july 2013 inside this issue · vate equity-backed en es and hedge funds in managing life and...

July 2013 | CIPR Newsle er

JULY 2013

Eric Nordman CIPR Director 816-783-8232

[email protected]

Kris DeFrain Director, Research & Actuarial

816-783-8229 [email protected]

Shanique (Nikki) Hall Manager, CIPR 212-386-1930 [email protected]

Dimitris Karapiperis Research Analyst III


Anne Obersteadt Senior Researcher


NAIC Central Office Center for Insurance Policy and Research 1100 Walnut Street, Suite 1500 Kansas City, MO 64106-2197 Phone: 816-842-3600 Fax: 816-783-8175 h p://cipr.naic.org

Private Equity and Hedge Funds Seek to Move into the Insurance Arena 2 The NAIC Financial Analysis (E) Working Group recently noted the increased interest by pri-vate equity-backed en es and hedge funds in managing life and annuity investment assets. Another trend making headlines is the recent establishment of several hedge fund-backed, offshore reinsurers. This ar cle will examine these two growing trends and discuss some of the key regulatory concerns. Focusing on Flood Insurance and Implementa on of the Biggert-Waters Flood Insurance Reform Act of 2012 6 In July 2012, the U.S. Congress passed and President Barack Obama signed into law the Big-gert-Waters Flood Insurance Reform Act of 2012, which reauthorized the Na onal Flood In-surance Program through Sept. 30, 2017, and made a number of reforms aimed at making the program more financially and structurally sound. This ar cle focuses on implementa on of the changes required by the legisla on over the coming year. Re rement: Will You Need a Golden Egg for Your Golden Years? 8 Sound planning for re rement is complicated, and lack of planning can prove disastrous. This ar cle will examine how the median re rement age has been steadily increasing and some of the factors behind this trend. The ar cle will also discuss in great detail some of the tradi-

onal and emerging re rement products available to help plan for re rement. Insurance Consumers with Demen a: Regulatory Implica ons 16 Demen a is something we hear a lot about in the news and con nues to be a growing issue in many realms, including the insurance industry. This ar cle will bring a en on to some of the issues surrounding the sale of insurance and/or annuity products to seniors with demen a. The Rela onship of Insurance Ac vity and Economic Growth 18 The insurance industry is recognized as an important part of the financial services sector and an essen al component of economic growth. The aim of this ar cle is to explore the role the insurance industry plays in the overall economy and track the rela onship between the in-dustry’s performance and economic stability and growth. CIPR Symposium Explores Health Care Reform Issues 24 The CIPR recently hosted a symposium tled, “Health Care Reform – Tools for Oversight and Assistance in the New Marketplace.” A primary objec ve of the symposium was to review and discuss many of the tools and resources available to assist with the Web-based insurance mar-ketplaces. This ar cle provides an overview of the most per nent topics of the symposium. NAIC’s SVO Regulatory Treatment Analysis Service 28 In addi on to monitoring the solvency of insurers as an important consumer protec on, state insurance regulators also monitor the general insurance and financial markets in which their insurers par cipate and are impacted. This ar cle will discuss how the NAIC Securi es Valua on Office (SVO) aids in both of these monitoring processes as well as an overview of their Regulatory Treatment Analysis Service. NAIC Research and Actuarial Department: Data at a Glance 29

Inside this Issue

2 July 2013 | CIPR Newsle er

P E H F S M I A

By Michele Lee Wong, NAIC Capital Markets Bureau Manager, and Ryan Couch, NAIC Reinsurance and Surplus Lines Manager I The NAIC Financial Analysis (E) Working Group (FAWG), which coordinates mul -state efforts in addressing solvency problems, including iden fying adverse industry trends, recently noted the increased interest by private equity-backed en es and hedge funds in managing life and annui-ty investment assets, either through the acquisi on of life insurers or the reinsurance of life and annuity risks. This growing trend, which has been the subject of recent news ar cles, was highlighted in a memorandum from FAWG to its parent Financial Condi on (E) Commi ee earlier this summer. The memorandum outlines related concerns and provides poten al considera ons on how to approach the issue from a regulatory perspec ve. The E Commi ee was suppor ve of FAWG’s ini al recommenda ons and recently agreed to establish a new working group to look at the issue more closely. The working group will consider, inter alia, the development of procedures and best prac ces that regula-tors can use when considering ways to mi gate or monitor associated risks. Another trend making headlines is the re-cent establishment of several hedge fund-backed, offshore reinsurers. This ar cle will examine these two growing trends and discuss some of the key regulatory concerns. P E F A L I

A B B In recent years, a non-tradi onal acquirer of life insurance and annuity businesses has emerged. Private equity-backed en es have entered into the U.S. life insurance market primarily via acquisi ons but also through reinsurance agreements. With the protracted low interest rate environ-ment and increasing capital requirements pressuring earn-ings and profitability, some life insurers have opted to exit certain underperforming segments or blocks of businesses, in par cular fixed annui es. However, these assets have been a rac ng non-tradi onal, financial buyers such as private equity-backed companies―who are seeking to re-duce their reliance on leveraged takeovers and believe they can manage the assets more effec vely with more aggres-sive investment strategies―rather than tradi onal, strate-gic buyers such as other insurance companies. Athene Holding, Ltd. (Athene), which is affiliated with Apol-lo Global Management LLC, will become the second largest issuer of fixed indexed annui es in the United States, a er closing the acquisi on of Aviva plc’s U.S. annuity and life opera ons (Aviva USA) later this year.1 In connec on with this acquisi on, Athene has agreed to sell, through a rein-

surance arrangement, Aviva USA’s life insurance business to Commonwealth Annuity and Life Insurance Co.―a wholly owned subsidiary of Global Atlan c Financial Group (formerly the Goldman Sachs Reinsurance Group). Athene has been ac ve in making acquisi ons of companies and blocks of business in the fixed annuity market since 2009. According to a Moody’s Investors Service (Moody’s) report dated May 2013, Athene has completed six fixed annuity acquisi ons since that me by either directly purchasing a life insurance company or reinsuring a block of business. Guggenheim Partners (Guggenheim), through its Delaware Life Holdings affiliate, has also been an ac ve player in this space. In December 2012, Guggenheim agreed to purchase Sun Life Financial’s domes c U.S. annuity business and cer-tain life insurance businesses. The annuity business includes both fixed and variable annui es―marking the first me that Guggenheim has ventured away from fixed annui es and into the variable annuity market. Harbinger Capital Partners (Harbinger), a private investment firm specializing in event/distressed strategies, has also ventured into the fixed annuity space. Harbinger agreed to purchase the fixed annuity business of Fidelity & Guaranty Life in August 2010, but has not made any recent acquisi ons. Although private equity firms are well known for their in-vestment exper se, they generally have a higher risk toler-ance and invest more aggressively than a typical life insurer. For example, life insurers’ investment por olios are typical-ly more weighted toward less risky and more stable invest-ments (such as government securi es, investment grade corporate bonds and/or municipal bonds), while private equity-backed en es tend to invest more heavily in riskier and more vola le investments (such as high-yield bonds and structured securi es, which include residen al and commercial mortgage-backed securi es). In addi on, investors have varying investment horizons and investment strategies depending on their goals and objec-

ves. For instance, life insurers typically engage in a “buy and hold” investment strategy focused on the yield or aver-age rate of return earned if a security is purchased today and held to maturity. Because they tradi onally sell long-tailed products in which claims on the policy are not ex-pected to be filed for a long period of me, life insurers have a longer-term investment horizon. They focus on asset

(Continued on page 3)

1 The New York Department of Financial Services recently expressed concern over this transac on. See: Spector, Mike and Scism, Leslie, “New York Regulator Targets Insurer Deal,” Wall Street Journal, July 15, 2013.

July 2013 | CIPR Newsle er 3

P E H F S M I A (C )

-liability management, as much as possible, closely match-ing their assets’ dura on to that of their longer-term liabili-

es so that the cash flow streams of the investments are synchronized with when liabili es become due. Life insurers are generally less sensi ve to market value fluctua ons as long as their assets and liabili es are proper-ly matched. Statutory accoun ng requirements―in which life insurers generally report bond investments at amor zed cost, subject to valua on requirements for impair-ments―are well aligned with insurers’ “buy and hold” in-vestment strategy. A typical life insurers’ longer-term in-vestment horizon also fits in nicely with the regulatory risk-based capital (RBC) framework and the model that is u -lized to determine asset risk charges, as it assumes a 10-year me horizon (or holding period). Private equity-backed life insurance companies, on the oth-er hand, are likely to invest on a total return basis―the per-centage gain (or loss) on a security based on the purchase price plus any interest, dividends or other income that may have been received or accrued―in a similar fashion to their parent or affiliated sponsor. Total return investors ac vely trade in and out of securi es with a short-term view of max-imizing capital apprecia on and income. Their focus is more so on risk-adjusted rela ve value―where the a rac veness of an investment is measured in terms of risk, liquidity and return rela ve to another investment―more so than asset liability management. This might possibly lead to an asset/liability mismatch and might result in a ming issue where-by the insurer runs the risk of being forced to sell an invest-ment at an inopportune me to meet an upcoming liability payment. In addi on, a private equity-backed insurer’s fo-cus on market value and shorter-term inves ng is incon-sistent with the basis of amor zed cost in statutory ac-coun ng and the me horizon assump ons for bond invest-ments in the RBC framework, respec vely. Private equity firms can have a number of different financial businesses under its umbrella, such as asset managers, bro-ker-dealers or reinsurers, among others. There is, therefore, the poten al for intercompany transac ons with affiliates that could result in taking cash out of the insurance compa-ny. If the affiliated asset manager is hired to manage the assets of the insurance company, the insurer would have to pay a management fee for this service. The management fee should be reasonable and comparable to what others in the market are paying. Some mes, the asset manager might opt to hire a sub-manager to invest in a specific asset class that it does not have exper se in, crea ng the poten-

al for addi onal management fees.

It should also be noted that if the affiliated asset manager invests in funds or transac ons managed by the private equity sponsor, there might be addi onal fees charged. Furthermore, buy or sell transac ons with an affiliated bro-ker-dealer might also generate more fees. All of these lay-ers of poten al fees would result in cash being extracted out of the insurer and reduce the amount of cash available to meet future liabili es. Affiliated transac ons should be monitored closely, with regular repor ng of intercompany transac ons and/or targeted exams of investment por oli-os, or prohibited altogether if determined prudent to do so. Other intercompany transac ons that can result in taking cash out of the insurance company is the purchasing and selling of securi es with another account managed, main-tained or trusteed by the asset manager. The concern is that a transac on will be executed at a price other than the current market price, resul ng in a poten al conflict of in-terest. Although this raises concerns, adequate safeguards ―such as requiring the documenta on of at least two bro-ker quotes from unaffiliated broker-dealers for each trans-ac on―can be put in place to ensure that intercompany transac ons are executed at arm’s-length. Although private-equity backed life insurers might follow different investment strategies than tradi onal life insur-ance companies, they can likewise effec vely manage their assets to meet future liabili es. However, there are some concerns related to their differing investment strate-gies―which could poten ally lead to addi onal investment risks, as well as a ming issue, with mee ng their fixed guaranteed liabili es―and the poten al for intercompany transac ons―which could lead to cash being extracted out of the insurance company. These concerns can be mi gated somewhat with be er transparency and adequate safe-guards, such as regular monitoring and repor ng. The re-cent trend of non-tradi onal acquirers of life insurance as-sets is expected to persist if tradi onal insurers con nue to opt for exi ng certain fixed annuity businesses given the protracted low interest-rate environment. H F -B R Over the past several years, hedge funds have primarily sought investment into the reinsurance market through alterna ve, or non-tradi onal, risk-transfer structures (e.g., catastrophe bonds or other insurance-linked securi es, col-lateralized reinsurance vehicles, sidecars, etc.), or by taking equity posi ons in holding companies that have reinsurance opera ons within the group. Over the past several months, substan al amounts of capital have been flowing into the non-tradi onal risk transfer space from hedge funds and




other ins tu onal investors (e.g., pension funds, private equity, sovereign wealth funds, etc.). The primary a rac on to this market appears to be diversifica on from inves ng in a rela vely uncorrelated asset class that is currently providing a favorable yield when compared to other invest-ment op ons. In addi on to the third-party capital surging into the non-tradi onal risk transfer market, several hedge fund manag-ers have recently demonstrated an increased interest in the tradi onal reinsurance market. Specifically, four start-up reinsurers backed by hedge funds were established in Ber-muda during 2012. These include: • Third Point Re ($780 million) – established in January

2012 by John Berger, former chief execu ve of Harbour Point.

