COMMONWEALTH OF PENNSYLVANIA INSURANCE DEPARTMENT MARKET CONDUCT EXAMINATION REPORT METROPOLITAN LIFE INSURANCE COMPANY NEW YORK, NY

Transcription

1 COMMONWEALTH OF PENNSYLVANIA INSURANCE DEPARTMENT MARKET CONDUCT EXAMINATION REPORT OF METROPOLITAN LIFE INSURANCE COMPANY NEW YORK, NY As of: September 3, 2013 Issued: November 22, 2013 MARKET ACTIONS BUREAU LIFE AND HEALTH DIVISION

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25 METROPOLITAN LIFE INSURANCE COMPANY TABLE OF CONTENTS Section Page I. Introduction 4 II. Scope of Examination 8 III. Company History and Licensing 9 IV. Company Operations and Management 11 V. Marketing and Sales 12 A. Marketing and Sales 12 B. Advertising Certificate of Compliance 12 VI. Forms 14 VII. Producer Licensing, Appointment and Termination 15 VIII. Consumer Complaints 17 IX. Underwriting 18 A. Underwriting Guidelines 19 B. Individual Whole Life Insurance Policies Issued 20 C. Individual Life Insurance Policies Issued as Replacements 21 D. Individual Fixed Annuity Contracts Issued 25 E. Individual Variable Annuity Contracts Issued 26 F. Individual Term Life Insurance Policies Terminated 28

26 G. Individual Variable Life Insurance Policies Terminated 28 H. Individual Whole Life Insurance Policies Terminated 29 I. Universal Life Insurance Policies Terminated 29 J. Individual Fixed Annuity Contracts Surrendered 30 K. Individual Variable Annuity Contracts Surrendered 30 L. Individual Whole Life Insurance Policy Loans 30 M. Universal Life Insurance Policy Loans 31 N. Variable Life Insurance Policy Loans 32 O. Individual Long-Term Care Policies Issued 32 P. Individual Long-Term Care Policies Issued as Replacements 33 Q. Individual Long-Term Care Policies Terminated 33 R. Group Long-Term Care Policies Issued 35 S. Group Long-Term Care Policies Issued as Replacements 36 T. Group Long-Term Care Policies Terminated 37 U. Group Life Conversion Policies Issued 39 X. Claims & Claims Manuals 41 A. Claim Manuals 41 B. Individual Whole Life Insurance Claims Paid 44 C. Individual Term Life Insurance Claims Paid 45 D. Individual Universal Life Insurance Claims Paid 45 E. Individual Variable Life Insurance Claims Paid 46 F. Individual Annuity Claims Paid 47 G. Individual Whole Life Insurance Claims Denied 49 H. Individual Long-Term Care Claims Paid 51 I. Individual Long-Term Care Claims Denied 52 J. Group Long-Term Care Claims Paid 52 K. Group Long-Term Care Claims Denied 53 2

27 XI. Internal Audit & Compliance Procedures 55 XII. MCAS Reporting 56 A MCAS Life Report 59 B MCAS Life Report 66 C MCAS Annuity Report 70 D MCAS Annuity Report 73 E. MCAS Policies and Procedures; Data Extraction and Report Generation 75 XIII. Recommendations 77 XIV. Company Response 79 3

28 I. INTRODUCTION The Market Conduct Examination was conducted on Metropolitan Life Insurance Company; hereafter referred to as Company, at the Company s office located in Johnstown Pennsylvania from October 1, 2012, through December 21, A satellite location was used from January 7, 2013, through April 5, Subsequent review and follow-up was conducted in the office of the Pennsylvania Insurance Department. Pennsylvania Market Conduct Examination Reports generally note only those items, to which the Department, after review, takes exception. A violation is any instance of Company activity that does not comply with an insurance statute or regulation. Violations contained in the Report may result in imposition of penalties. Generally, practices, procedures, or files that were reviewed by Department examiners during the course of an examination may not be referred to in the Report if no improprieties were noted. However, the Examination Report may include management recommendations addressing areas of concern noted by the Department, but for which no statutory violation was identified. This enables Company management to review these areas of concern in order to determine the potential impact upon Company operations or future compliance. Throughout the course of the examination, Company officials were provided status memoranda, which referenced specific policy numbers with citation to each section of law violated. Additional information was requested to clarify apparent violations. An exit conference was conducted with Company officials to discuss the various types of violations identified during the examination and review written summaries provided on the violations found. The courtesy and cooperation extended by the Officers and Employees of the Company during the course of the examination is acknowledged. 4

