May 2012


New Interagency Stress Testing Guidance

The Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly issued Supervisory Guidance on Stress Testing for Banking Organizations with Total Consolidated Assets of More Than $10 Billion.  The guidance builds upon previously issued supervisory guidance that discusses the uses and merits of stress testing in specific areas of risk management.  This final guidance outlines broad principles for a satisfactory stress testing framework and describes several types of stress testing activities and how they may be most appropriately used by banking organizations subject to the guidance.

The guidance does not implement the stress testing requirements imposed by the Dodd-Frank Act which are being implemented through separate notices of proposed rulemaking by the respective agencies.  The guidance will become effective on July 23, 2012.

As most of our readers are aware, MB Schoen & Associates, Inc. has developed a broad array of modeling and stress testing capabilities for BOLI programs – especially those that utilize some form of stable value protection (SVP).  We believe our capabilities can be supportive of clients’ needs for incorporating stress testing of BOLI assets into the broader stress testing framework that is required by this interagency guidance.  Accordingly, we are closely reviewing this guidance to ensure our modeling is consistent with the regulatory requirements, including the five key principles identified.  We welcome the opportunity to visit with interested parties in more detail regarding our stress testing capabilities and actions that we can take to further support our clients’ in fulfilling these and/or similar regulatory expectations.


New Challenges to Dodd-Frank Implementation

The largest financial-industry trade groups, including the Securities Industry and Financial Markets Association (SIFMA) and the American Bankers Association (ABA), have been lobbying to halt Dodd-Frank rulemaking (especially the Volcker Rule) until regulators perform robust cost-benefit analyses.  The industry may feel bolstered by this tactic in light of cases such as Business Roundtable v. SEC (647 F.3d 1144 (D.C. Circuit 2011)), where the circuit court vacated a SEC regulation in part because the SEC failed to adequately assess the economic effects of the rule.  Related, some Republican lawmakers have introduced legislation that would require the SEC to study the cost of its proposals before imposing them (see S. B. 2373 (introduced 4/26/2012) and H.B. 2308 (introduced 6/23/2011)).  The SEC reportedly only has 24 economists working full-time to provide analyses for dozens of proposed rulemaking and the rulemaking process would be severely slowed if the SEC were required to conduct the type of rigorous cost-benefit analyses that the trade groups are advocating.  Further, SEC Chairman Mary Shapiro has testified regarding the challenges of calculating the costs and benefits of a rule, especially the difficulty of quantifying benefits that are qualitative in nature.


Europe Postpones Solvency II Rules

The European Union announced that it would postpone the deadline for member countries to adopt Solvency II’s new capital requirements for insurers until June 2013. The final draft of the Solvency II regime was slated to be published by the end of October but now seems unlikely due to delays in the legislative process.  So far, the delay has not impacted the implementation deadline; insurers must comply with the new regime by January 2014.  The postponement of the deadline for adopting applicable laws has resulted in some criticism since insurers may have only six months to study and adapt to the locally applicable version of the rules, when many were counting on a full year.



American Greetings v. Baker (Update)

On April 30, American Greetings filed a motion to dismiss the lawsuit asserting that the plaintiff’s claims fell outside of the application  time barred under Ohio law.  The plaintiff, Theresa Baker, is representing the estate of a former American Greetings’ employee.  The plaintiff alleged four claims against American Greetings: 1) misappropriation of name and identity; 2) breach of fiduciary duty; 3) unjust enrichment; and 4) the estate’s entitlement to policy benefits because American Greetings was an unlawful beneficiary.  According to American Greetings, in Ohio, the discovery rule does not apply to invasion of privacy claims, breach of fiduciary claims (based on anything other than fraud), or unjust enrichment claims.  The discovery rule essentially tolls the statute of limitations until the time when the plaintiff discovers or should have discovered the complained of injury.  American Greetings argued that the applicable statute of limitations for each alleged claim is 6-years or less and each has run.  In the plaintiff’s pleadings, it alleged that American Greetings fraudulently concealed the policies and its conduct and, consequently, should be equitably estopped from contesting the timeliness of the claims.

Related, American Greetings filed a motion to transfer their other ongoing COLI class action lawsuit Collier v. American Greetings from the Northern District of Oklahoma to the Northern District of Ohio arguing that the Baker and Collier claims are virtually identical and cover essentially the same proposed class of insureds.  As of the date of this publication, the Oklahoma district court had yet to rule on the transfer issue.

Case numbers: Baker v. American Greetings Corp., No. 12-cv-00065 (N.D. Ohio); Collier v. American Greetings Corp., No. 10-cv-00625 (N.D. Okla.)



NY Emergency Regulation on Unclaimed Life Insurance Benefits

Last July, the New York Department of Financial Services (NYDFS) issued New York Law § 308 which required life insurance companies to conduct a cross check of their entire block of business against the Death Master File (DMF) or another comparable database and submit monthly reports to the NYDFS on their progress paying amounts due.  On May 14, the NYDFS announced the emergency promulgation of Insurance Regulation 200 which will become effective on June 14, 2012.  Regulation 200 expands the scope of procedures that insurers must immediately undertake to identify valid death claims and pay beneficiaries.

Key Regulation 200 requirements include:

  • Quarterly cross checks against the DMF (or comparable database);
  • Algorithms that will perform “fuzzy matches” (common variations in data that would preclude an exact match, such as nicknames, compound last names, incomplete date of birth data, etc.);
  • Upon the notification or identification of a death, the insurer must determine if the insurer has any other policy or account for the insured or account holder;
  • Upon the notification or identification of a death, must notify each life insurer in its holding system of the death notice, regardless of the location of the other insurer;
  • Mandatory response criteria for search requests by the NYDFS that result from the new Lost Policy Finder system; and
  • An annual report to the Office of the State Comptroller specifying the number of policies and accounts identified as having unpaid benefits as of December 31 of the prior year.

Compliance with the new requirements may be troublesome for insurers especially under the 30-day time frame for implementing most of the procedures required by Regulation 200.  Insurers have an additional 150 days from the effective date to implement fuzzy match requirements.  It does not seem that the purpose or intent of Regulation 200 extends to COLI/BOLI policies; however, the language of the rule does not explicitly exempt such policies.  We are researching this issue further to determine the extent to which these rules may impact our COLI/BOLI clients.  We have encountered varying degrees of cooperation (or resistance) from carriers when it comes to processing claims based solely on the DMF sweeps.  It is often challenging for employers to obtain death certificates and some states and municipalities are further restricting the release of such information due to privacy concerns. Thus, if the rules encompass COLI/BOLI, they should reduce the number of delays in these cases.