Volume 10: January 18, 2011 Edited by Kevin McKechnie, Executive Director Assistant Editor, Renee Galbraith, Health Policy Manager Contents: ABIA’s 2011 Annual Conference Compliance and Regulation News News Releases Educational Opportunities ABIA’s 2011 Annual Conference 2011 ABIA Annual Conference to be held September 26-28 at the JW Marriott Hotel, Washington DC Please watch this space for Information on the 2011 ABIA Annual Conference to be held September 26-28, 2011 at the JW Marriott Hotel, Washington DC. Information on Registration, Exhibiting and Sponsoring, and Speaking at the conference will be available soon. Be sure to take advantage of participating in the premier event in the Bank Insurance Industry. Return to top. Compliance and Regulation News Compliance Corner: What effect would the September 2010 Regulation Z proposed rule have on HOEPA disclosures? Section 226.32 of Regulation Z implements the Home Ownership and Equity Protection Act (HOEPA), which governs certain “high cost” home mortgage loans. In 2009, the Federal Reserve proposed to broaden the scope of what is considered to be a “high cost” mortgage loan, but in a recent proposal, the Federal Reserve has reconsidered that expansion and elected not to broaden the scope. See 75 FR 58539. HOEPA currently applies to mortgage refinancings, home equity loans, and home equity lines of credit on a consumer’s principal dwelling that: 1) have an APR that exceeds the average prime offer rate by 8% on a first lien or 10% on a second lien; or 2) have “points and fees” that exceed the greater of 8% of the total loan amount or $592 (as of January 1, 2011, adjusted annually by change in CPI). 1 The “points and fees” used to determine if a loan is subject to HOEPA currently include the finance charge , mortgage broker compensation, real estate-related fees paid to the creditor, and premiums or other charges for credit life, accident, health or loss of income insurance, or debt-cancellation coverage written in connection with the credit transaction. The Federal Reserve issued a proposed rule in August 2009 amending the “points and fees” definition to include additional third party fees, such as application fees, certain security interest charges, and government recording charges. 74 FR 43232. By broadening the scope of “points and fees,” this proposed amendment would have caused more loans to exceed HOEPA’s coverage threshold. But in September 2010, the Federal Reserve issued a proposed rule that would undo the expansion of “points and fees” proposed in 2009, because the 2009 proposed change would have made too many loans “high cost” loans. 1 12 CFR § 226.4. The finance charge generally includes: third party charges, closing agent charges, mortgage broker fees, points, loan fees, and appraisal fees. The finance charge also includes credit insurance premiums and fees for and debt cancellation or debt suspension coverage, unless the product is not required by the creditor and that fact is disclosed in writing, the fee is disclosed in writing, and, for debt suspension agreements, it is disclosed that the obligation to pay principal and interest is only suspended, and that interest will accrue during the period of debt suspension. The finance charge generally excludes: application fees, late payment fees, seller’s points, real-estate related fees, and title examination fees. Do you have further questions about this compliance issue? Other compliance questions you would like to see addressed? Please send your comments or questions to Valerie Barton at firstname.lastname@example.org. Articles in the Compliance Corner are provided for informational purposes only by ABIA’s outside counsel McIntyre & Lemon, PLLC. They are not intended to be legal guidance. Readers should consult with legal counsel before implementing any requirements that are addressed. Return to top. ABA Comment Letter to FEMA on the NFIP: Increase the Role of the Private Market In 2010, the Federal Emergency Management Agency (FEMA), which oversees the NFIP, requested comment letters as part of its initiative to provide congress with a “comprehensive analysis” of the NFIP in order to address immediate and long-term concerns. FEMA also held public meetings in December where it sought to learn more from concerned parties. ABA and ABIA attended one of those meetings. In addition, the ABA submitted a comment letter to FEMA. In that letter, the ABA called for an increased role of the private market in the NFIP, including the creation of multiperil coverage and stated that the reform effort should “end the system’s dependence on bank