• AQR Re ($260 million) – established in January 2012 by AQR Capital Management.

• PaCRe ($500 million) – established in April 2012 by ex-ecu ves of Paulson & Co.

• SACRe ($500 million) – established in July 2012 by SAC Capital Advisors.

Each case essen ally consisted of capital being sent to Ber-muda to establish the reinsurance en ty, and then sent back to the United States in order for the hedge fund to manage the respec ve reinsurer's investment por olio. Tradi onal reinsurers generally maintain rela vely con-serva ve investment por olios due to the underwri ng risks inherent in their insurance/reinsurance business. In contrast to the tradi onal model, it is understood that the-se hedge-fund backed reinsurers intend to take on more risk within their investment por olio, while assuming less risk from an underwri ng perspec ve. In other words, they are seeking to deploy less of their available capital to under-wri ng risks as compared to other tradi onal reinsurers (and, in many cases, assume reinsurance business with more predictable underwri ng results), while being ex-posed to the poten al for less-predictable, more vola le results from their invested assets. Naturally, there are ques-

ons as to whether the hedge-fund approach to inves ng aligns with the tradi onal reinsurance model. According to a Bloomberg ar cle published in February 2013, the first prominent hedge fund to establish a Bermu-da-based tradi onal reinsurer was Moore Capital Manage-ment LP in 1999 with the forma on of Max Re Capital Ltd. The ar cle notes that, while it was ini ally intended for Max Re to invest heavily in the hedge fund, the reinsurer never invested more than 40% of its assets in hedge funds, and

currently invests less than 5% in such funds. A few years later, in 2006, Greenlight Capital Inc. established Greenlight Capital Re Ltd. (Greenlight Re) in the Cayman Islands. Green-light Re, which became a publicly traded company in 2007, has successfully employed the hedge fund-backed reinsurer strategy since that me. However, a recent ar cle published by the website Artemis.bm highlights some of the poten al risk for increased vola lity in a hedge fund-backed reinsur-er's investment por olio. According to the ar cle, Green-light Re incurred investment losses of $52.2 million, or 4.4% of the value of its investment por olio, in the fourth quarter of 2012. From the hedge funds’ perspec ve, inves ng directly in a tradi onal reinsurer provides diversifica on within its over-all investment strategy through exposure to a largely uncor-related risk via reinsurance underwri ng. This strategy also provides the hedge fund with a steady inflow of investable cash from the reinsurance premiums collected by the rein-surer, along with fee revenue and a stable pool of assets under management through the investment management arrangement. U lizing a Bermuda based en ty reportedly provides certain tax advantages, as well. The Bloomberg ar cle referenced in the previous paragraph ques oned the legi macy of three of these arrangements, sugges ng that the primary purpose of the transac ons was to exploit a tax loophole, resul ng in reduced and delayed payment of U.S. income taxes by the hedge funds. Industry representa ves, regulators and gov-ernment representa ves from Bermuda strongly rebu ed that argument, in part by no ng that these reinsurers are subject to the same regula on, oversight and repor ng as other Class 4 Bermuda-domiciled reinsurers, and that Ber-muda has worked with the United States for many years in the area of tax coopera on. A.M. Best highlighted the developments related to hedge fund-backed reinsurers in a special report from December 2012. The report indicates that A.M. Best has now added “hedge fund-backed reinsurers” as a fourth category it tracks within the Bermuda market. The report also discusses how these reinsurers plan to take a different approach to the reinsurance market by seeking to balance opportuni es between the underwri ng and investment sides of the busi-ness depending on the respec ve market condi ons. A.M. Best suggests that this model is not likely the new reinsur-ance model for the future, but notes it may have its niche for some me.




A.M. Best has rated at least three of the four reinsurers men oned above as A-, based, in part, on the fact these reinsurers deploy less of their available capital to the under-wri ng side of the business than other tradi onal reinsurers in an effort to offset the increased risk taken on within their investment por olios. According to a recent ar cle in Glob-al Reinsurance, this model is being reconstructed to fulfill the needs of the investment community. SACRe chief exec-u ve Simon Burton is quoted in the ar cle as saying, “The investment community is clearly sending us a message that they are dissa sfied with the packaging of reinsurers.” From the U.S. regulatory perspec ve, state insurance regu-lators remain focused on the ability of an insurance compa-ny to pay claims. While these en es are not directly super-vised by state insurance regulators, it is likely that these reinsurers will assume business from U.S. ceding insurers. With respect to reinsurance, state insurance regulators are primarily concerned with the solvency of U.S.-domiciled ceding insurers, the poten al impact that reinsurance agreements have on their financial condi on, and ul mate-ly, the poten al impact to insurance consumers. With any reinsurer assuming business from a U.S. ceding insurer, the primary regulatory concern is with the quality of reinsur-ance protec on provided; i.e., that the reinsurer is willing and able to meet its obliga ons to U.S. ceding insurers when called upon to do so. Reinsurance is essen ally a con-tractual promise that a reinsurer will indemnify a ceding insurer for losses the ceding insurer incurs with respect to its underlying policies. In many cases, the reinsurer is not called upon to fulfill that promise un l many years a er the contractual obliga on is created. Without having any specific informa on regarding the in-vestment por olios of offshore reinsurers, a logical concern with any reinsurer is that it has the assets available to suffi-ciently meet its obliga ons when those assets are needed.

While no NAIC commi ee or working group has specifically discussed this development or taken any posi on with re-spect to these par cular hedge fund-backed reinsurers, gen-erally speaking, the poten al for increased vola lity within a reinsurer's investment por olio is a reasonable cause for concern as to the reinsurer’s poten al ability to meet its reinsurance obliga ons when they come due. U.S. state insurance laws regulate the credit for reinsurance a U.S. ceding insurer is allowed to reflect in its financial statements based on characteris cs of the reinsurer and the reinsurance contract itself. The U.S. regulatory framework includes substan al repor ng and disclosure requirements designed to monitor specific details with respect to U.S. ceding insurers’ counterparty exposures, and is designed to ensure that reinsurance agreements are transparently and accurately reflected in the statutory financial statements. It is cri cal for ceding insurers to effec vely manage their ex-posure to reinsurance counterparty risk, and it is equally important for insurance regulators to evaluate whether ced-ing insurers are doing so in an acceptable manner. The U.S. system does include certain mechanisms that have been developed in an effort to minimize this risk (e.g., col-lateral requirements applicable to reinsurance ceded to unauthorized reinsurers, and a new cer fica on process for reinsurers domiciled in qualified jurisdic ons in accordance with the recent revisions to the NAIC credit for reinsurance models).2 The NAIC and state insurance regulators will con-

nue to monitor these developments in the reinsurance market in an effort to address any concerns.

2 Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regu-la on (#786).


F F I I B -W F I R A 2012

By Sara Robben, NAIC Sta s cal Advisor and Brooke Stringer, NAIC Financial Policy and Legisla ve Advisor While state insurance departments regulate most types of insurance, the Na onal Flood Insurance Program (NFIP) is a federal program administered by the Federal Emergency Management Agency (FEMA). In July 2012, the U.S. Con-gress passed and President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), which reauthorized the NFIP through Sept. 30, 2017, and made a number of reforms aimed at making the program more financially and structurally sound.1 Over the past year, a few of the provisions of BW-12 have been implemented, while others are being phased in over

me. The purpose of the legisla on is to change the way the NFIP operates and to raise rates to reflect true flood risk, as well as make the program more financially stable. BW-12 also involves changes regarding how Flood Insurance Rate Map (FIRM) updates impact policyholders. These changes will affect some� but not all� policyholders over

me. This ar cle focuses on implementa on of the changes required by the legisla on over the coming year. BW-12 K P R S C The first change resul ng from BW-12 was the crea on of an addi onal exemp on to the 30-day wai ng period for insurance coverage for private proper es affected by flooding from federal lands. This provision took effect shortly a er BW-12 was signed into law in July 2012. Sec-

on 100241 of BW-12 addresses property owners affected by flooding on federal land caused, or exacerbated by, post-wildfire condi ons. Under these circumstances, an excep on to the 30-day wai ng period is implemented for a policy purchased not later than 60 days a er the fire containment date.2 In light of the many wildfires in the United States in recent years, this change may prove to be important. Following this change, FEMA next began working on insur-ance premium adjustments designed to strengthen the fi-nancial solvency of the NFIP, as required by Sec on 100205 of BW-12. Beginning Jan. 1, 2013, a 25% increase in premi-um rates per year was put into place, and the increase is to con nue un l premiums reflect full-risk rates. This increase in premium rates affects homeowners with subsidized in-surance rates on non-primary residences. The increase also affects structures built prior to the first FIRM (pre-FIRM proper es), which receive subsidized rates. These are prop-er es that have not been substan ally damaged or im-proved. The phase out of subsidies affec ng non-primary

residences was also mandated by a previous NFIP extension bill that became law in May 2012.3 Sec on 100205 of BW-12 also addresses a phase-out of subsidies and discounts on flood insurance premiums for owners of business proper es with subsidized premiums; owners of severe repe ve loss proper es with subsidized premiums; and owners of any property that has incurred flood-related damage in which the cumula ve amounts of claim payments exceeded the fair market value of such property. These proper es will begin seeing a 25% increase in premium rates each year un l premiums reflect full risk rates. This subsidy phase-out is set to begin Oct. 1, 2013.4 Although BW-12 requires the elimina on of subsidies and discounts on flood insurance premiums, it also addresses policies that have lapsed or were not purchased prior to the enactment of the law. Beginning Oct. 1, 2013, full-risk rates will apply to owners of proper es that meet these criteria.5 BW-12 further requires the phase-out of subsidies and dis-counts on all flood insurance premiums. Sec on 100207 of BW-12 phases out grandfathered rates and moves to risk-based rates for most proper es when a community adopts a new FIRM. If a community adopts a new, updated FIRM, grandfathered rates will be phased out.6 These premium increases will be implemented in late 2014. To find out how a certain state will be affected, the NFIP has provided a Web page7 that shows the number of subsidized flood insurance policies by state and by county. Zooming out and then clicking on a state will provide a pop-up of the state breakdown of policyholders, and zooming in un l the county outlines appear will provide the breakdown for spe-cific coun es. Preliminary flood maps can be found at h p://hazards.fema.gov/femaportal/prelimdownload. In addi on to the premium changes, another provision in BW-12 designed to increase the fiscal soundness of the NFIP requires FEMA to build up a reserve fund to help cover loss-es in higher-than-average years. Most policyholders will see a new charge on their premiums to cover the reserve fund assessment. Ini ally, there will be a 5% assessment to all


1 For addi onal informa on on BW-12 please see: “Biggert-Waters Flood Insurance Reform Act of 2012,” CIPR Newsle er, October 2012. www.naic.org/cipr_newsle er_archive/vol5_biggert-waters_flood_reform_act_2012.pdf 2 P.L. 112-141, Sec. 100241. 3 P.L. 112-141, Sec. 100205. 4 P.L. 112-141, Sec. 100205. 5 Ibid 6 P.L. 112-141, Sec. 100207. 7 h p://bit.ly.15FuKbQ


B -W F I R A 2012 (C )

policies except preferred risk policies (PRPs). The reserve fund will increase over me and will also be assessed on PRPs at a future date. R C A BW-12 I As BW-12 implementa on moves forward, cons tuent con-cerns over flood insurance premium increases have prompt-ed some in Congress to pursue legisla ve efforts to delay implementa on of some of these reforms. Lawmakers from the Gulf Coast and the East Coast areas affected by Super-storm Sandy have been par cularly ac ve on this issue. As of June 2013, a total of seven pieces of legisla on have been introduced in the U.S. House of Representa ves and the U.S. Senate to delay the phasing in of higher flood insur-ance rates as required by BW-12.

While none of these specific bills have advanced in either chamber, during considera on of the House fiscal year 2014 Department of Homeland Security Appropria ons bill (H.R. 2217), an amendment by U.S. Rep. Bill Cassidy (R-LA) was adopted by a vote of 281-146 to delay, for one year, imple-menta on of Sec on 100207 of BW-12. The Senate Appro-pria ons Commi ee has approved its Homeland Security Appropria ons bill and included the same language as the House. The Senate bill now awaits floor ac on by the full Senate. An annual appropria ons bill only covers one year, so this does not mean that FEMA would be permanently prohibited from implemen ng this provision. In addi on, the Senate Banking Commi ee is expected to hold a hear-ing this summer with FEMA’s Director Craig Fugate to dis-cuss the impact of implementa on of BW-12’s reforms.

