Insurance Claims And Issues

Computer Models Calculate Risks of Buying Your Life Insurance Policy.

   Not content with the limitations of securitization and bundling so amply revealed in late 2008 and early 2009, many investors are turning to Computer Models to calculate the risks of buying Life Insurance Policies -- from you and your clients.  The prospects held out by this approach include bigger returns on investments for Wall Street and maybe most investors, but not for you.

   Wall Street investors are reportedly gathering steam as they grow excited about the returns they could receive on investments in other peoples' Life Insurance Policy payouts.  Investors' risks in "life settlements" and "viatical settlements" include the Insured outliving her or his life expectancy.  "The sooner the seller [Insured] dies, the more money the investment makes."  Michelle Singletary, "Playing Investment Games With Life and Death" (Washington Post Online, Thursday, September 10, 2009).

   This particular "investor's risk" carries with it the specter of potential fraud and potential peril to the Insured seller.  If investors receive a sufficiently greater return on their investment if you or your client die sooner rather than later, i.e., if the purchaser of your Life Insurance Policy payout gets more money the sooner you die, there is obviously a range of incentives built in to that investment, ranging from an incentive to perpetrate mayhem to  at least acquiesce in all sorts of life-threatening policies, practices, and procedures.  Talk about "Moral Hazard"!  This type of 'investment' gives a whole new meaning to that phrase.

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Accountable Accounting by Life and Health Insurance Companies 101.

    We always knew that changing accounting rules was poor Regulation.  Now we know that it is also poor accounting.

    In this Commentary by Jonathan Weil, "Insurers' Biggest Writedowns May be Yet to Come" (Bloomberg.com Thursday, August 20, 2009), commentary is extended regarding Profit and Loss Statements by Health and Life Insurance Companies, and news is reported that may affect our lives.

    Mr. Weil comments regarding something I learned about myself for the first time, called "deferred acquisition costs, or DAC".  Id.  These debits are accounted as credits.  But apparently only by Insurance Companies.  Such as the Health and Life Insurance Companies identified by Mr. Weil in his Commentary.  In basic terms, these particular costs include various commissions and other expenses connected with obtaining new and renewal Insurance Premiums.  The Insurance Companies are allowed to put these debits on their books as a credit, i.e., as an asset rather than as the cost they are.  Id. 

     The news reported by Mr. Weil is old but new.  In a little-reported decision in May of this year, the United States Financial Accounting Standards Board announced that it "is scheduled to release a proposal during the fourth quarter to overhaul its rules for insurance contracts."  Part of the proposed overhaul of rules for Insurance Policies is to eliminate the DAC rule, which is apparently unique to Insurance Companies in any case.  Id.  "What's at stake isn't the real value of the industry's assets, but investors' perceptions of how much they're worth."  Id.

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More Bad News Reported From Life Insurance Companies, AIG, Bailouts.

    A recent article by a knowledgeable and respected business reporter, Mary Williams Walsh, highlights the poor results displayed by Life Insurance Companies and by AIG both:  "A.I.G. Posts its First Quarterly Profit Since 2007" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, August 7, 2009).

    Premiums from AIG's domestic Life Insurance Companies reportedly declined 15% from the same period one year ago.  Id.  A former AIG Life Insurance actuary reportedly surveyed the financial results of all of these Life Insurance Companies as though a State Insurance Regulator were examining them.  The former actuary concluded that 7 of AIG's 8 Life Insurance Companies "could have been deemed insolvent and shut down last year had it not been for the federal rescue." Id.

    "Over all," AIG's reported net income for 2Q 2009 was $1.8 Billion or $1,800,000,000.00.   Federal Taxpayer Funds account for $1.5 Billion or $1,500,000,000.00.  The resulting profit of some $311 Million or $311,000,000.00, is AIG's first reported quarterly profit since 2007.  Id.

  Parenthetically, it is reported in the same article that "[p]remiums for insurance sold [by AIG] to businesses declined by 19 percent from a year earlier," id., although it is unclear what is meant by "insurance sold to businesses" exactly.  The idea is never explained, and it is not mentioned in the published article a second time. 

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UPDATE ON Downfall OF HARTFORD, LINCOLN NATIONAL ...

    ... FIRST TWO TO TAP TARP FOR LIFE.  This is an update on the post in these Categories on June 19, 2009.

    The first -- and so far, the only -- Life Insurance Companies to take TARP money from the Federal Taxpayers have reported their current Quarterly results.  HARTFORD FINANCIAL SERVICES GROUP, which reportedly took $3.4 Billion or $3,400,000,000.00 in TARP bailout funds, reported a loss for the fourth consecutive Quarter.  Hartford itself reported a loss for its most recent Quarter of $15 Million or $15,000,000.00.  That compares with a profit in the same Quarter a year ago in the reported amount of $543 Million or $543,000,000.00.

