Source: http://www.dfr.vermont.gov/reg-bul-ord/john-hancock-mutual-life-john-hancock-life-ins-co-john-hancock-variable-life-ins-co
Timestamp: 2014-10-30 17:43:38
Document Index: 270504418

Matched Legal Cases: ['§ 10', '§ 3665', '§ 3665', '§ 3665', '§ 10', '§ 3574', '§ 3574', '§ 15', '§ 15', '§ 15', '§ 1']

John Hancock Mutual Life; John Hancock Life Ins Co; John Hancock Variable Life Ins Co. | Department of Financial Regulation
These documents are not legal documents but are placed here for reference purposes only. For a legal copy please contact the department. John Hancock Mutual Life; John Hancock Life Ins Co; John Hancock Variable Life Ins Co.
Docket No. 03-038-I
AttachmentSize Printer-friendly version of Order 03-038-I80.71 KB Market Conduct Exam Report66.94 KB Response Cover Letter10.23 KB Response134.97 KB Printer-friendly version of Order 03-038-I (Stipulation)13.78 KB Note: The company's response contains numerous exhibits not posted online for technical reasons. The exhibits are available for review at the Insurance Division.
In re: John Hancock Mutual Life Ins. Co., John Hancock Life Ins. Co. & John Hancock Variable Life Ins. Co.
1. Pursuant to the authority contained in Vermont law, including but not limited to, 8 V.S.A. §§ 10-13, 3564-3566, 3573-3574, 4726 and 4804, the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration (the “Department”) is charged with administering and enforcing the insurance laws and regulations of the State of Vermont and its authorized to conduct periodic examinations of insurers and licensees to determine whether they are in compliance with said laws and regulations.
2. The John Hancock Life Insurance Company, formerly John Hancock Mutual Life Insurance Company, is a wholly owned subsidiary of John Hancock Financial Services, Inc. John Hancock Variable Life Insurance Company is a wholly owned subsidiary of John Hancock Life Insurance Company. This Consent Order shall refer to all three entities collectively as “the Company”.
3. By Order signed October 21, 2003 (the “Order”), the Commissioner adopted the November 4, 2002 Market Conduct Examination Report (the “Report) concerning the Company.
4. On or about November 20, 2003 the Company filed an appeal of the Commissioner’s Order.
5. The Department and the Company have agreed to resolve this matter without further litigation.
6. The Department acknowledges the Company has cooperated fully in the examination and the Department’s subsequent investigation.
7. In consideration of the mutual covenants contained herein, the Company and the Department agree the Order shall be amended as follows:
a. The penalty ordered in Paragraphs 12 and 35 shall be reduced from $10,000 to $5,000.
b. The penalty ordered in Paragraphs 17 and 41 shall be reduced from $10,000 to $5,000.
c. The Company has indicated the number of group life policies issued to Vermont residents is smaller than anticipated by the Report. To that end, the audit described and ordered in Paragraphs 15 and 39 shall not be required. The Company shall verify in writing to the Department that it has paid interest consistent with 8 V.S.A. § 3665 on all life policies issued to Vermont residents and it will continue to do so in the future. Such verification shall be provided no later than August 2, 2004.
d. The audit described and ordered in Paragraph 37 shall be on individual paid life claims only and shall not include claims made on group life policies.
e. The Company has indicated the number of group life policies issued to Vermont residents is smaller than anticipated by the Report. To that end, the audit described and ordered in Paragraphs 20 and 45 shall not be required. The Company shall verify in writing to the Department that it has paid interest consistent with 8 V.S.A. § 3665 on all life policies issued to Vermont residents and it will continue to do so in the future. Such verification shall be provided to the Department no later August 2, 2004.
f. The audit described in Paragraphs 21 and 46 shall not be required. The Department notes the Company claims to have paid all outstanding interest owing on claims noted in the Report.
g. The third and fourth paragraph of Paragraph 28 of the Order (page 28) are amended to read as follows: “The undersigned reiterates that the examiners are not bound by the general scope of the examination period and may look into matters beyond that which was initially contemplated. However, upon review of additional information provided by the Company, the undersigned concludes no violation has occurred. The undersigned does not adopt this portion of the Report or the examiners’ recommendation.”
h. Paragraphs 55 (page 35) is deleted.
i. Paragraph 56 of the Order (page 35) is deleted.
j. The Order requires the Company to take various actions by December 22, 2003 a date which has since passed. Actions which were to be completed by December 22, 2003 shall now be completed no later than July 30, 2004.
k. Penalty payments shall be due within 10 business days of execution of this Consent Order.
