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
• NOLHGA Meetings
• Constituency Relationships
• Financial Activities
• NOLHGA Board Activities
• MPC Activities
• NOLHGA Committee Activity
• Legal Department Activity
• Communications
• Systems Support/Technology/Website
• Professional Development

Introduction

On February 28, 2019, the NOLHGA Board of Directors held its most recent quarterly meeting. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.

Since the October 17, 2018, Board meeting in Seattle, significant staff time has been devoted to (1) participating in court hearings in the Lincoln Memorial litigation; (2) providing support for Board and MPC committees and subgroups; (3) work related to the selection of a long-term TPA and sale of Penn Treaty’s Allentown operation; (4) coordination and support for insolvency task force activity, including preparation for the January 2019 MPC meeting; and (5) standard operational and year-end tasks.

NOLHGA Meetings

2019 Legal Seminar & Annual Meeting

Planning has begun for NOLHGA’s 2019 Legal Seminar, which is scheduled for July 11–12 at the Fairmont Copley Plaza in Boston. NOLHGA staff has conducted a kickoff teleconference for the Legal Seminar Planning Committee, distributed a “save the date” postcard to membership and past attendees, and published a NOLHGA Wire article with the hotel reservation line and website and the discounted rates available for attendees.

Work on the 2019 Annual Meeting, which will be held on October 10–11 in Austin, Texas, has also begun. A number of invitations have been sent to prospective speakers.

Constituency Relationships

NOLHGA staff members participated in a conference call with several representatives from Mercer to discuss potential coverage of annuities involved in pension de-risking transactions. Staff also continued to respond to other industry inquiries involving pension risk transfer transactions and insurance business division and business transfer proposals.

Paul Peterson continues to provide presentations and aid the guaranty associations regarding the necessary calculations for the LTC insurance cost allocation that was adopted by the NAIC in December 2017.

NAIC

Peter Gallanis and Joni Forsythe attended the NAIC’s Fall National meeting in San Francisco on November 15–17, 2018. During the meeting, NOLHGA and the NCIGF jointly hosted a luncheon for guaranty association representatives and other invited guests to discuss relevant NAIC activities. NOLHGA and the NCIGF also participated in two closed sessions regarding multi-state oversight of financial supervision and receiverships. Other highlights from the meeting and interim NAIC teleconferences were detailed in the December 10, 2018, issue of GA Update Online.

On October 30, 2018, Peter Gallanis and NCIGF President Roger Schmelzer met with incoming NAIC President Eric Cioppa at his offices in Maine to review guaranty system issues and priorities.

ACLI

On January 31, 2019, Bill O’Sullivan participated in a joint meeting of the ACLI’s Receivership Committee, Reinsurance Committee, and State Legislative Strategy Group (collectively, the “Committees”). The purpose of the meeting was for the Committees to discuss proposed business division/transfer legislation and to develop ACLI best practices for such legislation. Mr. O’Sullivan provided the group with an overview of the potential implications of business division/transfer legislation on guaranty associations.

On November 7, 2018, Peter Gallanis met with recently appointed ACLI President Susan Neely to discuss issues of interest both to ACLI and NOLHGA.

Financial Activities

The Accounting Department has been involved in overseeing the audit planning process by RSM US LLP in preparation for the year-end audit of the 2018 NOLHGA operating financial statements, and with preparations for the Finance Committee’s February 12 review of 2018 results and 2019 budgets for the insolvency task force business plans and the organization’s liquidity fund.

In addition to routine accounting-related tasks, staff also calculated and mailed the third quarter 2018 quarterly assessments and the 2019 annual membership dues; invoices for the dues were sent in January.

The department coordinated the following insolvency-related account distributions: (a) $11,633,000 to affected members ($4,964,000 and $3,749,000 in estate asset distributions related to National States and SeeChange Health, respectively; $2,574,000 due to an early access distribution related to Universal Health; $315,000 in premium collections related to National States; and $31,000 due to a quarterly true-up of escrow account activity related to Life & Health Insurance Company of America); (b) $25,857,000 related to funding of LTC Re; and (c) $1,816,000 to TPAs and receivers to fund claims and expenses for four active insolvencies.

Insolvency Financial Cost Information

Insolvency cost data used by member companies in establishing accruals for guaranty association assessments on insolvency cases they may be affected by was posted to the public portion of NOLHGA’s website on November 15, 2018.

Guaranty Association Assessment Information

Reports outlining guaranty association assessment activity (Assessed, Called, and Refunded), along with assessment capacity estimates, were completed and uploaded to NOLHGA’s website in October 2018. They are available on the public portion of the site.

NOLHGA Board Activities

Board Ad Hoc Group on Business Division/Transfer Proposals

On February 7, the Ad Hoc Group on Business Division/Transfer Proposals held its organizational teleconference. The group discussed NOLHGA’s possible involvement in various aspects of business division/transfer and planned to report on the group’s teleconference and anticipated activities during the Board meeting.

