Report No. MCLH E. Examination Period: July 1, March 31, 2010 INSURANCE ADMINISTRATION ~ ~

Transcription

1 MARKET CONDUCT EXAMINATION REPORT OF THE LIFE INSURANCE BUSINESS OF LIFE INSURANCE COMPANY OF THE SOUTHWEST (NAIC #65528) One National Life Drive Montpelier, VT Report No. MCLH E Examination Period: July 1, March 31, 2010 ~ ~ INSURANCE ADMINISTRATION STATE OF MARYLAND MARYLAND INSURANCE ADMINISTRATION ELIZABETH SAMMIS, ACTING COMMISSIONER DECEMBER 17, 2010

2 MARTIN O MALLEY Governor ANTHONY G. BROWN Lt. Governor MARYLAND INSURANCE ADMINISTRATION BETH SAMMIS Acting Commissioner KAREN STAKEM HORNIG Deputy Commissioner NANCY GROD[N Associate Commissioner Compliance & Enforcement December 17, St. Paul Place, Suite 2700, Baltimore, Maryland Direct Dial: Fax: [email protected] TTY: The Honorable Elizabeth Sammis Acting Commissioner of Insurance State of Maryland 200 St. Paul Place, Suite 2700 Baltimore, Maryland Dear Commissioner Sammis: Pursuant to your instructions and authorization, an examination has been made ofthe market conduct affairs of: LIFE INSURANCE COMPANY OF THE SOUTHWEST whose home office is located at One National Life Drive, Montpelier, Vermont The report of such Examination is being respectfully submitted. Sincerely Signature on file with original Nancy Grodin, Associate Commissioner Compliance and Enforcement

3 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 TABLE OF CONTENTS SECTION. PAGE I. EXECUTIVE SUMMARY I II. SCOPE OF EXAMINATION 2 Ill. COMPANY PROFILE 3 IV. LIFE INSURANCE BUYER S GUIDE 4 V. RECOMMENDATION 5 VI. EXAMINATION REPORT SUBMISSION 6 Life Insurance Company of the Southwest

4 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 I. EXECUTIVE SUMMARY The Maryland Insurance Administration (hereinafter MIA ) conducted a targeted Market Conduct Examination of Life Insurance Company of the Southwest (hereinafter Company ). The focus of the Examination was to review the Company s business practices as they relate to its life insurance line of business to determine whether the Company s disclosure and producer communication practices comply with Maryland insurance laws and regulations. The Company has provided the following certifications: The Life Insurance Buyer s Guide in use during the examination period, Policy Issue Guideline Procedures and page 24 of its Compliance Manual were provided; The Company illustrates all life insurance policies; The Company does not issue Pre-need Funeral Contracts or Prearrangements; The Company provided sections of its Compliance Manual and its Advertising Compliance Checklist For Non-registered Products to demonstrate its communications to producers regarding the requirements under COMAR during the examination period; The Company provided its Policy Review Checklist, used as a control mechanism at policy issue and delivery, along with a copy of its Policy Receipt to demonstrate the Company s quality control. The MIA has reviewed the submitted documentation and found one violation of COMAR One recommendation and a more precise description of the violation are noted herein. Life Insurance Company of the Southwest

5 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 II. SCOPE OF EXAMINATION A target Market Conduct Examination ( Examination ) has been performed on the Company and a Report thereon is submitted as follows: The Examination was conducted pursuant to the statutory authority granted under ~2-205, 2-207, 2-208, and ofthe Insurance Article and COMAR The period covered by the examination was July 1, 2009 through March 31, 2Q10. The purpose of the examination was to assess the Company s compliance with COMAR , amended effective May 18, 2009, titled Life Insurance Disclosure.. All unacceptable or non-compliant practices may not have been discovered or noted in the report. Failure to identify or criticize improper or non-compliant business practices in Maryland or other jurisdictions does not constitute acceptance of such practices. Life Insurance Company of the Southwest 2

6 MARYLAND INSURANCE ADMINISTRATION DECEMBER 1], 2010 III. COMPANY PROFILE Date Incorporated: 03/07/1 955 Date Commenced: 01/02/1 956 Domicile: TX Originally incorporated as Coleman Life Insurance Company, the present title was adopted in Life Insurance Company of the Southwest (LSW) specializes in the sale of annuities, primarily fixed-indexed annuities, with a concentration in qualified deferred annuities and 403(b) tax-sheltered annuities. NLIC (National Life Insurance Company) acquired LSW by purchasing all of its voting stock between 1996 and 1999 and enabled National Life s entry into the 403(b) qualified tax deferred retirement savings market. In recent years, LSW has realized significant growth, particularly in fixed-indexed annuities, as it continues to expand its distribution capacity within its core markets in the West and Southwest regions of the United States. 1 1 A.M. Best Company, AMB Online Credit Report Insurance Professional for Life Insurance Company of the Southwest, History and in pertinent part Business Review, last updated 06/18/2010, retrieved p9/21/2010. Life Insurance Company of the Southwest 3