Save the Date

CIPR SUMMIT:

EXPLORING INSURERS’ LIABILITIES

Tuesday, August 27, 2013

10:00 AM - 2:30 PM

During the NAIC Summer National Meeting in Indianapolis, IN

Please visit the CIPR Events Page for the latest information: www.naic.org/cipr_events.htm


R : W Y N G E Y G Y ?

to work in part- me posi ons as an employee or as an inde-pendent consultant becomes a win-win for both the compa-ny and the employee. The company slows costs of training and produc vity losses ed to turnover and the employee remains engaged and produc ve. This concept of phased re rement was introduced in the 1970s in Sweden and is a growing prac ce in the United States. The companies receive value in a reduced payroll without the accompanying loss of an employee’s exper se and experience. A recent Gallup survey found that many adults plan to con nue to work by choice or necessity when they re re (Figure 1). For seniors s ll trying to rebuild their re rement income, a phased re rement offers the ability to benefit from more me away from work while enjoying the security of a regular income. A recent survey by the Insured Re rement Ins tute (IRI) reported that the number of individuals age 65 and older s ll in the labor force was 17.9% in 2011, a sharp rise from 10.7% in 1986. Moreover, 34.9% of baby boomers surveyed in the study say they plan to con nue working past 65. A significant por on of this group (30.8%)―as well as those in the Genera on X (1966–1983) group (26.7%)―are unsure of when they will re re. Among workers age 50 and older, 38% expressed an interest in the phased re rement program, with 78% of those interested sta ng that such a plan would


By Cheryl Coffman, NAIC Sr. Data Management Specialist I When you hear the word “re rement,” it is easy to conjure up images of healthy, happy “young at heart” seniors relax-ing on a sunny beach watching their grandchildren build sandcastles or play games of chase with the undula ng surf; and of those same seniors tootling back and forth across the con nent in their Class A motorhome replete with their cuddly miniature Yorkshire terrier. For some, this scenario is a pillar of the American Dream and, for those lucky enough to have made it through the Great Recession of 2007 rela-

vely unscathed, these prospects are s ll within the realm of possibility. Sound planning for re rement is complicated, and lack of planning can prove disastrous. When it comes to re rement planning, the fact that so many Americans are not ade-quately prepared has been widely documented. This ar cle will examine how the median re rement age has been steadily increasing and some of the factors behind this trend. The ar cle will also discuss in great detail some of the tradi onal and emerging re rement products available to help plan for re rement. P R Planning for re rement takes on different a ributes, de-pending on where a person falls within the age-group me-line. Those in the depression baby (1926–1935), war baby (1936–1945) and some in the early baby boomer period (1946–1955) are in the stage where their goal is to manage withdrawal strategies from their por olio through the re-

rement years. The transi on boomers (1956–1965), who are currently on the cusp of re rement, are watching com-pany pensions disappear, feeling the impact of the financial crisis on their re rement funds, and seeing home equity plumme ng in value. Their main focus is to have guarantees in their re rement por olio rather than risk losing money in another market downturn. The memory of the recent Great Recession, along with be er health in the golden years, and the desire to remain ac ve and produc ve has spawned a new era for the transi-

on boomers: that of the “phased re rement” or “so re-rement.” Many companies have started to offer phased

re rement programs that allow employees to par ally re-re and draw on half of their earned re rement benefits,

but con nue to work part- me and earn pay. Stanley Con-sultants Inc. and the U.S. Office of Personnel Management are among those recognizing the benefit of retaining the vast experience of their more senior employees. Con nuing

F 1: U.S. A E ’ I W A R

Apr 7-11, 2011 Apr 4-14, 2013

% %

Will work, by choice 44 40

Will work, by necessity 36 35

Will work, unspecified why 1 1

Will stop working, by choice 15 19

Will stop working, by necessity 3 3

When you reach re rement age, do you think you will — [con nue working, and work full me, con nue working, and work part- me, (or) stop working altogether]? (Asked of those who will con nue working or stop working) And would you do that — [because you want to (or) because you will have to]?

No opinion 1 1

Source: Gallup.


R : W Y N G E Y G Y ? (C )

encourage them to work past their expected re rement age. More than six-in-10 boomers (64.4%) and seven-in-10 Gen Xers (70%) are an cipa ng that some form of work a er re rement will be a source of re rement income.1 Wells Fargo observed in a recent re rement survey that those in the younger genera ons, Gen Xers and early Mil-lennials (1984–1990) say paying off large student loans (which exceeded the $1 trillion mark as of the end of 20122) and other debts is their top concern. They are faced with the op on of either paying down crushing debt loads in the immediate future or saving for something that is much fur-ther down the road. This fact has long-term consequences for a genera on who, if the current trend con nues, are going to be solely, or at least primarily, responsible for what their re rement looks like. L The longevity variable adds another element of complexity to re rement planning. A well-known company is currently airing a television commercial focused on a huge wall do ed with hundreds of blue s ckers placed by people asked to show the age of the oldest person they’ve known. The purpose of the ad is to emphasize the need to have a financial plan in place for all of the years a er re rement�not just the immediate few. The sheer number of boomers entering into their “golden years” has garnered considerable a en on to the myriad issues surrounding re rement. According to the U.S. Census Bureau, in 1950, the 25.5 million members in the 55 and old-er age groups comprised about 17% of the U.S. popula on. By 2011, there were 79.5 million in this same cluster and the percentage increased to 25.5%. The Census Bureau projects this same age grouping to reach 87.4 million (or 26.8%) by 2015 and 97.8 million (or 28.7%) by 2020 (Figure 2). The fact is, it is a gamble to determine how long a person will live and every expert has their own opinion regarding that bet. Every situa on is different. According to the U.S. Social Security Administra on (SSA), a man reaching age 65 today can expect to live, on average, un l age 84, and a woman turning age 65 today can expect to live, on average, un l age 86. The SSA expects about one out of every four 65-year-olds today to live past age 90, and one out of 10 will live past age 95.3

T I A R … One of the cri cal decisions most people face regarding re rement is determining at what age to re re. Some have no choice because of company policies or illness or disabil-

ity. But the vast majority will have to look at their op ons and make an informed decision. One of the greatest risks in op ng for an early date is that some or all of their re re-ment benefits will be exhausted before the end of their life me, when they will be in the greatest need generally because of health issues and the inability to re-enter the workforce. A recent Gallup Economy and Personal Finance survey showed that the average U.S. re rement age is now 61, up from 57 two decades ago (see Figure 3 on the following page). The survey also reported that 66 is the average planned age for those in the non-re red fac on. A MetLife Mature Market Ins tute report (May 2013) stated that, of the 1,003 surveyed that were born in 1946, about 52% are fully re red, 21% are employed full- me, 14% work part-

me and 4% are self-employed. Of this group, the majority are planning to re re fully by the age of 71. P R When the SSA first started paying monthly benefits in 1940, it was never the inten on for those payments to comprise an individual’s en re re rement fund. It is important to re-member that Social Security allowances replace only about 40% of the pre-re rement income for an average worker,


F 2: U.S. P A G

0

5

10

15

20

25

30

35

40

45

50

1950 1960 1970 1980 1990 2000 2009 2010 2011 2015 2020

Mill

ions

55-64 65-74 75-84 85+

Source: U.S. Census Bureau.

1 Insured Re rement Ins tute, “Work and Re rement, Current Workers Expecta-ons vs. Re rees Real Experience,” September 2012. Retrieved at: h ps://

avectra.myirionline.org/eweb/images/Work%20and%20Re rement.pdf. 2 According to the Consumer Financial Protec on Bureau. 3 www.ssa.gov/planners/lifeexpectancy.htm. 4 www.gallup.com/poll/162560/average-re rement-age.aspx.


R : W Y N G E Y G Y ? (C )

while financial experts recommend at least 70% – 80% for a comfortable re rement. This significant gap emphasizes the importance of having addi onal pensions, savings and in-vestments; and, because the average baby boomer may spend 25 to 30 years in re rement, financial planners see this as more of an ongoing educa onal process than a point-in- me event. Solu ons should adapt as needs evolve through various phases of re rement. So, where do these addi onal funds come from? This is where each individual must set a goal and carefully assess their op ons to reach that objec ve. According to a recent Deloi e survey (2013), more than 58% of the general popu-la on currently does not have a formal re rement savings and income plan. This percentage increased to 70% among those who are not expec ng to leave the workplace for 15 years or more. Part of the issue is that many are simply not familiar with the variety of re rement product op ons available to them and have not made adjustments that truly reflect the in-creased cost of living or the decrease in their investment returns. Tradi onally, the rule of thumb was the 60/40 rule as re rement neared―60% stocks and 40% bonds―with a move to 80% bonds a er re rement. This was sufficient for older genera ons who lived 10 years or less in re rement. Now though, with the increasing number of years spent in re rement, that conserva ve approach does not keep up with the increasing rate of infla on compared to historically low interest rates.

Another issue that tends to fly under the radar is that of “orphaned” re rement plans. A person will typically work at seven different companies during their career and have a rela vely small 401(k) or other employer-sponsored ac-count they leave behind. Rather than rolling each account into a single Individual Re rement Arrangement (IRA) that they monitor, those individual funds o en languish un-touched since the last automa c-deposit contribu on and are generally off kilter with current investment mes. T R P Re rement plans come in all shapes and sizes, and new and innova ve products con nue to emerge as demographics change and workforce needs evolve. All products have their own strengths and weaknesses, and none offer the prover-bial silver bullet; none of them stand alone to completely address all re rement risks. Especially considering that eve-ryone’s situa on is different, there is not a one-size-fits-all solu on but, rather, a compendium of asset-alloca on and risk-management strategies. Defined Benefit Plans Defined benefit (DB) plans, commonly referred to as tradi-

onal pensions, are generally funded in total by the em-ployer with guaranteed automa c payout amounts deter-mined by an actuarial formula based upon an employee’s salary, tenure of service and vested interest. Benefits are distributed through a life me annuity, with equal periodic payments for the rest of the employee’s life.


F 3: A W A D R ? Among Adults who are Re red

Source: Gallup.


R : W Y N G E Y G Y ? (C )

In 1875, the American Express Company was the first to provide this remunera on and, by 1987, more than 232,000 private DB plans covered nearly 40 million workers. Even though the Pension Benefit Guaranty Corpora on (PBGC) reports that the number of private DB plans has decreased to around 26,000, there are s ll more than 40 million cov-ered workers.5 As investment op ons change and the com-plexity and cost of maintaining these plans rise, a decline in the number of plans is expected to con nue. In a DB plan, the employer bears the investment risk. If the plan assets are not adequate to pay benefits, the company is responsible for making up the shor all. If a company is liquidated in bankruptcy, the PBGC guarantees certain ben-efits. These benefits offer an annuity that can provide a life me payment stream ensuring re rees do not outlive their re rement benefit. Consequently, DB plans can be an integral component of a fixed, guaranteed and secure re-

rement plan. Although the number of DB plans con nues to decrease, the $2.6 trillion in assets6 are a significant share of this na on’s long-term capital, and the more than $169 billion paid out (2010) in benefits provides important re rement income to workers.7

Defined Contribu on Plans The most significant growth in the type of re rement plans has been in the defined contribu on category (Figure 4). A defined contribu on plan provides a means for both em-ployees and employers to contribute a steady stream of revenue into the employee’s re rement account. The em-ployee’s benefits during re rement depend on the contribu-

ons made to and the investment performance of the as-sets in the account, rather than on the employee’s years of service or earnings history. According to the U.S. Department of Labor, the number of par cipants in defined contribu on plans increased from 11.5 million in 1975 to more than 88.3 million in 2010 (Figure 5 on the following page) and plan assets have grown from $74 billion in 1975 to more than $3.8 trillion in 2010 (Figure 6 on the following page). Defined contribu on plans differ from DB plans mainly in employee involvement. The employee is not only primarily responsible for contribu ng monetary funds to the plan, but also for determining the types of investments toward which the funds are allocated. This allows each individual to make choices based on their personal risk aversion (e.g., high risk but poten al of high gain; low risk with lower returns but less chance of loss). Most funds have certain immediate tax


T R P Employment-based benefit programs have existed in the Unit-ed States since colonial mes and represent a partnership among businesses, individuals and the government. An em-ployer-sponsored qualified re rement plan is one that meets requirements established by the Internal Revenue Service (IRS) and the U. S. Congress. There are currently 15 classifica ons of plans that fall under these auspices: 1. Individual Re rement Arrangements (IRAs) 2. Roth IRAs 3. 401(k) Plans 4. 403(b) Plans 5. SIMPLE IRA Plans (Savings Incen ve Match Plans for

Employees) 6. SEP Plans (Simplified Employee Pension) 7. SARSEP Plans (Salary Reduc on Simplified Employee

Pension) 8. Payroll Deduc on IRAs 9. Profit-Sharing Plans 10. Defined Benefit Plans 11. Money Purchase Plans 12. Employee Stock Ownership Plans (ESOPs) 13. Governmental Plans 14. 457 Plans 15. 409A Nonqualified Deferred Compensa on Plans

F 4: N P P T P

Source: U.S. Department of Labor, Employee Benefits Security Administra on.

