On March 14, the Senate passed a wide-ranging financial regulatory bill (S. 2155) with significant bi-partisan support. Members of the House have indicated their intention to propose a series of amendments to the bill. It remains unclear if a revised version of the bill will retain the bipartisan support in the Senate necessary to avoid a filibuster.
Noteworthy provisions of the bill:
We previously reported on this proposal in our November 2017 LRA Update.
On March 27, a proposed class-action complaint was filed against Security Life of Denver Insurance Company (SLD) in Colorado District Court. The plaintiff contends that SLD breached its policy obligations by raising Cost of Insurance (COI) charges despite policy provisions allegedly constraining the carrier to use only the insured’s sex, attained age, rating class, and SLD’s “expectations as to future mortality experience” when determining the COI rates.
As we have reported regularly over the past few years, there are several active lawsuits challenging various carriers’ recent increases in COI charges. The following is a list of carriers and jurisdictions where we are monitoring active litigation:
To date, we are not aware of any policyowners litigating COI increases applied to BOLI/COLI policies.
At the NAIC’s Spring meeting in Milwaukee on March 24, the Statutory Accounting Principles (E) Working Group’s agenda included deliberation on the regulatory treatment of Private Placement Life Insurance (PPLI) and Private Placement Variable Annuities (PPVA). Products under consideration include PPLI and PPVA products sold to high-net-worth individuals and COLI, BOLI and ICOLI.
According to the meeting materials, the NAIC staff has learned that insurers considering ICOLI or PPVA investments refer to an existing regulation (SSAP No. 21 ¶ 6) that the NAIC staff believes was not intended for these types of investments. In particular, SSAP No. 21 ¶ 6 allows an insurer who owns an ICOLI policy to account for the net realizable value of the policy as an “Other Than Invested Asset.” Such treatment counts as an admitted asset for capital and surplus purposes and is not subject to any risk-based capital charges.
The NAIC staff has learned that ICOLI investors often choose relatively aggressive investment allocations (e.g., equities, private equity, hedge funds, etc.). The staff has proposed the following regulatory response:
While we strongly support the NAIC’s objective to correct the regulatory capital arbitrage that ICOLI investors were seeking to exploit, we have reached out to the NAIC with recommendations that we think would present a more appropriate regulatory capital treatment.
Although BOLI owners are largely unaffected by the development described above, the NAIC staff has also suggested that PPLI issuers should be required to separately report the amount of separate account assets that are registered with the SEC versus those that are not registered. Further, the NAIC staff has proposed an additional breakdown of non-registered separate account assets to be categorized between 1) PPVA, 2) PPLI, 3) “Other (Not PPVA or PPLI).”
As we’ve reported previously, the NAIC’s Annuity Suitability (A) Working Group continues deliberations on adopting a “best interest” standard for annuities. In advance of the NAIC Spring meeting on March 24, the Working Group released an agenda and materials.
Not surprisingly, recent developments with regard to the Department of Labor’s Fiduciary Rule were on the docket. Additionally, the materials included a summary of comments received on the Chairman’s Draft of Proposed Revisions to the Suitability in Annuity Transactions Model Regulation (#275).