Minnesota becomes first state to enact Alliance-sponsored fraternal solvency legislation
With the signature of Minnesota Governor Mark Dayton over the weekend, Minnesota became the first state to enact Alliance-sponsored legislation that dramatically improves fraternal solvency regulation. The bill (HB 3799) had passed the state House of Representatives by a 122-0 vote and the state Senate by a vote of 67-0 – a demonstration of the overwhelming and unprecedented support for the measure by lawmakers on both sides of the aisle.
The reasons for the Alliance proactively advocating for improved fraternal solvency regulation and the cornerstones of our solvency oversight measure were spelled out in an April 10 CEO Forum. The Board adopted a policy position on the solvency concepts in September 2017 and directed staff to begin outreach to regulators from those states with a significant fraternal presence immediately. It became clear early in 2018 that Minnesota offered the best environment for enactment of a fraternal solvency bill this year, and we have been focusing our efforts in that state for the past several months. Moving from the adoption of a policy position to enactment of a new law in just nine months is another sign of the need for such regulatory improvements by both the fraternal community and the regulators responsible for solvency oversight.
The new Minnesota law improves fraternal solvency legislation in a number of key ways:
- Enables earlier and more aggressive regulatory intervention based on an authorized control level RBC ratio trigger.
- Requires fraternals to notify regulators prior to assessing members and provides regulators the ability to disapprove an assessment if it is not in the best interests of members.
- Streamlines the process for voluntary workouts prior to liquidation by:
- Bypassing antiquated governance structures by allowing regulators to require the Board of a society to make decisions on mergers, acquisitions and transfers of certificates rather than having the fraternal call a special convention to make such decisions;
- Easing the transfer of certificates to a commercial insurer in the event a financially healthy fraternal is unable or unwilling to take them over;
- Allowing regulators to transfer certificates to a fraternal that may not be licensed to do business in Minnesota;
- Allowing for the suspension of certain membership requirements to facilitate the transfer of certificates to an acquiring society.
Of course, the intent is for regulators to never have to use this new authority. The ideal solution is for a struggling fraternal to find a merger partner long before the RBC threshold is pierced, while the society still has value to a prospective partner. However, in the event that does not happen, regulators in Minnesota now have tools to protect consumers from the financial damage caused by a potential insolvency. And that helps accomplish the Alliance’s ultimate goal of having the fraternal solvency regulatory system protect consumers as well as the commercial guaranty fund system.
Credit where credit is due…
Enactment of this new law in Minnesota is another groundbreaking accomplishment for the Alliance and its members. It could not have happened without strong support from the CEOs of the Alliance’s two Minnesota-domiciled members – Harald Borrmann of Catholic United Financial and Eivind Heiberg of Sons of Norway. Both Harald and Eivind participated in many meetings with the Minnesota Department of Commerce’s legal team and also met personally with Commissioner Jessica Looman to express their support for this measure. While not domiciled in Minnesota, Thrivent has a significant presence in the state and Rick Kleven, Vice President Government Affairs, helped draft the bill, enlisted the support of Minnesota’s commercial life insurers, and convinced regulators and legislators of the importance of the measure not only in the state, but across the country.
The Alliance’s retained counsel – Pete Thrane and Todd Martin of Stinson Leonard – were responsible for drafting the legislative language and working with regulators on a series of edits and revisions that clarified key provisions and helped us “get to yes” with the Department of Commerce staff and state legislators. Pete and Todd were able to draw on their extensive experience in negotiating fraternal mergers and acquisitions, as well as their firsthand knowledge of the fallout from the only fraternal insolvency on record.
The Alliance benefited from a close partnership with the state life insurance industry trade group, the Minnesota Insurance and Financial Services Council and their incredible Executive Director Robyn Rowen. Robyn not only worked closely with us to craft the legislation but guided it through the legislative process. Without having her “on the ground” to contact regulators and legislators at a moment’s notice, we could not have passed the bill.
Minnesota State Representative Joe Hoppe sponsored the bill in the House and led the charge for its passage in both the House and Senate. His understanding of the need for these types of regulatory improvements was absolutely instrumental in convincing his colleagues in the legislature to support the measure without one dissenting vote.
Minnesota Insurance Commissioner Looman and her team of legal and government affairs professionals at the Department of Commerce played a critical role in the passage of this proposal. It took weeks of careful, thorough, and painstaking work to reach agreement on the final language for the bill. When it comes to legislation, words matter and when it comes to being the first state to enact such a law, words matter even more. We had to get this absolutely right and Commissioner Looman and her staff made sure we did.
On to other states…
With this law now in place, we can work hard on crafting state-specific legislation for other key fraternal states. As always, we will share our proposals with members domiciled in the state to get their feedback and ensure we have their support before moving forward. But the Alliance’s victory in Minnesota makes it both more important and more achievable to secure enactments of similar legislation in those states in 2019.
If you have any questions, comments or concerns about the Alliance’s policy position or advocacy strategy on the fraternal solvency issue, or the specific provisions of the new law in Minnesota, please contact me at firstname.lastname@example.org.
August 13, 2018
August 06, 2018