5 www.pbgc.gov/about/who-we-are.html. 6 www.ici.org/research/stats/re rement/ret_12_q4. 7 www.dol.gov/ebsa/pdf/historicaltables.pdf.


R : W Y N G E Y G Y ? (C )

advantages and some have the added benefit of employer matching contribu ons. One codicil is that the funds in these plans may not be with-drawn by the investor prior to reaching a certain age with-out incurring a substan al penalty. These IRA plans have defined contribu on limits set by the IRS, known as the Sec on 415 limit. The total 2013 deferral amount, including employee contribu on plus employer contribu on, is lim-ited to $51,000 or 100% of compensa on, whichever is less. The employee-only limit is $17,500 with a $5,500 catch-up for those over 50 years of age. These amounts generally increase each year and are indexed to compen-sate for infla on. Defined contribu on plans are also riskier for the employ-ees. The employee bears the full risk of underperforming assets and extended longevity. Employees do have the op-

on, however, of reducing the longevity risk by using those resources to purchase annui es at re rement as opposed to lump-sum withdrawals. Examples of defined contribu on plans include IRAs, 401(k) plans, 403(b) plans and 457 plans. • Roth IRA – The Roth IRA was introduced in 1996 as the

newest addi on to IRAs available to individuals. It differs from other IRAs in tax treatments in that contri-bu ons are made from a er-tax earnings and, there-fore, withdrawals are not subject to tax as ordinary in-come. Contribu ons to tradi onal IRAs are tax-

deduc ble, but not those made to a Roth IRA. Required minimum distribu ons are not required at age 70½ but are required in tradi onal IRAs. When a Roth IRA is funded by rolling over a tradi onal IRA, yearly contribu-

on limits do not apply to that ini al roll-over. This is commonly referred to as a “backdoor” Roth IRA.

• SEP IRA – The Simplified Employee Pension IRA (SEP

IRA) is a re rement plan vehicle for self-employed indi-viduals and their employees. The plan is less complex and, therefore, easier to manage than other IRAs. The employee must establish his/her individual tradi onal IRA to which the employer will deposit SEP contribu-

ons. One of the added benefits for employers is that contribu ons are discre onary, meaning they can skip contribu ons during those years when business is down. Contribu ons for employees cannot exceed the lesser of 25% of an employee’s compensa on or the maximum limit set for that year ($50,000 in 20128). Withdrawals are taxed as ordinary income the same as with a tradi onal IRA. The age 70½ withdrawal require-ment s ll applies.

• SIMPLE IRA – A Savings Incen ve Match Plan for Em-

ployees (SIMPLE) IRA and the SEP IRA are similar in that both are less complicated to set up and manage and, therefore, easier for self-employed individuals. The


F 5: N P P P T P


F 6: P P A T P


Mill

ions

Mill

ions

8 www.irs.gov/publica ons/p560/ch02.html


R : W Y N G E Y G Y ? (C )

employer must have 100 or fewer employees who earned at least $5,000 during the preceding year. With this plan, an employer is required to make yearly con-tribu ons.

• Tradi onal IRA – The tradi onal IRA is the most com-

mon type of IRA and, generally, the roll-over fund of choice when workers re re or change employers. When income falls below certain limits, contribu ons are tax-deduc ble, but are then viewed as pre-tax con-tribu ons and, therefore, subject to tax as ordinary income upon withdrawal. The minimum withdrawal at age 70½ is s ll applicable.

• 403(b) – The 403(b) plan is for ministers, certain public

school employees and employees of tax-exempt organ-iza ons established under Sec on 501(c)(3) of the In-ternal Revenue Code. This plan is established and main-tained by the eligible employee. Accounts under this umbrella can be one of three types: (1) an annuity con-tract provided through an insurance company (also known as tax-sheltered annui es, or TSAs); (2) a custo-dial account provided through a re rement account custodian (investments are limited to regulated invest-ment companies, such as mutual funds); and (3) a re-

rement income account, for which investment op ons are either annui es or mutual funds.

With this plan, the employee receives tax advantages through pre-tax contribu ons and tax-deferred earn-ings on contribu ons. Contribu ons made to a Roth 403(b) account enjoy the same tax-free withdrawal distribu ons as with a regular Roth IRA.

• 401(k) – The 401(k) is the most common type of de-fined contribu on plan. Each employee decides how much to contribute and the employer deposits that amount into the individual’s account on their behalf. The company serves as the plan sponsor but does not have anything to do with actually inves ng the money; rather, the employer contracts with another company to administer the plan and investments. The plan ad-ministrator could be a mutual fund company such as Fidelity, Vanguard or T. Rowe Price; a brokerage firm such as Schwab or Merrill Lynch; an insurance company such as Pruden al or MetLife; or a financial investment management firm such as Principal Financial. Each individual employee is then responsible for decid-ing how to invest their funds by choosing among the

op ons offered through the plan administrator. Em-ployee contribu ons are made with pre-tax dollars and are some mes matched up to a certain percentage by the employer.

E M The re rement income market con nues to evolve as de-mographics change and more investors work with the tech-nology available to research investments and manage their por olios. Investment plans are transforming, and hybrid forms combining the advantages of defined benefit plans with those of 401(k) plans are being developed to meet ever-changing needs. The two most common types of hy-brid plans are cash-balance plans and pension equity plans. The formula for these plans consists of compensa on credit and interest credit. Compensa on credits end a er an indi-vidual terminates employment, but interest credits con n-ue un l a par cipant withdraws their benefit. Cash balance plans are in the pipeline as a fast-growing alterna ve to tradi onal defined benefit plans. There were 1,227 ac ve cash balance plans in 2001. By 2007, the num-ber of ac ve plans expanded by 259% to 4,797. Although small compared to other types of plans, of significance is that, by 2010, there were more than 10.5 million par ci-pants in such plans and $777 billion in assets, compared to 41 million par cipants in DB plans, with $2.5 trillion in as-sets during the same period. IBM, AT&T, Boeing and Ford Motor Company are the largest holders of these plans, which combine the high contribu on limits of the DB pension with the flexibility and transferabil-ity of the 401(k). Companies are conver ng their DB plans in order to cap their pension liabili es. Some of the states are trying to follow suit, but state cons tu onality is causing some issues. Unlike 401(k) plans, which fluctuate with market returns, cash balance plans have a guaranteed return. The plan sponsor contributes money into an account based on a per-centage of the employee’s salary and a set interest credi ng rate represen ng a guaranteed rate of growth for each em-ployee’s balance. The rate is usually ed to the yield on the 10-year U.S. Treasury bond, but might be ed to a corpo-rate bond index. The plan’s trustees make all of the invest-ment decisions. Payout op ons from the cash-balance plan include a single-life annuity, a joint-and-survivor annuity or a lump-sum



R : W Y N G E Y G Y ? (C )

withdrawal. These plans can also be converted into 401(k) plans or IRAs if the par cipant leaves the company. As with tradi onal DB plans, the cash balance plans are backed by the PBGC. Pension equity plans have evolved to meet the changing worker demographic. Tradi onal defined pension plans were a boon to workers who remained with the same em-ployer throughout their work life. These plans typically base benefits on ves ng percentages and the salary in an em-ployee’s last years with the company and, thus, would pro-vide lower benefits for those employees who work in mul -ple jobs throughout their life me. The different career plans of younger and more mobile gen-era ons have led many employers to conclude that their re rement plans were not beneficial to these younger, more mobile workers. This was not conducive to a rac ng poten al valuable employees. The pension equity plan is a DB plan that builds cash value throughout a person’s work-ing life. These plans offer guaranteed benefits while ex-pressing remunera ons in terms of a current lump sum that employees can access when they leave their employer. This hybrid account differs from a defined contribu on plan in that it is a theore cal account that covers all workers in the plan. The employee receives credits each year based on age, service or a combina on of both. The plan determines the total benefits by providing a “schedule of percents” ac-cumulated throughout the work life of the employee. When

an employee leaves the employer, the accumulated per-centage is applied to final earnings to determine a lump-sum benefit. The ability of employees to know the current value of their plans is an advantage and there is no reduc on in benefits due to early re rement. This contrasts with the tradi onal DB plan, which specified periodic distribu ons as the amount available at normal re rement age. No such reduc on in benefit applies to the pension equity plan because credits are applied to the final earnings. This feature provides built-in infla on protec on. Regardless of whether an employee has just a few years of service required for ves ng or has worked under the plan an en re career, benefits are based on earnings at the end of the employee’s career. Con ngent Deferred Annui es (CDAs) are a new annuity innova on designed to offer longevity risk protec on. These annui es are similar to living benefit riders to variable annu-i es but, instead of protec ng funds or assets chosen by an insurer, the policyholder chooses the underlying investment vehicle, such as a 401(k), mutual fund or managed money account. The CDA establishes a life insurer’s obliga on to make periodic payments for the annuitant’s life me at the

me designated investments, which are not held or owned by the insurer, are depleted to a contractually-defined amount due to contractually permi ed withdrawals, market performance, fees or other charges.


Feature Pension Equity Plan Cash-Balance Plan

Benefit formula Percentage of earnings, may vary by age, service or earnings

Percentage of earnings, may vary by age, service or earnings

How benefits are accumulated Percentage of earnings, as determined by the benefit formula, are accumulated each year, but the final benefit is not determined un l the employee leaves the plan

Dollar amount (benefit formula mes earn-ings) placed in hypothe cal account each year; interest on account balance also credited each year

Defini on of earnings Total accumulated benefit applied to final earn-ings, as defined by the plan; final earnings typi-cally those in the last three to five years before re rement

Percent applied to each year’s earnings

How to determine value of benefits for current employees

Employees can mul ply their accumulated percent of earnings mes their final earnings as defined by the plan to determine their current benefit

Account balance is the current benefit

Distribu on Specified as a lump sum, but can be converted to an annuity

Specified as a lump sum, but can be converted to an annuity

C F P E P C -B P

Source: U.S. Bureau of Labor Sta s cs.


R : W Y N G E Y G Y ? (C )

The NAIC Life Insurance and Annui es (A) Commi ee charged the Con ngent Deferred Annuity (A) Working Group with evalua ng the adequacy of exis ng laws and regula ons as applied to CDAs and whether addi onal sol-vency and consumer protec on standards were required. At the 2013 Spring Na onal Mee ng, the CDA Working Group adopted a memorandum and recommenda ons for adop on by the A Commi ee regarding the future regula-

on of CDAs. The CDA Working Group concluded that: CDAs do not easily fit into the category of fixed or variable annuity and should have their own defini on; con nuing review of solvency and consumer protec on standards is appropriate; and tools to assist states in the review CDA product filings and solvency oversight of CDAs should be established. The Working Group also iden fied issues to be addressed by other NAIC commi ees and working groups with specific subject-ma er exper se. As with any new and evolving product, issues take me and effort to analyze and address, and well-defined benefits will not be apparent and measureable un l years of actual ex-perience accumulate. S C As the re rement landscape in America con nues to change, many of today’s older workers see this me as a whole new chapter in life, as opposed to a me to simply wind down. Buzzwords for this genera on of baby boomers are “reinvent” and “reimagine.” There is even a new AARP website launched in May 2013 geared specifically toward this concept: www.LifeReimagined.org. For the younger genera ons, this is a cri cal me for them, as well. Faced with the vola le investment and regulatory environment, prepara on for re rement is all too o en delayed when faced with the necessity of providing for im-mediate needs. Where the older genera ons looked for-ward to guaranteed pensions and Social Security benefits, those mainstays are falling by the wayside by leaps and bounds. Individuals are more-and-more totally responsible for accumula ng enough funds to last them through the lengthening golden years. As demographics change, so must the financial realm adapt to fit these transforma onal mes. New products will con-

nue to emerge and add their opportuni es to the mix. Financial ins tu ons will con nue to unbundle products in order to offer more choices to increasingly discerning con-sumers. Small businesses will join together to form mul ple

employer plans (MEPs) in order to be able to offer the same benefits to valuable employees as larger firms. The reality is that individuals must make a conscious and concerted effort to plan for their re rement. Myriad tools and op ons are available, but the cri cal component that remains is to get started. As a well-known sport brand pro-claims, “Just Do It.”

