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
• MPC Activities
• NOLHGA Committee Activity
• Communications
• Legal Activity
• Systems Support/Technology/Website
• Professional Development

Introduction

On May 24, 2018, 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 February 21, 2018, Board meeting in New Orleans, significant staff time has been devoted to (1) coordination and support for insolvency task force activity, including preparation for the April 2018 MPC meeting and Education Day presentations; (2) providing oversight for Lincoln Memorial litigation; (3) providing support for Board and MPC committees and subgroups; (4) supporting the operations of LTC Re and GABC; (5) providing information to member associations on changes to the NAIC GA Model Act; (6) preliminary planning for the 2018 Legal Seminar and Annual Meeting; and (7) standard operational tasks.

NOLHGA Meetings

2018 Annual Meeting

Planning for the 2018 Annual Meeting in Seattle has begun. A number of speaker invitations have been sent out, and the meeting website has gone “live.”

2018 Legal Seminar

NOLHGA held its kickoff teleconference with the Legal Seminar Planning Committee and mailed out “Save the Date” postcards for the July 19–20 meeting. A number of insurance thought leaders have accepted speaking invitations. The registration webpage went “live” on the NOLHGA website in April.

Constituency Relationships

In April, Peter Gallanis, Dick Klipstein, Bill O’Sullivan, Paul Peterson, and Sean McKenna met with representatives from the Korean Deposit Insurance Corporation to discuss insolvency and resolution issues.

Paul Peterson developed templates using 2016 assessment data survey premium data to assist guaranty associations in performing the necessary calculations for the long-term-care insurance (LTCI) cost allocation that is part of the amendments to the NAIC GA Model Act adopted in December 2017 (the “Amendments”). Presentations outlining the LTCI cost allocation process were also made at the January and April MPC meetings. Assistance continues to be provided to individual guaranty associations to explain the new LTCI cost allocation process and walk them through the calculations step-by-step. In addition, estimated HMO premium data and its impact on guaranty association assessment capacity was provided to the associations for their consideration.

NAIC

Peter Gallanis, Bill O’Sullivan, and Joni Forsythe attended the NAIC’s Spring National Meeting in Milwaukee on March 23–25. In addition, NOLHGA and the NCIGF jointly hosted a luncheon on March 25 for guaranty association administrators, Board members, and invited guests to review NAIC activities impacting guaranty associations. A summary of the meetings attended was published in the April 10 issue of GA Update Online.

On May 1, the Receivership Insolvency Task Force (RITF) held teleconferences to discuss, among other matters, its new work streams relating to the NAIC’s macro-prudential initiative. These work streams include: (i) evaluating whether current recovery and resolution laws and guidance incorporate best practices regarding financial stability; (ii) reviewing what information from recovery/resolution planning may be valuable in planning for large cross-border (state borders included) U.S. insurance groups; and (iii) identifying misalignments, if any, between state and federal laws that could be an obstacle to achieving effective and orderly recovery/resolutions for U.S. insurance groups. NOLHGA has volunteered to participate on the drafting groups for these work streams.

In addition, RITF adopted referrals to the NAIC’s Health Insurance and Managed Care (B) Committee (the “B Committee”) and the Capital Adequacy Task Force related to last year’s changes to the GA Model Act. The B Committee charge suggests that a review of HMO model laws might be appropriate to make conforming changes to the GA Model Act. The Capital Adequacy Task Force charge provides for the task force to review the appropriateness of the RBC charge for guaranty fund assessment risk for life and health companies.

GA Annual Meetings

On April 25–26, Bill O’Sullivan attended the joint annual meetings of the North Carolina and South Carolina guaranty associations to provide a report on developments in the Penn Treaty/ANIC insolvencies and the 2017 NAIC GA Model Act Amendments.

Financial Activities

The Accounting Department has been involved in overseeing the year-end audit of the 2017 NOLHGA operating financial statements. In addition to routine accounting-related tasks, staff also calculated and mailed the fourth quarter 2017 quarterly assessments.

