the form of senior notes due in 2025 in Genworth Mortgage.

The proceeds of the notes, less $300 million, will flow to the parent, Genworth Holdings Inc., to pay AXA under a settlement agreement and also reduce debt coming due. The AXA case involves losses on acquired Genworth policies that suffered under misspelling allegations. Although part of the settlement has been made, Genworth still has to make deferred cash payments totaling approximately £317 million in two installments at the end of June and September 2022 and to pay a significant portion of all future mis-selling losses incurred by AXA, which AXA will invoice quarterly. Genworth’s (#GNW) stock rose on the news, closing at $2.73 per share, up almost 12%, and was still rising in after-hours trading. 

 China Oceanwide signed a deal almost four years ago to acquire Genworth for $5.43 per share, or about $2.7 billion. Oceanwide also committed to contribute $1.5 billion to Genworth over time.

The merger agreement with China Oceanwide had earlier this summer been extended Sept. 30, but with a waiver requiring the Chinese conglomerate, to show evidence by Aug. 31 that it had funding for the deal, namely about $1 billion from sources in Mainland China and another $1 billion from Hony Capital and/or other acceptable third parties.

The Genworth executives said in the presentation that “Genworth’s management team remains focused on closing the Oceanwide transaction while also retaining flexibility to address near-term liquidity needs and maximizing shareholder value.”

The Richmond-based company said in its second quarter earnings release last month that it expects these steps to include a debt financing in the near term, which comes in the form of the senior note offering, and steps for the partial IPO of the mortgage subsidiary if the deal fails, the so-called Plan B. 

“Maintaining an 80% ownership of USMI preserves important benefits, including preservation of tax consolidation and future structuring flexibility,” a Genworth spokeswoman emailed in response to a query on the rationale for an approximately one-fifth offering in any potential mortgage company IPO.

HONY and China Oceanwide did not respond to inquiries. Genworth has pointed to its publicly available releases for more information. 

China Oceanwide had said back in early May that it was finalizing its funding plan for the transaction. After the funding is secured, China Oceanwide must then successfully complete the currency conversion and transfer of funds with China’s State Administration of Foreign Exchange for the merger to be completed. The companies have both continually repeated commitment to the merger’s closing.

Treasury-led report rejects policy ideas of LTC tax breaks and favorable ERISA treatment; asks states to improve harmonizing some requirements – or HHS might

Aug. 13, 2020 — A newly released report on addressing the future of long term care insurance spearheaded by the Treasury Department has recommended that Congress should consider giving some authority to the Department of Healthcare and Human Services for inflation protection requirements for LTCI policies if overall regulatory efficiency cannot be achieved. Other than that, the report showed little appetite for Congressional or federal action on LTC beyond monitoring the situation.

The report, published Aug. 11, is light on targeted action items. It mainly encouraged initiatives already underway, like a national approach from the NAIC to rate increases while eschewing Congressional or agency involvement that would require an overhaul of existing tax or labor laws. The task force that developed the report often recommended that the NAIC and the states maintain their focus on their current work in all facets of long term care, from increasing the market to solving challenging solvency issues.

For example, the report called for state policymakers and the National Association of Insurance Commissioners work together to harmonize and streamline standards, in general, in particular, with the “Partnerships for Long-Term Care.”

This Partnership program began with a few states in the 1990s and by 2005, as part of the Congressional Deficit Reduction Act it was extended with consumer protections. Treasury’s report found that the inflation protection requirements among states amounts to a patchwork program of “widely varying” requirements that hamper underwriting and sometimes may actually raise costs for LTCI policies. Thus, the report raised the possibility of HHS taking on a role in inflation protection for Partnership policies.

“The Task Force recommends that state policymakers—legislators, state Medicaid directors, insurance commissioners, and the NAIC—improve regulatory efficiency and effectiveness by harmonizing and streamlining inflation protection requirements under the Partnership program. Alternatively, Congress should consider delegating to HHS the authority to set Partnership program inflation protection requirements,” it stated.

The report, Long-Term Care Insurance: Recommendations for Improvement of Regulation, is a product of the Federal Interagency Task Force on Long-Term Care Insurance, which began meeting in earnest, with a public meeting last July. Treasury Secretary Steven Mnuchin and Assistant Secretary Michael Faulkender are credited as the authors, with work growing out of meetings of the Federal Insurance Office. The task force members include representatives from Treasury, FIO, including LTC point-person Bruce Saul, HHS, the U.S. Department of Labor and the Office of Management and Budget.

Various stakeholders from the industry, the actuarial community, the state regulatory community and others were engaged in the process, sometimes providing hours of researched material, and at least one was underwhelmed and even disappointed. The report made a point of “affirming the primary role of the U.S. states as insurance regulators in the United States,” even as the challenges and scope of funding LTC were called a national interest, requiring a coordinated federal response.

The task force rejected NAIC recommendations for proposed new, generous tax incentives, except for one proposal to get rid of the additional tax on early withdrawal from retirement funds if the money is used to pay LTCI premiums. This idea was popular among some regulators, stakeholders and the insurance industry to increase the purchase of LTC policies on the private market. The idea came from a 2017 list of NAIC policy ideas for financing LTC and bringing the product to more future retirees that would involve Congress.