New Board Member Orientation

On January 31, NOLHGA staff members conducted an orientation program for new Board members Kermitt Brooks (AXA Equitable Life Insurance Company), Margaret Sperry (Rhode Island), and Ted Lewis (Utah). The program addressed issues such as NOLHGA’s corporate governance, member support, the MPC insolvency task force structure, and committee activities.

MPC Activities

MPC Meetings

In late January 2019, all guaranty association administrators were surveyed about the location for the January 2020 MPC meeting. Most administrators voted for Southern California or Florida. Since the January 2019 MPC meeting was held in Florida, NOLHGA staff members are evaluating locations in Southern California.

New GA Administrator Roundtable Meeting

NOLHGA staff members assisted the MPC Chair in organizing a New GA Administrator Roundtable, which provided a setting for new and more-experienced administrators to discuss issues concerning guaranty association operations. A number of conference calls were held to plan the Roundtable, which was held in Reston, Virginia, on March 5 and 6; 12 new administrators attended the event.

MPC Health CO-OP Task Force

As previously reported, there are only four ACA Health CO-OPs that are operational and writing new business in 2019 (Maine, Montana, New Mexico, and Wisconsin). All other CO-OPs are in various stages of receivership or have been dissolved.

For the going concern CO-OPs, financial results were somewhat improved during 2018, and rate increases for 2019 business were much lower than in prior years. However, the federal government’s termination of cost-sharing reduction payments, ongoing disputes over the federal risk adjustment and risk corridor programs, the elimination of the individual mandate tax penalty, and the expansion of access to short-term health plans and association health plans all continue to present heightened challenges for the CO-OPs and other small health carriers in the individual market.

The MPC Health CO-OP Task Force will continue to monitor developments with respect to the CO-OPs, as well as other ACA-related developments. (See the discussion of ACA-related litigation under the Legal Committee/Federal Claims Subgroup section of this report.)

MPC Security Advisory Committee (SAC)

The SAC continued its work to oversee compliance with the MPC Security Procedures. Among other matters, the SAC’s activities included: (1) preparing and distributing a monthly breach report and cybersecurity bulletin to keep guaranty association administrators and NOLHGA staff aware of potential security breach risks; (2) conducting a review of emerging technologies and legal developments and their implications to the MPC Securities Procedures; (3) conducting and documenting the annual risk assessment of confidential personal information (CPI) in multi-state insolvencies; (4) distributing a year-end memorandum to the guaranty associations and business associates outlining the SAC’s work over 2018; (5) tracking CPI that exists in historical insolvency cases as well as the applicable document retention periods and destruction dates; (6) updating the lists of persons who have completed NOLHGA’s security training program and cross-checking Quest access with the authorized persons list; and (7) providing a security update presentation at the October 2018 MPC meeting.

MPC Best Practices Committee

The committee met on January 28 to conduct its annual review of the GA Best Practices document. Any substantive revisions will be shared with the MPC Executive Committee at its April meeting.

NOLHGA Committee Activity

Accounting Issues Committee

The committee held an in-person meeting on January 8 in conjunction with the MPC meeting in Bonita Springs, Florida. The committee welcomed three new members and addressed several topics, including the committee roster and subgroups; approval of minutes from the October 17, 2018, meeting; and the status of old business, such as:

• Distribution of the Accounting Guidelines Manual in November 2018
  
• FASB ASU 2016-14 - Presentation of Financial Statements of Not-for-Profit Entities
  
• Insolvency Cost File update to include single-state insolvencies
  
• Changes to Assessment Data Survey Exhibits

In 2019, the committee plans to address the following topics:

• Updates to the Accounting Guidelines Manual
  
• Revenue Recognition/Parking Fringe Expenses on Form 1099
  
• LTC Allocation for Assessments Calculation
  
• 990 Update

The committee will hold its next meeting in conjunction with the April 2019 MPC meeting in Phoenix.

Administrators Education Steering Committee

A presentation entitled “Tools & Techniques for a Virtual Guaranty Association” was held in conjunction with the January 2019 MPC meeting. Bart Boles (Texas) moderated a discussion with Chuck Renn (Missouri) and Todd Thakar (California), both of whom shared insights into possible uses of technology for associations of all sizes, such as electronic banking, corporate governance, and remote access. The session was very interactive and well received by meeting attendees.

Coverage/Claims Committee

During a January 29 teleconference, the committee approved a work plan for 2019. The committee also approved a recommendation from one of its subgroups relating to the coverage of certain trust-owned annuities. The committee plans to present the recommendation on trust-owned annuities to the MPC and the ACLI during the coming months.

