GA Update Online is intended for NOLHGA’s guaranty association members only. The contents are confidential and should not be shared with third parties. NOLHGA reserves all rights with respect to applicable privileges from disclosure.
IN THIS EDITION:
- Introduction
- 2023 Legal Seminar
- 2023 Annual Meeting
- Constituency Relationships
- MPC Activities
- Committee Activity
- Financial Activities
- Communications
- Systems Support/Technology/Website
Introduction
On June 2, 2023, the NOLHGA Board of Directors held its most recent quarterly meeting in Austin, Texas. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.
Since the March 10, 2023, Board meeting, significant staff time has been devoted to (1) conducting the April 2023 MPC meeting, a hybrid meeting held in Milwaukee; (2) coordination and support for insolvency task force activity, including significant staff support for task forces such as Global Bankers Insurance Group, Penn Treaty/ANIC, and North Carolina Mutual; (3) continuing support for the LTC Re (Penn Treaty) and GABC (ELNY) runoff entities; (4) preparing for NOLHGA’s 31st Legal Seminar, which will be held as a hybrid meeting on July 27–28 in Chicago; (5) preparing for a distribution of approximately $197.2 million from the Penn Treaty and ANIC estates—after the October 2022 Pennsylvania Supreme Court ruling cleared the way for the Liquidator to distribute the remaining estate assets—and distributing the funds to affected guaranty associations promptly; (6) supporting member associations with business services, in particular technology hosting and cybersecurity services; (7) participating in (and in some cases helping lead) numerous MPC Executive Committee–chartered committees and subgroups, including the Small Block Options and GA Vendor & Consultant Directory Subgroups; and (8) providing support for other Board and MPC committees, subgroups, and activities.
2023 Legal Seminar
NOLHGA’s 2023 Legal Seminar will be a hybrid meeting held at the Ritz-Carlton Chicago on July 27–28, with an MPC meeting scheduled for July 26. Planning for the Seminar program continues, and confirmed speakers include:
- Kathleen Birrane: Maryland Insurance Commissioner
- James Donelon: Louisiana Insurance Commissioner
- Beth Dwyer: Rhode Island Superintendent of Insurance
- Anita Fox: Michigan Director of Insurance
- Judith French: Ohio Director of Insurance
- Nathan Houdek: Wisconsin Insurance Commissioner
- Dana Popish Severinghaus: Illinois Director of Insurance
- Professor Akhil Reed Amar: Sterling Professor of Law and Political Science, Yale University
2023 Annual Meeting
NOLHGA’s 2023 Annual Meeting, our 40th Annual Meeting, will be held at the Grand America Hotel in Salt Lake City, Utah, on October 26 and 27, with both Board and MPC meetings scheduled for October 25. Planning for the meeting program and luncheon speaker has begun.
Constituency Relationships
ACLI
On March 22, the ACLI Receivership Committee met during the NAIC Spring National Meeting. Peter Gallanis, Bill O’Sullivan, and Joni Forsythe attended the meeting to provide reports on recent insolvency developments.
Peter Gallanis, Mike Heard, and Bill O’Sullivan separately met with ACLI staff to discuss pension risk transfer (PRT) transactions and how NOLHGA might assist in educating federal government representatives on regulatory and guaranty system protections available for consumers issued annuity certificates in those transactions.
NAIC
Peter Gallanis, Bill O’Sullivan, Joni Forsythe, and Michael McDonald participated in the NAIC Spring National Meeting in Louisville in March. Below is a report on recent NAIC developments.
Receivership and Insolvency Task Force (RITF)
The RITF met during the Spring National Meeting and heard reports on the following matters:
The Receiver’s Handbook Subgroup: The subgroup reported that Chapters 3, 4, and 5 of the Receiver’s Handbook for Insurance Company Insolvencies were adopted by the subgroup, and Chapters 6 and 7 were previously exposed for a 45-day public comment period that ended in February. The drafting groups continue to make progress on drafting revisions to the remaining chapters.
Receivership Law (E) Working Group: The working group reported on the progress of its drafting group, which is preparing amendments to the Property and Casualty Insurance Guaranty Association Model Act (#540) to ensure the continuation of P&C guaranty fund coverage in restructuring transactions.
Receivership Financial Analysis (E) Working Group: The group met on March 23 in a confidential regulator-to-regulator session to discuss companies in receivership and related topics. Pursuant to its confidentiality agreement with the NAIC, NOLHGA staff attended the confidential session.
