Fiscal Year 2005 Performance and Accountability Report Published November 15, 2005
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Through VA, the United States Government administers five life insurance programs and the Veterans' Mortgage Life Insurance program for certain totally disabled veterans. VA supervises the Servicemembers' Group Life Insurance (SGLI) and the Veterans' Group Life Insurance (VGLI) programs, which provide life insurance coverage to members of the uniformed armed services, reservists, and post-Vietnam veterans. United States Code, Title 38, requires that the Life Insurance programs invest in Treasury securities.
Administered Programs
The United States Government Life Insurance (USGLI) program was the government's first venture into life insurance. During World War I, the U.S. provided Marine Insurance to protect the interests of ship owners and merchants who were providing supplies to the allies in Europe. USGLI was the natural outgrowth of this Marine Insurance. The program was established to meet the needs of World War I veterans, but remained open to servicemembers and veterans with service before October 8, 1940. The government became a self-insurer because private insurance companies were unwilling to assume the unpredictable risks associated with war. By establishing this program, Congress intended to avoid the financial burden imposed on the government by the pension programs that were established after previous wars. The government became the largest life insurer in the United States with the coverage provided by this program.
The National Service Life Insurance (NSLI) program covers policyholders who served during World War II. The program opened October 8, 1940, when it became clear that large-scale military inductions were imminent. Over 22 million policies were issued under the NSLI program. The majority of policies VA administers directly are NSLI policies. This program remained open until April 25, 1951, when two new programs were established for Korean War servicemembers and veterans.
The Veterans' Special Life Insurance (VSLI) program was established in 1951 to meet the insurance needs of veterans who served during the Korean Conflict, and the post-Korean period through January 1, 1957. During this period, all servicemembers on active duty were covered for $10 thousand, at no cost, under a program known as Servicemen's Indemnity. They remained covered for 120 days after their discharge. The VSLI program allowed these newly discharged servicemembers to apply for $10 thousand of contract term insurance. Application had to be made during the 120-day period during which they remained covered by Servicemen's Indemnity. It was during this period that representatives of the commercial insurance industry began a major lobbying effort to get the government out of the insurance business because the programs were viewed as competition. As a result, the VSLI program was closed to new issues at the end of 1956, and coverage for individuals in the uniformed services was terminated. Approximately 800,000 VSLI policies were issued between 1951 and 1957.
In addition to VSLI coverage, which was provided to healthy veterans, the Insurance Act of 1951 also established the Service-Disabled Veterans Insurance (S-DVI) program for veterans with service-connected disabilities. S-DVI is open to veterans separated from the service on or after April 25, 1951, who receive a service-connected disability rating. New policies are still being issued under this program.
In 1964, Congress enacted legislation providing for a limited reopening of NSLI and VSLI, and the Veterans' Reopened Insurance (VRI) program was established. Beginning May 1, 1965, veterans who had been eligible to obtain insurance between October 8, 1940, and January 1, 1957, could once again apply for government life insurance. They had one year to apply for this "reopened" insurance, which was available only to disabled veterans. Approximately 228,000 VRI policies were issued. No term insurance policies were issued in this program.
The Veterans' Mortgage Life Insurance (VMLI) program began in 1971, and is designed to provide financial protection to cover eligible veterans' home mortgages in the event of death. VMLI is issued to those severely disabled veterans who have received grants for specially adapted housing from VA. These grants are issued to veterans whose movement is substantially impaired because of their disability. The maximum amount of VMLI allowed an eligible veteran is $90 thousand. The insurance is payable if the veteran dies before the mortgage is paid off and is payable only to the mortgage lender.
Supervised Insurance Programs
The Servicemembers' Group Life Insurance (SGLI) program was established in 1965 for Vietnam-era servicemembers. SGLI is supervised by VA and is administered by the Office of Servicemembers' Group Life Insurance (OSGLI) under terms of a group insurance contract. This program provides low-cost term insurance protection to servicemembers.