Financial Services Modernization Committee

Committee activity has mainly involved operationalizing the stress testing program developed originally by Oliver Wyman to enhance its utility to the guaranty system for future analyses.

GA Laws Committee

On November 1, 2018, the GA Laws Committee sent a letter to all guaranty association administrators and Board Chairs updating them on states that have adopted GA Act amendments in 2018 and encouraging them to consider adopting the GA Act amendments in their states. In support of efforts to update GA Acts, NOLHGA staff has reviewed and provided comments on various GA Act bills during 2019.

Legal Committee/Federal Claims Subgroup

The subgroup continues to monitor ACA claims-related litigation, with an emphasis on cases having potential implications for health insurer insolvencies. The outcome of this litigation could have a significant impact on the ultimate cost of ACA Health CO-OP insolvencies. As reported in previous management reports, the ACA claims-related litigation can be divided into the following categories: (1) risk corridor payment obligations; (2) cost-sharing reduction and reinsurance obligations; (3) risk adjustment challenges; and (4) receivership “netting” and priority challenges. The subgroup also has been monitoring cases raising constitutional challenges to the ACA. The following summarizes the status/key developments in these cases.

Risk Corridor Cases: As previously reported, a three-judge panel for the Federal Circuit Court of Appeals has ruled that the federal government does not have an obligation to make further risk corridor program payments. The plaintiff insurers in the case have filed petitions for re-hearing en banc, which were joined by two additional plaintiffs. On November 13, 2018, the Federal Circuit denied rehearing in these cases. On February 14, each of the plaintiffs filed Petitions for Certiorari seeking Supreme Court review of the Federal Circuit’s decision.

Risk Adjustment Cases: A Federal District Court previously vacated the CMS’s use of average premiums in calculating risk adjustment payments. The CMS sought to address this issue by issuing a Final Rule modifying its risk adjustment methodology and also filed a motion asking the Federal District Court to amend its prior ruling. In response, the plaintiffs in the case filed a second action reasserting various challenges to the CMS’s risk adjustment methodology. On October 19, 2018, the Federal District Court entered an order affirming its decision to vacate and remand the CMS’s risk adjustment regulations for certain years and also denied the CMS’s motion for an amended order. In response, the CMS has appealed the District Court’s ruling to the Tenth Circuit Court of Appeals. The District Court’s October 19 order has been stayed pending the appeal.

Cost-Sharing Reduction/Reinsurance Cases: There are 12 actions in the Federal Court of Claims seeking to collect cost-sharing reduction payments from the federal government. In mid-October 2018, the Court of Claims issued judgments in favor of the plaintiffs in two of these cases. On December 14, the federal government appealed both judgments to the Federal Circuit Court of Appeals. Those appeals remain pending. With respect to ACA reinsurance collection cases, there are six actions progressing through the Federal Claims Court.

Receivership Netting Claims/Federal Priority Challenge Cases: As previously reported, the receiver for the Illinois CO-OP challenged offsets taken by the federal government. After the receiver obtained a ruling denying the government’s motion to remove the case to federal court, the Court of Appeals for the 7th Circuit reversed and remanded the matter back to the Federal District Court for further proceedings. A status conference in the case was scheduled for February 21, 2019.

ACA Constitutional Challenges: On December 14, 2018, the Federal District Court for the Northern District of Texas ruled that the ACA’s individual mandate was unconstitutional. The court went on to find that the remaining provisions of the ACA were not severable from the mandate. As a result, the Court ruled that the entire ACA was invalid. The Court’s ruling has been appealed to the Court of Appeals for the Fifth Circuit.

Legal Committee/Health HMOs Subgroup

As reported previously, the Legal Committee has appointed a new subgroup to provide guidance to guaranty associations on issues that could arise in health insurer or HMO insolvencies. Since the last Board meeting, the subgroup has made substantial progress in its work, including completing a review of the health insurance marketplace and the operational/regulatory structure of HMOs. The subgroup is currently investigating the unique issues that guaranty associations could encounter in an HMO insolvency. The subgroup anticipates completing its work prior to the NOLHGA 2019 Annual Meeting in October. As part of its final report, the subgroup will recommend updates to the MPC Insolvency Task Force Guidelines to discuss the evolving nature of the health marketplace and the potential issues guaranty associations may face in future health insurer and HMO insolvencies.

Legal Department Activity

Cyber Liability Insurance

On January 18, staff filed an application for renewal of NOLHGA’s cyber liability insurance coverage. Due to recent security enhancements implemented by NOLHGA, the cyber liability carrier offered to reduce the renewal premium by over 8% from last year’s premium. Renewal coverage on the same terms as last year’s policy (except for the above-referenced premium reduction) was bound and became effective on February 9.

Conflicts & Antitrust

In January, staff distributed the annual compliance questionnaires under NOLHGA’s Conflict of Interest and Antitrust Policies to persons subject to those policies. Staff is in the process of collecting and reviewing responses and completing necessary follow-up inquiries.