29 The following examiners participated in the Examination and in the preparation of this Report. Yonise A. Roberts Paige, MCM Pennsylvania Insurance Department Market Conduct Division Chief Lonnie L. Suggs, MCM Pennsylvania Insurance Department Market Conduct Examiner Roshanak Fekrat, MCM, CPA, CFE, CIA Global Insurance Enterprises, Inc. Firm Supervisory Partner Samuel BowerCraft, MSIS, CISA Global Insurance Enterprises, Inc. Senior IT Examiner George Brown, MCM, CFE, CIE Global Insurance Enterprises, Inc. Market Conduct Examiner 5

30 Ray Conover, MCM, FLMI, AIE, ARe Global Insurance Enterprises, Inc. Market Conduct Examiner Aram Morvari, MCM, MBA Global Insurance Enterprises, Inc. Market Conduct Examiner Tina Renfrow, CFE, MBA Global Insurance Enterprises, Inc. Market Conduct Examiner 6

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32 II. SCOPE OF EXAMINATION The Market Conduct Examination was conducted pursuant to the authority granted by Sections 903 and 904 (40 P.S and 323.4) of the Insurance Department Act and covered the experience period of January 1, 2010, through December 31, 2010, unless otherwise noted. The purpose of the examination was to ensure compliance with Pennsylvania insurance laws and regulations. The examination focused on the market conduct activities in areas such as: Company Operations and Management, Marketing and Sales, Forms, Producer Licensing, Appointments and Terminations, Consumer Complaints, Underwriting Practices and Procedures, Claims Handling Practices and Procedures and Market Conduct Annual Statement (MCAS) Reporting Practices and Procedures. The Company was requested to identify the universe of files for each segment of the review. Based on the universe sizes identified, random sampling was utilized to select the files reviewed for this examination. During the course of the examination, for control purposes, some of the review segments identified in this Report may have been broken down into various sub-categories by line of insurance or Company administration. These specific sub-categories, if not reflected individually in the Report, would be included and grouped within the respective general categories of the Examination Report. 8

33 III. COMPANY HISTORY AND LICENSING The National Travelers Insurance Company was originally incorporated on May 4, 1866 in the State of New York. Its name was changed to Metropolitan Life Insurance Company on March 24, The Company received its certificate of authority to operate in the Commonwealth of Pennsylvania on January 1, The Company is authorized to do business in all 50 states, the District of Columbia, Puerto Rico, Guam, Northern Mariana Islands, the U.S. Virgin Islands and Canada. On January 6, 1915, Metropolitan Life mutualized, changing from a stock life insurance company owned by individuals to a mutual company operated for the benefit of its policyholders. In 1990, the company changed its corporate signature from Metropolitan Life to the shorter MetLife. On November 29, 1998, the Company announced that it would pursue converting to a stock company from a mutual company through demutualization under Section 7312 of the New York Insurance Law. On September 28, 1999, the MetLife Board of Directors adopted a plan for converting the organization from a mutual to a stock company. On November 24, 1999, MetLife announced that it had filed its demutualization plan with the New York State Superintendent of Insurance and on February 18, 2000, the Company s policyholders approved the plan to convert to a stock company. On April 5, 2000, MetLife held its initial public offering (IPO). With the demutualization, Metropolitan Life Insurance Company had become a wholly owned subsidiary of MetLife, Inc. 9

34 In 2003, MetLife, Inc. and John Hancock Life Insurance Company announced that Metropolitan Life Insurance Company had agreed to purchase John Hancock s group life insurance business. During the same year, Security Equity life Insurance Company and MetLife Security Company of Louisiana were merged into the Metropolitan Life Insurance Company. In 2005, MetLife Inc. entered into an agreement to acquire Citigroup s Travelers Life and Annuity business and substantially all of Citigroup s international insurance business, except its business in Mexico. In 2010, MetLife completed its purchase of American Life Insurance Company, from American International Group (AIG). MetLife s life insurance products and services comprise term life, whole life, universal life and variable universal life. MetLife also offers fixed annuities, variable annuities, deferred annuities and immediate annuities. In addition, the company writes accident and health insurance business. In its December 31, 2010 Annual Statement, the Company reported for the Commonwealth of Pennsylvania, direct premiums of $371,166,252 for ordinary life insurance, $393,604,534 for annuity considerations, $266,932,762 for accident and health insurance premiums and $424,643,965 for other considerations. 10

35 IV. COMPANY OPERATIONS AND MANAGEMENT The Company was requested to provide information documenting its management and operational procedures in areas for which they conduct business for the Commonwealth of Pennsylvania. The following areas were reviewed: General Procedures and Company History Auditing Programs and Procedures Controls of Computer Information Outsourcing and Monitoring of Management Services Retention of Records Licensed for Lines of Business Privacy of Consumer Information These areas were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulation. No violations were noted. 11

