Thursday, July 7, 2016

Transatlantic Insurance Industry Continues To See Need For Financial Services Regulatory Cooperation In The TTIP

Issue No. 028

In the News

1) "MetLife Makes Its Case Against ‘Too Big to Fail’ Label"
New York Times (02/11/16) Finkle, Victoria
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A federal judge raised tough questions on Wednesday over regulators’ decision to designate the insurer MetLife as “systemically important” to the financial system. Judge Rosemary Collyer focused on how a body of regulators, known as the Financial Stability Oversight Council, made its decisions about companies that could harm the economy, as well as whether regulators followed their own guidelines in the MetLife case. Judge Collyer examined several aspects of the government’s defense of the MetLife designation. She took issue, for example, with the structure of the council, asking whether it has appropriate systems in place to separately gather the evidence and analyze the numbers about possible SIFIs and then fairly judge the firms. There is “nobody neutral” in the process, the judge said. She also raised questions about whether regulators changed their designation process for the insurer from that laid out in earlier interpretive guidance. The judge noted that the council was focused on a need for consolidated oversight by regulators, which could make it hard for any large institution to ultimately “escape” designation once it is being investigated.

2) "Key Moments in the MetLife v. FSOC Hearing"
Wall Street Journal (02/10/16) Tracy, Ryan
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U.S. District Court Judge Rosemary Collyer will be deciding this round of MetLife's challenge of its designation by the federal Financial Stability Oversight Council (FSOC) as a "systemically important financial institution" (SIFI). Collyer questioned lawyers for MetLife and for the government. Judge Collyer said the 2010 Dodd-Frank law, which established the oversight council, required the council only to assess whether distress at the company "could" threaten financial stability. "It’s in the statute and it’s not a very high bar," she said. Eric Beckenhauer, the Justice Department lawyer representing FSOC, picked up this argument and told the judge that MetLife "asked the court to neuter" Dodd-Frank by grafting on requirements that don’t appear the text of the law. MetLife attorney Eugene Scalia of Gibson Dunn & Crutcher LLP argued that the council “kept changing the rules of the game and moving the bar so that MetLife couldn’t win.” Judge Collyer at times seemed to sympathize with that assessment. While government lawyers certainly received the tougher questioning from Judge Collyer, an offhand comment at the end of the hearing suggested she hasn’t made her decision yet. She thanked the lawyers for "really excellent lawyering" that she said she doesn’t always encounter as a federal district judge. "Now we will go figure it out," she said as the hearing adjourned.

3) "For AIG’s Hancock, a Dance at the Activists’ Ball"
Wall Street Journal (02/11/16) Scism, Leslie; Lublin, Joann
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When billionaire investor Carl Icahn last year called for a breakup of American International Group Inc., Chief Executive Peter Hancock shrugged it off, telling colleagues it was an overly simplistic idea that wouldn’t work in insurance. Now, the CEO will find out whether a bigger battle awaits. Icahn must decide by this weekend whether to launch a proxy fight for AIG board seats at this spring’s annual meeting. Icahn declined to comment on the plans but previously has said Hancock’s steps lack the “drastic strategic shift” that he wants. AIG is to report fourth-quarter earnings on Thursday after the closing bell. The insurer’s stock has gained 0.4 percent in the past 12 months, compared with a 10 percent decline in the S&P 500 index. Icahn wants to break apart AIG’s three main insurance businesses—life, property-and-casualty, and mortgage—a move he said would help AIG escape new federal regulations and boost shareholder returns. Hancock has said the benefits of being a conglomerate far outweigh the regulatory burdens and is advocating his alternative plan, which includes $25 billion in share buybacks and dividends, select divestitures and more-aggressive cost-cutting.

4) "AIG: The Value of Togetherness"
Wall Street Journal (02/11/16) Russolillo, Steven
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American International Group Inc. has repeatedly resisted overtures from billionaire investors Carl Icahn and John Paulson to break up the business. The more that interest rates fall, the better that AIG’s argument looks. More than a month after the Federal Reserve raised its benchmark rate from zero, both short- and long-term rates have fallen. Now, many investors anticipate low rates won’t go away anytime soon amid economic risks and broad market turmoil. While those conditions tend to hurt big insurers, AIG, for now at least, has the benefit of diversification on its side. That should help when it reports fourth-quarter results Thursday. Analysts expect a loss for the period ended in December of 92 cents a share, although that is mainly due to an announced $3.6 billion reserve charge. In essence, the market is giving AIG a pass that many other insurers aren’t getting. Low rates hurt the profitability of life insurers, which hold long-term assets to pay future claims. That is because falling rates inflate the present-value terms of those claims.

5) "Prudential Earnings Fall on Higher Spending"
Wall Street Journal (02/10/16) Dulaney, Chelsey
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Prudential Financial Inc. reported a 12 percent decline in operating earnings in its fourth quarter, hurt by higher spending, though revenue declined less than Wall Street expected. Shares fell 2.4 percent in after-hours trading to $62.51. Prudential has been pressured by persistently low interest rates in the U.S. Low rates are particularly harmful because insurers of all stripes invest the premiums paid by customers to generate income while awaiting claims. For the period ended Dec. 31, Prudential's operating earnings were $891 million, or $1.94 a share, compared with $1 billion, or $2.12 a share, a year earlier. Revenue, meanwhile, fell 16 percent to $13.25 billion, while analysts had forecast revenue of $11.53 billion. Revenue from premiums fell 24 percent to $7.5 billion. Analysts say Prudential could come under pressure to slim down after MetLife Inc. decided to shed a chunk of its U.S. life insurance business. The result could be a broader shake-up of the insurance industry’s biggest companies as they contend with increasing regulatory pressures.