8. Except as expressly addressed herein, all other provisions of the Order remain the same.
9. The Company agrees to pay interest on life insurance claims pursuant to 8 V.S.A.
§ 3665, as interpreted by the Order, on all claims paid on policies issued to Vermont residents.
10. Upon execution of this Consent Order the Company’s appeal shall be considered dismissed and the Order, subject to the amendments detailed herein, shall become final and not subject to collateral attack.
Respondents Consent
Respondent hereby consent to the contents and terms of this Consent Order and to all representations made herein. The person executing this Consent Order on Respondents behalf is an officer of Respondent and has the power to bind it to the terms of this Consent Order. After careful consideration, Respondent executes this Consent Order knowingly and voluntarily.
In re: John Hancock Mutual Life Ins. Co., John Hancock Life Ins. Co. &
John Hancock Variable Life Ins. Co.
ORDER ADOPTING REPORT OF EXAMINATION
NO W COMES John P. Crowley, Commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, and hereby issues the following Order adopting the Market Conduct Examination Report in the above referenced docket number, subject to the exceptions and qualifications discussed below.
1. Pursuant to the authority granted by Vermont law, including, but not limited to, that contained in 8 V.S.A. §§ 10-13, 18, 3564-3574 and 4726, the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration (“the Department”) is charged with administering and enforcing the insurance laws and regulations of the State of Vermont and is authorized to conduct periodic examinations of insurers and licensees to determine whether they are in compliance with said laws and regulations.
2. The John Hancock Life Insurance Company, formerly John Hancock Mutual Life Insurance Company, is a wholly owned subsidiary of John Hancock Financial Services, Inc. John Hancock Variable Life Insurance Company is a wholly owned subsidiary of John Hancock Life Insurance Company. This Order shall refer to all three entities collectively as “the Company”. The Company is authorized to transact business in Vermont under the following Certificates of Authority: 1328P (John Hancock Variable Life Insurance Company) and 1372P (John Hancock Life Insurance Company and, formerly, John Hancock Mutual Life Insurance Company).
3. On November 4, 2002 a final market conduct examination report was issued by examiners James Montgomery III and Robbie Kriplean entitled REPORT OF EXAMINATION OF THE MARKET CONDUCT AFFAIRS OF JOHN HANCOCK LIFE INSURANCE COMPANY AND JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY BY VERMONT DEPARTMENT OF BANKING, INSURANCE, SECURITIES AND HEALTH CARE ADMINISTRATION
(hereinafter “the Report”).
4. In accordance with the requirements of 8 V.S.A. § 3574(b), the Report was transmitted to the Company and the Company was afforded a reasonable period of time to submit a formal written response to the findings of the Report. The Company submitted a formal response (“the Response”),1 discussed issues raised in the Report with the Department and provided additional information requested by the Department.
5. Pursuant to 8 V.S.A. § 3574(c), the undersigned Commissioner has fully considered the Report, the Company’s Response, and additional information provided.
6. The Company has suggested numerous changes to the Report. Many of the suggested changes simply reflect a different writing style or an inconsequential difference in interpretation of Vermont law. To the extent this Order does not expressly adopt changes suggested by the Company, those suggested modifications are not adopted. Unless specified otherwise, the Department adopts the Report as it has been written.
7. On the title page of the Report and at page one, the examiners reference John Hancock Life Insurance Company and John Hancock Variable Life Insurance Company. The Company explains that in 1999, John Hancock Mutual Life Insurance Company converted from a mutual life insurance company to a stock-based life insurance company and in so doing, changed its name to John Hancock Life Insurance Company. (Response at page 3.) Because the examination period generally runs from December 31, 1997 to December 31, 2000, the Company suggests that John Hancock Mutual Life Insurance Company also be referenced as one of the companies examined.
The undersigned adopts the Company’s suggestion. The title page shall include the name John Hancock Mutual Life Insurance Company as suggested in the Company’s Response. Further, John Hancock Mutual Life Insurance Company shall be referenced at page 1 of the Report under EXAMINATION AUTHORITY. The undersigned further adopts the changes suggested by the Company to the HISTORY section of the Report (page 3).