36 V. MARKETING AND SALES A. Marketing and Sales The Company was requested to provide a list of all marketing and sales material utilized during the experience period. The Company provided a list of 635 pieces of marketing and sales material utilized in the Commonwealth during the experience period. The files consisted of: letters, direct mailers, brochures, presentations, radio and television scripts, cards, illustrations, product guidelines, product manuals and the Company s web page. A sample of 113 pieces of marketing and sales material was requested, received and reviewed. The marketing and sales material and the Company s web site was reviewed to ensure compliance with Act 205, Section 5 (40 P.S ), Unfair Methods of Competition and Unfair or Deceptive Acts or Practices and Title 31, Pennsylvania Code, Chapter 51. No violations were noted. B. Advertising Certificate of Compliance The Company was requested to provide a copy of the Advertising Certificate of Compliance for the experience period. The certification was received and reviewed to ensure compliance with Title 31, Pennsylvania Code, Section Section 51.5 provides that A company required to file an annual statement which is now or which hereafter becomes subject to this chapter shall file with the Department with its Annual Statement a Certificate of Compliance executed by an authorized officer of the company wherein it is stated that to the best of his knowledge, information and belief the advertisements which were disseminated by the company during the preceding statement 12

37 year complied or were made to comply in all respects with the provisions of the insurance laws and regulations of this Commonwealth. No violations were noted. 13

38 VI. FORMS The Company was requested to provide a list and copies of all policy and/or member forms, conversion contracts, applications, riders, amendments and endorsements used during the experience period. The forms provided and forms reviewed in various underwriting sections of the exam were reviewed to ensure compliance with Insurance Company Law, Section 354 and Title 18, Pennsylvania Consolidated Statutes, Section 4117(k), Fraud notice. The following violations were noted: 3 Violations Insurance Company Law, Section 354 (40 P.S. 477b) It shall be unlawful for any insurance company, association, or exchange, including domestic mutual fire insurance companies, doing business in this Commonwealth, to issue, sell, or dispose of any policy, contract, or certificate, covering life, health, accident, personal liability, fire, marine, title, and all forms of casualty insurance or contracts pertaining to pure endowments or annuities, or any other contracts of insurance, or use applications, riders, or endorsements, in connection therewith, until the forms of the same have been submitted to and formally approved by the Insurance Commissioner. Evidence of the Department s approval could not be established in the noted files. Form # PPS-APP-9-08 PPS-APP-5-09 MPP (05/09) Description Application Application Application 14

39 VII. PRODUCER LICENSING, APPOINTMENT AND TERMINATION The Company was requested to provide a list of all producers active and terminated during the experience period. Section 671-A (40 P.S ) of the Insurance Department Act prohibits producers from doing business on behalf of or as a representative of any entity without a written appointment from that entity. Section A (40 P.S a) of the Insurance Department Act prohibits a company from accepting insurance applications or securing any insurance business through anyone acting without a license. Section A (40 P.S a) of the Insurance Department Act requires the Company to report all producer terminations to the Department. The Company identified a universe of 13,765 active and 922 terminated producers during the experience period. A random sample of 72 active and 68 terminated producer files were requested, received and reviewed. The sample was compared to departmental records of producers to verify appointments, terminations and licensing. In addition, producer licensing and appointments were also reviewed in the various underwriting sections. The following violations were noted: 2 Violations Insurance Department Act, No. 147, Section 671-A (40 P.S ) (a) Representative of the insurer. An insurance producer shall not act on behalf of or as a representative of the insurer unless the insurance producer is appointed by the insurer. An insurance producer not acting as a representative of an insurer is not required to be appointed. (b) Representative of the consumer. An insurance producer acting on behalf of or representing an insurance consumer shall execute a written agreement with the insurance consumer prior to representing or acting on their behalf that: (1) Delineates the services to be provided; and (2) Provides full and complete disclosure of the fee to be paid to the insurance producer by the insurance consumer. 15

40 (c) Notification to department. An insurer that appoints an insurance producer shall file with the department a notice of appointment. The notice shall state for which companies within the insurer s holding company system or group the appointment is made. (d) Termination of appointment. Once appointed, an insurance producer shall remain appointed by an insurer until such time as the insurer terminates the appointment in writing to the insurance producer or until the insurance producer s license is suspended, revoked or otherwise terminated. (e) Appointment fee. An appointment fee of $15.00 will be billed annually to the insurer for each producer appointed by the insurer during the preceding calendar year regardless of the length of time the producer held the appointment with the insurer. The appointment fee may be modified by regulation. (f) Reporting. An insurer shall, upon request, certify to the department the names of all licensees appointed by the insurer. The Company failed to file a notice of appointment and submit appointment fees to the Insurance Department for the noted producers. Last Name Piccolomini Nagle First Name Louis Karen 16

