Government may close loophole in mental benefit parity law

WASHINGTON -- Benefit lobbying groups are warning that federal agencies are close to recommending a regulation that would make it harder for employers to be exempt from a mental health care benefits parity law.

That law, which takes effect Jan. 1, makes it illegal for an employer to offer a health care plan that has lower annual and lifetime dollar limits for mental disorders than for physical ailments. Employers still can limit coverage for mental disorders in other ways, such as through higher copayment requirements.

The law, however, exempts employers from equalizing dollar limits on coverage for mental and physical problems if they can prove such an upgrade would boost plan costs by at least 1%.

The Assn. of Private Pension & Welfare Plans, in a special alert to members, says the Labor and Health and Human Services departments are close to recommending the administration adopt a regulation that would require employers to upgrade their plans and incur a cost increase of at least 1% before they could obtain a waiver.

The APPWP says employers should get a prospective exemption for three years if they can prove, such as through actuarial estimates, that equalizing mental and physical benefits would boost costs at least 1%.

Any recommendation made by the Labor or HHS departments still would have to be reviewed by the Office of Management and Budget and ultimately the White House.

Benefit unit speculation arises

NEW YORK -- Speculation surfaced last week over whether KPMG Peat Marwick L.L.P.'s and Ernst & Young L.L.P.'s employee benefit consulting operations would be included as part of a merger of the giant accounting firms.

Several sources said the two firms' benefit units are likely not to be included as part of the merger of the two accounting giants announced in October (BI, Oct. 20). KPMG's benefit unit instead is expected to acquire another human resources and technology firm in an effort to build up its existing outsourcing practice, the sources said. A spinoff of the benefit consulting or outsourcing practice from the accounting firm is then likely, they said.

Over the past couple weeks, "there have been some big-time meetings to determine what they are going to do," said Donn Bleau, a principal with Global Resources Group, a San Diego-based executive recruiting firm that places employee benefit consulting professionals.

"There is a strong possibility that KPMG will pick up a different partner for its human resources/employee benefit consulting practices," he said. "The reason they are looking for a different partner is so they can maximize their strength as a benefit consultant with the technology from a different partner and together attempt to be a force in the outsourcing business."

KPMG would not comment on any aspect of the merger pending final approval, expected in the beginning of 1998.

New York eases up on Lloyd's

NEW YORK -- New York's top insurance regulator last week announced plans to ease the major securitization requirement for the approximately 150 Lloyd's of London syndicates writing U.S. surplus lines risks.

At the beginning of next year, these syndicates will be required to fund their gross liabilities at 50%, down from the current 100% that is placed in one of several security funds. Those liabilities totaled slightly more than $1.1 billion at the end of September.

However, Lloyd's also will be required to double its contribution to the Lloyd's American Surplus Lines Joint Asset Trust Fund to $200 million.

The department considers these "prudent steps," Insurance Superintendent Neil D. Levin said in a statement, citing Lloyd's "increasing financial strength" through its recovery program, centered in runoff reinsurer Equitas Ltd. (BI, Oct. 13).

Peter Lane, managing director of Lloyd's America Ltd., agreed. "We believe that this is a sensible change," he said.

Two years ago, Lloyd's financial problems prompted New York to increase its oversight, including requiring substantial increases in U.S.- based trust funds and syndicate-specific reporting (BI, May 5, 1995).

Mr. Levin said last week that other recent positive developments for Lloyd's stem from the better tools that U.S. regulators have imposed to track Lloyd's U.S. writings, including enhanced periodic financial reporting, actuarial opinions on a syndicate-by-syndicate basis and better computer systems to keep track of the risks written and reinsured.

U.S. regulators also will have complete access to key financial claims-paying and reinsurance recoverable records, following a pledge by Lloyd's, Equitas and the U.K. Department of Trade and Industry in London, he added.

New York regulators are beginning to level the playing field for Lloyd's with its alien competitors, which are required to post 30% of their gross liabilities, Mr. Levin said.

The New York department, which plans to adopt the changes administratively, typically oversees Lloyd's U.S. operations because the market's security funds are located in New York City.

The National Assn. of Insurance Commissioners, which meets this week in Seattle, is expected to approve the changes, according to spokesmen for the Insurance Department and the NAIC Surplus Lines Task Force.

Review of stop-loss law sought

WASHINGTON -- Maryland insurance regulators have asked the U.S. Supreme Court to review whether federal law pre-empts a Maryland law the state wants to use to regulate stop-loss insurance.

The justices have not decided whether to review the case.

Maryland's Insurance Department has asked the high court to review the 4th U.S. Circuit Court of Appeals' decision in Larsen vs. American Medical Security Inc. (BI, April 28). The appeals court affirmed a 1996 lower court ruling that the Employee Retirement Income Security Act pre-empted the Maryland regulation (BI, March 4, 1996). ERISA pre- empts state laws that relate to employee benefit plans.

