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
- 2021 Annual Meeting
- 2021 Legal Seminar
- Constituency Relationships
- MPC Activities
- NOLHGA Committee Activity
- Other Legal Department Activity
- Financial Activities
- Communications
- Systems Support/Technology/Website
- Professional Development
Introduction
On September 8, 2021, the NOLHGA Board of Directors held its most recent quarterly meeting; the meeting was conducted as a Zoom videoconference because of the COVID-19 pandemic. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.
Since the May 20, 2021, Board meeting (held via videoconference), significant staff time has been devoted to (1) conducting the July 2021 Legal Seminar and August MPC meeting, both of which were held online; (2) planning for the 2021 Annual Meeting, which will now be held online due to the rise in COVID-19 cases; (3) coordination and support for insolvency task force activity, including significant staff support for task forces such as AF&L/SAIC, North Carolina Mutual, Global Bankers Insurance Group, Senior Health Insurance Company of Pennsylvania (SHIP), and Time Insurance Company; (4) continuing support for the LTC Re (Penn Treaty) and GABC (ELNY) runoff entities; (5) implementing the strategy for adding a senior staff member in anticipation of Dick Klipstein’s impending retirement; and (6) providing support for Board and MPC committees and subgroups.
2021 Annual Meeting
Planning for the October 2021 Annual Meeting continues, with NOLHGA staff working to transition from an in-person to an online meeting. The agenda is still taking shape; several speakers have been invited.
2021 Legal Seminar
The 2021 Legal Seminar was held on July 21–23. Almost 180 people registered for the online meeting, and meeting evaluations were overwhelmingly positive. Speakers included Colorado Insurance Commissioner Michael Conway, Connecticut Commissioner Andrew Mais, Iowa Commissioner Doug Ommen, Missouri Director Chlora Lindley-Myers, and North Dakota Commissioner Jon Godfread, as well as FIO Director Steven Seitz; executives from Prudential, AIG, UnitedHealthcare, Transamerica, Guardian Life, Pacific Life, and other insurance companies; and leaders from The American College of Financial Services, Federal Financial Analytics, NAMIC, and the Centers for Medicare & Medicaid Services.
Constituency Relationships
Paul Peterson participated in the Northeast Regional GA Meeting in June via Zoom. Topics included responding to the pandemic (e.g., vaccination requirements for consultants/visitors to the office; changes made in office procedures; changes in staffing; and conducting in-person meetings); reviewing/updating the plan of operation; administration alternatives for small blocks of business; Board relations/selection/training; company membership data/maintenance and proxy administration; banking/investment/auditor selection and RFPs; financial statement reporting formats; the use of contingency/administrative accounts; and IT service providers.
Mr. Peterson continues to assist guaranty associations with the long-term care (LTC) insurance cost allocation that was adopted as part of the 2017 GA Model Act amendments and the data needed to complete the calculations.
ACLI
On August 24, Peter Gallanis and Bill O’Sullivan participated in the ACLI Receivership Committee meeting and discussed with the committee the pending Scottish Re (Delaware) rehabilitation and the “Warrantech” decision in the Penn Treaty/ANIC receivership cases.
NAIC
See the update on NAIC activity in the September 1, 2021, issue of GA Update Online.
Other Industry
On July 6, Peter Gallanis, Bill O’Sullivan, Tom Sullivan (MPC Chair), Caryn Glawe (Faegre Drinker), and Ralph Donato (LTCG) participated in a videoconference with representatives of Fortitude Insurance Group (the latest in a series of conversations with various reinsurers) to discuss general marketplace conditions, developments and interest relating to sales of blocks of business, and how that might relate to potential acquisitions of blocks from guaranty associations and/or insolvent insurers.
MPC Activities
MPC “GA Administrator Directory” Project
Phase 2 of the directory project, in which information from the GA Administrators Skills Survey was merged into the directory, has been completed. Administrators were also given an opportunity to make final changes to their profiles before the changes to the directory went live on the NOLHGA website’s members-only area. An online form was created to help administrators submit their information.
MPC Insolvency Task Force Information Subgroup
Subgroup Co-Chair Candie Kinch (Idaho, Oregon, and Wyoming) gave a presentation on the subgroup’s progress at the August 2021 MPC Executive Committee meeting. The subgroup is charged with creating a listing or repository of key information for each insolvency and potential insolvency for which a task force has been formed so that guaranty association administrators can access the information when they are preparing reports for their Boards or insurance departments. The subgroup distributed a survey to administrators to gather suggestions for what types of information would be helpful, and the group will use the survey results to supplement and redesign the existing task force web pages in the Receiverships section of the NOLHGA website.