41 VIII. CONSUMER COMPLAINTS The Company was requested to identify all consumer complaints received during the experience period and provide copies of consumer complaint logs for 2006, 2007, 2008, and The Company identified 202 consumer complaints received during the experience period. A random sample of 120 complaint files were requested, received, and reviewed. The Company also provided complaint logs as requested. The Department s list of written consumer complaints that were forwarded to the Company during the experience period was compared to the Company s complaint log. The complaint files and the 4 years of complaint logs were reviewed for compliance with the Unfair Insurance Practices Act, No. 205 (40 P.S. 1171). Section 5 (a) (11) of the Act requires maintenance of a complete record of all complaints received during the preceding four (4) years. The record shall indicate the total number of complaints, their classification by line of insurance, the nature of each complaint, the disposition of the complaint and the time it took to process each complaint. Written complaint files involving claims were also reviewed for compliance with Title 31, PA Code, Section 146.5(b) and 146.5(c), Unfair Claims Settlement Practices. No violations were noted. 17

42 XI. UNDERWRITING The Underwriting review consisted of 21 general segments. A. Underwriting Guidelines B. Individual Whole Life Insurance Policies Issued C. Individual Life Insurance Policies Issued as Replacements D. Individual Fixed Annuity Contracts Issued E. Individual Variable Annuity Contracts Issued F. Individual Term Life Insurance Policies Terminated G. Individual Variable Life Insurance Policies Terminated H. Individual Whole Life Insurance Policies Terminated I. Universal Life Insurance Policies Terminated J. Individual Fixed Annuity Contracts Surrendered K. Individual Variable Annuity Contracts Surrendered L. Individual Whole Life Insurance Policy Loans M. Universal Life Insurance Policy Loans N. Variable Life Insurance Policy Loans O. Individual Long-Term Care Policies Issued P. Individual Long-Term Care Policies Issued as Replacements Q. Individual Long-Term Care Policies Terminated R. Group Long-Term Care Policies Issued S. Group Long-Term Care Policies Issued as Replacements T. Group Long-Term Care Policies Terminated U. Group Life Conversion Policies Issued Each segment was reviewed for compliance with underwriting practices and included forms identification and producer identification. Issues relating to forms or licensing 18

43 appear in those respective sections of the Report and are not duplicated in the Underwriting portion of the Report. A. Underwriting Guidelines The Company was requested to provide copies of all underwriting guidelines and manuals utilized during the experience period. The documents provided were reviewed to ensure that underwriting guidelines were in place and being followed in a uniform and consistent manner and that no underwriting practices or procedures were in place that could be considered discriminatory in nature, or specifically prohibited by the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. The following underwriting manuals, guidelines and procedures were provided and reviewed: MetLife - The Underwriting Guide September 2012 Producer s Guide Field Underwriting and New Business Producers 2009 Producer s Guide Field Underwriting and New Business Producers 2010 Use of the Individual Decision Guidelines Manual Calligo Guidelines Index Numerous Users Guides ICD9 Master List 7-09 Substandard Health Rating Preferred Standard Health Rating Underwriting Judgment Materials for communication with the Public Suitability Worksheet Decision Guidelines for Specific Diagnosis 19

44 B. Individual Whole Life Insurance Policies Issued The Company was requested to provide a list of all individual life insurance policies issued during the experience period. The Company identified a universe of 3,709 individual whole life insurance policies issued during the experience period. A random sample of 72 individual whole life insurance policy files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania Statutes and Regulations. The following violations were noted: 1 Violation - Title 31, Pennsylvania Code, Section 81.5 (b) The insurer shall require as part of a completed application for life insurance or annuity a statement signed by the applicant as to whether the proposed insurance or annuity will replace existing life insurance or annuity. The applicant s replacement question was not answered in the noted application. 1 Violation - Insurance Company Law, Section 404-A (40 P.S ) When the producer delivers the individual policy or annuity to the policyholder by hand, a delivery receipt shall be used. This receipt must be in at least a duplicate set and state the date the policy or annuity was received by the policyholder. The receipt date shall be the date on which the policyholder and producer sign the delivery receipt, and such date shall commence any applicable policy or annuity examination period. Copies of the delivery receipt must be provided to the policyholder on the date of policy or annuity delivery and to the issuing insurer. When the individual policy or annuity is delivered by a means other than by hand delivery by the producer, the insurer shall establish appropriate means of verifying delivery by the producer of the policy or annuity and of establishing the date from which any applicable policy or examination period shall commence. Evidence of policy delivery could not be established in the noted file. 20

