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    What do PBR and Leif Erikson have in common?

    In last week’s blog, I highlighted the Alliance’s major political advocacy victory as we recruited the 100th co-sponsor for House Congressional Resolution 19 – the “Fraternal Resolution.” This week, I’d like to showcase another successful policy initiative that may have an even greater impact on fraternals and other small life insurers.success

    As many of you are aware, enough states have enacted Principles-Based Reserving (PBR) enabling legislation to permit PBR to become effective nationally on January 1, 2017. With the three-year phase-in period, insurers can defer the actual implementation until January 1, 2020. PBR regulation has been in the works for almost a decade. The PBR methodology has been supported by most large life insurers because under PBR rules these insurers would likely have to allocate fewer assets to their reserves to meet regulatory standards. Fair enough.

    Because PBR methodology was not as applicable to smaller insurers, regulators agreed to include a Small Company Exemption(SCE) from PBR rules for insurers with less than $300 million in annual life insurance premium and a Risk-Based Capital (RBC) ratio of 450%. The Alliance supported the application of RBC for larger insurers and agreed with notion of a small company exemption. But the 450% RBC threshold to qualify for the exemption had us concerned that the new regulation could result in many small insurers – fraternal and commercial – having to comply with PBR rules which were never intended for them.

    For the past year, Alliance staff and Board members have been meeting with key regulators to point out that current RBC ratio expectations in most states is 300% and that a 450% RBC standard to qualify for the PBR exemption would, in effect, raise the minimum RBC ratio requirements by 150% for no good reason. You can learn more about the details of the Alliance’s advocacy efforts in our most recent CEO Bulletin. Long story short, regulators agreed with our position and have drafted an amendment to the SCE provisions that would exempt all insurers with less than $50 million in annual life insurance premium from the 450% RBC requirement when seeking an exemption from PBR rules. This amendment is likely to be adopted in 2018, well in advance of the January 1, 2020, effective date of PBR rules.

    This is a significant accomplishment for the Alliance and its members. This initiative enhanced our credibility with regulators in key fraternal states and among NAIC leadership. It also improved our standing with our commercial insurance company peers as our policy position and the amendment being proposed by regulators impacts all insurers – not just fraternals. ‘Nuf said…

    If Leif Erikson ran into these problems he would have never left Norway!


    You think complying with insurance regulation is expensive? Try navigating a tall ship through the Great Lakes! The Drakan Harald – the world’s largest modern Viking ship – sailed across the Atlantic on its way to the Tall Ships Challenge Great Lakes 2016 without a hitch. But when it arrived in North America, the crew discovered that it needed $430,000 to cover “pilot fees” to help the ship navigate the locks and channels of the Great Lakes. You read that right — $430,000.

    What’s the captain of a Viking sailing ship to do? Call the Sons of Norway to the rescue!

    The Sons of Norway, an Alliance member society headquartered in Minneapolis (where else?) has partnered with the Drakan to raise money to help the ship reach its destinations. You can learn more about – and participate in – the Sons of Norway’s effort by CLICKING HERE. You can also take a look at some of the media coverage of this ship’s journey HERE and HERE. I made a contribution to the cause last week (which was difficult for an Italian who was raised on the belief the Christopher Columbus got here first) and I’m hoping that gets me a tour of the ship when it docks in Chicago next month!!!

    “Smells like…victory”

    Alliance members overwhelmingly cite political advocacy as the primary benefit of association membership. And last week, after months of effort, the Alliance experienced two major wins in the advocacy arena, one on Capitol Hill and one at the NAIC.

    The initiatives that resulted in these victories and the tactics employed to achieve them were as different as the issues themselves. The first involved the long-standing fraternal tax exemption and the second, a much more recent debate about the application of Principles-Based Reserving regulation to small insurers. The fact that the Alliance can effectively impact the public policy debate on these wildly divergent issues speaks volumes about the organization’s ability to utilize advocacy strategies that are appropriate to the issue being addressed and the policymaking forum in which debate is taking place.

    Of course, there is still work to be done on both issues – political advocacy rarely results in a permanent success. But, for now, let me tip my hat to the Alliance members, along with our professional advocacy consultants and staff, who made both of these victories possible. This week, I will take a look at the factors that contributed to our federal victory; next week I’ll explore our efforts to impact the outcome of the PBR debate.