    LINCOLN NATIONAL reported a loss for the third consecutive Quarter.  Its reported loss for the Quarter just ended is $161.4 Million or $161,400,000.00.  One year ago, LN reported a profit in the same Quarter of $124.7 Million or $124,700,000.00.  John Kell, "Hartford, Lincoln Post Quarterly Losses Again" (Wall Street Journal/Dow Jones International reports, available online, July 29, 2009)(subscription required by the Wall Street Journal for full access).

    "Troubled Assets," perhaps; definitely no "Relief" until and unless the LIfe Insurance operations of The Hartford and LN get with the "Program," if ever.

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Resources for Counseling Clients About Life Insurance Companies' Likely Lifespans.

    You may share with me the sense that counseling about Life Insurance Coverage also often includes counseling about how to find out which Life Insurance Companies are most likely to be around next year, or next decade.  A suggested list of helpful resources and links is provided by Kathy M. Kristof, "Personal Finance/How to Check Your Life Insurer's Health" (Los Angeles Times Online, Sunday, June 28, 2009).

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"Your Money, FOR Your Life".

    Bettors have a rigged game going.  They call it "Stranger Originated Life Insurance".  Strangers originate Life Insurance Policies on other people in exchange for settling with the Policyholder while the Policyholder is still alive, of course.  "Life settlements" are paid when people with likely longevity are involved and "viatical settlements" are made when longevity is not likely.  Fancy words.  Here is what they mean for lawyers and for people.

    Strangers take out an Insurance Policy on your Life and they pay the Premiums.  Or strangers take over the payment of your Life Insurance Premiums in exchange for the Policy proceeds.  "Strangers" means just that, they do not know you and they have no interest in you.  Until you die.  Then they claim the proceeds of the Life Insurance Policy which they paid you money to take out.  Seems like a good deal for you, on its face:  You get their money to use during your life, or you get out from under paying Life Insurance Premiums, and they get Life Insurance Policy proceeds you cannot use after you are dead.

    From an insurability standpoint, considering first whether there is any "insurable interest" in your Life justifying the payment to ghoulish investors of your Life Insurance proceeds rather than to, say, any other beneficiary you may designate, there is a question as to why the law or your Life Insurance Policy should recognize these people's claim on your Life Insurance proceeds?

    From a safety standpoint, kindly be aware that the trade in other people's Life Insurance is largely unregulated.  Some of that trade is reportedly illegal.  There is a risk to investors, too, that they will be the victim of shoddy practices or worse, of downright fraud.  Kind of like the fact that there are now demonstrated risks in buying food or consumer goods made in China.

     See generally Benjamin Popper, "The Big Money/Betting on Death" (Washington Post.com, Sunday, June 21, 2009).

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Hartford, Lincoln National First Two to Tap TARP for Life.

    Due to its failing Life Insurance operations, as previously posted here, Hartford Financial Services Group just became the first of the 6 Life Insurance Companies that eagerly sought and received approval for Federal Taxpayer Bailout Money, to receive TARP injections.  Andrew Frye, "Hartford to Accept as Much as $3.4 Billion From TARP (Update 5)" (Bloomberg.com, Friday, June 12, 2009).

    And Lincoln National just became the second of the 6 Life Insurance Companies to receive TARP botoxins.  See Cyrus Sanati, "Lincoln National to Take Bailout Money and Issue Stock" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, June 16, 2009).

    Time will tell what cover TARP will provide for The Hartford and the Lincoln National Life Insurance operations, and what effect The Hartford and the Lincoln National Life Insurance operations will have on TARP.

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The Hurricanes Are Coming, The Hurricanes Are Coming!

    Is your Insurance Coverage prepared for Hurricanes?  The Hurricane Season officially begins on Monday, June 1, 2009.  Ready?  Explore the issues addressed in this report from Slate, by Martha C. White, "Hurricane Prudence/Is the Battered Insurance Industry Ready for the Storm Season?" (Sunday, May 31, 2009).

    The two main issues addressed in this report are the reasons why Property and Casualty Insurance Companies are so much sounder financially than Life Insurance Companies, and some of the changes in Florida Insurance since the 2004 and 2005 Hurricane Seasons struck the State.

