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Don’t Blame the Messenger…

Dave DelBiondo, director of the Bureau of Financial Exams for the Pennsylvania Department of Insurance, closed his presentation to attendees at this week’s Pennsylvania Fraternal Congress (PFC) with a frank discussion of fraternal solvency issues that should resonate well beyond the borders of the Keystone State.  Dave has always been known as a “friend of fraternals” and one of the regulators with the greatest degree of understanding of the fraternal system in the U.S.  His tone was calm and factual – not threatening or bombastic – which made his remarks all the more valid. 

Here’s a summary of the key points he made.  I’ll leave the interpretation of them – and the actions you may consider in response to them – up to you:

  • Pennsylvania regulators are duly proud of their track record of solvency regulation. For the first time in 47 years, the state has gone four consecutive years without an insolvency of a PA-domiciled insurer – but it’s likely that this streak will be broken since Penn Treaty/American Network, a long-term care insurer, filed a petition for liquidation earlier this month.
  • When it comes to solvency, the Department’s objectives are:
    – Enhanced early warning detection of solvency concerns
    – Fewer insolvencies
    – More solvent run-offs
  • Life insurers are among the biggest concerns of state regulators because of the impact of the investment market on surplus.
  • The fraternal solvency situation is bad and it may get worse. The Department’s expectation is that every life insurer – commercial and fraternal – should have an RBC level of over 300%. If an insurer falls below that level, you can expect regulators to step in and take action quickly.
  • Traditionally, the PA Department has relied on “encouragement” to get fraternals to change their business practices or consolidate with other societies to enhance their financial condition. But according to Dave, “encouragement does not seem to be working.” That’s why he cautioned fraternal executives “not to be surprised by aggressive regulatory action that ‘requires’ rather than ‘encourages’ societies to take affirmative action to address solvency concerns.” Moreover, Dave told PFC attendees to not “blame regulators for your society’s financial problems or for the more aggressive actions they may take.”
  • Dave also said that while the Department is doing everything it can to try and hold down the cost of regular financial examinations, it is unrealistic to expect that small insurers – commercial or fraternal – will be held to a lower standard simply because they are small. The Department’s concern is protecting consumers from insolvencies or reductions in the value of their policies and investments. Those concerns apply to all insurers equally. If I could paraphrase what he said about these exams it would be this: It is what it is; budget for it and deal with it.
  • Finally, Dave said that the longer struggling societies wait to take action, the fewer options societies and regulators have and the more difficult it becomes to execute them. “Mergers are not slam dunks,” he said. The Department understands they take time and that negotiations are politically sensitive. Nonetheless, a delay strategy only makes it more likely that the Department will require a merger or solvent run-off of a society’s business for the benefit and protection of the organization’s members – which may not always be aligned with the objectives of an organization’s leaders.

Your take on the comments of one of the most respected regulators in the U.S.?  Post them below…

2 Responses

  1. My take…it’s time for action. NFCA is providing a menu of options, it’s up to the society to do one if not all of them. Facts and figures don’t lie. There are certain conditions that must be met in order to be considered financially sound. Similar to brokerage, we set standards that a carrier must meet in order to serve our clients. I had to refuse to work with a carrier this morning because they did not meet a condition…no and’s, if’s, or but’s about it. If the carrier doesn’t have an A.M. Best of A- or better, there’s no reason to continue the discussion. That’s only 1 of the many tests. The DOI operates in the same manner. Fairly and justified so… it’s the members/clients that are being protected.

  2. I was sitting in the meeting when Dave made his remarks and you summaried them very well. Joe, I also wish that you would place in a blog your comments to the PA fraternal congress. Your Road Runner analogy was right on.
    You and Dave were preaching to the choir in the PA meeting!! Many of our boards and conventions need to hear what you both said-from each of you!!!!!!!
    Many officers are afraid to say to their conventions what I heard because of what I call the “guillotine” effect. They don’t say it for fear of losing their (heads) job!
    Even if officers have the courage to say it, many times it comes from too familiar a source.
    My society did three mergers. Two were with societies that could not find people to lead them because the declined so far and the third was forced by a state insurance department.
    I am afraid that because of pride, power, arrogance, and downright stubborness we will have more small fraternals failing and/or seeking consolidation from a position of weakness. Tragic!!!!!!!!!!

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