International Developments: Robert Wake (Maine), who represents the NAIC on the IAIS Resolution Working Group, provided an update on international resolution activities, including work to update international standards related to recovery and resolution, developments with respect to the IAIS Targeted Jurisdictional Assessment of the U.S. regulatory system, and the NAIC’s comments on the IAIS paper on policyholder protection schemes.
Guaranty System Receivership Tabletop Exercise: Peter Gallanis, Bill O’Sullivan, and Roger Schmelzer (NCIGF) reported on a proposed receivership tabletop exercise that would allow insurance commissioners, senior regulators, receivership staff, and guaranty system representatives to evaluate troubled company tools, plan for insolvencies, train newer participants, and build relationships. The proposal was well received by the task force, with Commissioner Donelon (Chair – LA) noting the high value of the exercise. The task force suggested that NOLHGA and the NCIGF continue to develop the details of the session and report back.
Life Insurance and Annuities (A) Committee
The committee met during the Spring National Meeting and, among other matters, adopted a resolution recognizing NOLHGA President Peter Gallanis’s upcoming retirement and thanking him for more than three decades of service to state insurance regulators, the guaranty system, and the consumers they protect.
Restructuring Mechanisms (E) Subgroup
During the Spring National Meeting, Superintendent Dwyer (Chair – RI) announced that the subgroup will be merged into the Restructuring Mechanisms Working Group. The working group subsequently met on April 4 to review and expose revisions to its Best Practices document relating to (i) preserving guaranty association coverage and (ii) eliminating the requirement for an independent expert opinion for corporate division transactions.
The working group also discussed the standard of review for evaluating restructuring transactions. Ultimately, the group decided to use a “no material adverse impact” standard because of the existing precedent for that standard (e.g., the Oklahoma Insurance Business Transfer Act and the UK Part VII law). NAIC Consumer Liaison Representative Birny Birnbaum recommended that a policyholder advocate be required as part of the review of restructuring transactions, but a regulator on the call opined that having a policyholder advocate was not necessary, given the multiple levels of review of these transactions.
The group met again on May 4 to discuss comments received on the April 4 version of its Best Practices document (NOLHGA submitted an individual comment letter as well as a joint comment letter with the NCIGF). Following discussion, the working group accepted the April 4 version of the document, including provisions that:
- Set forth standards that must be satisfied to ensure guaranty association/fund coverage is preserved in restructuring transactions. The provisions also require applicants to make factual representations to allow Commissioners to determine whether a proposed transaction changes guaranty association/fund coverage. NOLHGA and the NCIGF worked closely with the working group and NAIC staff to incorporate these changes.
- Provide regulators with discretion on whether to use an independent expert report for proposed corporate division transactions. If regulators decide not to use an independent expert, they should document their conclusion and provide notice to other states regarding the same.
Long-Term Care Insurance (EX) Task Force
The task force met during the Spring National Meeting and received comments on and adopted a revised Checklist for Premium Increase Communications. The checklist is intended to provide guidance for regulators in reviewing and drafting reduced benefit options (RBO) communications to policyholders. The task force also heard a report on long-term care (LTC) industry trends, including:
- Cost of Care: The cost of care has increased significantly over the last five to six years, which has resulted in higher than anticipated use of maximum daily benefits. This will be a continuing area of regulatory focus.
- Situs of Care: Regulators are seeing a shift in situs of care from facilities to home care, which started during the Covid pandemic. Regulators have seen varying reports on the shifting of that trend back to facilities.
- Incidence/Length of Claim: There has been an increase in incidence and length of LTC claims. The pandemic had resulted in lower incidence and shorter claims, but this appears to have been a temporary trend with only a short-term impact on the economics of LTC blocks.
- Wellness Programs: These programs have yielded a positive impact on policyholder health; however, it remains to be seen whether investments in these programs will be offset by claims cost reductions.
Privacy Protections (H) Working Group
Earlier in the year, the working group released a draft of a new model law (the Insurance Consumer Privacy Protection Model Law (#674)) to replace existing privacy model laws #670 and #672, versions of which have been adopted by all 50 states. At the Spring National Meeting, the group adopted a work plan that lays out a detailed schedule for regulator-only meetings, consultations with industry, and open sessions. The group also heard comments from a wide array of consumer representative organizations and trade associations.
Industry groups commenting at the Spring National Meeting raised concerns with the following provisions of the New Privacy Model Act (among others): (i) broad opt-in rights for consumers with respect to use of data in marketing, research, and actuarial studies, and in overseas data processing; (ii) mandatory 90-day deletion requirements; (iii) optional private right of action for consumers to enforce the New Privacy Model Act; (iv) broad requirements for regulated entities to ensure compliance by third-party service providers; (v) broad and detailed notice requirements; and (vi) limited safe harbors for companies compliant with the Health Insurance Portability and Accountability Act (HIPAA). The Privacy Protections Working Group responded by noting that the draft should be seen as a starting point for further discussion and acknowledged that various issues would require further discussion with interested parties before the draft can be finalized.