A CDA H T D P First, the CDA goes through an accumula on phase during which the amount of the CDA’s guaranteed annual pay-ment is determined. The amount of the CDA benefit is set as a percentage of the total assets in the separately man-aged account. As those assets increase in value (for exam-ple through investment gains or addi onal deposits), the CDA benefit amount increases. However, once a benefit amount has been set, the CDA guarantees that the benefit amount can never decrease due to investment losses. In other words, should the underlying assets decrease in value due to poor market performance, the CDA’s benefit amount does not decline. The second phase of a CDA is the withdrawal phase in which the par cipant begins to draw funds from the sepa-rately managed account most typically upon re rement. During the withdrawal phase no benefit payments are made under the CDA. The CDA contract sets a maximum periodic withdrawal amount that a par cipant may take. Withdrawals at or below those permi ed by the contract do not affect the benefit level established in the accumu-la on phase. However, should a par cipant withdraw funds above the contractually permi ed amount, the amount of benefits available under the CDA decreases, poten ally all the way to zero. The third and final phase is the payout or se lement phase. Upon exhaus on of the separately managed ac-count, the CDA begins making periodic benefit payments un l the par cipant’s death. The amount of those pay-ments is based upon the benefit amount set during the accumula on phase less any penal es or reduc ons for withdrawals above the contractual limits during the with-drawal phase. CDA products sold to date do not include a death benefit. In this way, a CDA provides a guaranteed life me income stream should covered assets run out.


I C D : R I

By Lois Alexander, NAIC Market Regula on Manager and Tim Mullen, NAIC Market Regula on Director I Demen a is something we hear a lot about in the news and con nues to be a growing issue in many realms, including the insurance industry. While Alzheimer’s disease and other types of demen a are issues many of us may face in the future, the intent of this ar cle is to bring a en on to the issues surrounding the sale of insurance and/or annuity products to seniors with demen a. W D ? According to the Na onal Ins tute on Aging, demen a is not a specific disease; rather, it is a term that is generally used to refer to a set of symptoms caused by a gradual death of brain cells associated with cogni ve and intellectu-al deteriora on that is severe enough to reduce a person’s ability to perform normal ac vi es of daily living, las ng more than six months. It is usually slow in progression and can affect intellectual func ons, such as memory, while seeming to not affect other brain func ons, such as those controlling movement and the senses. Demen a o en affects senior ci zens. However, this debilita ng disease can also affect younger adults, represen ng 4% of the 5 million people diagnosed with it. R A There are many regulatory and legal issues that can arise when interac ng with consumers who have demen a. One does not have to look any further than the Glenn Neasham case, which generated a tremendous amount of concern for insurance producers. In this par cular case, Neasham was criminally charged for selling an indexed annuity to an 83-year-old woman who allegedly had signs of demen a. Insurance professionals are not experts in recognizing de-men a and should not be held to this standard. At the same me, the Glenn Neasham case illustrates why those in the insurance industry should have a basic understand-ing of demen a and be able to iden fy the warning signs of demen a. Insurance companies and producers who are able to observe and understand the extent to which the person with whom they are speaking might have demen a are in a be er posi on to service their needs and be pro-tected from future allega ons of fraud and/or inappropri-ate sales prac ces. A reasonable first step would be for insurance companies and producers to consider implemen ng training to raise awareness of the warning signs of demen a. For example,

some of the warning signs of demen a every insurance producer should know include challenges in planning or solving problems, confusion with me or place, difficulty with words in speaking or wri ng, decreased or poor judg-ment, or changes in mood or personality. To complement company training on how to iden fy the warning signs of demen a, insurance companies may also want to consider implemen ng a central point of contact at the company through which the company can track and resolve these types of issues. I P D Clearly, insurance companies and producers want the sales they make to be appropriate and to meet their clients’ needs. Once there is a basic understanding of demen a, producers will be more inclined to observe the basic indica-tors of poten al demen a in their senior clients, such as no ng if their client is having difficulty pu ng his/her thoughts into words, or is forge ul of basic informa on, such as the current date, day of the week or me of day. Because seniors may be able to mask the early stages of demen a for brief periods of me, a producer who suspects possible demen a might want to schedule a follow-up visit with the client. This is important because insurance compa-nies and producers need to be sure consumers are able to provide adequate consent to purchase the product at the

me of sale. P I Privacy becomes another cri cal aspect for companies and producers to consider. While a simple solu on of dealing with a consumer with demen a may appear to be invi ng another family member to any mee ng a producer has with a consumer, the sharing of confiden al informa on may not be appropriate. Moreover, someone with demen a may not be able to properly consent to having another fam-ily member present. Because of this, a sound business prac ce insurance compa-nies and producers might want to consider is inquiring whether there are any durable powers of a orney in place, which family members have been granted a durable power of a orney and what circumstances precipitated the execu-

on of the durable power of a orney. Through these steps, an insurance producer can properly iden fy the appropriate trusted party and raise the issue of addi onal family par ci-pa on in a context that may be more appropriate for the consumer to accept.



I C D : R I (C )

NAIC A The NAIC’s focus on the issue of insurance or annuity sales to seniors, a recognized vulnerable consumer group be-cause of the poten al for diminished capacity, stretches over several years during which model laws, regula ons and bulle ns have been adopted and updated. The NAIC issued a model regula on in 20081 cau oning insurers and produc-ers alike against the improper use of professional designa-

ons when communica ng with seniors during marke ng and sales ac vi es, indica ng producers who misrepresent their level of exper se in such marke ng and sales ac vi es would be subject to penal es under state law and insurers allowing their producers to use such misleading designa-

ons would also be subject to penalty under state law. The NAIC has also published a variety of Consumer Alerts de-signed to educate seniors and their families about insurance and annuity sales prac ces and to help protect seniors from fraudulent ac vi es. S C In the NAIC’s 2012 Annual Report, prepara on and protec-

on were iden fied as key themes of consumer-outreach efforts. The realiza on of these themes culminated in the NAIC engaging the help of Amy Grant to help educate and heighten public awareness with regard to Alzheimer’s dis-ease and other types of demen a. The Grammy® award-winning singer/songwriter joined the NAIC’s campaign to specifically engage the “sandwich genera on”―baby boomers with kids at home who are also caring for aging parents and planning their own re rement. Grant was cho-sen because of a personal story that involved insurance: she helped nurse her mother through demen a at the end of her mother’s life and became aware of the benefits of a good aging plan that includes insurance.

When both of Grant’s parents were diagnosed with demen-a, the family struggled to find guidance or a road map for

the journey ahead. Now, Grant shares what she’s learned about educa ng yourself and planning ahead for life’s unex-pected turns: • Create a plan: Instead of living in fear, frustra on and

regret, face the situa on proac vely. Establish a plan that gives your loved one the care he or she needs, and allows you to actually enjoy the me you have together.

• Solicit support: Seek to distribute responsibili es be-tween the broadest community of individuals around your loved one. Caring for a parent while working a full-

me job and raising kids is draining, emo onally and physically. Surround yourself with people who care and be willing to ask for help.

• Talk about finances: Long before you think you need to, review your parents’ insurance informa on to en-sure that you understand their wishes and to make changes together. If your parent is considering purchas-ing an annuity, addi onal life insurance or long-term care insurance, be sure to do the research. The NAIC’s Insure U website2 is a good place to start.

A I (R ) More informa on about demen a as it relates to seniors can be found at the Alzheimer’s Associa on3 or the Na onal Ins tute on Aging.4

1 Model Regula on on the Use of Senior-Specific Cer fica ons and Professional Designa ons in the Sale of Life Insurance and Annui es (#278). See www.naic.org/Releases/2008_docs/fraud_protect.htm. 2 www.InsureUonline.org. 3 www.alz.org. 4 www.nia.nih.gov.


T R I A E G

By Dimitris Karapiperis, CIPR Research Analyst III I The aim of this ar cle is to explore the role the insurance industry plays in the overall economy and track the rela on-ship between the industry’s performance and economic sta-bility and growth.1 The insurance industry is recognized as an important part of the financial services sector and an es-sen al component of economic growth. The insurance in-dustry’s func on by design promotes the efficient spread of risks and financial losses. This ac vity s mulates new capital accumula on and mobilizes long-term savings to be convert-ed into produc ve investment, helping to fuel economic growth and prosperity.2 The industry also boosts the provi-sion of credit and crea on of liquidity reducing transac on costs. Consequently, the interest in the financial health and performance of insurers extends well beyond the circle of industry members, policyholders and regulators. C C The rela onship between insurance and economic growth has long been documented. Especially for property/casualty insurance, the historical evidence goes back to the days of the Industrial Revolu on in Britain. During the 70-year peri-od between 1790 and 1860, industrial produc on and de-mand for insurance increased almost in parallel.3 The ability of businesses to effec vely protect their physical assets allowed them to increase their investment in risk-bearing ac vi es by laying off part of the risk to an insurer. By providing a risk-transfer and indemnifica on mechanism, insurers helped to significantly reduce the probability of financial distress and bankruptcy. Lowering the total risks facing the economy opened the way for greater resource mobiliza on and alloca on, accelerated capital accumula-

on and promoted rapid growth. Studies conducted by the Interna onal Monetary Fund (IMF) and the World Bank have shown a strong correla on between insurance consump on, expressed as wri en premiums and economic output, expressed as gross do-mes c product (GDP) per capita.4 Reviewing cross-country data over a 40-year period revealed insurance growth, measured as insurance penetra on or total premiums as a percentage of GDP, follows an S-shaped pa ern along stages of economic development.5 At early stages of eco-nomic development, insurance consump on remains low, o en growing at a slower pace than the general economy. As the economy moves beyond a certain threshold and into the developed stage, spending for insurance begins to accelerate, outpacing and leading economic growth. This rela onship between GDP and insurance growth is illus-

trated in Figure 1, even though it shows the S-curve in terms of life insurance products. The same S-shaped pa ern is observed with the growth of property/casualty insurance consump on. The evolu on of life insurance from protec on to invest-ment-type products has helped add financial depth to the economy and encourage long-term savings. Life insurers’ intermedia on allows be er access to diversified por olios, thereby reducing overall economic risks and promo ng eco-nomic growth. Property/casualty insurers’ risk transfer func on allows for more accurate measurement and man-agement of risks, providing the necessary price signals to entrepreneurs and investors engaged in high-risk projects. This fosters the appropriate environment for infrastructure development, product innova on and efficiency improve-ment. Risk transfer services, including those provided by life insurers, help reduce uncertainty and vola lity, spur eco-nomic growth, smooth the business cycles and o en so en the impact of crises on the aggregate macro level. Further-more, insurers’ contribu on to economic development and


F 1: E G D L I

1 U.S. Agency for Interna onal Development (USAID). 2006. “Assessment on How Strengthening the Insurance in Developing Countries Contributes to Economic Growth.” 2 Abaidoo, Rexford. 2011. “Insurance Industry is Key in the Economic Recovery and Growth Process.” Clute Ins tute for Academic Research. 3 USAID. 2006. “Assessment on How Strengthening the Insurance in Developing Countries Contributes to Economic Growth.” 4 Erbas, Nuri S. and Chera L. Sayers. 2005. “Ins tu onal Quality, Knigh an Uncer-tainty, and Insurability: A Cross-Country Analysis.” Interna onal Monetary Fund. 5 USAID. 2006. “Assessment on How Strengthening the Insurance in Developing Countries Contributes to Economic Growth.”