7 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 IV. LIFE INSURANCE BUYER S GUIDE. Issue I - Violation of COMAR B. The Company failed to provide the most current version of the NAIC Buyer s Guide to Maryland insureds. COMAR , titled Life Insurance Disclosure, provides in pertinent part: FINDING I.05 Duties of Carriers B. If the policy for which application is made contains an unconditional refund provision of at least 10 days, the carrier shall provide the buyer s guide with the policy or before delivery of the policy. The Company failed to provide the most current version of the NAIC Buyer s Guide to Maryland insureds from May 18, 2009 through March 21, The NAIC Life Insurance Buyer s Guide that the Company submitted for review contained cost index information. In June of 2001, the NAIC removed the cost index information from its current version of the Buyer s Guide, available on the NAIC website. Per COMAR B (1) Buyer s guide is defined to be the most current version of the Life Insurance Buyer s Guide adopted by the National Association of Insurance Commissioners (NAIC). The Company has updated its procedures and has certified that it is now distributing the most recent Buyer s Guide effective September 3, Life Insurance Company of the Southwest 4

8 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 V. RECOMMENDATION Recommendation: The Company provided a Policy Delivery form, Policy Issue Guidelines and a Policy Review Checklist. Each of these forms referred to a policy summary. The Company provided a copy of the policy summary, titled SecurePlus Provider (Universal Life Insurance) Summary of Coverage. The Company explained that all of its life insurance policies are illustrated. The policy summary is a supplemental illustration that is attached to its product illustration. The MIA agrees this is not a policy summary as defined under COMAR and therefore, did not review the policy summary submitted for compliance under the regulation. However, the MIA does recommend that the Company rename the document, so that it is not confused with the defined policy summary under Maryland regulation. As the Company titles this form Summary of Coverage, it is suggested that the Company use this title in lieu of policy summary. Life Insurance Company of the Southwest 5

9 MARYLAND INSURANCE ADMINISTRATION DECEMBER 17, 2010 VI. EXAMINATION REPORT SUBMISSION The courtesy and cooperation extended to the examiners by the Company s officers and employees during the course ofthe examination are gratefully acknowledged. Signature on file with original Nan y GrodiFi, A ociate Commissioner Compliance & Enforcement Unit In addition, the following individuals participated in this examination and in the preparation of this report. William W. Rogers, AlE, AIRC, FLMI, MCM Assistant Chief Examiner Compliance & Enforcement Unit Mary McAusland, ACS, AlE, AIRC, FLMI, MCM Market Conduct Examiner Compliance & Enforcement Unit Penny Schuster Market Conduct Examiner Compliance & Enforcement Unit Kristen A. Walter Market Conduct Associate Compliance & Enforcement Unit Life Insurance Company of the Southwest 6

10 IN THE MATTER OF THE MARYLAND INSURANCE COMMISSIONER BEFORE THE STATE OF MARYLAND INSURANCE COMMISSIONER V., :. * LIFEINSURANCECOMP~NYOFTHE. SOUTHWEST (NAIC # 65528) *.. ONE NATIONAL LIFE DRIVE. * MONTPELIER, VERMONT CASE NO.: MIA- &oto - ~ o ~ * ****~** ***** CONSENT QRDER. The Maryland: Insurance Commissioner ( Commissioner ) and Life lnsurance Company of the Southwest (hereinafter Respondent ), pursuant to ~.2-108, 2-204,2-205 of the Insurance Article, Md. Code Ann.,. (hereinafter the Insurance Article ), and any other applicable sections, enter into this Oonsent Order ( Order ) as follows:... EXPLANATQRY, STATEMENT AND FINDINGS OF FACT.. 1. At all times reievar~ttb this Consent Order, Respondent has held and currently holds a certificate of authority from the Maryland Insurance Administration (hereinaft~r Administration ) to operate as an insurer 2. The Administration conducted, a Market Conduct Examination (hereinafter. Examination ) of Respondent..,., 0. :...,. 3. Respondent admits to the facts apd accepts the Adini.nistration s conclusions as :stated in. Examihatio.n Report.r~iurnberMCLH E (hereinafter Report ), but denies liability to any third party as, a re~uit.of the yiolations noted in this Report. Both Respondent and the Administration agree to~the conditions of the Order and the remedial, measures set forth herein. Respondent executes this Order knowingl,y and voluntarily. The parties acknowledge that thi~order is in the public interest and both parties,d~sireto resolve this matter without further proceedings. 0 (17