Following the NAIC meeting, the working group met on April 18, May 2, and May 16 and discussed the following issues: (i) private right of action (Section 28); (ii) the HIPAA safe harbor provision (Section 19); (iii) Confidentiality (Section 21); (iv) Retention and Deletion of Consumers’ Information (Section 5); (v) Record Retention (Section 22); and (vi) sharing consumer information with persons outside the United States, including requiring a licensee or service provider to obtain consumer consent before such sharing. The working group held an in-person drafting session on June 5–6 in Kansas City. The group intends to release a new exposure draft of the Model Act by the end of June and hopes to have the final draft before the H Committee in November at the Fall National Meeting.
Media
Throughout most of March 2023, Peter Gallanis, Mike Heard, Bill O’Sullivan, Sean McKenna, Bill Fisher (Massachusetts guaranty association), and Joel Glover (Faegre Drinker Biddle & Reath) answered a number of questions and provided information on annuity coverage to a reporter from the Wall Street Journal for an article on the Global Bankers receiverships. NOLHGA staff also provided similar information to a writer preparing an article on the same subject for his local paper.
Stakeholder Outreach
Peter Gallanis participated in the “Policymakers Unplugged” panel at the Networks Financial Institute’s 2023 Insurance Public Policy Summit, entitled Balancing Act: Perspectives & Priorities Across Jurisdictions. The summit was held on May 17, 2023.
MPC Activities
MPC Business Continuity Plan Subgroup
Subgroup Chair Bart Boles (Texas) presented the revised model plan to the MPC Executive Committee at the April MPC meeting. The committee is reviewing the plan, which is also being shared with guaranty association Executive Directors for their feedback.
MPC GA Vendor & Consultant Directory Subgroup
The subgroup, which is made up of MPC Chair Margaret Sperry (Rhode Island), Barry Miller (Delaware), Bill Fisher (Massachusetts), Mike Heard (NOLHGA), and Joanna Akiyama (NOLHGA), developed a form to collect information on the variety of service providers, consultants, and purchased software that guaranty associations use to manage their day-to-day operations (NOLHGA’s Kelli Jacobs assisted in the development of the form). The group circulated the survey and gathered responses throughout 2023. The response was low (only 84 entries). The subgroup created a repository on QUEST of vendor contact information accessible to all member guaranty associations in the event they are looking for a new vendor(s).
MPC Insolvency Task Force Information Subgroup
Subgroup members Candie Kinch (Idaho, Oregon, and Wyoming), Amanda Barbera (Indiana), Nancy Margolis (Pennsylvania), and Joanna Akiyama (NOLHGA), along with NOLHGA’s Dan Hicks, conducted an online presentation on using NOLHGA’s QUEST insolvency library on April 13. The presentation was recorded so it can be used as a resource by guaranty association Executive Directors who weren’t able to attend.
MPC Small Block Options Subgroup
The subgroup has largely completed its work on options for dealing with the administration of small blocks of insurance in run-off. To execute on its charges, the group will: (1) develop a checklist of issues for associations to consider in administration decisions; (2) develop an FAQ to help in decision making; (3) identify resources available within the system to assist member associations that want to consider self-administration; (4) develop a process and document templates for administration arrangements between state guaranty associations; (5) work with the Administrators Education Steering Committee to present an overview of member associations’ experiences with self-administration (see below); (6) develop and implement improvements in the sourcing, contracting, and management of commercial TPA relationships; and (7) explore options for commercial TPAs.
The subgroup conducted a presentation on member associations’ experiences with self-administration at the April MPC meeting. A follow-up webinar will take place later in 2023 to dive into more specifics and answer member questions.
MPC Security Advisory Committee (SAC)
The committee has continued its work to oversee compliance with the MPC Security Procedures. Among other matters, the committee’s recent activities included: (1) tracking and monitoring state and federal legislation regarding privacy and cybersecurity; (2) monitoring the activities of the NAIC Privacy Protections Working Group; (3) investigating the advantages and disadvantages of expanding multi-factor authentication, requiring more frequent password changes, and requiring stricter password protection; and (4) investigating the advantages and disadvantages of requiring insolvency task force consultants with access to confidential personal information (CPI) to obtain service organization controls (SOC) reports.