Communications

NOLHGA Journal

The first 2019 issue of the NOLHGA Journal was mailed to subscribers in late February.

GA Update Online

The October 30, 2018, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its October meeting. The December 10, 2018, issue provided an overview of guaranty association–related activity at the NAIC’s Fall National Meeting.

Systems Support/Technology/Website

Network Systems Status

As noted in previous management reports, NOLHGA did not renew its agreement with Allied Telecom, the provider of Internet and voices services for NOLHGA, because of several issues affecting NOLHGA’s phone systems. NOLHGA will switch to Verizon’s enterprise service for Internet and voice services. Installation and implementation have been delayed, but we expect the work to be completed during the first quarter.

NOLHGA finalized an agreement with Diligent—a leading provider of Digital Board Solutions—to streamline the process of compiling and sharing material for upcoming NOLHGA Board meetings. The Systems Department worked with Diligent’s customer success team to configure the portal and provide training to staff administrators and Board members.

The department is preparing to launch an ongoing security awareness training program for NOLHGA staff members through the KnowBe4 service. KnowBe4 has helped thousands of companies improve IT security with its best-in-class training and phishing simulation platform. Several other safeguards have been added to NOLHGA’s email system, such as an added verification requirement for remote sign-ins and a new advanced threat protection service that performs a comprehensive scan of all incoming emails for potential malware.

Several departments worked together to run NOLHGA’s new online billing system in parallel with NOLHGA’s legacy electronic systems through 2018. Several reports, workflows, and administrative screens were added to the new system. The legacy systems have been decommissioned.

The Systems Department worked with members of the Electronic Document Management Subgroup to evaluate several cloud-based document management systems for guaranty association use. The subgroup decided to focus on three systems: SharePoint, G-Suite, and Dropbox Business. Members of the subgroup developed a report that summarizes the findings. The report was approved by the MPC Executive Committee at the October 2018 meeting and subsequently distributed to the members.

The department is working with members of the newly formed Data Collection Coordination Subgroup to make it easier for companies to report changes in contact information for assessment collection purposes. The subgroup is in the process of developing an online form for companies to use. Changes in contact information reported through this form will be distributed to all participating guaranty associations.

Other than addressing minor day-to-day technical issues, we continued to maintain servers, applying the latest server updates and service packs.

Technical Assistance for Guaranty Association Administrators

The October, November, and December 2018 editions of the Cybersecurity Bulletin and the SAC Security Breach Reports were distributed to the membership and NOLHGA staff, as was the January 2019 edition of the NOLHGAnet. The 2018 technology brochure was distributed at the October Annual Meeting.

Technical support was provided to the members during the quarter by phone and email. The Systems Department engaged in several remote-terminal sessions to diagnose and solve more complex desktop issues.

The Systems Department, along with the Director of Communications, conducted a 45-minute presentation on the NOLHGA website for the October 2018 MPC meeting. The session focused on the members-only resources available through the website.

In December 2018, the department hosted an hour-long cybersecurity webinar for interested guaranty associations. The webinar focused on common cybersecurity threats and how to avoid them.

Website Updates

Minor changes were made to the NOLHGA website during the past quarter. These changes were introduced primarily to help improve site performance. A search bar was added to the website; the search utilizes a search index to scan content throughout the site and quickly deliver search results.

The Communications Department sent out its quarterly request to all insolvency task force staff contacts for updates to their insolvency Web pages on the public and password-protected sections of the NOLHGA site.

In addition, the department sent out its yearly reminder to the member associations to review their websites to confirm that the content is up to date. For NOLHGA-hosted sites, the department performed any updates requested by the associations. The department also asked the associations for information on any single-state insolvencies that occurred in 2018 to update the NOLHGA website’s “master list” of all insolvencies that have triggered at least one guaranty association.

The project to determine the best way to display historical information on task force membership and the status of various task forces/committees/subgroups (active vs. inactive) was completed, with minor changes to the design of these pages to indicate status and/or past members.

Professional Development

Peter Gallanis and Joni Forsythe attended the 2019 Insurance Resolution Workshop sponsored by the International Association of Insurance Receivers (IAIR) on February 14–15 in New Orleans. During that event, Mr. Gallanis participated in a panel discussion with NCIGF President Roger Schmelzer to address guaranty association issues and on another panel reviewing current issues regarding LTC insurance.

Meg Melusen completed the following online webinar courses: Social Media in the Workplace; Avoiding Ethical Mistakes, Malpractice, and Cyber Liability Claims; Data Privacy and Security: Compliance and Breach Response; and Social Media in the Workplace: Best Practices for Employers.

Gus Estrada completed the seminar Assertiveness Training, which was conducted by the American Management Association.