enforcement of NFIP coverage...” Read the Comment Letter Return to top. News Releases ABIA Announces Third Quarter 2010 Fixed Annuity Sales in Banks ABIA today announced estimated fixed annuity sales by banks and other depository institutions for third quarter 2010. Results were $3.97 billion, down 45.2 percent from third quarter 2009. Quarter-to-quarter results declined 3.9 percent, with lower book value sales outweighing increases for the other three product types. Market estimates are based on findings from the Beacon Research Fixed Annuity Premium Study. Some 41 percent of the bank channel carriers participating in Beacon’s study bucked the overall trend with improved quarter-to-quarter results. Most of these companies reported double-digit sales growth. Western National Life was again the leading bank channel company among participants. Two fixed annuity issuers left the top 10 from second to third quarter 2010; both AEGON/Transamerica and ING USA rejoined. Third quarter 2010 results for the top 10 companies were as follows: Company Name Bank Channel Sales (in thousands) Western National Life 868,500 Lincoln Financial Group 567,669 New York Life 499,015 Great American Financial Resources, Inc. 296,483 Pacific Life 268,146 W&S Financial Group Distributors 265,027 Protective Life 191,045 American National 171,533 AEGON/Transamerica Companies 92,073 ING USA Annuity and Life Insurance Company 70,386 Lincoln Financial Group’s Lincoln New Directions was third quarter’s top bank channel product and the first indexed annuity to lead bank sales in the Beacon study’s eight-year history. Great American’s American Freedom Stars & Stripes 5 was the only market value-adjusted (MVA) annuity, joining the top 10 in tenth place. The New York Life Lifetime Income Annuity remained the only top 10 income annuity. All the other leading products were book value (fixed rate, non-MVA) annuities. Pacific Life’s Pacific Explorer rejoined the top 10 in fourth place, and five of the quarter’s bestsellers were once again book value products issued by Western National. Third quarter’s leading products were as follows: Rank Company Name Product Name Product Type 1 Lincoln Financial Group Lincoln New Directions Indexed 2 New York Life NYL Preferred Fixed Annuity Book Value 3 Western & Southern Life MultiRate Annuity Book Value 4 Pacific Life Pacific Explorer Book Value 5 Western National Life Proprietary Bank Product F Book Value 6 Western National Life Flex 7 Book Value Great American Financial 7 Resources, Inc. AssurancePlus 7 Book Value 8 Western National Life Flex 5 Book Value 9 New York Life NYL Lifetime Income Annuity Income Great American Financial American Freedom Stars & 10 Resources, Inc. Stripes 5 MVA “The outlook for fixed annuity sales is difficult to predict at this time,” said Jeremy Alexander, president and CEO of Beacon Research. “The spread between 5-year fixed annuity and Treasury rates has declined since third quarter, suggesting that sequential sales will be lower. In addition, interest rates have been rising, and fixed annuities generally lag certificates of deposit on the way up. But the yield curve has steepened, and that usually helps insurance companies’ credit interest more generously. We’re also aware that many banks are paying below-market CD rates because they don’t want more deposits for the time being. It will be interesting to see how all this plays out in actual sales results.” See this and other ABIA News Releases Return to top. Michael White-ABIA Report Bank Annuity Fee Income Down 7.6% through Third Quarter 2010 Income earned from the sale of annuities at bank holding companies (BHCs) declined 7.6% to $1.84 billion in the first three quarters of 2010, down from $2.00 billion in the first three quarters of 2009, according to the Michael ™ White-ABIA Bank Annuity Fee Income Report . Third-quarter annuity commissions fell to $621.3 million, down 3.1% from $640.9 million in second quarter 2010 and down 7.3% from $669.8 million earned in third quarter 2009. Compiled by Michael White Associates (MWA) and sponsored by American Bankers Insurance Association (ABIA), the report measures and benchmarks the banking industry’s performance in generating annuity fee income. It is based on data from all 7,020 commercial and FDIC-supervised banks and 915 large top-tier bank holding companies operating on September 30, 2010. Of the 915 BHCs, 386 or 42.2% participated in annuity sales activities during the first three quarters of 2010. Their $1.84 billion in annuity commissions and fees constituted 11.0% of their total mutual fund and annuity income of $16.84 