MPC Model Plan Subgroup
The subgroup, which is reviewing the NOLHGA Model Plan of Operation for potential updates, met in June, July, and August. In response to a request from the subgroup earlier in the year, the Legal Committee provided suggestions for resolving an apparent conflict between certain provisions in the Model Plan of Operation and the definition of “member insurer” in the GA Model Act. The subgroup accepted and will be incorporating the Legal Committee’s suggestions into its proposed revisions to the Model Plan (see related discussion under the Legal Committee Model Plan of Operation Subgroup report below). The subgroup provided an update on its activities during the August MPC meeting.
MPC Security Advisory Committee (SAC)
The SAC continued its work to oversee compliance with the MPC Security Procedures. Among other matters, the committee’s recent activities included: (1) distributing the annual guaranty association and business associate compliance questionnaires; (2) reviewing the responses to those questionnaires and confirming there were no material issues; (3) tracking and monitoring state and federal legislation regarding privacy and cybersecurity; (4) reviewing and analyzing the New York SHIELD Act and any potential impact it might have on the guaranty system; (5) reviewing and considering possible responses to risks associated with outside contractors and subcontractors having access to confidential personal information (CPI); (6) monitoring the NAIC Privacy Working Group’s discussions; (7) developing protocols for task forces and guaranty associations with respect to retaining and disposing of legacy CPI; (8) tracking publicly reported cybersecurity events affecting third parties; and (9) communicating with guaranty association administrators on a regular basis, including providing associations with monthly reports on publicly reported breaches and other cybersecurity developments.
NOLHGA Committee Activity
Accounting Issues Committee
The committee held a virtual meeting in May. The agenda included subcommittee reports on updating the Accounting Guidelines Manual, Form 990 and related schedules, FASB review, and expense allocation/proof of claim and electronic processing. Several updates will be included in the next update of the Accounting Guidelines Manual.
The meeting also featured a review of the committee’s presentation on various aspects of the Accounting Guidelines Manual that was held in conjunction with the January MPC meeting, along with status updates on (1) tax changes; (2) revenue recognition: ASC 2016 Topic 606; and (3) COVID-19 footnote disclosure that could be used on guaranty association financial statements.
The committee's next meeting is scheduled for September 17.
Administrators Education Steering Committee
In collaboration with the MPC’s GA Best Practices Subgroup (BPS), the committee hosted an educational workshop on guaranty association Board engagement. This engaging two-hour session hosted breakout rooms to create a more interactive experience for attendees. Each breakout group included a state guaranty association Board member, a facilitator from either the committee or the BPS, and a cross-section of guaranty association administrators. The list of discussion topics was the same for each group, but each group was assigned a different topic to report on to all participants when they were brought back together for a wrap-up discussion.
Communications Committee
The committee reviewed and approved a guide to the materials available on the members-only section of the NOLHGA website, which is the second phase of its project to provide new guaranty association administrators with an overview of the resources NOLHGA offers. The guide should be distributed in September. The committee also provided feedback on the draft of a brochure developed by the Diversity & Inclusion Focus Group designed to recruit diverse candidates to serve on guaranty association Boards (see the report on the Diversity & Inclusion Focus Group, below).
The committee also began work on the 2021 edition of The Nation’s Safety Net brochure, which illustrates the foundation of coverage provided by state life and health insurance guaranty associations. The revised brochure should be finished in time for the 2021 Annual Meeting.
Diversity & Inclusion Focus Group
The group, which was formed to formally continue meaningful conversations regarding diversity and inclusion in the guaranty system, met via videoconference on July 29. As previously reported, the group has identified governance/staffing, vendor procurement, and execution of mission as areas for possible guaranty system action.
Among other things, the group’s recent activities include: (1) drafting a brochure aimed at soliciting diverse candidates to serve as guaranty association Board representatives; (2) creating a discussion outline for conversations regarding diversity with key outside consultants and vendors to NOLHGA; and (3) identifying and scheduling outreach with receivers, TPAs, and other key participants in relevant insolvency cases to discuss the potential needs of policyholders from underserved communities in insolvency cases and whether those needs are being met.