    House Congressional Resolution 19 – The 2015-16 session of Congress marked the Alliance’s second attempt at introducing and generating broad-based support for HCR 19, the “Fraternal Resolution.” In the 2013-14 session of Congress, we recruited 53 co-sponsors for the measure – which we thought was quite an accomplishment. This time around, we set a goal of securing 100 co-sponsors. As I mentioned last week, more than a few folks (me included) thought this might be just beyond our reach. Nonetheless, we set our minds to the task and began an initiative that included broad-based participation from member societies through the online “Race to 100” grassroots campaign, combined with personal visits to legislators and their staffs (commonly referred to as “grasstops” advocacy) from Alliance member society CEOs and executive staff. The third-leg of the stool was the day-to-day work done on Capitol Hill by the professional advocates retained by the Alliance; the government affairs staff and advocacy counsel of our largest member, Thrivent Financial; and the Washington, D.C.-based government affairs staff of our second largest member, the Knights of Columbus.

    This multi-faceted effort worked flawlessly. Thousands of individuals from Alliance member societies – employees, field representatives, local chapter leaders, and rank-and-file members – emailed their Representatives urging them to sign-on as a co-sponsor. Armed with the information about the number of constituent emails each Representative had received, the professional advocates from the Alliance and Thrivent, along with KofC staff, took to Capitol Hill virtually every day to follow-up with legislators and staff urging them to join the fraternal movement. Before we knew it, we had 60 co-sponsors, then 70, then 80…

    We suddenly realized that our goal of 100 just might be achievable after all – which gave us all the incentive to double-down on our efforts, generate more grassroots contacts from members, and continue to deliver our message to lawmakers who we knew had heard from their constituents. On Friday, July 8, Rep. Brad Sherman (D-Calif.) became HCR 19’s 100th co-sponsor. Since that time, Rep. Bob Dold (R-Ill.) and Rep. Mike Bishop (R-Mich.) have also signed on. The complete list of co-sponsors can be found here. It’s a glorious combination of Republicans and Democrats, conservatives and liberals, which only demonstrates the universal appeal of the fraternal model and the fraternal message.

    Securing 102 co-sponsors for HCR 19 – almost 25% of the House of Representatives – is a terrific accomplishment. But it’s not the end of the debate on tax reform. After the elections, a new Administration and a new Congress is almost certain to put tax issues front and center. We’ll need to sharpen and expand our ability to communicate with lawmakers at every level. More than three thousand individuals participated in the incredibly successful HCR 19 “Race to 100” campaign. Yet, there are more than 8 million fraternalists in the U.S. In retrospect, having only 3,123 participate in a grassroots campaign on this most important of issues is…disappointing. On the bright side, with just a little effort I think it’s possible to generate 100,000 emails to members of Congress in a future campaign. Imagine the impact we could have on Capitol Hill if that were the case.

    Getting to that point, however, will take some effort on all of our parts. Fraternals must make the commitment to collect email addresses for all their members. Online campaigns just don’t work if they are promoted in newspapers or magazines. Fraternals also have to be willing to educate their members about the tax exemption issue and the need to engage in political advocacy efforts to promote awareness of and support for the exemption. This means conducting training sessions at your conventions, regional meetings, and local chapter meetings. It means having the willingness to use those email addresses you worked so hard to collect to communicate information on your society – including information on public policy issues that affect your organization and its members.

    Advocacy is not a “voluntary” exercise. It should be an involuntary and life-sustaining component of your society – like breathing. And advocacy should not be outsourced to your association or its professional consultants. Yes, the Alliance staff and our retained advocates play an important supporting role. But unless members are willing to take the lead on telling our story to public policymakers, all the lobbyists in the world won’t be able to get the job done.

    So, great work to all those who participated. Take a minute to relish our success. Then start thinking about ways we can go from 3,000 grassroots participants to 100,000, one member at a time.

    3 big developments that rocked my world – and may rock yours…

    1) HCR 19 now has 100 co-sponsors – That’s right, last Friday we received the news that Rep. Brad Sherman (D-Calif.) became the 100th co-sponsor of HCR 19 (the “Fraternal Resolution”). And this morning we learned that Rep. Bob Dold (R-Ill.) became co-sponsor 101. That means that we exceeded a goal that some (including yours truly) thought might be just beyond our reach. What I’ve learned from this is to never underestimate the power of the fraternal message when it’s delivered by credible messengers. It’s a remarkable achievement and the result of a team effort that combined the work of thousands of fraternal members, Alliance staff, and professional advocates. I’ll have much more information on the significance of this accomplishment and, more importantly, where we go from here in the federal advocacy arena, in next Monday’s blog. But for now, let’s take a moment to celebrate winning the “Race to 100!”