45 1 Violation Insurance Company Law, Section 408-A (e) (2) (ii) (40 P.S ) The following applies if no illustration is used by a producer in the sale of a life insurance policy or if a computer screen illustration is displayed. Where a computer screen is used, the producer shall certify in writing on a form provided by the insurer that a computer screen illustration was displayed. Such form shall require the producer to provide, as applicable, the generic name of the policy and any riders illustrated, the guaranteed and no nonguaranteed interest rates illustrated, the number of policy years illustrated, the initial death benefit, the premium amount illustrated and the assumed number of years of premiums. On the same form, the applicant shall further acknowledge that an illustration matching the policy displayed on the computer screen will be provided no later than the time the application is provided to the insurer. A copy of this signed form shall be provided to the applicant at the time it is signed. Certification by the agent and acknowledgement by the applicant that an illustration was used or provided on a computer screen could not be established in the noted file. 1 Violation Insurance Company Law, Section 408-A (e) (2) (iii) (40 P.S ) The following applies if a producer in the sale of a life insurance policy uses no illustration or if a screen illustration is displayed. If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed by the policy owner no later than the time the policy is delivered. A copy shall be provided to the policy owner at the time the policy is delivered and to the insurer. Certification and acknowledgement of the delivery of an illustration could not be established in the noted file. C. Individual Life Insurance Policies Issued as Replacements The Company was requested to provide a list of all individual life insurance policies issued as replacement during the experience period. The Company identified a universe 21

46 of 543 individual life insurance policies issued as replacements during the experience period. A random sample of 65 individual life insurance policies issued as replacement files were requested, received and reviewed. Of the 65 policies requested 2 policy files were not replacement policies. The remaining 63 files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statues and Regulations. The following violations were noted: 2 Violations - Title 31, Pennsylvania Code, Section 81.6 (a) (2) (ii) An insurer that uses an agent or broker in a life insurance or annuity sale shall, if replacement is involved: Send to each existing insurer a written communication advising of the replacement or proposed replacement and the identification information obtained under subparagraph (I) and in the case of life insurance, the disclosure statement as required by 83.3 (relating to disclosure statement) or ledger statement containing comparable policy data on the proposed life insurance. This written communication shall be made within 5 working days of the date the application is received in the replacing insurer s home or regional office, or the date the proposed policy or contract is issued, whichever is sooner. The replacement letter to the replaced Company was untimely in the noted files. 10 Violations - Title 31, Pennsylvania Code, Section 81.6 (c) The replacing insurer shall maintain evidence of the Notice Regarding Replacement of Life Insurance and Annuities. The noted files did not contain a copy of the required notice of replacement. 1 Violation - Insurance Company Law, Section 404-A (40 P.S ) When the individual policy or annuity is delivered to the policyholder by the producer by hand, a delivery receipt shall be used. This receipt must be in at least a duplicate set and state the date the policy or annuity was received by the policyholder. The receipt date shall be the date on which the policyholder and producer sign the delivery receipt, and 22

47 such date shall commence any applicable policy or annuity examination period. Copies of the delivery receipt must be provided to the policyholder on the date of policy or annuity delivery and to the issuing insurer. When the individual policy or annuity is delivered by a means other than by hand delivery by the producer, the insurer shall establish appropriate means of verifying delivery by the producer of the policy or annuity and of establishing the date from which any applicable policy or examination period shall commence. Evidence of policy delivery could not be established in the noted file. 1 Violation Insurance Company Law, Section 408-A (a) (1) (40 P.S (a) (3) If the insurer identifies a life insurance policy form as one to be marketed without an illustration, any use of an illustration with any policy using that policy form prior to the first policy anniversary is prohibited. Certification and acknowledgement of the use of an illustration for a non-illustrated product was contained in the noted file. 6 Violations Insurance Company Law, Section 408-A (c) (4) (i) (40 P.S ) A statement to be signed and dated by the applicant or the policy owner in the case of an illustration provided at time of delivery, reading as follows: I have received a copy of this illustration and understand that any nonguaranteed elements illustrated are subject to change and could be either higher or lower. At the time of policy delivery, the applicant s acknowledgement of an illustration receipt was not dated in the noted files. 6 Violations Insurance Company Law, Section 408-A (c) (4) (ii) (40 P.S ) A statement to be signed and dated by the producer reading as follows: I certify that this illustration has been presented to the applicant or the policy owner and that I have explained that any nonguaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration. The agent s certification could not be established in the noted files. 23