GA Laws Committee
Staff has continued working with guaranty associations in several states on bills to incorporate the 2017 Model Act amendments into their GA Acts. Since our last report, staff has been working with the guaranty association administrators and their counsel, ACLI, and other industry representatives to provide input and technical comments and revisions to proposed guaranty association legislation in Ohio, the District of Columbia, and New Jersey as part of our continuing effort to enhance functional consistency within the guaranty system.
In each of these jurisdictions, agreed-upon changes have been incorporated into the proposed legislation to reflect the most recent amendments to the NAIC Model Act and to resolve key areas where the statutes are out of step with the current NAIC model and the vast majority of state guaranty association statutes. While legislation has not yet been formally introduced, it is hoped that bills will be introduced in each of these jurisdictions soon. Staff will continue to work with the guaranty associations and other industry participants to support these legislative efforts.
Legal Committee Model Plan of Operation Subgroup
Earlier this year, the Legal Committee formed a new subgroup to consider and respond to the referral of a legal issue from NOLHGA’s Model Plan of Operation Subgroup. The legal issue related to potential inconsistencies between the term “member insurer” as used in the Model Plan of Operation and the definition of “member insurer” in the NAIC’s Life & Health Insurance Guaranty Association Model Act. In furtherance of its work, the subgroup investigated the history of the relevant provisions, which were initially developed as part of an NAIC Model Plan of Operation, and prepared analysis and recommendations for resolving the conflicts and inconsistencies. The subgroup’s report and recommendations were approved by the Legal Committee and delivered to the MPC Model Plan of Operation Subgroup in late June.
Public Policy Coordinating Committee/Education Project
Since the last Board meeting, Peter Gallanis, Bill O’Sullivan, and Sean McKenna have met with representatives from the NCIGF and Faegre Drinker on a monthly basis to discuss regulatory and policy developments at the international, federal, and state levels and strategies with respect to the Education Project. Representatives of the NCIGF and NOLHGA have participated in meetings with staff for members on committees of relevant jurisdiction in Congress.
Other Legal Department Activity
Director & Officer Liability Coverage
Legal Department staff has completed the process of renewing NOLHGA’s Director and Officer Liability insurance coverage with Great American Insurance Company. The renewal policy is on the same coverage terms ($10 million in coverage and deductibles of $50,000) and policy form as the previous policy. The renewal includes a 10% increase in the premiums on the policy due to general marketplace conditions. (Note: The initial quote was for a 12% premium increase, but staff working through our outside broker was able to negotiate a 2% reduction in the quoted premium.) The renewal policy term will run from September 1, 2021, through August 31, 2022.
Financial Activities
The Accounting Department has been involved in the development of the 2022 preliminary operating budget; preparations and coordination of materials for the Finance Committee’s August 16 meeting; and the review of 2022 preliminary works plans and budgets for major insolvency task forces. In addition to routine accounting-related tasks, staff also calculated and mailed the first quarter 2021 quarterly assessments.
The department coordinated the following insolvency-related account distributions: (1) $2,556,000 to affected members ($2,276,000 due to a final estate distribution related to Benicorp; $186,000 in premium collections related to National States; and $94,000 due to an early access distribution related to Lumbermens Mutual); and (2) $1,152,000 to TPAs and receivers to fund claims and expenses for four active insolvencies.
Guaranty Association Assessment & Financial Information
The collection of 2020 assessment activity from the guaranty associations has begun. This annual project entails collecting assessed, called, and refunded assessment information by state, account, and insolvency for purposes of publishing assessment activity reports in the fall. The collection of assessment information should be completed during the third quarter, and capacity estimates and final reports should be completed and posted on NOLHGA’s website in November.
The annual survey of guaranty association financial information, which is done to illustrate the costs of the guaranty system as a whole, has been completed. Entries on the online survey were verified with audited financial statements submitted by the guaranty associations. The completed report (with assessment figures) will be posted on the NOLHGA website by year-end.
Assessment Data Survey
Due to the COVID-19 pandemic, the review of the company filings was completed remotely. Strohm Ballweg uploaded all test reports and related annual statement files to a secure ShareFile portal, and each task force member was assigned a specific NAIC number for review via a link provided in an email from Strohm Ballweg. Task force members completed a review checklist contained in the email to respond to Strohm Ballweg with any needed follow-up questions. The initial Zoom meeting to go over the review materials and process was held May 18. Reviews were completed the week of May 23.