    2) Annual Meeting Workshops may be the best ever
    – And given the quality of Workshops at recent meetings, that’s saying something. This year’s topics are both pertinent and timely. We’ll be covering issues from the impact of the Department of Labor’s fiduciary rule on your society and its field force to how to transform your conventions from huge consumers of time and money into educational extravaganzas that help your society expand its membership and enhance its relevance. One of the most thought-provoking sessions with be on the fraternal “shared services” concept – a notion that’s been discussed frequently but has never quite taken flight. The speakers that will be addressing this issue – from both inside and outside the fraternal community – may just change your mind about the viability of this business model, and lead to a whole new chapter of fraternal cooperation and collaboration. There’s one week to go before early bird registration ends. You know you should go, want to go, or are going to go, so why wait and pay more. Register today here.

    3) All work and no play is not the fraternal way
    – Here’s a cool new twist to the Football offerAnnual Meeting. The Alliance has arranged for meeting registrants to get discounted tickets to the Tennessee Titans season opening NFL game against the Minnesota Vikings. So, if you’re a football fan – or just want an excuse to spend the weekend in Nashville – here’s your chance. Purchase tickets by clicking HERE to purchase the specially priced tickets to the game using the promo code: Alliance. If you have already made your hotel reservations and want to extend your stay through the weekend, please contact the hotel directly at 1-800-THE-OMNI before the cut-off date of August 7, 2016.

    Brexit, yield curves, and you…

    The Brexit vote last Thursday was a real stunner.  Financial markets don’t handle surprises very well – especially bad ones.

    brexitI don’t know what impact it had on your 401(k), but mine took a wild ride south before returning to somewhere near its pre-Brexit levels by Independence Day (the U.S. version of Brexit).  Yet with analysts predicting weeks – and potentially months – of uncertainty, the only sure bet is that the consumption of antacids will skyrocket among both professional investors (that would include fraternals) and individuals just trying to guarantee that they won’t outlive their money (that would be many of your members).

    Alliance Associate Member Allen Bailey believes that changes to the yield curve immediately following the recent economic news could require numerous insurance companies – fraternal, mutual, stock, and reciprocal – to post unanticipated, unwanted additional reserves at Year End 2016 when CFT results become known.  T.J. Johnson, a consulting actuary with Allen Bailey & Associates, prepared a briefing paper entitled “Treasury Yield Curve Movement and Asset Adequacy Analysis,” which I found interesting and wanted to share with you.

    Bailey and Johnson stress that insurers need to be aware of the yield curve issue now and to proactively quantify the impact it might have.  If this action is not taken now then it is quite possible that some insurers will have a holiday surprise.  That is, the Grinch might steal some portion of surplus (perhaps a material amount).  “Such a ‘gift’ – first made known to management around the holidays – will likely not engender a prosperous New Year,” according to Bailey.  “Further, if the knowledge of this impending reduction is not quantified now then the society could forego implementation of possible, corrective action that is viable today.”

    The briefing paper points out that the actual dollar level of this reserve, if needed, is dependent upon factors/assumptions that are as varied as Alliance member societies.  But there is one commonality for fraternals with marginal capitalization:  If this new reserve is a material amount of existing surplus then its impact could lead to potential impairment and/or regulatory intervention.

    Bottom line: take a look at the briefing paper and discuss it with your societies’ in-house and/or retained actuarial consultants and asset managers.  The actions you take in July could help ensure a happy holiday season later this year.

    Real People, Real Stories, Real Results…

    The American Fraternal Alliance does not have a Political Action Committee (PAC) that makes contributions to legislators. But I would argue that what we have is more effective than any PAC.

    Group shot

    Group shot of Lobby Day participants

    Our secret weapon? The real people that share the real stories about what their societies do every day in communities across the U.S. and Canada. They are able to communicate the “But for…” message to lawmakers that no PAC contribution or professional lobbyist ever could.

    What’s the “But for…” message? That’s my personal code for zeroing in on the community service efforts we conduct that, but for the existence of Alliance member societies, would not get done. Random acts of kindness are wonderful, and fraternal members carry those out in spades.

    But it’s the organization and funding fraternals provide through thousands of local chapters that turn those random acts into a powerful and long lasting source of good.

    Rep. Williams - TX

    Team visiting with Texas Congressman, Roger Williams.