T R I A E G (C )

growth also derives from their assets and investment ac vi-es by broadening the investment spectrum, expanding the

investment horizon, boos ng investment volume and im-proving financial market efficiency.6 A great number of reports and studies have looked at insur-ance markets and their evolu on, along with economic de-velopment and growth, across different countries and over different me periods. The rela onship of insurance ac vity and economic growth has been recognized with its im-portance formally acknowledged by the United Na ons Conference on Trade and Development (UNCTAD) in its first session in 1964.7 The centrality of the role of the insurance sector in economic development is s ll in the agenda of interna onal agencies such as UNCTAD, the World Bank, and the IMF.8 However, even though a correla on of insur-ance market ac vity with economic growth has been ob-served, another salient issue is that of an empirical proof of a poten al causal rela onship and its probable direc on. Establishing the direc on of causality answers the ques on of whether insurance ac vity actually generates economic growth or whether it is just a consequence and a comple-ment of that growth. If the first is true, insurance market growth is said to be a supply-leading phenomenon while if the la er is true it is demand-following. Studies that have conducted causality tests have not only found a robust causal rela onship but also have concluded that insurance ac vity is an agent of economic growth and not merely its by-product.9 A study that empirically examined the contribu on of life insurance to economic growth in the United States over a 30-year period, found that growth in the life insurance in-dustry caused an increase in both produc vity and econom-ic growth.10 The study concluded life insurance growth ex-plained approximately 14% of the variance in economic growth during that period mostly due to life insurers’ im-portant role in U.S. financial intermedia on and invest-ment.11 A larger study that analyzed cross-country data from 1980 to 1996 found that higher levels of insurance penetra on, measured as premiums as a percentage of GDP, predicted higher economic growth.12 Looking at life insurance penetra on, the results suggested that a 2% in-crease s mulates a 1.12% increase in average GDP per capi-ta, while, in the other direc on, a 1% increase in GDP per capita is accompanied by a 0.4% increase in life insurance penetra on.13

A survey that iden fied 85 empirical papers dealing with the rela onship between insurance and economic growth

noted most of the studies found conclusive evidence of the growth-genera ng role of insurance market development, which is largely regarded as a supply-leading phenome-non.14 One noted difference between the life and property/casualty sectors’ impact on economic growth emerged from the studies’ findings. Life insurance was found to be more important in high-income developed economies, whereas property/casualty insurance was found to be a greater s m-ulant for growth in emerging and developing economies.15 E S I I A reflec on of the economic significance of the insurance industry and its prominence in the financial sector is the sheer size of its financial assets. Insurance companies (life, property/casualty and health) held about $7.4 trillion in financial assets as of 2012 year-end, almost half of the size of the $15.1 trillion banking sector.16 The industry makes up a vital source of funding for corpora ons, as well as for state and municipal governments. Furthermore, mainly via the capital markets, the life insurance industry mobilizes domes c household savings that are fed into produc ve investments, thereby greatly s mula ng economic growth. At the end of 2012, insurers (life and property/casualty) held about $2.5 trillion (or 20.2%) of the total corporate and foreign bonds, approximately $1.8 trillion (or 6.9%) of the total corporate equi es market, and $277 billion (or 12.5%) of the total commercial mortgage loans outstanding. An important measure tradi onally used to show the rela-

ve importance of insurance within the economy is insur-ance penetra on. Insurance penetra on is the ra o of di-rect premiums wri en to GDP. The United States, with a


6 Haiss, Peter and Sumegi, Kjell. 2006. “The Rela onship of Insurance and Economic Growth–A Theore cal and Empirical Analysis.” Europe Ins tute, University of Economics and Business Administra on Vienna. 7 Proceedings of the United Na ons Conference on Trade and Development (UNCTAD), First session, Vol. I,Final Act and Report, p.55, annex A.IV.23. 8 Outreville, Francois, J. 2013. “The Rela onship Between Insurance and Economic Development: 85 Empirical Papers for a Review of the Literature.” Risk Manage-ment and Insurance Review, 2013, Vol. 16, No. 1, 71–122. 9 USAID. 2006. “Assessment on How Strengthening the Insurance in Developing Countries Contributes to Economic Growth.” 10 Soo, Hak Hong. 1996. “Life Insurance and Economic Growth: Theore cal and Empirical Inves ga on.” University of Nebraska. 11 Ibid. 12 Webb, Ian, Grace, Mar n, F., and Harold D. Skipper. 2002. “The Effect of Banking and Insurance on the Growth of Capital and Output.” Center for Risk Management and Insurance. 13 Ibid. 14 Outreville, Francois, J. 2013. “The Rela onship Between Insurance and Economic Development: 85 Empirical Papers for a Review of the Literature.” Risk Manage-ment and Insurance Review, 2013, Vol. 16, No. 1, 71–122. 15 Ibid. 16 NAIC and Board of Governors of the Federal Reserve System: Flow of Funds Accounts of the United States.


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26.2% share of the global insurance market, has an insur-ance penetra on that has risen from 6.8% in 1970 to 8.1% in 2011, above the 7.3% OECD (Organisa on for Economic Co-opera on and Development) country average.17 This increase is an indica on of the growing importance of the insurance sector in the U.S. economy. The insurance industry is also a major employer, with a to-tal of 2.3 million employees (or nearly 2%) of the total non-farm employment in the country as of the end of 2012.18 Insurers’ labor force translates into $147.8 billion in wages and salaries that are fed back into the economy in the form of consump on and investment genera ng and augmen ng economic growth.19 E R T I E G It is noteworthy that insurance employment did not move in tandem with total non-farm employment in the en re peri-od 1999–2012. Total employment trended closely with eco-nomic expansions and contrac ons, while insurance employ-ment moved in the opposite direc on in the early to mid-2000s (Figure 2). Despite the recessive economy in the early 2000s and the so property/casualty market, the industry’s resilience and rising life insurance consump on―especially annuity sales, which quadrupled between 1999 and 2002―helped keep insurance employment going strong. The stabiliza on of the industry in the mid-2000s returned the industry back to the same trend with the rest of the economy in terms of employment, following the waves of

the economic boom, the subsequent decline as a result of the financial crisis and the recent post-crisis recovery. Another indicator of the important role insurers play in the economy is the industry’s contribu on to the na on’s GDP. The insurance industry’s value added was $397.6 billion in 2011 (or 2.64%) of GDP (Figure 3 on the following page). The industry’s value added has increased alongside GDP while exhibi ng some sectoral fluctua ons. The insurance industry’s contribu on to GDP climbed from 1.93% in 1981 to its peak of 2.77% in 2007. It dropped to 2.42% in 2008 as a result of the impact of the financial crisis primarily on in-surers’ investment por olios before recovering in the sub-sequent years. Life insurance consump on, both life premiums and annuity considera ons wri en, increased as the economy grew in the period 1999–2012 but with notable differences in trends, mainly due to certain recession-proof proper es of annuity products, par cularly fixed annui es. Total life di-rect premiums and annuity considera ons wri en rose 63% from 1999 to 2008 and dropped during the next two years


17 Sigma. Various Issues. Economic Research and Consul ng, Swiss Reinsurance Company Ltd. 18U.S. Department of Labor: Bureau of Labor Sta s cs. 19 U.S. Department of Labor: Quarterly Census of Employment and Wages – Bureau of Labor Sta s cs.

F 2: T N -F E I E (T )

Source: U.S. Department of Labor, Bureau of Labor Sta s cs.


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14.2% before recovering almost all the lost ground in 2012 (Figure 4). In the short recession of 2001, sales of annui es surged, with considera ons wri en growing threefold from 2000 to 2004. Increased compe on from the thriving stock and credit markets and a booming housing market limited somewhat annui es’ room for growth. As the Great Reces-sion hit in 2007, annuity considera ons actually increased by 9.5% in 2008, as they again became more a rac ve due

to the addi onal safety they offer with their contractual guarantees. The increase in considera ons was mostly con-centrated in fixed annui es more than offse ng the decline in variable annui es. In 2009 and 2010, annui es considera-

ons declined as they were pressured by the overall nega-ve economic climate and the declining interest rates.

Life insurance premiums are more directly impacted during recessions as demand for life insurance has significantly high income elas city. Although all types of life insurance policies recorded declines during the recession, term and whole life fared be er than universal and variable life, as they tend to provide a higher degree of contractual certainty. Property/casualty insurance generally exhibits inelas c de-mand during most recessions. The length and depth of the last recession though impacted most property/casualty lines, keeping premiums depressed during the period 2007–2010. Declining economic ac vity affected primarily general liability and workers’ compensa on. Despite the notable decline, total property lines premiums wri en followed a smoother trend along with GDP without the sharp fluctua-

ons or the counter-movements that characterized life in-surance consump on during the same period (Figure 5). Historically, workers’ compensa on follows economic per-formance more closely and has been one of the more vola-

le business lines of the property/casualty industry in terms of premiums wri en. In a deep recession with high unem-ployment, workers’ compensa on premiums generally de-


F 3: GDP I S V A ($B )

Source: Bureau of Economic Analysis.

F 4: GDP T L D P C W ($B )

Sources: Bureau of Economic Analysis and NAIC.

F 5: GDP T P C L P W ($B )



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cline, because they are directly ed to companies’ payroll levels. From a purely underwri ng perspec ve, 2006 was the last year that the workers’ compensa on business line was profitable. In the four years that followed, workers’ compensa on premiums fell 29.6% (Figure 6). Available data on the contribu ons to percentage change in GDP by type of industry compares and contrasts the contri-bu on changes over me by investment banks and insurers leading to the financial crisis. Investment banks’ contribu-

on exhibits a more erra c behavior than the insurance industry, which seems to largely trend the GDP growth rate (Figure 7). While insurers were affected by the otherwise recession of 2001, the tragic events of 9/11 impacted the industry even more, par cularly the property/casualty subsector. At the same me, the banking sector fared be er due to be er interest margins and increasing foreign savings inflows as the current account deficit hit record levels. Fast-forward to 2007, the sharp decline (–13.9% year-to-year) in investment banks’ value added that year (commercial banks’ value add-ed decline was less pronounced at –1.69% year-to-year), preceded insurers’ value-added drop and the overall GDP decline. These trends further lend weight to the view that the financial crisis of 2008 was triggered by significant de-clines in growth among firms in the banking sector and, par cularly, investment banks heavily involved in structured securi es and deriva ves trading.

Further, insurance consump on, expressed as direct premi-ums wri en, can posi vely affect private savings (Figure 8). The availability of life insurance tends to reduce the need for precau onary holding of liquid real assets, such as gold, allowing the use of available funds for more produc ve types of investment. The increase in both private saving and


F 8: G P S D L I - P W ($B )

Sources: Federal Reserve Board and NAIC.

F 6: GDP T W C P W ($B )


F 7: C P C GDP

Source: Bureau of Economic Analysis.


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investment helps boost overall economic growth. Empirical evidence suggests a posi ve rela onship between private savings rate and life insurance penetra on. As the savings rate increases, the share of savings in life insurance policies decreases. While people place part of their addi onal sav-ings in life insurance policies, there is an overall shi from life insurance to other saving instruments. The fusion of investment elements into life insurance prod-ucts helped a ract new clients who gravitated toward sav-ings vehicles with certain built-in guarantees. This move-ment, mainly toward annuity products, reduced banks’ mar-ket share through a savings subs tu on effect, but did not cut overall private savings. Increased premiums� or, in this case, annuity considera ons� flowing into life insurance companies might result from addi onal purposeful savings and not simply from a shi away from banking products (Figure 9). Either way, the availability of investment-type products by life insurers not only helped encourage savings, but also increased market compe on and efficiency through por olio diversifica on. C Considering the extensive and robust evidence of the in-creasing importance of the insurance industry, insurers’ evolving role as agents of economic growth and stability should be a subject of great relevance for regulators and other policymakers. The life insurance industry’s overall supply-leading character and stabilizing proper es add depth to the capital markets and promote economic effi-

ciency and growth. The demand-following nature of certain property/casualty lines and any bidirec onal causality be-tween insurance and economic growth does not negate the fundamental importance of insurance in managing and min-imizing uncertainty. Uncertainty, le unmanaged, diminish-es entrepreneurship and investment, seriously curtails growth and breeds instability. Consequently, insurance is a necessary precondi on and an important factor for sustain-able economic growth and stability.

F 9: G P S D A C W ($B )

Sources: Federal Reserve Board and NAIC.


CIPR S E H C R I

By Shanique (Nikki) Hall, CIPR Manager, Dimitris Karapiperis, CIPR Research Analyst III and Anne Obersteadt, CIPR Senior Research Analyst The NAIC’s Center for Insurance Policy and Research (CIPR) recently hosted a symposium tled, “Health Care Reform – Tools for Oversight and Assistance in the New Market-place.” Held April 30 and May 1, 2013, in Reston, VA, the symposium brought together a cadre of informed subject experts from insurance regula on, federal and state regula-tory agencies, and the insurance industry. The two-day symposium was moderated by Brian Webb, health policy team manager at the NAIC, and Linda Shep-pard, special counsel/health care policy and analysis direc-tor at the Kansas Insurance Department. The symposium a racted more than 75 a endees, which included health system administrators, health policy researchers and ana-lysts, rate and form analysts, public interest organiza ons and consumer groups, consultants and academics. The CIPR hosts four annual events, including a symposium, which offers a forum for opinion and discussion on major insurance regulatory issues. This year’s symposium provid-ed a great forum for the presenta on of valuable insights and perspec ves from a diverse group of experts who dis-cussed impacts to regulators, insurers and consumers re-sul ng from the federal Pa ent Protec on and Affordable Care Act (ACA). Although health care reform was estab-lished at the federal level, the states are responsible for implemen ng numerous facets of the ACA. The states will con nue to regulate health insurance; the federal law does not change the role of state insurance regulators. While many of the ACA provisions have already taken effect, the most sweeping changes will take effect Jan. 1, 2014, with the implementa on of market reforms, subsidies and the individual mandate. Web-based shopping portals, known as health insurance marketplaces (or exchanges), along with agents and brokers, will be the central mechanism to help individuals and small businesses purchase health insurance coverage and receive subsidies. An exchange will serve as a marketplace where consumers can go online to learn about the new law and how it affects them, shop for and compare the qualified health plans (QHPs) offered in their state, and enroll in the plan of their choice. On Oct. 1, 2013, an ex-change in every state, which will be operated by the federal government or the state, will begin enrolling consumers into QHPs with the coverage taking effect in 2014.