48 1 Violation Insurance Company Law, Section 408-A (e) (1) (i) (40 P.S ) The following applies if a basic illustration is used by a producer in the sale of a life insurance policy. If the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this section, shall be submitted to the insurer no later than the time the policy application is sent to the insurer. A copy shall also be provided to the applicant no later than the time the application is signed by the applicant. At the time of application, the agent s certification and the applicant s acknowledgement of the illustration used could not be established in the noted file. 1 Violation Insurance Company Law, Section 408-A (e) (3) (i) (40 P.S ) The producer shall certify in writing on a form provided by the insurer that the policy applied for is other than as illustrated. On the same form the applicant shall acknowledge that the policy applied for is other than as illustrated and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer as soon as practical after the application is signed by the applicant. At the time of application, the noted file did not contain the signed certification and acknowledgement that the illustration used in the sale of the life insurance policy did not conform to the policy as applied for. 1 Violation Insurance Company Law, Section 408-A (e) (3) (ii) (40 P.S ) The following applies if an illustration is used by a producer in the sale of a life insurance policy but the policy applied for is other than as illustrated. If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed by the policy owner no later than the time the policy is delivered. A copy shall be provided to the policy owner no later than the time the policy is delivered and to the insured as soon as practical after the policy is delivered. At the time of policy delivery, the noted file did not contain a signed acknowledgment of the delivery of the illustration. 24

49 9 Violations Insurance Company Law, Section 410-D (a) (2) (40 P.S. 510c) Individual fixed dollar life insurance or endowment policies which are offered as replacements for an existing life insurance policy or annuity contract with an insurer or insurer group other than the one which issued the original policy or contract shall not be delivered in the Commonwealth of Pennsylvania unless they shall have prominently printed on the first page of such policy or attached thereto a notice stating in substance that the policyholder shall be permitted to return the policy within at least twenty (20) days of its delivery and to have the premium refunded if after examination of the policy the policyholder is not satisfied with it for any reason. Evidence of the required 20-day "free look" statements could not be established in the noted files. D. Individual Fixed Annuity Contracts Issued The Company was requested to provide a list of all individual annuity contracts issued during the experience period. The Company identified a universe of 484 individual fixed annuity contracts issued during the experience period. A random sample of 15 individual fixed annuity contracts issued were requested, received, and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 9 Violations - Title 31, Pennsylvania Code, Section 81.6(c) The replacing insurer shall maintain evidence of the Notice Regarding Replacement of Life Insurance and Annuities. The noted files did not contain a copy of the required notice of replacement. 11 Violations Insurance Company Law, Section 410-E (a) (2) (40 P.S. 510d) Individual fixed dollar annuity contracts which are offered as replacements for an existing annuity contract or life insurance policy with the same insurer or insurer group 25

50 shall not be entered into in the Commonwealth of Pennsylvania unless they shall have prominently printed on the first page of such contract or attached thereto a notice stating in substance that the contractholder shall be permitted to return the contract within at least forty-five (45) days of its delivery. Evidence of the required 45-day free look statement could not be established in the noted files. E. Individual Variable Annuity Contracts Issued The Company was requested to provide a list of all individual annuity contracts issued during the experience period. The Company identified a universe of 3,612 individual variable annuity contracts issued during the experience period. A random sample of 15 individual variable annuity contracts issued were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 2 Violations - Title 31, Pennsylvania Code, Section 81.4 (b)(1) If replacement is involved, the agent or broker shall: present to the applicant, not later than at the time of taking the application, a Notice Regarding Replacement of Life Insurance and Annuities. At the time of application, the noted files did not contain the required replacement forms. 2 Violations - Title 31, Pennsylvania Code, Section 81.6 (c) The replacing insurer shall maintain evidence of the Notice Regarding Replacement of Life Insurance and Annuities. The noted files did not contain a copy of the required notice of replacement. 26

51 2 Violations Title 31, Pennsylvania Code, Section 81.6 (a)(2)(ii) An insurer that uses an agent or broker in a life insurance or annuity sale shall, if replacement is involved: Send to each existing insurer a written communication advising of the replacement or proposed replacement and the identification information obtained under subparagraph (I) and in the case of life insurance, the disclosure statement as required by 83.3 (relating to disclosure statement) or ledger statement containing comparable policy data on the proposed life insurance. This written communication shall be made within 5 working days of the date the application is received in the replacing insurer s home or regional office, or the date the proposed policy or contract is issued, whichever is sooner. Evidence of the required replacement letter to the replaced Companies could not be established in the noted files. 2 Violations Insurance Company Law, Section 410-E (b)(2) (40 P.S. 510d) Individual variable annuity contracts which are offered as replacements for an existing annuity contract or life insurance policy with the same insurer or insurer group shall not be entered into in the Commonwealth of Pennsylvania unless they shall have prominently printed on the first page of such contract or attached thereto a notice stating in substance that the contract holder shall be permitted to return the contract within at least forty-five (45) days of its delivery. Evidence of the required 45-day free look statement could not be established in the noted files. 1 Violation Insurance Company Law, Section 410-E (b)(3) (40 P.S. 510d) Individual variable annuity contracts which are offered as replacements for an existing annuity contract or life insurance policy with an insurer or insurer group other than the one which issued the original contract or policy shall not be entered into in the Commonwealth of Pennsylvania unless they shall have prominently printed on the first page of such contract or attached thereto a notice stating in substance that the contract holder shall be permitted to return the contract within at least twenty (20) days of its 27

