Havenstrite v. Hartford (Update)
In the ongoing COLI related identity misappropriation suit against Hartford, Hartford has yet to respond to the plaintiffs’ class certification motion which they were originally scheduled to file on October 16th. In their December 11th extension filing, Hartford noted for the first time that the parties were in continued settlement discussions.
The Wall Street Reform and Consumer Protection Act
On December 11th, the House passed sweeping financial regulation. The Wall Street Reform and Consumer Protection Act includes the Financial Stability Improvement Act of 2009 (H.R. 3996), creates an interagency oversight council that will identify and monitor financial firms and activities that can potentially undermine the nation’s financial stability; the Federal Insurance Office Act of 2009 (H.R. 2609), creating a federal insurance office; the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), creating a Consumer Financial Protection Agency; the Over-the Counter Derivatives Markets Act (H.R. 3975); Capital Markets legislation (including the Private Fund Investment Advisors Act, Accountability and Transparency in Rating Agencies Act, and the Investor Protection Act); and Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269), to address executive compensation. The vote was a 223-202 with no Republicans voting for the bill and 27 Democrats voting against it as well. The Senate is working from a discussion draft regulatory reform bill that was introduced by Sen. Dodd last month.
New Basel Committee Capital and Liquidity Proposals
On December 17th, the Basel Committee on Banking Supervision released for comment new proposals that aim to strengthen the banking sector through new capital and liquidity standards. The proposals cover the following key areas: raising the quality, consistency and transparency of the capital base; strengthening the risk coverage of the capital framework; introducing a leverage ratio as a supplementary measure to the Basel II risk-based capital framework; introducing a series of measures to promote the build-up of capital buffers in good times that can be drawn upon during periods of stress; and introducing a global minimum liquidity standard for internationally active banks. The Committee is also reviewing the need for additional capital, liquidity or other supervisory measures to reduce the externalities created by systemically important institutions. The comment period is scheduled to end on April 16, 2010.
Tax Change to Boost Regulatory Capital for Insurers
Insurance regulators have approved an accounting change to temporarily give insurers the ability to use future tax benefits to boost regulatory capital. The NAIC adopted changes to the SSAP No. 10-Income Taxes and the measure allows life and property-casualty insurers to count deferred tax assets as regulatory capital. The change is effective for insurers’ year-end 2009 statutory financial statements and the impact of the change will be disclosed in the notes to financial statements in the insurers’ statutory filings.
New SEC Disclosures about Risk, Compensation and Corporate Governance
On December 16th, the SEC approved rules to expand information provided to shareholders with the aim of providing shareholders better information to evaluate the leadership of public companies. The new rules require disclosure in proxy and information statements about: the relationship of a company’s compensation policies and practices to risk management, stock and option awards to company executives and directors, potential conflicts of interests of compensation consultants, legal actions involving a company’s executive officers, directors and nominees, among other disclosures. The new rules become effective February 28, 2010.
NY’s Proposed Producer Compensation Transparency Regulation
The New York Department of insurance has proposed a new Producer Compensation Transparency Regulation which was published in the NY Register on December 2nd. The proposed regulation is intended to provide a means to address the potential conflict that arises due to the differences in the amount of compensation an insurer pays to its producers by requiring that insurance producers make certain disclosures to their customers about their role in the insurance transaction and their compensation arrangement with insurers. Specifically, the regulation would require an insurance producer to disclose whom the producer represents in the transaction, that the producer will receive compensation from the insurer based on the sale of the policy, that the compensation paid by insurers may vary, and that the purchaser may obtain from the producer, upon request, information about the compensation the producer expects to receive from the sale of the policy. The regulation also requires a producer to disclose the amount of compensation for the policy selected and any alternative quotes presented, if requested by the customer. The public comment period will end on January 7th.
Many, if not most, insurance agents and brokers are opposed to the proposed regulation. In fact, the Independent Insurance Agents and Brokers of New York (IIABNY) issued a press release announcing that it is prepared to bring legal action to overturn the proposed regulation if it progresses unchanged. MBSA supports adoption of the regulation and generally supports full disclosure and transparency, including matters related to compensation. We have operated in accordance with the intent of this proposed regulation for over 15 years and somehow managed to survive.