January 2015


Promoting Job Creation and Reducing Small Business Burdens Act

On January 14, the House passed H.R. 37, which provides technical corrections to about a dozen provisions of the Dodd-Frank Act. Among other things, this bill would delay until July 21, 2019 the requirement to comply with the Volcker Rule for activities related to or investments in any debt securities of collateralized loan obligations (CLOs) issued before January 31, 2014. CLOs are the only aspect of the Volcker Rule that is addressed in this legislation.

This legislation is expected to be passed by the Senate; however, it will likely be vetoed by the President and it is unlikely that the House will have the two-thirds majority required to override the veto.


NY COLI Franchise Tax Bills

As has been annual custom for the past five years, New York State Representative Marcos Crespo and New York State Senator Ruben Diaz have reintroduced the companion Assembly (AB 3896) and Senate (S141) bills for the 2015 session. The bills would impose a franchise tax on any company receiving benefits from life insurance policies it has obtained on its employees and/or retirees. The tax would be equal to 50% of the gross receipts from all proceeds received from such policies.

Both bills have been referred to committees. Historically, the bills have not received any further legislative action and it is unlikely they will garner discussion this year.



FNB v. Transamerica and Clark Consulting – Update

On January 23, the District Court largely denied Transamerica and Clark Consulting’s motion to dismiss this matter. However, the court did not evaluate the terms of the stable value agreement because FNB’s claims were not based upon those documents. The court noted that the parties will be given the opportunity to explore the factual disputes relating to the applicability of the stable value agreement during discovery.

The court dismissed FNB’s count that Transamerica breached its fiduciary duties to FNB, ruling that it was duplicative to the count that Transamerica’s conduct constituted insurance bad faith. The following counts survived the motion to dismiss:

  1. Transamerica breached its contractual obligations under the policies;
  2. Clark Consulting breached its fiduciary duties; and
  3. Transamerica’s conduct constituted insurance bad faith.

The court set a Scheduling Conference for February 27, 2015.

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



Tax Reform Working Groups

On January 15, the Senate Finance Committee announced the launch of five separate bipartisan Tax Reform Working Groups. The groups will analyze the current state of tax law and possible reforms within each group’s designated area. The five areas are 1) Individual Income Tax; 2) Business Income Tax; 3) Savings & Investment; 4) International Tax; and 5) Community Development & Infrastructure. The goal is to have a final comprehensive report with recommendations from each group by the end of May.

The White House says President Obama plans to release his fiscal year 2016 budget today (February 2). We will review for any new developments.



Supreme Court Retiree Health Benefit Ruling

On January 26, the Supreme Court ruled that courts weighing whether union retirees have vested, lifetime health care benefits should apply ordinary contract principles (M&G Polymers v. Tackett). Prior to this, the Sixth Circuit had determined that, in the context of labor negotiations, there is a preference to the interpretation of ambiguities surrounding the vesting of lifetime health benefits in favor of the retired employees.

The Supreme Court observed that the Sixth Circuit position “distorts the attempt to ascertain the intention of the parties by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The Supreme Court remanded this case back to the Court of Appeals to determine whether the parties intended retiree health care benefits to vest.

Although the opinion addresses collective bargaining agreements, it may also provide employers and plan sponsors with helpful authority regarding their ability to modify retiree welfare benefits outside the collective bargaining context.


NAIC Efforts Regarding Separate Accounts – Update

In January, the NAIC’s Financial Condition (E) Committee released an update regarding its initiatives relating to regulation of separate account products.1 A Separate Account Subgroup was formed in 2007 primarily to consider whether disclosures or restrictions should be established to prevent separate account transactions that establish preferred classes of policyholders. The Subgroup recommended that the E-Committee take action to ensure that appropriate risk charges are required in order to compensate the general account for risks taken through the guarantee of separate account products. The Subgroup is concerned that the lack of risk charges may significantly increase the solvency risk for insurers.

Currently, the Separate Account Risk (E) Working Group continues to study the need to modify existing regulation, or develop new regulations, to address risks borne by the general account for separate account products.

The Financial Analysis Working Group continues to review non-variable and non-unit linked activity (including certain BOLI and COLI products). This working group continues to monitor the issues and has identified 15 insurers that paid separate account guarantees in 2010, but reported no risk charge paid to the general account.

In addition to these ongoing activities, the NAIC has also identified three new requests related to this topic:

  • Financial Condition Examiners Technical Group – This group is asked to consider the current examination processes and procedures related to separate account products/assets to ensure that adequate consideration is given to these accounts.
  • Receivership Separate Account Working Group – This group is asked to consider reporting needs for separate accounts due to considerations with respect to insulated and non-insulated products/assets.
  • Separate Account Risk Working Group – This group is asked to compare the US GAAP definition and requirements for separate accounts to statutory accounting requirements, and use the results of this analysis to help discuss what should be allowed as insulated products.

We will continue to monitor these developments in 2015.

1 Variable separate account products are not subject to the same scrutiny as they do not include guarantees supported by the insurer’s general account assets.