Committee Activity
Accounting Issues Committee
The committee held a virtual meeting on May 9. The agenda included approval of the February 1, 2023, meeting minutes; final status/maintenance of the Accounting Guidelines Manual; 2023 priorities; the NAIC Spring National Meeting content summary; and future presentation topics for the committee. The committee’s third quarter meeting will coincide with the July MPC meeting in Chicago.
Administrators Education Steering Committee
The committee coordinated and hosted an interactive educational presentation on assessments, which included a review of the following topics: authority; definitions; member databases; enforcement; Class A & Class B assessments; LTC assessments under the new Model Act; providing notice; electronic processing; and more. The session, which was held in conjunction with the April MPC meeting, was well received by participants.
Communications Committee
In May, the committee began its review of NOLHGA’s social media practices and plans for the future. The committee will provide its feedback as well as suggestions for future projects.
Coverage/Claims Committee
The committee met on April 9 to review and approve its work plan for the year. Among other matters, the committee plans to complete its coverage analysis of registered index–linked annuities. In light of issues raised in a recent receivership case, the committee will also revisit the coverage of jointly owned deferred annuities.
GA Laws Committee
Staff continued to work with guaranty associations, the ACLI, and other constituents to monitor progress and provide input and technical comments and revisions concerning GA Act legislation being considered in various states.
GA Act bills have been introduced in eight states this year. Bills have passed the state legislatures in four states (Montana, New York, Colorado, and Vermont). Three additional jurisdictions (the District of Columbia, Rhode Island, and California) have GA Act bills currently pending in their legislatures, and New Mexico had a bill that was introduced somewhat late and failed to pass before the close of the legislative session. Below is a summary of the bills that passed or are still pending.
California: A bill appears to have been introduced as a placeholder to meet the initial deadline for bill introduction so that a completed bill can be substituted at a later date. The California legislative session continues through mid-September.
Colorado: On May 4, the Colorado Legislature passed a bill to incorporate the 2017 Model Act amendments into its GA Act, including the 50/50 LTC assessment split—subject to a modification that provides that LTC assessments for certain specified, nonprofit HMOs will be calculated as though only 25% of the cost of LTC assessments had been allocated to the health account, and assigns responsibility for the other 25% to the life account. That bill also included amendments to the Colorado receivership statute creating a new administrative expense classification for certain risk adjustment amounts owed by an insolvent company. These amounts will be considered expense claims of other member insurers in Colorado that are owed money under the risk adjustment program, to the extent that the failure to recover those amounts could result in the impairment or insolvency of those member insurers. That provision will sunset on July 1, 2026. The bill has been sent on to the Governor’s office for signature.
District of Columbia: A GA Act bill was introduced last year but failed to pass due to other legislative priorities. The bill was reintroduced on February 8, 2023, and referred to the Committee on Business and Economic Developments. The bill remains listed as “Under Council Review.” The legislative session in the District runs through year-end, so the City Council does not appear to be under time pressure for 2023 legislation at this point.
Montana: The bill was limited to expanding the number of guaranty association Board members from 7 to a range of 7 to 9. (Most of the 2017 substantive amendments had been previously enacted in Montana in 2019.) This bill passed the legislature and was signed by the Governor on April 19.
New York: Among other matters, the bill extends guaranty association coverage to health policies and contracts issued by licensed health companies (including HMOs and P&C companies authorized to write health); incorporates the 50/50 split of guaranty association assessments for LTC business between life/annuity and health insurers; and provides for the exclusion of Medicare/Medicaid policies. That legislation was passed by the New York Legislature on May 1 and was signed by the Governor on May 3.
Rhode Island: A bill was introduced on March 1 as part of the Department of Business Regulation’s 2023 legislative package and was thereafter referred to the House Corporations Committee. While there has been limited information available on the state legislature’s website, we understand that there were hearings in early May on the Department’s bill. The legislative session in Rhode Island continues through the end of June.
Vermont: On May 10, the Vermont legislature passed a bill that incorporates the 2017 GA Model Act amendments into the Vermont guaranty association statute. The bill has been sent to the Governor’s office for signature.
In addition to the GA Act bills, a bill was introduced in Georgia to amend the receivership act to include a provision with respect to ceded reinsurance, including a guaranty association’s rights to succeed to ceded reinsurance. NOLHGA staff worked closely with the Georgia association, the ACLI, and industry representatives to resolve conflicts between the bill and a provision in guaranty association laws that provides guaranty associations with statutory rights to succeed to ceded reinsurance in insolvencies. Following the incorporation of revisions suggested by the Georgia association and NOLHGA, the reinsurance bill passed the legislature on March 29 and was signed by the Governor on May 1.