billion and 15.9% of total BHC insurance sales volume (i.e., the sum of annuity and insurance brokerage income) of $11.6 billion. Of the 7,020 banks, 923 or 13.2% participated in annuity sales activities, earning $560.9 million in annuity commissions or 30.4% of the banking industry’s total annuity fee income. However, bank annuity production was down 20.5% from $705.5 million in the first three quarters of 2009. TOP 10 BANK HOLDING COMPANIES IN ANNUITY FEE INCOME YEAR-TO-DATE SEPTEMBER 30, 2010 Nationally PERCENT % OF RANK YTD ANNUITY INCOME CHANGE BANK HOLDING COMPANY ST ASSETS NONINTEREST 3Q 2010 3Q 2009 2009 - 2010 INCOME (ALL DOLLAR AMOUNTS IN THOUSANDS) 1 $517,000 $504,000 2.58% WELLS FARGO & COMPANY CA $1,220,662,000 1.75% 4 $237,000 $168,000 41.07% MORGAN STANLEY NY $841,372,000 1.03% 2 $185,000 $258,000 -28.29% JPMORGAN CHASE & CO. NY $2,139,511,000 0.51% 3 $126,718 $203,240 -37.65% BANK OF AMERICA CORP. NC $2,334,511,000 0.28% 6 $78,286 $71,198 9.96% REGIONS FINANCIAL CORP. AL $133,554,896 3.69% 5 $60,173 $98,953 -39.19% PNC FINANCIAL SERVICES GROUP PA $260,174,102 1.44% 9 $48,584 $46,160 5.25% KEYCORP OH $93,120,696 3.54% 7 $46,151 $62,917 -26.65% SUNTRUST BANKS, INC. GA $174,725,825 1.84% 8 $42,000 $52,000 -19.23% U.S. BANCORP MN $290,654,000 0.69% 10 $36,847 $29,237 26.03% BBVA USA BANCSHARES, INC. TX $64,318,215 6.36% Source: Michael White-ABIA Bank Annuity Fee Income Report Seventy-four percent (74.0%) of BHCs with over $10 billion in assets earned third quarter year-to-date annuity commissions of $1.74 billion, constituting 94.1% of total annuity commissions reported. This was a decrease of 8.1% from $1.89 billion in annuity fee income in the first three quarters of 2009. Among this asset class of largest BHCs in the first three quarters, annuity commissions made up 10.5% of their total mutual fund and annuity income of $16.59 billion and 15.9% of their total insurance sales volume of $10.92 billion. BHCs with assets between $1 billion and $10 billion recorded a slight increase of 0.2% in annuity fee income, rising from $91.4 million in the first three quarters of 2009 to $91.6 million in the first three quarters of 2010 and accounting for 36.7% of their mutual fund and annuity income of $249.6 million. BHCs with $500 million to $1 billion in assets generated $16.9 million in annuity commissions in the first three quarters of 2010, up 1.0% from $16.7 million in the first three quarters of 2009. Only 33.5% of BHCs this size engaged in annuity sales activities, which was the lowest participation rate among all BHC asset classes. Among these BHCs, annuity commissions constituted the smallest proportion (13.3%) of total insurance sales volume of $127.5 million. Wells Fargo & Company (CA), Morgan Stanley (NY), and JPMorgan Chase & Co. (NY) led all bank holding companies in annuity commission income in the first three quarters of 2010. Among BHCs with assets between $1 billion and $10 billion, leaders included Stifel Financial Corp. (MO), Hancock Holding Company (MS), and National Penn Bancshares, Inc. (PA). Among BHCs with assets between $500 million and $1 billion, leaders were First American International Corp. (NY), CCB Financial Corporation (MO), and Ironhorse Financial Group, Inc. (OK). The smallest community banks, those with assets less than $500 million, were used as “proxies” for the smallest BHCs, which are not required to report annuity fee income. Leaders among bank proxies for small BHCs were The Hardin County Bank (TN), Bank of Oak Ridge (NC) and FNB Bank, N.A. (PA). Among the top 50 BHCs nationally in annuity concentration (i.e., annuity fee income as a percent of noninterest income), the median year-to-date Annuity Concentration Ratio was 6.1% in third quarter 2010. Among the top 50 small banks in annuity concentration that are serving as proxies for small BHCs, the median Annuity Concentration Ratio was 14.5% of noninterest income. See this and other ABIA News Releases Return to top. Educational Opportunities Order Your Copy Today: 2010 ABIA Study of Banks in Insurance The 2010 ABIA Study of Banks in Insurance presents the findings from our annual research of the current and planned insurance activities of U.S. banks. This management tool will help executives understand how the bank- insurance industry is developing, what strategies banks are pursuing, and what practices are producing successful bank-insurance programs. The 2010 ABIA Study of Banks in Insurance will include a State of the Industry review of the overall insurance distribution system and the current market positions of the banking industry. The review will