The Accounting Department coordinated the following insolvency-related account distributions: (a) $326,000 to affected members ($303,000 in premium collections related to National States and $23,000 due to a quarterly true-up of escrow account activity related to Life & Health Insurance Company of America), and (b) $4.1 million to TPAs and receivers to fund claims and expenses for four active insolvencies.

Assessment Data Survey

Data specifications and delivery dates for the 2017 survey year were finalized with the NAIC. Initial data files were received in April from the NAIC, and no issues have been encountered to date in the review of the files. Strohm Ballweg has begun importing the data into the survey database for the May task force meeting.

We have added new data fields and files from the NAIC to capture disability income (DI) and LTCI premium data for 2017. These will now be included as routine data elements in the annual compilation of assessable premium data and requests from the NAIC.

Similar to the Medicare testing now done, testing will be expanded to identify companies writing Medicaid, FEHBA, and stop-loss business. Follow-up letters will be sent to companies dealing with deductions (or lack thereof) for these product lines.

In addition to the above, we have captured DI, LTCI, Medicaid, and HMO premium information in anticipation of guaranty associations adopting the new provisions in the NAIC GA Model Act that was adopted in December (the new Act incorporates HMOs as member companies, includes the Medicaid exclusion, and requires DI/LTCI premium data for use in the new LTCI assessment allocation).

MPC Activities

MPC Asset Recovery Subgroup

On March 1, the Asset Recovery Report was made available to guaranty associations on NOLHGA’s website. The semi-annual report provides individual estate information, such as what assets, if any, have been distributed or are expected for distribution and what outstanding issues must be resolved prior to estate closure.

The report is combined with the Net Cost Summary, a chart that provides an estimate of total estate assets remaining in all the open multi-state insolvency cases. Also included is the Closed Estates Summary, a listing of estates that are known to be closed and the dates of closing.

MPC Electronic Document Management Subgroup

The Systems Department is currently working with members of the subgroup to evaluate several document management systems for guaranty association use. A report will be distributed to the entire committee for review in late May/early June.

MPC GA Best Practices Subgroup

An updated version of the GA Best Practices document is now available on the NOLHGA website. The document is reviewed semi-annually by the subgroup for changes or clarifications that may be required or desired.

In addition to some minor revisions, several of the more substantive changes are designed to bring associations into “functional consistency” with the 2017 amendments to the NAIC’s GA Model Act, including language relating to assessments.

MPC Guidelines Working Group

On April 4, the working group presented its proposed updates to the MPC Guidelines to the MPC Executive Committee. The committee made some minor suggestions but otherwise approved the group’s recommended updates. As a next step, the working group’s updates will be distributed to the member associations for their review and comment before being finalized. As previously reported, the only portion of the Guidelines still requiring update is the discussion on health insolvencies in Chapter 7. The working group plans to reach out to industry experts to obtain a better understanding of developments in the health arena before updating the chapter.

MPC Health CO-OP Task Force

Of the original 24 ACA Health CO-OPs, only four are still writing business in 2018 (Maine, Montana, New Mexico, and Wisconsin). The other 20 CO-OPs are in various stages of receivership or have been dissolved.

The task force continues to monitor and discuss issues and developments affecting the ACA Health CO-OPs (particularly in states where there is guaranty association coverage). Most of the current issues relate to litigation or potential disputes with the federal government, including the elimination of ACA cost-sharing reduction payments; federal claim-related issues; and lawsuits filed by CO-OPs and other health insurers for amounts owed by the federal government.

Given the focus on federal litigation by both the CO-OP Task Force and the Legal Committee’s Federal Claims Issues Subgroup, the two groups will be conducting their meetings on a joint basis going forward. The first joint meeting of these groups was held on April 19 in Savannah at NOLHGA’s April MPC meeting. The meeting was well attended and generated lively discussion.