In 1974, the Veterans' Group Life Insurance (VGLI) program became available. VGLI, like SGLI, is supervised by VA, but is administered by the OSGLI. VGLI provides for the conversion of SGLI coverage to lifetime term insurance protection after a servicemember's separation from service.
Public Insurance Carriers
VA supervises the administration of the SGLI and VGLI programs. Prudential Insurance Company of America (Prudential) provides insurance coverage directly for the SGLI and VGLI programs. VA has entered into a group policy with Prudential whereby Prudential and its reinsurers provide servicemembers and veterans coverage in multiples of $10 thousand up to a maximum of $250 thousand. The basic SGLI coverage is provided to those members on active duty in the Army, Navy, Air Force, Marine Corps, Coast Guard, commissioned members of the Public Health Service and the National Oceanic and Atmospheric Administration. The Ready Reserve is also insured by SGLI, and includes reservists and members of the National Guard who are assigned to a unit or position in which they may be required to perform active duty or active duty for training. The VGLI coverage is comprised of separated and retired active duty members and reservists covered under Basic SGLI.
The Veterans' Opportunities Act of 2001 extended life insurance coverage to spouses and children of members insured under the SGLI program, effective November 1, 2001. For a spouse, up to $100 thousand of coverage can be purchased in increments of $10 thousand, not to exceed the amount of the servicemember's coverage. Each dependent child of every active duty servicemember or reservist insured under SGLI is automatically insured for $10 thousand free of charge.
Premiums for the SGLI and VGLI programs are set by mutual agreement between VA and Prudential. SGLI premiums for active duty personnel and their spouses are deducted from the servicemember's pay by the Armed Services components through the Department of Defense (DoD). DoD, through the Defense Finance and Accounting Service (DFAS), remits collected premiums to VA, which are then transmitted to Prudential. Prudential records the premiums and maintains investments in their accounting records separate and independent from the VA reporting entity. VA monitors Prudential's insurance reserve balances to determine their adequacy and may increase or decrease the amounts retained by Prudential for contingency purposes. The reserves for the contingent liabilities are recorded in Prudential's accounting records and are not reflected in the VA reporting entity, because the risk of loss on these programs is assumed by Prudential and its reinsurers through the terms and conditions of the group policy.
Effective January 1, 1970, the Secretary of Veterans Affairs determined the costs that are traceable to the extra hazards of duty in the uniformed services, on the basis of the excess mortality incurred by members and former members of the uniformed armed services insured under SGLI, above what their mortality would have been under peacetime conditions. The Secretary is authorized to make adjustments regarding contributions from pay appropriations as may be indicated from actual experience.
Reserve Liabilities
The insurance reserves for administered programs are reported as liabilities covered by budgetary resources, while part of the S-DVI and Veterans Insurance and Indemnities (VI&I) reserves are reported as liabilities not covered by budgetary resources. Reserves for SGLI and VGLI are maintained in Prudential's financial records since the risk of loss is assumed by Prudential. Actuarial reserve liabilities for the administered life insurance programs are based on the mortality and interest assumptions at time of issue. These assumptions vary by fund, type of policy, and type of benefit. The interest assumptions range from 2.25 to 5 percent. The mortality assumptions include the American Experience Table, the 1941 Commissioners Standard Ordinary (CSO) Table, the 1958 CSO Basic Table, and the 1980 CSO Basic Table.