52 delivery. Evidence of the required 20-day free look statement could not be established in the noted files. F. Individual Term Life Insurance Policies Terminated The Company was requested to provide a list of all individual life insurance policies terminated during the experience period. The Company identified a universe of 1,192 individual term life insurance policies terminated during the experience period. A random sample of 15 term life insurance policies terminated files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 6 Violations - Insurance Department Act, Section 903 (40 P.S ) (a) Every Company or person subject to examination in accordance with this act must keep all books, records, accounts, papers, documents and any or all computer or other recordings relating to its property, assets, business and affairs in such manner and for such time periods as the department, at its discretion, may require in order that its authorized representatives may readily ascertain whether the Company or person has complied with the laws of this Commonwealth. Evidence of the required proof of termination letters could not be established in the noted files. G. Individual Variable Life Insurance Policies Terminated The Company was requested to provide a list of all individual life insurance policies terminated during the experience period. The Company identified a universe of 208 individual variable life insurance policies terminated during the experience period. A 28

53 random sample of 10 individual variable life insurance policies terminated files were requested, received and reviewed. The 10 files were terminated due to policy lapse. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. H. Individual Whole Life Insurance Policies Terminated The Company was requested to provide a list of all life insurance policies terminated during the experience period. The Company identified a universe of 2,538 individual whole life insurance policies terminated during the period. A random sample of 15 individual whole life insurance policies terminated files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. I. Universal Life Insurance Policies Terminated The Company was requested to provide a list of all policies terminated during the experience period. The Company identified a universe of 283 universal life insurance policies terminated during the experience period. A random sample of 10 universal life insurance policies terminated files were requested, received and reviewed. The 10 universal life insurance policy files were terminated due to policy lapse. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. 29

54 J. Individual Fixed Annuity Contracts Surrendered The Company was requested to provide a list of all individual annuities surrendered during the experience period. The Company identified a universe of 412 individual fixed annuities surrender during the experience period. A random sample of 15 individual fixed annuity contracts surrendered files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. K. Individual Variable Annuity Contracts Surrendered The Company was requested to provide a list of all annuities surrendered during the experience period. The Company identified a universe of 2,546 individual variable annuities surrendered during the experience period. A random sample of 15 individual variable fixed annuity contracts surrendered files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. L. Individual Whole Life Insurance Policy Loans The Company was requested to provide a list of all life insurance policy loans issued during the experience period. The Company identified a universe of 73 individual whole life insurance policy loans issued during the experience period. A random sample of 5 individual whole life insurance policy loan files issued were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 30

55 5 Violations Insurance Company Law, Section 410-F (40 P.S. 510e (C) (5)(i)(ii)) (i) notify that policyholder at the time a cash loan is made of the initial rate of interest on the loan; (ii) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in subsection(c)(5)(iii). Notification to policyholders of the initial interest rate at the time the cash loan was made could not be established in the noted files. M. Universal Life Insurance Policy Loans The Company was requested to provide a list of all life insurance policy loans issued during the experience period. The Company identified a universe of 57 universal life insurance policy loans issued during the experience period. A random sample of 5 universal life insurance policy loan files issued were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 5 Violations Insurance Company Law, Section 410-F (40 P.S. 510e (C) (5)(i)(ii)) (i) notify that policyholder at the time a cash loan is made of the initial rate of interest on the loan; (ii) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in subsection(c)(5)(iii). Notification to policyholders of the initial interest rate at the time the cash loan was made could not be established in the noted files. 31

56 N. Variable Life Insurance Policy Loans The Company was requested to provide a list of all life insurance policy loans issued during the experience period. The Company identified a universe of 62 variable life insurance policy loans issued during the experience period. A random sample of 5 variable life insurance policy loan files issued were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 5 Violations Insurance Company Law, Section 410-F (40 P.S. 510e (C) (5)(i)(ii)) (i) notify that policyholder at the time a cash loan is made of the initial rate of interest on the loan; (ii) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in subsection(c)(5)(iii). Notification to policyholders of the initial interest rate at the time the cash loan was made could not be established in the noted files. O. Individual Long-Term Care Policies Issued The Company was requested to provide a list of all individual long-term care policies issued during the experience period. The Company identified a universe of 388 individual long-term care policies issued. A random sample of 15 individual long-term care policies issued files were selected, received and reviewed. The policy files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. No violations were noted. 32

