There’s a narrow path to such ostentation for the non-famous and non-college-interested who mock the idea of an actual job. Mize found his muse in the con and his ability to rope others into it. Here’s how they say it happened: He struck when you wanted cash. When totems of the middle class were slipping from reach. When you needed a down payment. To pay off credit cards. To start a business. When asking your parents for money made you feel like a failure. When you were suffocated by medical bills, neither earning enough to pay nor poor enough for government help.
Yet money alone doesn’t completely explain why the people closest to Mize entered the ring. Mize had a way of making himself your center of gravity, the one from whom you wanted approval, mentorship, love. Mize could be fun, even thrilling. But getting all that meant pleasing him. And pleasing him meant fraud.
The purpose of this paper is to introduce the concept of capital and key related terms, as well as to compare and contrast four key regulatory capital regimes. Not only is each regime’s methodology explained with key terms defined and formulas provided, but illustrative applications of each approach are provided via an example with a baseline scenario. Comparison among these capital regimes is also provided using this same model with two alternative scenarios.
The four regulatory required capital approaches discussed in this paper are National Association of Insurance Commissioners’ (NAIC) Risk-Based Capital (RBC; the United States), Life Insurer Capital Adequacy Test (LICAT; Canada), Solvency II (European Union), and the Bermuda Insurance Solvency (BIS) Framework which describes the Bermuda Solvency Capital Requirement (BSCR). These terms may be used interchangeably. These standards apply to a large portion of the global life insurance market and were chosen to give the reader a better understanding of how required capital varies by jurisdiction, and the impact of the measurement method on life insurance company capital.
All of these approaches are similar in that they identify key risks for which capital should be held (e.g., asset default and market risks, insurance risks, etc.). However, they differ in significant ways too, including their defined risk taxonomy and risk diversification / aggregation methodologies, as well as required minimum capital thresholds and corresponding implications. Another key difference is that the US’s RBC methodology is largely factor-based, while the other methodologies are model-based approaches. For the model-based approaches, Solvency II and BIS allow for the use of internal models when certain conditions are satisfied. Another difference is that the RBC methodology is largely derived using book values, while the others use economic-based measurements.
As mentioned above, this paper provides a model that calculates the capital requirements for each jurisdiction. The model is used to compare regulatory solvency capital using identical portfolios for both assets and liabilities. For simplicity, we have assumed that all liabilities originated in the same jurisdiction as the calculation. As the objective of the model is to illustrate required capital calculation methodology differences, a number of modeling simplifications were employed and detailed later in the paper. The model considers two products – term insurance and payout annuities, approximately equally weighted in terms of reserves. The assets consist of two non-callable bonds of differing durations, mortgages, real estate, and equities. Two alternative scenarios have been considered, one where the company invests in riskier assets than assumed in the base case and one where the liability mix is more heavily weighted to annuities as compared to the base case.
Author(s): Ben Leiser, FSA, MAAA; Janine Bender, ASA, MAAA; Brian Kaul
The Term Guy’s hobby is collecting antique insurance books. Here we’ve scanned many of our out of copyright books for your enjoyment and perhaps research purposes. Stay tuned, more books coming as I have time to scan them!
We have extracted table data from many of these books and made the information available as excel spreadsheets. In the download of spreadsheets we have also included a high def image of each of the pages containing the tables. The image filename for each page and the excel spreadsheet have the same name, i.e. image0001.jpg.xlxs contains table data from image0001.jpg. You may download and use the data unrestricted, but we would ask that you consider giving us a link from your website so that others can find this information as well.
Traditionally, many life insurance agents, brokers and advisors have preferred to operate as independent contractors to benefit from the federal income tax rules for self-employed people and to enjoy the privilege of not having a boss.
But some financial professionals have argued that they would be better off if life insurers classified them as employees. In 2009, for example, three former Northwestern Mutual Life representatives sued in a federal court in California over allegations that the company had deprived them of FLSA protections by classifying them as independent contractors.
In 2019, representatives for Uber drivers and other gig workers persuaded California lawmakers to pass Assembly Bill 5, legislation that established a broader definition of “employee” for California employers.
Federal efforts: The National Association of Insurance Commissioners and other agent and broker groups joined with the American Council of Life Insurers to oppose efforts by members of Congress to set a federal definition for employee that would be similar to the California definition.
During the administration of former President Donald Trump, the Labor Department tried to address the concerns about worker classification by adopting a new, shorter “core factors” test. Those regulations took effect in January 2021.
In October 2022, after Joe Biden became president, the department announced in a notice that it was planning to rescind and replace the new regulations because the new regulations were not fully compatible with the FLSA and conflicted with decades of court decisions based on the economic reality test.