include market share analysis, competitive advantages/disadvantages, emerging trends impacting the insurance distribution landscape and a bank-insurance income trend update. Additionally, inside the Study you’ll find data-driven update of practices, distribution activity, strategies and results of banks in insurance. You’ll also learn about product trends and strategies and distribution strategies, results, asset category comparisons, and topical analysis. Includes an analysis of key issues related to bank-insurance, addressing the relevance of these findings to large banks and community banks. Topics covered include: Current trends and best practices in effective integration of bank-insurance acquisitions. Key factors in successful negotiations. Production and service metrics. Trends in platform distribution. Bank Insurance Value Proposition. Best practices in bank insurance leadership. Order the Study Return to top. Sign up online for 2011 ABIA Best Practice Panels! You can now sign up from your desk to participate in any or all of the nine ABIA Best Practice Panels by following this link: https://www.aba.com/perseus/surveys/abia_bpp.htm Alternatively, you can sign up by going to the ABIA website and clicking on the online registration link on the Best Practice Panel page. It is easy and convenient, so register today! Return to top. 2010 Best Practice Panel Schedule Agency Integration and Marketing Panel Chair: Valerie Jordan, Jordan and Jordan Associates The teleconference calls will be every other month on first Monday (except July) of the month at 4:00 p.m. Eastern according to the following schedule: February 7 – Social Networking for Bank Customers (joint call with Community Bankers Panel) May 2 July 11 No call in August September 26-28 October 3 Annuities Panel Co-Chairs: Jim Rensel, Sales Quality Research and Kenneth Kehrer, Kehrer-LIMRA LLC rd The teleconference calls will be every other month on the 3 Tuesday of the month at 3:30 p.m. Eastern according to the following schedule: February 10 – Single Premium Life and Wealth Management Planning (joint call with Life Coverages) April 19 July 19 No call in August September 26 -28 October 18 Community Bankers Panel Chair: Terry Mead, Avon-Dixon Agency (ShoreBancshares) and Brian Duffy, RSI Insurance rd The teleconference calls will be held quarterly on the 3 Thursday of the month at 2:00 p.m. Eastern according to the following schedule: February 7 - Social Networking for Bank Customers (joint call with Agency Integration and Marketing Panel) May 12 July 14 September 26-28 October 13 Compliance Panel Co-Chairs: Doug Harrison, BB&T Insurance The teleconference calls will be held quarterly on Thursdays at 2:00 p.m. Eastern according to the following schedule: April 7 July 14 September 26-28 October 13 Credit Insurance and Debt Cancellation Panel Co-Chairs: Ellen Myers, Xybernet, Inc. th The teleconference calls will be held quarterly on the 4 Thursday of the month at 3:00 p.m. Eastern according to the following schedule: February 24 – Debt Cancellation Going Forward in 2011 April 28 July 28 September 26-28 (Washington DC) October 27 Direct Marketing Panel Co-Chairs: Dodi Iverson, DRIASI and Robert Dudacek, Wells Fargo Insurance th The teleconference calls will be held every other month on the 4 Tuesday of the month at 3:00 p.m. Eastern according to the following schedule: February 22 – “Influence of Mobile Marketing in Direct Marketing Programs” April 28 June 23 September 26-28 October 20 Life Coverages Panel Chair: Kenneth Flynn, HSBC Insurance th The teleconference calls will be held quarterly on the 4 Thursday of the month at 1:00 p.m. Eastern according to the following schedule: February 10 - Single Premium Life and Wealth Management Planning (joint call with Annuities Panel) May 12 July 21 September 26-28 October 20 P& C Panel Co-Chairs: Chris Boone, BancorpSouth Insurance and R. Michael Hedden, Bankers Insurance LLC The teleconference calls will be held every other month on the 3rd Thursday of the month @ 1:00 p.m. Eastern according to the following schedule: February 17 –New Issues of Flood Protection for the 2011 May 19 July 17 No call in August September 26-28 October 19 Reinsurance/Risk Management Panel Co-Chairs: Brian Green, Edwards Angell Palmer & Dodge LLP The teleconference calls will be held quarterly on the 2nd Tuesday of the month @ 11:30 a.m. Eastern according to the following schedule: March 9 – Surplus Lines Regulation: Non-admitted and Reinsurance Reform Act Implementation May 11 September 26-28 November 22 Return to top. 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