A primary objec ve of the symposium was to review and discuss many of the tools and resources available to assist with the Web-based insurance marketplaces. The event also served as a pla orm for state insurance regulators to gain clarifica on on federal-state coordina on and ming of the exchange rollout. The event was divided into nine sessions featuring discus-sions on various issues, including: SERFF submission, valida-

on processes and review tools; plan management; accredi-ta on; consumer outreach and educa on; enforcement and market conduct; agent/brokers and navigators; and long-term cost containment. Presenters included experts from state insurance departments, NAIC staff, insurance compa-nies and representa ves from the various agencies involved in the implementa on and oversight of the exchanges, in-cluding the U.S. Center for Consumer Informa on and In-surance Oversight (CCIIO) and the U.S. Office of Personnel Management (OPM). This ar cle provides an overview of the most per nent topics of the symposium. SERFF S V T Julie Fritz, chief business strategy and development officer at the NAIC, began the symposium with a presenta on about the recently released SERFF Plan Management tools. The NAIC System for Electronic Rate and Form Filing (SERFF), operated for the states by the NAIC, has been a key component in establishing uniformity and speed to market in the insurance industry. It is used by 51 NAIC-member jurisdic ons to receive and review filings, communicate with filers and ul mately approve industry rate and policy form filings. As modified to address ACA needs, the SERFF system serves as a filing submission and review vehicle and will provide a mechanism for sending data from SERFF to the state or fed-eral exchanges. SERFF has been modified to collect carrier rate data to support rate review requirements and to sup-port the plan management component of an exchange. The SERFF system enables the submission, review, approval and cer fica on of QHPs, including issuer, plan, benefit, rate, accredita on and network adequacy. Fritz also shared infor-ma on about how the NAIC is working with the CCIIO on quality-assurance tools, including tes ng to ensure that SERFF meets the needs of the states. In addi on, Fritz dis-cussed many of the training opportuni es available to the states, including online help tutorials.



CIPR S E H C R I (C )

P M Representa ves from the CCIIO and the OPM opened the discussion on exchange plan management. The CCIIO, which is responsible for most federal aspects of ACA implementa-

on, is coordina ng with the states on the oversight of health plans. The presenta on covered the CCIIO’s QHP submission and cer fica on process and review tools. In a partnership exchange, oversight responsibility and plan management are jointly shared between state and federal authori es. The CCIIO relies on a state’s assessment if health plans meet QHP standards to make its final determi-na on on QHP cer fica on. State insurance departments review all health insurance products, rates and policy forms, regulate market prac ces and conduct ongoing oversight pursuant to the respec ve states’ exis ng laws and regula-

ons. The CCIIO works with the states on performing plan management func ons to avoid duplica on of effort. The OPM is handling applica ons for mul -state plans and contracts with insurers to offer at least two plans in each state. The Mul -State Plan Program was created by the ACA and is intended to increase compe on among plans offered in health exchanges. The Arkansas Insurance Department presented iRate (Insurance Rate Analysis and Tracking Engine), a new Web-based tool designed to help automate and streamline the rate filing review process, making it easier and faster to provide an effec ve rate review. This applica on uses data from SERFF to build a robust and user-friendly repor ng system to simplify the rate review process. The informa on in iRate includes SERFF tracking number, type of insurance (TOI) and sub-TOI, product name, the requested overall rate impact, the number of policyholders, covered lives and the prior and projected loss ra os. With iRate, a reviewer can easily compare filings and com-pile all the data into easy-to-view reports that summarize the review recommenda on or decision and file the infor-ma on for future purposes. Also, iRate is customizable to make sure the process complies with the state’s rules and regula ons. Since iRate was developed through a rate re-view grant from the U.S. Department of Health and Human Services (HHS), it is available without cost to all grantee states. Future updates to iRate would bring new features, including plan management. A Q During the “Accredita on and Quality” session, representa-

ves from the Na onal Commi ee for Quality Assurance

(NCQA) and URAC discussed the accredita on process. In order to par cipate in an exchange, QHPs are required to meet accredita on standards. All QHP issuers must be ac-credited by an accredi ng en ty that meets HHS standards. The NCQA and URAC are currently the only two HHS-recognized accredita on en es. There are two phases for recogni on of accreditors. In Phase 1, HHS proposes to rec-ognize NCQA and URAC on an interim basis and others upon review. Phase 2 is the process for applica on for en es seeking to become a recognized accredi ng en ty. Accredita on quality measures for the exchanges were also discussed. The ACA requires a “quality ra ng system” for exchange plans. The U.S. Centers for Medicare & Medicaid Services (CMS) is working to develop a quality ra ng system to be used in 2016 that will reflect health plans’ experience with taking care of people buying coverage in the exchanges. O E /C A Representa ves from CCIIO, the Maryland Insurance Ad-ministra on and Consumers Union were on hand to dis-cuss consumer outreach, assistance and educa on pro-grams to help consumers be er understand the health reforms and their health coverage op ons. The ACA pro-vides that exchanges establish grant programs for out-reach to the public for educa on, enrollment informa on, to facilitate enrollment and referrals for grievances, com-plaints or ques ons. Consumer outreach is cri cal to the health of the market-place. Consumer ques ons and complaints will be received by the exchanges and the state insurance departments. The need for exchanges and state insurance departments to work together and coordinate to ensure complaints go to appropriate en es was one of the concerns discussed dur-ing the session. Megan Mason, Special Assistant to the Com-missioner for Health Care Reform, shared some of the con-sumer outreach methodologies the Maryland Insurance Ad-ministra on employs, including year-round consumer infor-ma on events on health insurance and coordinated hand-offs of complaints and ques ons with other state agencies. In addi on, a representa ve from Consumers Union dis-cussed how many consumers struggle to understand their health coverage op ons. Although the new exchanges will provide greater access to health care, those that have never had health insurance may have trouble understanding their various coverage op ons. Consumers Union also discussed




the importance of cul va ng a popula on of informed con-sumers and offered a number of recommenda ons to im-prove consumer educa on and outreach, including: 1. Ensure that exchanges set aside enough establishment

and opera onal money to fund extensive consumer outreach campaigns.

2. State insurance departments should develop new path-ways of directly engaging consumers (e-alerts, social media).

3. The NAIC should establish a permanent and ongoing role of monitoring and dissemina ng best prac ces with respect to consumer outreach and educa on.

E /M C /C C Representa ves from the CCIIO and the NAIC led a panel discussion on enforcement, market conduct and consumer complaints. The CCIIO focused its discussion on how its re-cently released guidance on ACA market reforms will be enforced. The new guidance offers more opportunity for the federal government and the states to collaborate on enforcement issues. Under the guidance, state insurance departments remain the primary regulator of health insur-ance and can require insurance companies in their state to meet federal standards. If, however, a state fails to substan-

ally enforce all or parts of the ACA or is not enforcing the law, then CMS will step in to enforce. The new guidance allows the states that lack enforcement authority to enter into a collabora ve agreement with CMS that would give them the power to enforce the ACA while remaining com-pliant with state law. It should be noted that the vast major-ity of the states are enforcing the ACA reforms. Tim Mullen, director of market regula on at the NAIC, dis-cussed the mul ple regulatory responses, as outlined in the Market Regula on Handbook, available to regulators when iden fying compliance issues associated with network ade-quacy. The Market Conduct Examina on Standards (D) Working Group is formally working on this project, with the ini al focus on the development of examina on standards for the immediate mandates of the ACA. The examina on standards are being forma ed as an “examina on checklist” that outlines the ACA provision, the effec ve date, HHS guidance and suggested audit proce-dures. In addi on to working on examina on standards, the Working Group is reviewing the complaint coding of the NAIC’s Complaints Database System to determine which complaint codes need to be added to properly track com-

plaints related to the ACA provisions. Finally, the Working Group will be discussing the addi onal data collec on need-ed for more proac ve monitoring of the health insurance marketplace. A /B N O A The vital role of agents/brokers, navigators and other assist-ers in helping consumers prepare and enroll in exchanges was also discussed during the symposium. The ACA requires the state exchanges to establish a “navigator” program that will help people who are eligible to purchase coverage through the exchange learn about their new coverage op-

ons and enroll. Navigators are to conduct public educa-on, distribute fair and impar al informa on, and facilitate

enrollment, but they may not advise, enroll or receive direct compensa on from insurers for a par cipant’s enrollment in a QHP. Each exchange must fund at least one navigator en ty that is a community- and consumer-focused nonprofit group. Navigators can choose to target certain geographical loca-

ons or par cular popula ons. Licensed agents and bro-kers may also be navigators if they do not receive any com-pensa on from carriers. HHS is developing standards to ensure that navigators are qualified and trained. The ex-changes must make grants to train and support volunteer navigators. Moreover, the states will need to determine who will be responsible for monitoring navigator behavior and perfor-mance. In some of the states, navigators may report directly to the exchange, to the insurance department or to another organiza on altogether. To ensure consumer protec ons, the following recommenda ons were made: 1. The states should establish a system of navigator ap-

proval and rejec on that allows for the removal of a navigator’s cer fica on when they do not engage ap-propriately.

2. Training standards and examina ons should be estab-lished.

3. The states should clarify that unfair trade require-ments, market conduct and adver sing laws apply to navigators.

4. The states should ensure that navigators do not per-form func ons that would require a producer's license.

5. Clear enforcement authority and guidelines should be established.




L -T C C Representa ves from the Kansas Insurance Department, America’s Health Insurance Plans (AHIP) and the Blue Cross and Blue Shield Associa on (BCBSA) discussed the need for long-term health care cost containment solu ons. The Council of Economic Advisers (CEA) es mates that the U.S. spends 18% of its gross domes c product on health care, of which 5% is es mated to be spent on ineffec ve care. It was noted during this session that massive price increases in the hospital sector are one of the largest contributors to overall rising health care costs. The past decade has seen a pletho-ra of hospitals systems acquiring other hospital systems and physician prac ces. Consolida on allows hospitals to gain clout in pricing nego a ons and to integrate services and recordkeeping, but frequently results in higher overall health care costs. This consolida on trend is the outcome of a system that is built around guaranteed fee-based revenue streams. Stud-ies show that fee-based systems lead to higher costs, be-cause providers’ compensa on in based on the quan ty of procedures performed rather than the quality of care pro-vided. Kim Holland (BCBSA) noted that there is a growing movement away from the fee-for-service system, toward pilot programs aimed at pa ent-centered care and commu-nity involvement. She emphasized that this movement is in its early stages, but ini al studies indicate promising cost reduc ons.

S The success of this well-a ended symposium, as part of the coordinated efforts of the state regulatory community to assure an effec ve and smooth implementa on of the health care reforms, further a ests to the commitment of insurance regulators towards mee ng the needs of their local markets and consumers. Bringing together consumers, state regulators and federal agencies to discuss issues rang-ing from the technical aspects of the SERFF QHP submission process, the plan management systems, to quality consider-a ons with health plan accredita on standards, to training and funding navigators and brokers, and concerns about market conduct and cost containment, is essen al as the new health care system becomes reality. For those that unfortunately missed this very informa ve event, they can s ll benefit from the informa on presented and the discussions by registering for the recorded sessions through the NAIC Educa on & Training Department.1 Regis-tra on informa on as well as an archive of past CIPR events (including program handouts, presenta ons, and audio) can be found on the CIPR Events page: www.naic.org/cipr_events.htm.