As consumers, regulators, and stakeholders demand more transparency and accountability with respect to how insurers’ business practices contribute to potential systemic societal inequities, insurers will need to adapt. One way insurers can do this is by conducting disparate impact analyses and establishing robust systems for monitoring and minimizing disparate impacts. There are several reasons why this is beneficial:
Disparate impact analyses focus on identifying unintentional discrimination resulting in disproportionate impacts on protected classes. This potentially creates a higher standard than evaluating unfairly discriminatory practices depending on one’s interpretation of what constitutes unfair discrimination. Practices that do not result in disparate impacts are likely by default to also not be unfairly discriminatory (assuming that there are also no intentionally discriminatory practices in place and that all unfairly discriminatory variables codified by state statutes are evaluated in the disparate impact analysis).
Disparate impact analyses that align with company values and mission statements reaffirm commitments to ensuring equity in the insurance industry. This provides goodwill to consumers and provides value to stakeholders.
Disparate impact analyses can prevent or mitigate future legal issues. By proactively monitoring and minimizing disparate impacts, companies can reduce the likelihood of allegations of discrimination against a protected class and corresponding litigation.
If writing business in Colorado, then establishing a framework for assessing and monitoring disparate impacts now will allow for a smooth transition once the Colorado bill goes into effect. If disparate impacts are identified, insurers have time to implement corrections before the bill is effective.
Bank loans were one of the fastest-growing asset types in 2022 for U.S. insurers, increasing by 21% to $117 billion in book/adjusted carrying value (BACV) from $97.2 billion in 2021.
Despite the double-digit growth, bank loans were under 2% of U.S. insurers’ total cash and invested assets at year-end 2022, and about 75% were acquired in market transactions; the remaining 25% were issued by the reporting entities.
Large life companies, or those with more than $10 billion in assets under management, accounted for almost 80% of U.S. insurers’ bank loan exposure, up from 74% in 2021; the top 10 insurance companies accounted for 60% of U.S. insurers’ total bank loan exposure at year-end 2022, up from 54% in 2021.
There was continued improvement in credit quality for U.S. insurer bank loans, evidenced in part by a decrease in those carrying NAIC 4 Designations—i.e., implying a B credit rating—to 26% of total bank loans in 2022 from 33% in 2021, and countered by an increase in bank loans carrying NAIC 1 Designations to 24% in 2022 from 18% in 2021.
Total U.S. leveraged bank loan volume was about $1.7 trillion in 2022, representing a 2% increase from 2021.
Biden’s efforts to produce more inflation are nonstop, 24×7. His latest move is a set of regulations to force people into Obamacare despite the fact a District Court already ruled against his proposed regulations.
Biden Attempts to Make Healthcare Even More Expensive
To understand what Biden wants to do, and why the Supreme Court is likely to smack it down, we need to review a District Court ruling from 2020.
Behold the President’s plan to limit short-term health insurance plans in order to jam more consumers into the heavily subsidized and regulated ObamaCare exchanges. The Health and Human Services, Labor and Treasury Departments on Friday proposed rules to roll back the Trump Administration’s expansion of short-term, limited-duration insurance (STLDI) plans. Since 2018 these plans have been available in 12-month increments, and consumers have been able to renew them for up to 36 months.
These plans are especially attractive to young people whose employers don’t provide coverage. Why would a healthy 26-year-old want to pay for maternity, pediatric and other services he probably won’t use in the near future?
The Inflation Reduction Act sweetened ObamaCare’s insurance premium tax credits that are tied to income. As a result, a 60-year-old making just above four times the poverty level has to pay only 8.5% of his income toward his insurance premium while the government picks up the rest. If premiums increase, government is on the hook for more.
That was back in 1993 when the book on “how personal injury litigation has become a costly game to you’ came out so these quotes may be outdated in their numbers.
