August 2014


Proposed Regulatory Capital Reporting Changes

As we reported in our July LRA update, the FDIC, FRB and OCC released proposed revisions to the risk-weighted assets portion of Schedule RC-R, Regulatory Capital, in the Consolidated Reports of Condition and Income (Call Report).  The revised schedule incorporates the standardized approach for calculating risk-weighted assets under Basel III.

After discussing the reporting implications for BOLI under the revised form with our clients, we were encouraged to submit a comment letter.  The comment letter we submitted can be viewed on the FDIC’s site.

In general, our comment letter recommended that the regulators add Investment Fund Exposure line items that are similar to lines within the Advanced Approach RWA forms.  If that recommendation is not deemed viable, we suggested that the regulators provide additional guidance regarding how BOLI programs should be reflected in the RWA schedule.

The comment period expired on August 22.



First National Bank of Pennsylvania v. Transamerica and Clark Consulting – BOLI Surrender Litigation

On August 22, 2014, Transamerica Life Insurance Company and Clark Consulting (“Defendants”) filed a motion to dismiss this complaint.  In the supporting memorandum, the Defendants provided their interpretation of the applicable contractual provisions of the stable value agreement and attached copies as exhibits.

As noted in last month’s LRA, the controversy centers around First National Bank of Pennsylvania’s (FNB’s) inability to satisfy a representation that the policies had “not been previously owned by an entity other than the Policyowner” in conjunction with a stable value surrender.  The original purchaser of the policies, Park View Federal Savings Bank, was acquired by FNB in October 2013.

According to the Defendants’ memorandum, the investment allocation utilized a Stable Value Agreement (SVA) between Transamerica and Commonwealth General Corporation (an affiliate of Transamerica), combined with an Enhancement Amortization Agreement (EAA) between Commonwealth General and JPMorgan Chase Bank (“JPMC”).  The EAA had a series of requirements that had to be “strictly satisfied” in order for JPMC to be obligated to pay the “Bank Enhancement Amount” upon surrender.  One of those requirements was that the “Policies are not, and have not been previously, owned by an entity other than the Policyowner on or prior to the Immunization Termination Date.”

The Defendants assert that FNB received the applicable contractual documentation in advance of its allocation to that investment strategy and also note that “FNB’s acquisition of Park View did not need to be accomplished in the way it was.  Instead of merging Park View out of existence, FNB could have kept Park View in existence as a wholly-owned subsidiary.”

If nothing else, this case appears to underscore the importance of closely reviewing the contractual documentation with qualified counsel in advance of merger and acquisition related activity.  We have assisted a number of institutions in reviewing BOLI programs in advance of M&A activity and have a number of references for qualified counsel for reviewing legal documentation.

Case Reference: First National Bank of Pennsylvania v. Transamerica Life Insurance Company & Clark Consulting No. 2:14-cv-01007-CB (W.D. PA)


Florida Appeals Court Reversal of DMF-Related Ruling

On August 5, Florida’s First District Court of Appeal reversed a declaratory statement issued by Florida’s Department of Financial Services (“DFS”) in which Thrivent Financial for Lutherans was required to actively monitor Death Master File (DMF) records to identified deceased policyholders, and also comply with the state’s escheatment laws based on the insured’s date of death.

The court interpreted the plain language of Florida’s Disposition of Unclaimed Property Act and ruled that the DFS interpretations were clearly erroneous.

Regarding the requirement for insurers to actively search death records (such as the DMF), the court responded that such a rule would have the effect of rewriting the statute and that such policy concerns must be addressed by the Legislature.