57 P. Individual Long-Term Care Policies Issued as Replacements The Company was requested to provide a list of all individual long-term care policies issued as replacements. The Company identified a universe of 7 individual long-term care policies issued as replacements during the experience period. All 7 individual long-term care policies issued as replacement files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 1 Violation - Title 31, Pennsylvania Code, Section 89a.113 (e) (e) Where replacement is intended, the replacing insurer shall notify, in writing, the existing insurer of the proposed replacement. The existing policy shall be identified by the insurer, the name of the insured and policy number or address including zip code. Notice shall be made within 5 working days from the date the application is received by the insurer or the date the policy is issued, whichever is sooner. The replacement letter to the replaced Company was untimely in the noted file. Q. Individual Long-Term Care Policies Terminated The Company was requested to provide a list of all individual long-term care term policies terminated during the experience period. The Company identified a universe of 378 individual long-term care policies terminated during the experience period. A random sample of 15 individual long-term care policies terminated files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 33

58 8 Violations - Title 31, Pennsylvania Code, Section 89a.106(a)(3) (a) Each insurer offering long-term care insurance shall, as a protection against unintentional lapse, comply with the following conditions: (1) Notice before lapse or termination. An individual long-term care policy or certificate may not be issued until the insurer has received from the applicant either a written designation of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium, or a written waiver dated and signed by the applicant electing not to designate additional persons to receive notice. The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured. Designation may not constitute acceptance of liability on the third party for services provided to the insured. The form used for the written designation must provide space clearly designated for listing at least one person. The designation shall include each person s full name and home address. In the case of an applicant who elects not to designate an additional person, the waiver shall state: Protection against unintended lapse. I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until 30 days after a premium is due and unpaid. I elect not to designate a person to receive this notice. The insured shall be able to change the written designation at any time. The insurer shall notify the insured of the right to change this written designation, at least once every 2 years. (2) Deduction plans. When the policyholder or certificate holder pays premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the requirements contained in paragraph (1) need not be met until 60 days after the policyholder or certificate holder is no longer on the payment plan. The application or enrollment form for those policies or certificates shall clearly indicate the payment plan selected by the applicant. 34

59 (3) Lapse or termination for nonpayment of premium. No individual long-term care policy or certificate may lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days before the effective date of the lapse or termination, has given notice to the insured and to those persons designated under paragraph (1), at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice shall be given by first class United States mail, postage prepaid; and notice may not be given until 30 days after a premium is due and unpaid. Notice shall be deemed to have been given as of 5 days after the date of mailing. Evidence of the required 30-day lapse or termination notice could not be established in the noted files. R. Group Long-Term Care Policies Issued The Company was requested to provide a list of all group long-term care policies issued during the experience period. The Company identified a universe of 212 group long-term care policies issued. A random sample of 15 group long-term care policies issued files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 6 Violations Title 31, Pennsylvania Code, Section 89a.127 A long-term care insurance shopper s guide in the format developed by the National Association of Insurance Commissioners, or a guide developed or approved by the Commissioner, shall be provided to all prospective applicants of a long-term care insurance policy or certificate. (1) In the case of producer solicitations, a producer shall deliver the shopper's guide prior to the presentation of an application or enrollment form. 35

60 (2) In the case of direct response solicitations, the shopper's guide shall be presented in conjunction with an application or enrollment form. Evidence of mailing for the required shopper s guide to the prospective applicants could not be established in the noted files. S. Group Long-Term Care Policies Issued as Replacements The Company was requested to provide a list of all group long-term care policies issued as replacements during the experience period. The Company identified a universe of 2 group long-term care policies issued as replacements during the experience period. The 2 policy files were requested, received and reviewed. The files were reviewed to ensure compliance with the Commonwealth of Pennsylvania s Statutes and Regulations. The following violations were noted: 2 Violations - Title 31, Pennsylvania Code, Section 89a.113 (e) (e) Where replacement is intended, the replacing insurer shall notify, in writing, the existing insurer of the proposed replacement. The existing policy shall be identified by the insurer, the name of the insured and policy number or address including zip code. Notice shall be made within 5 working days from the date the application is received by the insurer or the date the policy is issued, whichever is sooner. The replacement letter to the replaced Company was untimely in the noted files. 2 Violations - Title 31, Pennsylvania Code, Section 89a.113 (f) (f) The insurer shall maintain records demonstrating delivery date of policies so that this date can be used to determine the commencement of the 30-day policy examination period. Delivery date shall be deemed the date the policy is received by the policyholder. Evidence of the policy delivery date could not be established in the noted files. 36