The Maryland regulation holds that stop-loss insurance policies must have at least a $10,000 attachment point for specific claims and an aggregate attachment point of 115% of expected claims. Policies below those levels are considered to be health insurance rather than stop-loss insurance and therefore are subject to state regulation under Maryland law, the state contends.

"In holding that Maryland has been pre-empted under ERISA from regulating stop-loss insurance policies that insurance companies sell to allegedly self-insured employers, the Court of Appeals has fashioned a rule that strips the states of any ability to enforce legitimate and important health insurance requirements and precludes the states from prohibiting even sham arrangements in the health insurance industry," according to Maryland's petition for review by the high court.

The National Assn. of Insurance Commissioners has filed a brief supporting Maryland's position.

But American Medical Security responded that the "4th Circuit correctly concluded that the Maryland regulation is a thinly disguised attempt to regulate the benefit structures of ERISA."

KKR buying Swiss reinsurer

BASEL, Switzerland -- Leveraged buyout firm Kohlberg, Kravis Roberts & Co. is buying Rhine Reinsurance Co. Ltd. for an undisclosed sum.

Rhine Re's majority owner is the Baloise Insurance Co. Ltd. in Basel, which holds 86.3% of the reinsurer, while the remainder is held by the General of Berne Holding Co.

The reinsurer writes a broad book generating gross premiums of 504.8 million Swiss francs ($352.5 million) in 1996, said Max Furrer, Rhine Re's chief executive officer. The company writes reinsurance worldwide and has offices in Basel, Singapore and Toronto. In the United States, Rhine Re writes only life and aviation reinsurance, but it may expand to write other lines, Mr. Furrer said.

Rhine Re has 150 million Swiss francs ($104.7 million) in capital and produced an 11 million Swiss franc profit ($8.2 million) in 1996, he said.

As part of the deal, KKR will inject capital into Rhine Re, Mr. Furrer said. The amount will be announced later this month.

Rhine Re will get a further capital boost when its current management invests more money into the reinsurer after the KKR purchase is completed, Mr. Furrer said.

"Today you have to have very strong capital if you want to compete in the market," he said.

Over the past few years, Baloise has concentrated on writing primary business in Central Europe. In addition to the sale of Rhine Re, Baloise previously sold its operations in Italy and France, Mr. Furrer said.

Judge decertifies implant class

NEW ORLEANS, La. -- A Louisiana judge has decertified the nation's first silicone breast implant class action suit to go to trial so far.

Saying the cases were too dissimilar, Louisiana Civil District Court Judge Yada T. Magee dissoved the Spitzfaden breast implant class action involving suits by some 1,800 women against Dow Corning Corp. last week. The decision forces the plaintiffs to either pursue their claims individually or to participate in Dow Corning's bankruptcy reorganization process, according to a spokesman for the Midland, Mich.-based implant manufacturer.

Basing her order on the recent Louisiana Supreme Court decision in Ford vs. Murphy Oil USA Inc., Judge Magee said: "Ford stipulates that only mass torts arising from a common cause or disaster may be appropriate for class certification.*.*.*.this court finds that the circumstances to maintain the class action in this case do not exist."

The case also follows the precedent set by the U.S. Supreme Court's decision last summer dissolving a $1.3 billion class-action settlement of asbestos claims. The 6-2 majority in Amchem Products Inc. vs. Windsor et al. held that the members formed for the class were too diverse, and that many potential class members would not even be aware of their eligibility though they would be barred by the pact from suing (BI, June 30).

Briefly noted

A company whose World Wide Web site is accessible in Arizona via the Internet but otherwise conducts no other business in the state cannot be sued there for trademark infringement by an Arizona company with the same name, said the 9th U.S. Circuit Court of Appeals in San Francisco in its ruling last week in Cybersell Inc. vs. Cybersell Inc. The conclusion is similar to one reached by the 2nd U.S. Circuit Court of Appeals in New York in another Internet case, Bensusan Restaurant Corp. vs. Richard B. King (BI, Sept. 22). . . .Unisys Corp. undertook "adequate and reasonable" steps when it purchased $215 million in guaranteed investment contracts for employees' savings plans in the 1980s from Executive Life Insurance Co., which later collapsed, a federal judge ruled in dismissing a suit by plan participants. . . .Kenneth J. LeStrange, formerly executive vp of Princeton, N.J.-based American Re-Insurance Co. and president of alternative risk transfer unit Am-Re Managers Inc., has joined Chicago-based Aon Group Inc. as executive vp, effective today. . . .The Insurance Services Office Inc. has filed a series of exclusions and endorsements for primary insurance policies regarding the Year 2000 problem. Eighteen states have so far approved the wordings, and ISO expects to have the exclusions and endorsements available to the market by April 1.