In August of 2016 we wrote about a cost of insurance (COI) increase from Lincoln National (now Lincoln Financial Group) on a block of policies originally underwritten and issued by Jefferson Pilot from 1999 to 2007.  Lincoln Financial purchased Jefferson Pilot for roughly $7.5 billion in cash and stock in a transaction that closed in 2006.

At the beginning of this year we wrote about a lawsuit filed against Lincoln for that COI increase.  Since then, additional lawsuits have been filed, and on April 19th four suits, including the one we wrote about, were combined into a Consolidated Class Action Complaint in the United States District Court Eastern District of Pennsylvania.  The combined complaint was brought on behalf of the plaintiffs and “all similarly situated owners of JP Legend 300, and JP Lifewriter Legend 100, 200, and 400 series life insurance policies.”

The lawsuit charges that Lincoln breached the policy contracts in several ways by implementing the COI increases since they were based on “prohibited factors … designed to recoup past losses, [and were] non-uniform across insureds of the same class.”

The suit indicates that Lincoln effected the increases despite providing policyholders with in force illustrations that “reflected no change in future COI rates” from 2010 to 2014 and since that time in interrogatories filed with regulators, stated it “expects mortality experience to improve.”

Lincoln, when announcing the COI increases, cited three reasons, “lower investment income,” which was attributed to the historic low interest environment, changes in their mortality tables both negative and positive, and higher expenses, “including higher reinsurance rates.”

The suit claims that Lincoln’s “future investment returns could not reasonably be lower than what Lincoln originally expected,” and that Lincoln “cannot now claim that any change in investment return justifies the increase,” since the carrier provided in force illustrations from 2010 up to 2016 that showed no COI increase that were based on “Lincoln’s then-current assumptions as to mortality, interest, and any other experience factors that underlie the COI rates.”  The suit also points out that Lincoln’s own financial information disclosed that “investment income” had grown in those years.

Per the lawsuit, Lincoln is limited by contract to increasing insurance rates based on their “expectation of future mortality, interest expenses, and lapses” and cannot raise rates “to cover for improper dividends Lincoln Life paid to Lincoln National, or miscalculations concerning past mortality assumptions, or past interest rates, expenses or lapse rates,” or to “earn future profits higher than the level projected at the time the Policies were priced.”  The suit claims that Lincoln “admits that it is relying on its ‘past’ and ‘continued’ alleged lower investment returns to justify the increase.” In letters to policyholders outlining the reasons for the increases Lincoln referenced “nearly a decade of persistently low interest rates, including recent historic lows, and volatile financial markets.”

While Lincoln cites “higher reinsurance rates” as a reason for the COI increase, the suit claims “reinsurance costs cannot provide material support for the increase, and reinsurance costs are not an enumerated permissible factor for an increase.”

The suit contains 11 Claims for Relief, including a request that the court issue an injunction against the carrier from continuing to charge the higher rates, and “ordering any policy to be reinstated that was surrendered or terminated as a result of the COI increase.”

ITM TwentyFirst manages or tracks over 25,000 life insurance policies for trustees and institutions nationwide and has reviewed over $150 billion in life insurance death benefit.  While we take no sides in COI increase court cases, we will be watching with great interest and will report back as warranted.

For a copy of the Consolidated Complaint, please contact mbrohawn@itm21st.com

Special thanks to Joseph Belth for information used in this update.

1.) Lincoln National to Buy Jefferson-Pilot, Associated Press, October 1, 2005