Of the top 85 annuity writers reviewed (the top 75 companies writing annuity business and an additional 10 companies randomly selected from the next 75 companies writing annuities), 47 required follow-up inquires. Primary issues included:
- Large changes in assessable premiums from 2019 to 2020 (increases and decreases)
- Fee income reporting on separate account business
- Unallocated annuity premiums related to governmental retirement plans under IRS code sections 401, 403(b), and 457
- Deposit and separate account reporting
- 120 new HMO member companies were sent a notice reminding them to file the exhibits as part of their upcoming annual statement April 1 filings
- 63 companies were sent various follow-up inquiries
- 126 companies that filed the exhibits were sent follow-up letters related to the reporting of Medicaid, Medicare, CHIP, FEHBA, and stop-loss premium deductions
- 102 P&C companies were sent letters regarding health deductions taken or not taken
- 11 companies were sent letters related to the reporting of disability income (DI) and LTC premiums (which are used in the new LTC cost allocation formulas)
As in prior years, data for DI, LTC, Medicaid, Medicare, FEHBA, CHIP, and HMO premium information for 2020 was acquired and will be provided to the guaranty associations in October when the assessment data is released.
Formulas for the new redesigned premium exhibits continue to be updated as states adopt the new 2017 provisions. Data specifications and files from the NAIC have begun to be reviewed and changed as needed for the new exhibit formats. Paul Peterson continues to assist the NAIC staff in addressing questions raised by member companies and vendors concerning the new formats.
Communications
GA Update Online
The May 18, 2021, and September 1 issues of GA Update Online featured updates on NAIC activities. The June 2 issue contained details of the management report provided to the NOLHGA Board for its May meeting.
Systems Support/Technology/Website
Network Systems Status
As NOLHGA staff members have been involved in an increasing number of virtual meetings, the Systems Department determined that the NOLHGA office’s network and Wi-Fi bandwidth needed improvement (the maximum bandwidth was 100 Mbps). The upgrade process has been delayed because of a parts backlog due to COVID-19 (Verizon is working on completing the upgrade soon), but we have increased the office bandwidth to 1 Gbps. We have also upgraded the SonicWall TZ400 router to a newer version (TZ570) to accommodate the higher bandwidth speeds.
In addition, we have improved the Wi-Fi units in the NOLHGA office. The upgrade included four access Wi-Fi points across the office that connect to a Wi-Fi controller. With the right credentials, Wi-Fi can be accessed anywhere in the office.
Other than addressing minor day-to-day technical issues, we continued to maintain servers, applying the latest server updates and service packs. As we continue to work remotely, we frequently inform staff members when and how to apply updates to their workstations.
Technical Assistance for Guaranty Association Administrators
The May, June, July, and August editions of the Cybersecurity Bulletin, which included the SAC Security Breach Reports, were distributed to the membership and NOLHGA staff.
The department also continued to provide support to the members by providing timely responses to general IT inquiries, making requested updates to their hosted websites, and reconfiguring their email accounts (as necessary). In June, we released an update to our GA Cybersecurity Training Program. The online video courses in the program cover a range of topics relating to cybersecurity.
Online Events
NOLHGA continued to host meetings online, including the July Legal Seminar, the August MPC meeting, and an educational workshop on guaranty association Board engagement. For the Legal Seminar, we partnered with Cvent to add advanced production elements to the presentations and to help attendees qualify for CLE credit. For the Board engagement workshop, we used breakout rooms to create a more interactive experience for attendees.
Security Audit
The Systems Department engaged an independent third party to perform a series of penetration tests to identify vulnerabilities on the NOLHGA website, QUEST, and other web-based services offered through NOLHGA. The security firm reported fewer findings this year, due in part to the recent migration of our web applications from an on-site hosting environment to Azure (Microsoft’s cloud hosting service).
Professional Development
Michael McDonald participated in (1) the NAIC’s Core Regulatory Online Course from May 24 to June 8; and (2) a webinar sponsored by Eversheds Sutherland on June 9 entitled Staying Afloat and Charting a Course Amidst the Changing Tides of Privacy Laws.
On June 23, Bill O’Sullivan participated on a panel at the NCIGF Legal Seminar that discussed innovative solutions to insurance insolvencies. A number of NOLHGA staff members attended the virtual seminar.