The New York State Department of Financial Services (“DFS”) has fined William Penn Life Insurance Company $6.3 million for engaging in what the DFS said were improper reinsurance transactions in an effort to minimize reserves backing life insurance policies issued by the company.
The fine is part of a consent order that requires William Penn to obtain the DFS's prior approval for any reinsurance agreements for the next five years as well as to amend existing reinsurance agreements to ensure they comply with New York's insurance law and regulations.
William Penn must demonstrate to the DFS's satisfaction that it has taken necessary corrective actions within three months.
“Although reinsurance is an essential risk management tool, DFS will not permit insurers to engage in secret reinsurance transactions with affiliates for the purpose of evading New York's reserve standards,” said the DFS's superintendent, Maria T. Vullo. “Protecting policyholders by verifying the fairness of an insurer's financial transactions with affiliates and ensuring that insurers maintain adequate reserves to support policies are among the cornerstones of state insurance regulation. No insurer has the right to shortcut that process and potentially put policyholders in jeopardy.”
The DFS found that William Penn had engaged in improper reinsurance transactions during a four-year period from 2014 through 2018 by implementing amendments to existing reinsurance treaties with its European parent company, Legal & General Assurance Society, Limited (“LGAS”), without receiving DFS approval as required by New York insurance law. The DFS examiners looking into the amendments found that the arrangements were not economically reasonable and could disadvantage the company relative to its affiliate. As a result, the DFS disapproved the amendments and prohibited any new business from being added to the existing reinsurance treaties.
The DFS said that, subsequent to its disapproval of the amendments, William Penn entered into a reinsurance arrangement with a third-party reinsurer where the reinsurance provided to William Penn was conditioned upon the retrocession of that business back to LGAS and other affiliates of William Penn without DFS approval and in violation of New York insurance law. According to the DFS, William Penn failed to disclose the arrangement in required exhibits to its annual statement and then made materially inaccurate statements in response to the DFS's requests for information.
Learn more: Consent Order.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].