8. The undersigned adopts the Company’s suggestion (Response at page 1) to include its P.O. Box number on page 1 of the Report.
9. On page 1 of the Report, under the heading TIME FRAME, the examiners state the examination generally covers the period from December 31, 1997 to December 31, 2000. The Company asks that the time frame be amended to read “January 1, 1998” instead of December 31, 1997. The Company bases this request on the Department Market Conduct Chief’s February 11, 2001 letter which seeks documents from 1998 to 2000 in the initial data call. The undersigned declines to adopt the suggested change. The February 11 letter specifically states the examination period will be determined by the examiners. Further, the undersigned notes that an examination can include time periods other than those initially contemplated if the examiners determine expanding the scope of the examination is warranted under the circumstances.2
10. In the COMPANY OVERVIEW – PREMIUM REPORTING section of the Report (pages 4-5), the examiners note that the deposit funds reported by the Company for the three examination years were relatively large negative figures. The examiners also note a drop in reported life insurance premiums of over 20 million dollars from 1998 to 1999. In response to the examiners’ inquiry, the Company explained the unusual variances were attributable to Corporate Owned Life Insurance (COLI) premiums which are “highly variable and unpredictable” and not included in the Company’s sales reporting. (Report at page 4.) The Company explained the negative fund deposit numbers “are the result of the booking of retail fund deposit surrenders as return considerations.” (Report at page 4.) The examiners note the Company’s premium reporting methodology appears to be unique and recommend the methodology be reported to the Vermont Department of Taxes for review.
In response, the Company asserts the examiners’ commentary and conclusions regarding premium reporting appear to be based on a misunderstanding of the Company’s practices, compounded by the Company’s misunderstanding of (and thus not entirely accurate response to) the examiners’ inquiry during the exam. (Response at page 5.) The Company notes that premiums dropped dramatically because of a decline in life insurance premiums collected; the drop was primarily attributable to two COLI products which saw a decline of over 22 million in premiums collected.
Additionally, the Company explains the drop-off in annuity fund deposits is primarily due to fewer annuity sales in Vermont during the examination period, compounded by the Company’s change in accounting practices to “more properly” (Response at page 5) record deposits on surrendered contracts as surrender benefits (rather than a reduction to current year fund deposits received). The Company further notes that, although some state tax departments impose tax liability in this type of situation, Vermont does not.
Upon consideration and consultation with members of the Department, the undersigned concludes the Company’s premium reporting as noted in the Report requires no further action on the part of the Department or the Company. The examiners’ recommendation and this portion of the report are not adopted.
11. In the SALES AND MARKETING – ADVERTISING section of the Report (page 5), the examiners note that the Company uses the following statistic in some of its advertising: “If you are 65, your chance of having a nursing home stay is 48.6%. There is a 71.8% chance you may need home health care.” (Report at page 5.) The examiners assert this statistic could be misleading because the Company underwrites long term care and as such, the average person who qualifies for the Company’s long term care coverage is not as likely to need nursing home care as the average population. The Report also notes the Company was unable to provide proof that LTC-1416 (which includes the above statistic) was approved by the Department pursuant to Regulation 91-1 § 15. In conclusion, the examiners recommend “the Company immediately discontinue the use of LTC-1416 and/or other advertising containing similar wording and develop procedures to insure compliance with Vermont Regulation 91-1 § 15.” (Report at page 6.)
In response, the Company initially argues the Company was not required to submit LTC-1416 for approval as required by Regulation 91-1 § 15 because it was a Powerpoint presentation “intended for use with association principals to assist agents” in explaining certain benefits of the product. (Response at page 7.) As such, the Company argues, it was not intended to be used directly with the insurance buying public and as such, “not a consumer advertisement as defined pursuant to Regulation 71-1 § 1A.” (Response at page 7.)
Further, the Company disputes the examiners’ assertion that the statistic is misleading. Moreover, the Company notes that the statistic was used in various advertisements have been approved by the Department. Finally, the Company notes that LTC-1416 was discontinued in August 2002.
The undersigned rejects the Company’s argument that LTC-1416 did not need to be filed and approved by the Department under R