III - Summaries

SUMMARIES

SUMMARY OF
THE GRAMM-LEACH-BLILEY FINANCIAL SERVICES MODERNIZATION ACT OF 1999

Titles of the Act	Provisions
TITLE I: Affiliations among Banks, Securities Firms and Insurance Companies	Allows banks, securities firms, insurance companies and other firms engaged in financial services to affiliate under a financial holding company (FHC) structure
TITLE II: Functional Regulation	Specifies that all financial activities will be functionally regulated by the relevant regulatory body: banking (Federal Reserve), securities (Securities and Exchange Commission) and insurance (state regulators)
TITLE III: Insurance Regulation	Covers state regulation of insurance, redomestication of mutual insurers, National Association of Registered Agents and Brokers, rental car agency insurance activities and confidentiality
TITLE IV: Unitary Thrift Holding Company Provisions	Prohibits unitary savings and loan holding companies from engaging in nonfinancial activities or affiliating with nonfinancial entities
TITLE V: Privacy	Requires all financial institutions to disclose to customers their privacy policy for nonpublic information
TITLE VI: Federal Home Loan Bank (FHLB) System Modernization	Establishes a new capital structure for FHLBs, increases access to funds for smaller member banks, and discusses regulatory changes
TITLE VII: Other Provisions	Addresses ATM fee reform, the Community Reinvestment Act and other regulatory improvements
Source: TowerGroup.

DEFINED BENEFIT PLAN FORMULAS


Dollar amount formula	Benefits are based on a dollar amount per month for each year of service recognized by the plan.
Percent of career earnings	Benefits are based on a percentage of an average of career earnings for every year of service recognized by the plan.
Percent of contribution	Benefits are based on employer and, occasionally, employee contributions. Benefits equal a percentage of total contributions.
Cash balance	Each participant is allocated an account that receives credits on an annual basis: a pay credit, generally based on a percentage of compensation, and an interest credit, based on a fixed interest rate or linked to an index such as the Treasury bill rate. The accounts are portable.
Pension equity	For each year of work, employees are credited with a percentage applied to their final average earnings. Generally disbursed as a lump sum.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) COMPARED WITH STATUTORY ACCOUNTING PRINCIPLES (SAP)

	GAAP	SAP
Sales costs	Accounted for over the period in which the premium is earned, i.e., the policy period.	Accounted for immediately on the sale of a policy.
Unearned income	Taxes on unearned income can be deferred until the income is earned.	Some taxes must be paid on a portion of unearned premium.
Loss reserve discounting	Reserves held to pay known losses in future need not be discounted for tax purposes.	Loss reserves must be discounted for tax purposes.
Reinsurance recoverables	Net worth may include reinsurance payments that may not be recoverable.	Net worth cannot include potentially unrecoverable reinsurance payments.
Nonadmitted assets	Certain assets, e.g., furniture and equipment, can be included in net worth.	Such assets cannot be included in net worth.
Taxes on unrealized capital gains	Deferred taxes on unrealized capital gains cannot be included in net worth.	Those anticipated taxes need not be deducted from net worth.
Bonds	Requires insurers to carry certain bonds at fair market value.	Most bonds can be carried at their amortized value.
Surplus notes	Surplus notes, a highly subordinated form of debt, must be carried as liabilities.	Surplus notes can be carried as part of policyholder’s surplus.
Source: Insurance Information Institute.