The Treasury-led report said that, in addition to complicating the already-complex tax code and reducing tax revenue, that the proposed tax incentives, in general, would primarily benefit the wealthy and might not “be fully effective in targeting lower and middle-income individuals who need financial protection against LTC risks.”

Consumer advocate Birny Birnbaum of The Center for Economic Justice said he was “glad to see no tax incentives were proposed and that task force recognized tax incentives were skewed to the rich.”

The task force also rejected two policy proposals for LTCI group products that would involve the Employee Retirement Income Security Act’s fiduciary provisions because it does not believe it would really increase employee participation levels much and has stiff legal barriers.

One proposal was to remove potential exposure to ERISA fiduciary liability and the second is to allow plan participants to purchase LTCI within their retirement accounts, expanding the risk pool and enlarging the pool of policyholders. These ERISA proposals were also put forward under the NAIC’s 2017 potential Congressional action list.

The task force also decided against choosing any particular alternative financing approach such as government-financed public programs, telling state regulators and others that they should keep on doing what they are already doing — namely, developing, reviewing and analyzing these financing reform proposals to gauge their effectiveness and costs.

The task force did instruct actuaries, underwriters and others involved in crafting new and innovative LTC/life insurance/annuity combination products and those supervising them to keep on doing what they are already doing — trying them out, and analyzing their impact.

The four main LTC areas discussed in the report are: innovation and product development; regulatory efficiency and alignment; financial literacy and education; and tax incentives.

TheTreasury-led interagency document lays bare how much long term care matters — and can cost — in the coming decades.

“In their 2019 report, the trustees for Social Security project that the ratio of the number of people age 65 and over to the number of people age 15 through 64 will rise .. nearly 60%,” the report stated. It pointed out that the Congressional Budget Office projected that long term care services will rise to 3% of the GDP in 20150, from 1.3% in 2010.

A huge factor in the LTC usage calculations is the sad fact that “the number of individuals with dementia is expected to triple over the next 40 years.” Deaths from Alzheimer’s are now the sixth-leading cause of death, according to the report, citing the Centers for Disease Control and Prevention.

(The analysis for the report was substantially done before Covid-19 struck the U.S. and does not factor it in. However, the report said in a footnote that “Treasury will continue to monitor the effects of COVID-19 on insurance products and markets, including LTCI,” noting that COVID-19 “disproportionally affects older adults and individuals with chronic illnesses or other high-risk health conditions, making the LTC population.”

NOLHGA files to have a say in proposed SHIP rehab plan, warning of potential liquidation scenario impacting GA funds


Aug. 4, 20202–The National Organization of Life and Health Insurance Guaranty Associations filed to intervene July 30 in the rehabilitation plan for Senior Health Insurance Company of Pennsylvania, or SHIP. That plan was filed on April 22 by the Pennsylvania insurance commissioner, Jessica Altman.

The national guaranty association system is focused on SHIP’s proposed rehabilitation plan because of the possibility of a potential liquidation and the impact on the GA system, namely statutory obligations that could reach the hundreds of millions of dollars.

SHIP has a shortfall of between $500 million and $1 billion now, and if the rehabilitation plan can’t be eliminated,liquidation may be inevitable,” NOLHGA warned.

Its new filing to the Commonwealth Court of Pennsylvania, NOLHGA also pointed to what it called “uncertainties” about of the proposed rehabilitation plan, which has not yet been okayed by the court.

Generally, SHIP’s rehabilitation plan calls for benefit reductions and/or premium rate increases for policyholders in a attempt to keep policies in their hands even if they pay more and/or have benefits slashed — in the arena of LTC insurance payouts from beleaguered companies, there is only so much money to go around, as state regulators and policyholders have discovered, decades too late.

Decades-old LTC insurance policies were under written by life insurance companies with a different set of actuarial assumptions that proved drastically off mark and under an environment of rising interest rates.

NOLHGA also told the court that its limited intervention, if permitted, “would facilitate the efficient administration of this case.” When LTC companies liquidate, life insurers and many health insurers must foot the bill for the state guaranty funds. Some states have worked out a system where this is evenly divided, but it has still been a thorny issue of responsibility in the overall insurance industry.

There is also a chance the plan is not approved, in addition to the chance of its failure. In either scenario, the guaranty funds would need to step in to provide funds to policyholders up to the statuary limited mandated by individual states. These limits typically reach $300,000 on a state-by-state basis, sometimes more or less, but many times far short of the needed funds for elders’ long term care coverage needs.

“To the extent GAs provide coverage to SHIP policyholders, GAs would have claims against the SHIP estate,” NOLHGA argued, noting that the rehabilitation plan references guaranty associations 65 times.

“It is in the best interests of SHIP’s approximately 45,000 policyholders that the GA system be fully apprised of and potentially participate in the receivership proceedings related to SHIP,” the Virginia-based association argued.

If indeed the GAs are triggered by liquidation, NOLGHA should be there “to provide protection to policyholders, such benefits may be delivered, in as coordinated and comprehensive manner as is practicable, and with as little disruption as possible to policyholder services and claims payments,” it said.

Outside counsel for NOLGHA at the law firm Faegre Drinker Biddle & Reath LLP stated in the filing that it had discussed NOLHGA’s intervention with Patrick Cantilo, who serves as the special deputy rehabilitator of SHIP, and said that he does not oppose NOLHGA’s application for limited intervention.

The case management order with deadlines for review for the rehabilitation plan was filed June 12.

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