6) "Are Retirement Plan Sponsors Too Afraid of Longevity Annuities?"
WealthManagement.com (02/10/16) McCarthy, Ed
Just a few short years ago it looked like qualified longevity annuity contracts (QLACs) were ready to catch on with defined contribution (DC) plan sponsors. Yet the momentum seems to have stalled. The LIMRA Secure Retirement Institute reported that all of 11 companies were offering QLAC products to plan participants as of September of last year. It remains to be seen if this is a trickle that turns into a flood among sponsors; while some are confident their provider-selection process would stand a challenge under ERISA, says Roberta Rafaloff, vice president with MetLife, others say they need additional clarity from the Department of Labor (DOL) on the process of selecting a provider, even though the DOL addressed many of the concerns in its earlier guidance. Still, Rafaloff believes that more clarification from the DOL can only help spur the adoption of QLACs. Fredrik Axsater, head of State Street Global Advisors’ global defined contribution business, agrees: “I think that the Treasury and DOL in the November 2014 joint release were quite powerful in describing ways where you can actually incorporate annuities. They didn’t specifically say QLACs but it could be QLACs in target date funds.”

7) "FIAs on a Tear But for How Long?"
Insurance News Net (02/10/16) Tuohy, Cyril
When measured by product category, about 88 percent of independent producers’ and agents’ fixed annuity sales come from FIAs. But the producer and agent channel, still a sales locomotive for fixed index annuities (FIAs), has been shrinking faster than the polar ice cap ever since. Independent broker-dealers, banks and even a wirehouse or two have warmed to FIA sales and are eroding independent producers' market share. Yet, even as more distribution channels get into the FIA distribution game, none are as aggressive about, or as reliant on selling FIAs as independent producers. That means FIAs could see slower future growth unless the competing channels boost FIA sales. Since total sales of fixed annuities aren't growing, the only way for this market to grow is to start seeing other channels embracing FIAs, Beacon Research CEO Jeremy Alexander said.

8) "Should Women Be Forced to Retire Later Than Men?"
Money (02/16) Konigsberg, Ruth
A recent paper by economists at the Center for Retirement Research points out that since people with lower socioeconomic status haven’t experienced as great an increase in longevity, upping the full benefit age isn’t fair to them, since they will enjoy fewer years of retirement and collect less in benefits. They note that this “mortality inequality” increased from 1979 to 2011 and caution that treating all workers the same will create inequalities in retirement. While seemingly more fair to groups with shorter life spans, adjusting benefits to take longevity into account cuts both ways. Consider the case of women, who tend to live longer than men. For people who make it to 65, men on average live to age 83, while women make it to about 85½, according to the CDC’s analysis of 2012 data. By that math, women should have to wait until 69½ to collect benefits while men collect at 67. While some have suggested that the full retirement age should be raised for high-earning workers and lowered for lower earners, such longevity adjustments would present some ethical dilemmas.


© Copyright 2016 INFORMATION, INC.

More News

Class Action Suits On Plan Fees Steam Ahead
Bloomberg BNA (02/10/2016)  Ben-Yosef, Andrea

U.S. And Europe Reach Agreement On Derivatives Regulation
New York Times (02/11/2016)  Moyer, Liz

Recent ACLI Publications

Legislative Bulletin: No. 16-007
02/10/2016. Legislative updates based on state activity

ACLI Digest: February 08, 2016
02/08/2016. A summary of developments on industry issues. 

Regulatory Bulletin: January 2016
02/04/2016. Monthly snapshot of ACLI posted state regulations and other administrative material and federal rules implementing the Dodd-Frank Act. 

State News Weekly: February 04, 2016
02/04/2016. Updates on industry developments in the states and at the NAIC.   

By The Numbers: January 2016
01/29/2016. U.S. and global solvency regulatory matters impacting life insurers. 

TRS Report: December 2015 Edition
12/04/2015.
This newsletter focuses on the most active issues in taxes & retirement security.

Calendar

February 11, 2016
Financial Instruments Forum Call  11:30 AM ET

February 12, 2016
No ACLI meetings/conferences scheduled

Upcoming ACLI Conferences

Medical Section Annual Meeting, February 20-23, 2016, Houston, TX
ReFocus Conference, March 6-9, 2016, Las Vegas, NV



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The American Council of Life Insurers (ACLI) advocates on behalf of 280 member companies dedicated to providing products and services that promote consumers’ financial and retirement security. 90 million American families depend on our members for life insurance, annuities, retirement plans, long-term care insurance, disability income insurance, reinsurance, dental and vision and other supplemental benefits. ACLI represents member companies in state, federal and international forums for public policy that supports the industry marketplace and the families that rely on life insurers’ products for peace of mind. ACLI members represent 95 percent of industry assets in the United States. Learn more at www.acli.com.


Date Posted: July 7, 2016
Document ID: NN16-028
Contact: David Nielsen, 202-624-2419