Insurance Liability (Reserve) Balances As of September 30, 2005
Program |
Insurance Death Benefits |
Death Benefit Annuities |
Disability Income & Waiver |
Reserve Totals |
NSLI |
$9,031 |
$156 |
$126 |
$9,313 |
USGLI |
26 |
4 |
- |
30 |
VSLI |
1,535 |
10 |
28 |
1,573 |
S-DVI |
313 |
2 |
4 |
365 |
VRI |
359 |
2 |
4 |
365 |
VI&I |
89 |
- |
- |
89 |
Subtotal |
$11,353 |
$174 |
$487 |
$12,014 |
Less Liability not Covered by Budgetary Resources |
(666) |
Liability Covered by Budgetary Resources |
$11,348 |
Insurance Liability (Reserve) Balances As of September 30, 2004
Program |
Insurance Death Benefits |
Death Benefit Annuities |
Disability Income & Waiver |
Reserve Totals |
NSLI |
$9,372 |
$170 |
$145 |
$9,687 |
USGLI |
30 |
5 |
- |
35 |
VSLI |
1,512 |
11 |
31 |
1,554 |
S-DVI |
305 |
2 |
237 |
544 |
VRI |
379 |
2 |
5 |
386 |
VI&I |
85 |
- |
- |
85 |
Subtotal |
$11,683 |
$190 |
$418 |
$12,291 |
Less Liability not Covered by Budgetary Resources |
(568) |
Liability Covered by Budgetary Resources |
$11,723 |
Insurance In-Force
The amount of insurance in-force is the total face amount of life insurance coverage provided by each administered and supervised program as of the end of the fiscal year. It includes any paid-up additional coverage provided under these policies. Prudential and its reinsurers provided coverage to 5,964,000 and 5,946,231 insured for a face value of $1.137.4 billion and $737.9 billion as of September 30, 2005 and 2004, respectively. The face value of the insurance provided by Prudential and its reinsurers represents 97.5 and 97.4 percent of the total insurance in-force as of September 30, 2004 and 2003, respectively. The number of policies represents the number of active policies remaining in the program as of the end of each fiscal year.
|
2005 Policies |
2004 Policies |
2005 Face Value |
2004 Face Value |
Supervised Programs |
SGLI Active Duty |
1,530,000 |
1,545,000 |
$612,000 |
$371,135 |
SGLI Ready Reservists |
826,500 |
783,500 |
325,650 |
176,493 |
SGLI Post Separation |
126,000 |
120,000 |
35,428 |
28,351 |
SGLI Family - Spouse |
988,000 |
990,000 |
96,956 |
97,198 |
SGLI Family - Children |
2,076,000 |
2,100,000 |
20,760 |
21,000 |
VGLI |
417,500 |
407,731 |
46,600 |
43,767 |
Total Supervised |
5,964,000 |
5,946,231 |
$1,137,394 |
$737,944 |
Administered Programs |
NSLI |
1,202,065 |
1,300,404 |
$13,198 |
$14,013 |
VSLI |
206,501 |
213,545 |
2,490 |
2,525 |
S-DVI |
175,200 |
165,651 |
1,728 |
1,614 |
VRI |
52,881 |
57,757 |
488 |
523 |
USGLI |
9,034 |
10,390 |
28 |
33 |
VMLI |
2,514 |
2,625 |
167 |
170 |
Total Administered |
1,648,195 |
1,750,372 |
$18,099 |
$18,878 |
Total Supervised and Administered Programs |
7,612,195 |
7,696,603 |
$1,155,493 |
$756,822 |
Policy Dividends
The Secretary of VA determines annually the excess funds available for dividend payment. Dividends are based on an actuarial analysis of the individual programs at the end of the preceding calendar year. Dividends are declared on a calendar year basis and paid on policy anniversary dates. Policyholders can elect to: (1) receive a cash payment; (2) prepay premiums; (3) repay loans; (4) purchase paid-up insurance; or (5) deposit the amount in an interest-bearing account. A provision for dividends is charged to operations, and an insurance dividend is established when gains to operations are realized in excess of those essential to maintain solvency of the insurance programs. Policy dividends for fiscal years 2005 and 2004 were $439 and $497, respectively.
Sale of Prudential Stock
On December 18, 2001, Prudential completed its conversion from a mutual company to a stock company. As policyholder of the SGLI and VGLI programs, VA received 369,177 shares of Prudential stock. VA liquidated these shares in six sales over a 3-year period, which started in 2003. In 2005, VA liquidated the remaining 123,177 shares in two sales. In March 61,500 shares were sold and 61,177 shares were sold in September. Total proceeds over the 3-year period of $17.3 were deposited into the SGLI Contingency Reserve, which is held for VA by Prudential in an interest-bearing account. This guarantees that the monies will be used for the benefit of the service members and veterans who are the intended recipients of these life insurance programs.
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