    And earlier this month we proved once again that the best advocates the Alliance has are its members. I was privileged to participate in a grassroots advocacy event organized by Thrivent’s government affairs team (an incredibly effective group of professionals if there ever was one) that brought more than two dozen of Thrivent’s local chapter leaders to Washington, DC for face-to-face meetings with their members of Congress.

    Thrivent does these events on a regular basis, but this was the first time I had the chance to attend. And this event was just a little different because Thrivent worked with the Alliance to arrange for volunteers from other member societies — Modern Woodmen of America, Catholic Life Insurance, Gleaner Life, and Woman’s Life — to participate, as well.

    Andy Barr and Team KY

    Team visiting with Kentucky Congressman and House Congressional Resolution 19 Co-Sponsor, Andy Barr.

    We took a half-day to prepare the folks for their Capitol Hill meetings. After all, most of them had never met with their legislators and some were intimidated or wondering what difference their voices would make.

    We started by asking them to share their stories of fraternalism with the group — why they got involved, what their local chapters have contributed to the community, and what they got out of these efforts. And those stories were so touching, so impactful, and so honest that about all we had to do after that is encourage them to tell them again when their visited their lawmakers.

    And they did so with gusto and impact.

    Kevin Brady and Texas 2

    Team visiting with Texas Congressman, Kevin Brady

    We marched up to Capitol Hill with 87 co-sponsors for HCR 19 — the Alliance’s “Fraternal Resolution” for which we are trying to recruit 100 co-sponsors. As of today, we have 98 — 98!!! — co-sponsors. And I’m confident we’ll secure two more House members before Congress adjourns later this year.

    That increase is a DIRECT RESULT of the visits to legislators from Alliance member societies. And that’s an incredible accomplishment of which those individuals, their societies, and the entire fraternal system should proud.

    Look for more of these activities to form the foundation of the Alliance’s future advocacy efforts. Are you or your society interested in participating in these type of events? Post your contact information here or send me a private email a jannotti@fraternalalliance.org.

    “Last Week Tonight” for DOL Fiduciary Rule

    Great satire makes you howl with laughter while at the same time raising doubts about the individual or institution being skewered.  John Oliver – a wonderfully talented satirist and host of HBO’s “Last Week Tonight” – did just that when he confronted some of the questionable practices of the financial services industry that contributed to the Department of Labor’s new fiduciary rule.

    Here’s the video below, but let me give you fair warning:

    A) It’s not a very flattering portrayal of the financial services industry.

    B) It’s a cable television program so the language he uses contains more than a few profanities.

    If either of those offend you, then don’t click on the link. But if you’re interested in what millions of Americans watched live last week – and what millions more have subsequently viewed on YouTube, then you really need to see the program.

    Satire only works if it’s based on a kernel of truth. And while Oliver takes that kernel and transforms it into an extra large order of popcorn (with lots of butter), his basic point – that financial products are overly complex and some unscrupulous companies take advantage of consumers’ ignorance – rings true with many folks across the country.

    Oliver’s commentary made it clear to me why policymakers believe the DOL rules were needed in the first place:

    1) The enormous distrust – much of it a remnant of the Great Recession of 2007-08 – that consumers have about “Wall Street,” which includes almost all financial products, financial institutions, and financial advisors.

    2) The fact that the defined benefit pension plans Americans relied on to ensure a comfortable retirement are all but gone. Today, consumers are on their own and must make decisions about saving and investing for their retirement – whether through a 401(k) or an IRA – without a pension safety net.

    That’s a powerful combination of forces that frightens many consumers and includes people close to a traditional retirement age (that would be me) and those just starting out.

    But every dark cloud has a silver lining. And for many consumers, fraternals may be a ray of hope.

    As you’re viewing the program, ask yourself what your society and its field force can do to overcome consumer doubt and inspire trust.

    It might be the fact that fraternal products are often more “plain vanilla” – simple, straightforward, and understandable – than those offered by other financial services providers. And, while our products may not always be the low-cost leader, the earnings from the sale of those products help to fund programs and facilitate community service activities that reflect the members’ shared values. Oh, and that’s another thing. Fraternals are composed of members – not policyholders. Sure, people purchase our products to secure their families’ financial futures. But, in doing so, they also help improve the lives of others in their backyards and across the country. So, do fraternal products meet the “best interests” of the consumer standard established by the Department of Labor? You bet they do.

    I’d love to hear your comments on the program. But I’d really love to hear what you’re doing to address all the concerns that Oliver raises in his bitingly funny and deeply disturbing commentary.


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