1 www.naic.org/educa on_home.htm


NAIC SVO’ R T A S

By Harry Olsen, Manager, NAIC Credit and Regulatory Unit Manager In addi on to monitoring the solvency of insurers as an im-portant consumer protec on, state insurance regulators also monitor the general insurance and financial markets in which their insurers par cipate and are impacted. The NAIC Securi es Valua on Office (SVO) aids in both of these moni-toring processes. A fundamental aspect of the financial sol-vency func on is to provide guidance on the regulatory per-cep on of risks in investment securi es to insurance com-panies and their investment advisors. This helps insurance companies incorporate into their investment decisions an understanding of applicable regula ons, and helps ensure that financial markets are not adversely impacted by the formula on of, or subsequent changes in, regula on. The SVO conducts the day-to-day credit quality assessment and valua on of certain securi es owned by the state-regulated insurance companies. The func on now per-formed by the SVO was ini ated in 1907. Valua ons were ini ally performed by the state insurance departments themselves and then by Moody’s Investors Service under contract to the Na onal Conven on of Insurance Commis-sioners (as the NAIC was then known) un l 1942. The SVO, as a dis nct staff func on of the NAIC, was created in 1943 and assigned the valua on and risk-assessment func on it s ll performs for certain securi es today. Among the many services performed by the SVO on an ongoing basis, the SVO mainly serves to provide designa-

ons for any securi es that are not rated by a credit ra ng provider (CRP)―i.e., any one of the major credit ra ng agencies―a er that security has been purchased and filed by an insurance company. Insurance companies report ownership of securi es to the Capital Markets and Invest-ment Analysis Office when such securi es are eligible for filing on Schedule D or Schedule DA of the NAIC financial statement blank; and life and fraternal insurers may also report certain Schedule BA assets thought to have fixed-income characteris cs. The SVO component of the Capital Markets and Investment Analysis Office conducts credit analysis on these securi es for the purpose of classifying the security, and, if deemed to be fixed-income like, assigning an NAIC designa on and, in certain cases, also assigning a unit price. These designa ons and unit prices are produced solely for the benefit of NAIC members (the regulators) who should interpret them from the overall perspec ve of the specific insurance company and its financial condi on.

R T A S However, an increasingly important service for the SVO is the evalua on of a security before it is purchased by or sold to an insurance company. This service allows the insurer to know in advance the likely regulatory treatment of an in-vestment security, its impact on risk-based capital, as well as how it is to be reported for statutory accoun ng purpos-es. Anyone may request a pre-purchase evalua on of a new investment security under the SVO’s Regulatory Treatment Analysis Service (RTAS). The RTAS process is intended to permit the SVO to give in-surance companies (or any interested person) an assess-ment of how an investment is likely to be treated by the NAIC under the exis ng regulatory framework. It permits insurance companies and other persons to ascertain the analy cal posi on the SVO would take (or the recommen-da ons it would make to regulators) with respect to credit and other investment risks embedded in a security and the regulatory treatment that corresponds to those analy cal conclusions under the exis ng regulatory framework. How-ever, it is important to note that an RTAS does not relieve an insurer from any filing requirements once the invest-ment is purchased. An RTAS applica on can be accessed via the NAIC website. The documenta on required is basically the same as for any first- me filing, and the turnaround me is typically two weeks to a maximum of four weeks a er receipt of all of the necessary informa on. An RTAS may be filed by bank-ers, fund sponsors, exchange-traded fund (ETF) sponsors or the company that is looking for the ra ng. Almost any finan-cial advisor may apply on behalf of his/her client. In addi-

on, the cost for this service is quite modest compared to CRP alterna ves. The RTAS service has been popular with bond ETFs and mu-tual fund sponsors in order to obtain a bond classifica on, as well as a designa on. The RTAS service has also been ac vely used by new issuers of private placements that do not have, or do not need, an agency ra ng and only need an NAIC ra ng to sell their securi es to insurance companies. First- me European issuers of private placements have also quite ac vely sought this advanced ra ng, as the European bank market has become restric ve, and the companies seek to enter the U.S. private placement market. Addi onal informa on about the RTAS process can be found in the Purposes and Procedures Manual of the NAIC Securi es Valua on Office or by contac ng Harry Olsen at 212-386-1925 or [email protected].


NAIC R A D : D G

Beginning in 1997, the loss and direct cost containment ra o for medical professional liability insurance began its ascent, reaching a peak in 2001 of 126.83% (Figure 1). The line sustained five straight years of loss ra os above 100% (1999–2003) and the NAIC among various other industry groups began researching reasons and possible solu ons for the crisis. In 2004, the NAIC published the Medical Malprac-

ce Insurance Report: A Study of Market Condi ons and Poten al Solu ons to the Current Crisis (Malprac ce Re-port). The Malprac ce Report was conducted with the ob-jec ve of reviewing regulatory and legisla ve solu ons con-sidered in response to a market crisis in availability and affordability of medical liability insurance.1 The Malprac ce Report cited the following possible rea-sons for the spike in medical professional liability: compe -

ve pricing; increasing claims experience, including increas-ing health care costs, jury awards, and defense and inves -ga on costs; declining investment yields; loss reserve defi-ciencies; inadequate underwri ng and loss control proce-dures; increasing reinsurance costs; and pressure to con-solidate. It was also thought that the U.S. economy had an adverse effect on the medical professional liability market, including interest rates, the reinsurance market and invest-ment earnings. Research indicated that, while net investment income had declined, it was primarily, though not exclusively, under-wri ng losses that were the driving factor in rate increases experienced by physicians and other health care providers. As a result, the study focused on incurred losses. During 2003, the legislatures of at least 30 states consid-ered bills intended to stabilize or reduce the cost of medical professional liability insurance. Various reforms were put into place on a state-by-state basis to thwart the rising cost of medical professional liability losses. A common goal among the states was reduc on in the cost to health care providers and their insurers of awards and se lements. Several solu ons were iden fied: placing caps on noneco-nomic damages; changing rules of evidence to provide for considera on of collateral sources for payment of benefits; allowing claimants and insurers to agree to periodic pay-ments of future benefits; and limi ng con ngency fees paid to a orneys. A reversal of industry trends ensued and the loss ra o dropped nearly 76 points, reaching a trough in 2010 at 51.02%. Reasons cited for the increased profitability in-clude: tort reform; doctor shortages; be er risk manage-ment; and aggressive claims defense.

Since 2010, loss ra os have cked up slightly, with an in-crease in direct losses incurred and a reduc on in direct premiums earned (Figure 2 on the following page). Recent changes within the industry will undoubtedly have an im-pact on medical professional liability insurance in the fu-ture. The expanding use of electronic medical record reten-

on, growing shortage of primary care providers and the enactment of the federal Pa ent Protec on and Affordable Care Act (PPACA), also known as the Affordable Care Act (ACA), are high on the list of burgeoning change. Although probable outcomes are s ll unknown, the ACA will likely be a key driver of change in the industry. The ACA, which seeks to expand access to health insurance and care, as well as restrict medical costs, includes several provisions that could prompt a change in liability insurance. Such pro-visions include: shared responsibility individual mandates; subsidies for small business and individual coverage; estab-lishment of annual and life me policy limits; Medicaid eligi-bility expansion; provisions leading to Medicare’s crea on of the Hospital Value-Based Purchasing (VBP) Program, as well as revisions to the payment policies and annual pay-ment rates for the Medicare prospec ve payment system


F 1: C L D C C R *

* Incurred loss and direct defense cost containment expenses as a percent of earned premium.

Calendar Year

1 This study published by the NAIC in September 2004 can be found at www.naic.org/documents/topics_Med_Mal_Rpt_Final.pdf or on the CIPR Key Issues Web page (www.naic.org/cipr_key_issues.htm) under “Medical Professional Liability Insurance.”


D G (C )

F 2: C S M P L I C Y 2003—2012

(PPS); funding authoriza on for the Pa ent-Centered Out-comes Research Ins tute; incen ves for providers to imple-ment electronic medical records (EMRs) and computerized physician order entry (CPOE); and funding for pilot pro-grams to implement and evaluate malprac ce tort reforms. The NAIC has created a forum for discussion and research of poten al effects of ACA on medical professional liability insurance. The Affordable Care Act Medical Professional Liability (C) Working Group was created to study feasible outcomes of the law. Informa on regarding this group can be found on the NAIC website.2 The NAIC publishes market share reports by line of business for property/casualty insurance. The 2012 Medical Profes-sional Liability, Other Liability, and Products Liability Market

Calendar Year Direct Premium

Wri en Direct Premium

Earned Direct Losses

Incurred

Direct Defense and Cost Containment Expense Incurred

Loss and DCC ra o*

1991 5,041,116,742 4,974,652,480 2,815,117,139 1,206,401,632 80.84% 1992 5,336,077,118 5,229,476,485 4,039,426,016 1,356,515,347 103.18% 1993 5,451,861,069 5,254,614,981 3,525,005,041 1,223,109,176 90.36% 1994 6,128,761,613 5,986,568,310 3,181,523,258 1,288,672,006 74.67% 1995 6,174,433,133 6,137,209,298 3,330,613,605 1,554,242,912 79.59% 1996 6,087,248,243 6,027,958,481 3,632,388,312 1,406,779,290 83.60% 1997 5,949,762,287 5,949,688,215 3,222,735,496 1,442,161,237 78.41% 1998 6,212,462,137 6,218,164,376 4,457,099,226 1,585,203,841 97.17% 1999 6,181,174,156 6,167,948,760 4,659,896,010 1,726,798,604 103.55% 2000 6,428,278,303 6,373,039,337 5,098,753,650 1,657,371,460 106.01% 2001 7,604,104,289 7,054,509,032 6,972,294,879 1,974,903,227 126.83% 2002 8,912,533,968 9,631,548,967 8,200,307,513 2,412,849,663 110.19% 2003 10,646,907,290 11,277,448,229 8,459,389,539 2,847,849,045 100.26% 2004 11,986,813,417 11,538,819,200 7,224,164,963 2,514,795,515 84.40% 2005 12,145,623,736 11,874,907,423 6,151,942,930 2,713,740,255 74.66% 2006 12,332,430,917 12,167,900,762 5,285,472,723 2,651,577,175 65.23% 2007 11,680,519,170 11,744,160,781 4,787,669,711 2,301,741,443 60.37% 2008 11,210,406,745 11,353,905,915 4,092,787,274 2,108,507,419 54.62% 2009 10,816,183,520 10,835,284,565 4,012,060,052 2,018,784,762 55.66% 2010 10,600,322,059 10,557,651,729 3,524,306,622 1,862,710,616 51.02% 2011 10,287,069,135 10,296,112,512 3,655,161,296 1,973,170,359 54.66% 2012 10,019,229,369 10,099,576,764 4,167,260,437 1,931,017,905 60.38%

Mean 8,510,605,383 8,488,688,482 4,749,789,804 1,898,131,950 81.62%

Median 8,258,319,129 8,343,029,000 4,130,023,856 1,896,864,261 80.22%

Share Report for Property/Casualty Groups and Companies contains direct wri en premium, direct earned premium, direct loss to earned premium ra o, direct loss and direct cost containment to earned premium ra o and market share informa on for the top 125 companies countrywide, as well as 99% of the marketplace in each jurisdic on. The 2012 Medical Professional Liability, Other Liability, and Products Liability Market Share Report for Property/Casualty Groups and Companies direct wri en premium is slightly lower than that contained in the informa on on the CIPR website, as the report includes nega ve premium from companies who have withdrawn from the medical profes-sional liability line of business.

2 www.naic.org/commi ees_c_aca_med_pro_liability.htm.

* Loss Ra o = (Direct Losses + Direct Defense and Cost Containment Expenses Incurred) / Direct Premiums Earned.


© Copyright 2013 Na onal Associa on of Insurance Commissioners, all rights reserved. The Na onal Associa on of Insurance Commissioners (NAIC) is the U.S. standard-se ng and regulatory support organiza on created and gov-erned by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best prac ces, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collec ve views of state regulators domes cally and interna onally. NAIC members, together with the central re-sources of the NAIC, form the na onal system of state-based insurance regula on in the U.S. For more informa on, visit www.naic.org. The views expressed in this publica on do not necessarily represent the views of NAIC, its officers or members. All informa on contained in this document is obtained from sources believed by the NAIC to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such informa on is provided “as is” without warranty of any kind. NO WARRANTY IS MADE, EXPRESS OR IM-PLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OPINION OR INFORMATION GIVEN OR MADE IN THIS PUBLICATION. This publica on is provided solely to subscribers and then solely in connec on with and in furtherance of the regulatory purposes and objec ves of the NAIC and state insurance regula on. Data or informa on discussed or shown may be confiden al and or proprietary. Further distribu on of this publica on by the recipient to anyone is strictly prohibited. Anyone desiring to become a subscriber should contact the Center for Insur-ance Policy and Research Department directly.

NAIC Central Office Center for Insurance Policy and Research 1100 Walnut Street, Suite 1500 Kansas City, MO 64106-2197 Phone: 816-842-3600 Fax: 816-783-8175

http://www.naic.org http://cipr.naic.org

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