    Speaking of Florida and incoming Hurricanes, President Barack Obama reports that Federal Government statistics reflect that "a huge percentage of people" has not experienced a Hurricane.  The statistics reflect that nearly half of the population on the Eastern Seaboard have recently moved to cities there, without experiencing a Hurricane.  See Steven Thomma, "Obama:  Hurricane Readiness is Residents' Responsibility" (McClatchy Newspapers Online, Friday, May 29, 2009).   The Federal Government has provided a potentially useful web site for information and/or planning for Hurricanes:  www.ready.gov.

    Florida newspapers are providing their Hurricane guides at about this time.  Check out in particular "What You Should Know About Your Insurance" in the Orlando Sentinel Hurricane Guide (Sunday, May 31, 2009).  And see also this piece in the Orlando Sentinel's Guide, "How to File an Insurance Claim After the Storm," or contact one of the many Florida State Government agencies, and Private Insurance Companies, listed at "Hurricane Central" on the web site of the Florida Insurance Council, www.flains.org.

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Lifeline and Mr. Liddy: Federal Taxpayers Bail Out Allstate Too.

    Six Life Insurance Companies which applied for Federal TARP or Taxpayer Bailout Funds, have reportedly received preliminary approval for the Taxpayer money.  Jeremy Hobson, "Life Insurers Get a Piece of the Bailout," Friday, May 15, 2009, available online in print or broadcast form at Marketplace on National Public Radio.

    Life Insurance Companies have been robustly applying for the Bailout money for months.  "Life insurers have clamored for six months to get into a program that the nation's biggest banks are trying to flee to avoid governmental restrictions."  Andrew Frye and Rebecca Christie, "Prudential Among Insurers Cleared for U.S. Bailout (Update 2)" (Bloomberg.com, Friday, May 15, 2009).  Credit Default Swaps are the major reason for the clamor by Life Insurance Companies for Federal Bailout money.  As was previously posted here several times, Life Insurance Companies literally made poor bets with Credit Default Swaps and their share prices fell accordingly.

    One of the few surprises in today's announcement is that Allstate is among the applicants.   See also Eric Dash and Diana B. Henriques, "Six Insurers Named to Get Taxpayer Aid" p. B1, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 15, 2009)(identifying the qualifying Life Insurance Companies but not noting that they are all Life Insurance Companies nor why these Life Insurance Companies applied for the money).  It was not previously reported, or at least not widely reported, that Allstate had even applied.  They apparently did so because of their Life Insurance operations.  See Andrew Frye and Rebecca Christie, supra, reporting that since October, 2008, "Allstate cut its dividend by 50 percent, halted share buybacks and announced plans to cut 1,000 jobs at its money-losing life insurance unit."

    Allstate advertises Life Insurance products at Allstate Financial online.

    Mr. Edward Lilly is famous, at the present time, for receiving "only" $1.00 for heading up AIG during its current time of trial.  AIG is apparently forced to use mostly Taxpayer Bailout money in its budget at the present time.  (Federal Taxpayers own 79.9 percent of the shares of AIG at this point.)  It is very well known that Mr. Liddy previously headed up Allstate until he came out of retirement to head up AIG.

    Allstate reportedly declined to say how much money it stands to receive, but there is no doubt that the amount is much more than "$1.00".  The Hartford reportedly announced that it alone could now receive $3.4 Billion of Federal Taxpayer money.  Eric Dash and Diana B. Henriques, supra.  Another qualifying applicant, Lincoln National, "said it may receive $2.5 billion."  Andrew Frye and Rebecca Christie, supra.

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Can You Write "LIFE" Insurers Seek TARP Funds?

    Property and Casualty Insurance Companies give every evidence of solvency.  They are not the Insurance Companies which are seeking TARP Funds or Bailouts using Federal Taxpayer Funds.

    Instead, the Insurance Companies which are seeking Federal Taxpayer Funds are all Life Insurance Companies.  A couple of the newspaper reporters who have gotten this are David S. Hilzenrath and Brady Dennis, in "Treasury Weighs Investment in Life Insurers" (Washington Post Online, Thursday, April 9, 2009).  Compare, for example, Robert Cryan and Jeffrey Goldfarb, "Breakingviews.com/Little Rationale to Aid Insurers" p.B2, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Thursday, April 23, 2009)(a report which does not report that the "insurers" seeking the "aid" are all life insurers).

    Why are Life Insurance Companies seeking a Bailout while Property and Casualty Insurance Companies are not?  Life Insurance Companies, unlike Property and Casualty insurers, foolishly invested heavy amounts of their shareholders' funds in securitized financial products such as Credit Default Swaps (read:  AIG financial techniques practiced by companies with other names).

    Sadly, the shareholders of these Life Insurance Companies suffered great losses.  Their sadness is no reason for shifting that sadness or that liability to Federal Taxpayers.

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