11 4. The Examination, the details of which are included in the Report, incorporated herein as. if set forth in full, concluded that Respondent violthted the following Maryland.; Regulation: 0 0 COMAR, B 0 WHEREFORE, pursuant to ~2-108 and 4-113(d)(1) of the Insurance Article, it is hereby ORDERED b.y the Commissioner and consented to by Respondent: A.. Respondent shall accept the Report as final and waives any right to a ~hearingon or for judicial review of the Report..,, B. ~.~espondent shailcorrect the violation as noted in the Report within ninety (90) days pf the date this Order is executed by the Acting Insurance Commissioner or her designee. Respondent shall ~etforth in a letter to the Commissior~erthat the violation: has been succe~sfuilycorrected. Such.Iettei~shall be acco~npaniedby a certification, signed by an officer of the RespOndent, certifying that the information is true and accurate. C. Respondent shall pay an adrriinistrative penalty to the State of Maryland for the violation steted, herein~ WIn the, amount Of t*o thousand dollars ($2,000.00), contemporaneously with Respondent s execution of this Order. Administrative penalties sh~ll be made payable to the Maryland!nsurance Administration and shell identify the case by number,or name. Unpaid penalties will b e referred to the Central Colledtioii Unit for çoli~ctions., 0 0. D.,The executed brder and payment of the admihistrative penalty shall be sent to. the attention of: Associate Commissioner, Compliance and Enforcement, 200 St. Pau~ Place, Suite 2700; Baltimore, MD , 0-2-

12 E. Respondent agrees that no amounts paid pursuant to Paragraph C of this Order shall be included in or recoverable as exp~nsesin any rate filing filed with the Administration or any ether regulatory authority., F. For the purposes of the Administration and for any subsequent administrative or civil proceedings concerning Respondent, whether related or unrelated ~tothe foregoing paragraphs, and with regard to requests for information about the Respondent made under,the Maryland Public,lnformation Act, or properly made by governmental agendies, this Order will be kept and maintained in the regular.course of business b.y the Administr~tion. For the purposes of the business of the Administration,,the record s and publications of the Administration will reflect this Order., :,, G. The parties agree that this Order resolves all matters relating.to the Report only, and the factual assertions and agreements contained herein are to be used solely for the purposes of this proceeding, brought by or On. behalf of the Adhiinistration. Nothing herein shall be d~eme~,a Waiver o,f the Commissioner s right to proceed in an administrative action or civil action for violations not specifically identified in this Order, including,, but not limited,to~specific consumei com~laiiitsreceived by the Administration, nor shall anything herein be deemed a waiver of the right of the Respondent to contest other proceedings by the Administration. Additidnally, Respondent understands and agrees that this Order addresses and resolves only the administrative actions by. the Compliance and Enforcement Section of the Administration relating to the Report. This Order shall not be construed to resolve or preclude any potential or pendin~civil, administrative, or, criminal action or prosecution by any other person, entity Or governmental authority, including but not limited td the Insurance,, Fraud Division of the Administration, regarding any conduct by the Respondent including the conduct that is the subject of this Consent Order.,. -3-

13 H. Respondent has had the opportunity to have thi~order reviewed by legal counsel of its choosing, and,is aware of the benefits gained end obligations incurred by the execution of the Order. Respondent waives any and all rights to any hearing or judicial review of this Order to which it would otherwise be entitled under the lnsurance Article with respect to any ofthe determinations made or actions ordered by this Order. I. This Order,contains the entire agreement between the parties relating to the administrative actions addressed herein. This, Order supersedes any and all earlier agreementc or negotiations, whether orel or written. All time frames, set forth.i n this Order be amended or mp dified only by subsequent written agreement of the parties., J. On behalf of Respondent,, the undersigned representative of Respondent affirms that he or she has taken all necessary steps,to obtain, the,,authority to bind Respondent to the dbligations state~hére~nand does in fact have the authorit y to bind Re~pondentto the, obligetions.steted herein.., K. This Order shall be,effec ~ive upon signing by the Commissioner or her, designee, and is a Fipal Order of the Commissioner under,~2-204 of the Insurance Article. L. Failure to comply with the terms of this Order may subjec,t Respondefltto further legal and/or administrative action It is so ORDERED, this 17 th day of December, 2010., ELIZABETH SAMM1S, ACTING INSURANc.E COMMISSIONER Signature on file with original By: Nancy Grodin, Associate Commissioner Compliance & Enforcement 4 -

14 RESPONDENT S CONSENT RESPONDENT hereby CONSENTS to the representations made in, and to the terms of, the above Consent Order. The undersigned hereby represents that he or she has the authority to bind Life Insurance Company of the Southwest to the terms of this Consent Order resolving Report number MCLH E. ~ ~Or~h Signatüre Signature on file with original Title: ~ra ~~,-- Ui~ Date:.~/ ~ J/b