Legal Committee
The committee met on March 27 to discuss the NAIC’s proposed draft of a new privacy model law and to consider what implications, if any, the proposed model law may have on guaranty associations. NOLHGA staff will monitor developments with respect to the proposed model law, conduct research on the possible implications to guaranty associations, and report back to the committee later in the year.
Public Policy Coordination Committee/Education Project
Since the last Board meeting, Peter Gallanis, Mike Heard, Bill O’Sullivan, Joni Forsythe, and Sean McKenna have met monthly with representatives from the NCIGF and Faegre Drinker to discuss regulatory and policy developments at the international, federal, and state levels and strategies with respect to the Education Project.
Financial Activities
The Accounting Department has worked with RSM US to complete the fieldwork phase of the year-end audit of the 2022 NOLHGA operating financial statements and with preparations for the Audit Committee’s June 1 review of the audit results. In addition to routine accounting-related tasks, the department also calculated and distributed the fourth quarter 2022 quarterly assessments.
The department coordinated the following insolvency-related account distributions: (1) $197,345,000 to affected members ($197,211,000 due to estate asset distributions related to Penn Treaty/ANIC; and $134,000 in premium collections related to National States); and (2) $1,037,000 to TPAs and receivers to fund claims and expenses for four active insolvencies.
Assessment Data Survey
Data specifications and delivery dates for the 2022 survey year were finalized with the NAIC early in 2023. Initial data files were received from the NAIC in April and reviewed by Strohm Ballweg, which imported the data into the survey database in preparation for the task force review.
An initial video meeting to go over the review material and review process was held on May 11, and the task force completed a more in-depth review of the company filings on May 17 during a hybrid meeting. Strohm Ballweg uploaded all test reports and related annual statement files to a secure ShareFile portal. Task force members were assigned specific companies for review, and they were able to download the files via a link provided by Strohm Ballweg. The members completed a review checklist with any necessary follow-up questions, and the task force members completed their assigned reviews the following week.
Data capture for disability income (DI), LTC, Medicaid, Medicare, FEHBA, CHIP, and HMO premium information for 2022 will be done in a manner similar to that used in prior years. This information will be provided to the guaranty associations in October when the data is released.
Beginning in 2021, annual statement filing instructions were modified to include the new premium exhibits as a supplemental filing in the life, health, and property/casualty annual statements. As a result, additional follow-ups are planned for all life, health, member HMO, and property/casualty companies that were supposed to file the data survey premium exhibits but failed to do so. We are hopeful that the number of companies filing the exhibits will increase from last year.
NOLHGA Expense Trolley
NOLHGA staff has launched an expense reduction project plan (NOLHGA Expense Trolley) by reviewing operating expense categories to identify costs the organization might be able to cut back on, or perhaps cut out altogether. The initial work has identified over $100,000 in annualized expense reduction opportunities. The opportunities are being evaluated for feasibility and user impact. The goal is to finalize reductions and build any changes into the 2024 budget. Some of the identified opportunities may show impact in 2023.
Communications
The March 15, 2023, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its March meeting. The 2022 NOLHGA Year-End Report to the Membership was published in April, and the first 2023 issue of the NOLHGA Journal was published in early May.
Systems Support/Technology/Website
Network Systems Status & Website
The Systems Department is upgrading the staff workstations to Windows 11. The department also added Google’s reCAPTCHA to the NOLHGA website. ReCAPTCHA’s risk analysis engine protects the website from fraud and abuse via form postings.
Technical Assistance for Guaranty Association Executive Directors
The department assisted the MPC Insolvency Task Force Information Subgroup with its webinar on using QUEST, which was conducted in April.
Cybersecurity
A web application firewall was added to the NOLHGA website. The firewall protects websites from common web-hacking techniques such as SQL injection and security vulnerabilities such as cross-site scripting. It compares every incoming request with a set of rules and blocks suspicious requests, logging each action that it takes. The Systems Department added some custom rules to prevent the firewall from mischaracterizing legitimate requests.
The department conducted a staff training session to review cybersecurity best practices for remote workers. NOLHGA staff members also completed two new training modules on security awareness and phishing.
The NOLHGA office has discontinued the use of USB flash drives for transferring files. In addition, the Systems Department is in the process of adding endpoint protection and mobile device management protection to company mobile phones. The new threat protection will block access to harmful websites and apps, and the device management protection will ensure all devices are protected with a six-digit PIN code and remote wiping capability.
Publications & Online Events
The department has remained heavily involved in the planning and execution of NOLHGA’s hybrid events, such as the April MPC meeting and the upcoming Legal Seminar.
New editions of the NOLHGAnet online newsletter were published in April and May.