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The Insurance Information Institute estimates that 40 percent of all medical malpractice insurance is written through companies owned by doctors. (page 88)
Litigation is necessary to help the litigants acquire the information necessary to settle cases and to resolve questions of injury, liability, value and law….I estimate that no more than ten percent of the lawsuits currently filed need information that can be obtained only through the deposition process. However, once the information has been obtained, usually within a matter of a few months after the filing, most of these cases should settle. (page 114)
In the less regulated or unregulated states, the insurance rates are lower because the companies can compete freely. The problem is not the insurance companies ripping off the public but the stifling regulations. (page 123)
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“The most blatant examples of misguided regulatory involvement in automobile insurance prices occurred in Massachusetts and New Jersey”. Jean C. Hiestand, the V.P. General Counsel of State Farm Insurance Company, in Competition And the Rating Laws: Do They Make A Difference? “They not only pay the highest rates but a large percentage are in the involuntary markets”. (page 149)
Many states do not allow insurance protection for punitive damages because punitive damages are to punish you for conduct beyond ordinary carelessness….Where punitive damages are sought, you have read that juries sometimes find against an innocent person or company for large sums. Worse yet, such debt is not dischargeable in bankruptcy. (page 189)
I spoke to Rex Frazier, president of the Personal Insurance Federation of California, who cited several policies that no doubt contributed to State Farm’s decision to stop issuing policies, including various price controls that prevent insurers from raising prices to meet surging costs without the written approval of the California Department of Insurance.
“California is the only state in the country that doesn’t allow insurers’ rates to be based upon actual reinsurance costs,” Frazier said. “California’s regulations employ a legal fiction that each insurer uses its own capital to serve customers. As reinsurance costs go up, insurers cannot have their rates reflect those higher costs.”
The Financial Stability Oversight Council — the federal agency in charge of keeping the U.S. financial system upright — wants to change a 2019 document that limits how it tries to keep problems at life insurers, money market funds, cryptocurrency firms and other nonbank financial companies from destroying the economy.
FSOC started a fight with life insurers and their regulators by designating companies such as MetLife and Prudential Financial as “systemically important financial institutions,” or companies needing extra oversight.
Life insurers argued that the SIFI designation process was unclear, arbitrary and unfair.
MetLife sued FSOC over its SIFI designation. A federal appeals court threw out MetLife’s designation in 2018.
FSOC withdrew the last designation of a nonbank company — Prudential Financial — in October 2018.
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FSOC says it needs more flexibility to address potential risks as early and as quickly as possible, and that comparing the potential benefits of focusing attention on a nonbank company to the potential impact on the company is not useful.
“This is in part because it is not feasible to estimate with any certainty the likelihood, magnitude or timing of a future financial crisis,” FSOC said. FSOC argued that, if it does prevent a financial crisis, it would save the country trillions of dollars.
FSOC noted that it consults with state regulators and federal regulatory agencies regularly, and that its own members are made up mostly of state and federal agency heads.
“The council expects that most potential risks to financial stability will continue to be addressed by existing regulators rather than by use of the council’s nonbank financial company designation authority,” FSOC said.
Figure 2 shows the incidence of cardiovascular disease and stroke in the male population.
This was derived from Gen Re’s Dread Disease experience study covering the period 2012–2015 and 2015–2019 for Hong Kong, Singapore and Malaysia. As per the analysis from the leading insurance companies of the respective market, 43% of men in Singapore, 40% of men in Malaysia and 26% of men in Hong Kong had critical illness claims due to cardiovascular disease and stroke between 2015 and 2019. When compared with the 2012–2015 analysis, it was noted that there is an increase in claims by 3% in Singapore, 10% in Malaysia and 1% points in Hong Kong, which may be associated with overweight and obesity or simply an older portfolio.
Due to increases in body weight and medical complications, insurance companies may be confronted with increasing claims which will impact their profitability. To mitigate this cost, insurance companies may have to increase the premium so as to commensurate with this rising claim cost. This increase in price will impact on the healthy population.
Health insurance premium has doubled in the past 10 years, but it is unclear how much of this premium is sufficient to cover the financial burden of the obesity pandemic. The evaluation of existing and developing new health coverages related to obesity-related conditions is an important consideration for the profitability of the health insurance providers.14
As corporate bonds are mainly fixed rate, their relative value will decrease as floating rate investments become more attractive with higher benchmark rates. That is, bond prices will fall as yields rise to make them more attractive, given that their fixed-rate coupons will be lower. About half of insurer bond investments are corporate bonds, and the vast majority of U.S. insurer corporate bond investments are investment grade credit quality. From January 2022 to January 2023, the ICE Bank of America (BofA) Investment Grade Corporate Bond Index, which measures the performance of investment grade corporate debt, was down by about 14%.
Corporate bond yields have increased significantly since the beginning of 2022 with rising interest rates and widening credit spreads. As of year-end 2022, investment grade and high-yield corporate bond yields averaged 5.5% and 8.9%, respectively (refer to Table 1). Investment grade yields increased by approximately 270 bps during 2022, while speculative-grade yields increased by about 370 bps.
Author(s): Jennifer Johnson and Michele Wong
Publication Date: 23 Feb 2023
Publication Site: NAIC Capital Markets Special Report
