Monthly LRA Update

REGULATORY DEVELOPMENTS

Banking Regulators Reaffirm Commitment to Basel III Standards

On September 9 the US banking regulators issued press releases reaffirming their intent to implement enhanced regulatory capital requirements that align with the final set of “Basel III” standards issued by the Basel Committee on Banking Supervision in December 2017 (OCC, FRB, and FDIC). The press releases indicated that the agencies are currently working on a joint proposed rule to be released “as soon as possible.”

As always, we will monitor for and review any rule proposals.

JUDICIAL DEVELOPMENTS

Davydov (Et Al.) v. John Hancock – COI Litigation Update

On September 13 John Hancock filed a motion for summary judgment in the Southern District of NY. Many of the plaintiffs in this litigation challenging Cost of Insurance increases that John Hancock implemented in 2018 are institutional investors that purchased the life insurance policies in the secondary market.

John Hancock also filed a statement of “undisputed facts” that included the following:

• The Plaintiffs are sophisticated institutional owners who manage life insurance policies with face amounts in the millions.
• Institutional owners rarely lapse policies and instead generally keep the policies in force until the death of the insured.
• Plaintiffs understood that the COI rates could change under certain circumstances.
• John Hancock reviewed COI rates for the policies and documented its methodology for calculating increased COI rates in an April 2018 memo.
• John Hancock determined that its expectations had deteriorated significantly for certain groups of insureds (those over the age of 60) since the policies were priced.
• John Hancock consulted with the NY DFS and ultimately obtained approval to implement.
• John Hancock has represented that the increased COI rates do not result in profitability greater than the original underwriting expectations.
• None of the Plaintiffs’ policies have lapsed since the COI increase was implemented.

The materials also summarize the universal life policies’ contract provisions and the language surrounding John Hancock’s discretion.

We will continue to monitor this litigation.

Docket: Davydov (et al.) v. John Hancock Life Insurance Company, Case No. 1:18-cv-09825 (SD – NY)

OTHER DEVELOPMENTS

Senate Finance Committee Continues Investigation into PPLI

On September 21 the Senate Finance Committee posted a press release announcing that it was continuing its investigation into Private Placement Life Insurance (PPLI) used by the wealthiest Americans to avoid taxes. On the same date, Ron Wyden (Committee Chair) sent letters to Prudential Financial, Zurich and the American Council of Life Insurers (“ACLI”) seeking additional information and responses by September 30.

Last month we reported that Wyden sent a letter on this topic to Lombard International.