MPC HMO Orientation Materials Subgroup

The MPC Executive Committee announced a new subgroup at the April 2018 MPC meeting in Savannah—the HMO Orientation Materials Subgroup. The subgroup is charged with developing educational materials to help guaranty associations prepare to welcome HMOs as new member companies once the associations enact the recently adopted amendments to the NAIC’s GA Model Act. The subgroup is chaired by Lee Douglass (Arkansas).

MPC Model Plan of Operations Subgroup

The subgroup completed its review and update of the Model Plan of Operations (which was last updated in 2005). The update includes changes to reflect the 2017 revisions to the NAIC Life and Health Insurance Guaranty Association Model Act (including guidance on the new assessment allocation methodology for LTCI business). The update also addresses developments in technology and the interplay between the Model Plan and other guaranty association documents (e.g., the best practices and governance guidelines). The MPC Executive Committee approved the revised draft of the Model Plan of Operations at its meeting in Savannah. The draft was distributed to the member guaranty associations for review and comment in early May.

MPC Security Advisory Committee (SAC)

The SAC continued its work to oversee compliance with the MPC Security Procedures by: (1) distributing reports and publications to guaranty association administrators and NOLHGA staff to keep them informed about breach activity involving third parties; (2) updating the lists of persons who have completed NOLHGA’s security training program and cross checking Quest access with the authorized persons list; (3) updating the Business Associate and GA Security Questionnaires to a more user-friendly format; and (4) conducting an education presentation at the Savannah MPC meeting entitled Test Your Security IQ. The presentation received high marks from attendees on the meeting evaluation.

NOLHGA Committee Activity

Accounting Issues Committee

The committee held an in-person meeting on January 24 in conjunction with the MPC meeting in Newport Beach, California. The committee discussed several topics, including the committee roster and subgroups; the status of old business (distribution of the Accounting Guidelines Manual); and 2018 planning topics (LTCI allocation for assessments, SSAP 35R, and a 990 update).

Administrators Education Steering Committee

Staff assisted in the coordination of three sessions presented during the Education Day portion of the April 19–20 MPC meeting: NAIC Insurance Data Security Model Law: What Insurers Need to Know by Peter Guffin (Pierce Atwood LLP); Test Your Security IQ by Candie Kinch (Idaho, Oregon, and Wyoming) and Dan Hicks (NOLHGA); and LTC Allocations & Health Premium Tests by Way of Middle Earth: And You Thought That Nordic Runes Were Difficult to Understand by Tom Dawson (Strohm Ballweg) and Paul Peterson (NOLHGA).

Coverage/Claims Committee

On March 12, the committee held a teleconference to discuss its work plan for the year, which will include evaluating and providing guidance on the coverage of trust-owned annuities. A working group of the committee has contacted the ACLI to obtain industry input on the issue, and a call with the ACLI Annuities Committee was held on May 9.

Financial Services Modernization Committee

Committee activities since the February Board meeting have centered on routine Education Project activities and on work related to the Stress Test model and preparations for employing it on behalf of NOLHGA’s membership.

GA Laws Committee

The committee held a teleconference on March 8 to discuss and share information about the status of efforts to adopt the 2017 GA Model Act amendments in various states. In addition, the committee reviewed and approved refinements to its mission statement to reflect its current activities. The committee plans to have another teleconference in August/September to discuss the results of 2018 GA Act legislative activities and the outlook for such activities in 2019.

Communications

Committee/Task Force Support

The department participated in several conference calls of the Penn Treaty/ANIC Task Force’s Communications Coordination Subgroup.

GA Update

The first 2018 issue of GA Update was mailed to subscribers in early April.

GA Update Online

The March 6, 2018, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its February meeting. The April 10 edition provided an overview of the NAIC’s Spring National Meeting.

Year-End Report to the Membership

The NOLHGA 2017 Year-End Report to the Membership was mailed to members in early May.

Legal Activity

Legal Committee/Federal Claims Subgroup

The subgroup has continued to monitor developments with respect to ACA claims-related litigation, in particular those cases relating to health insurer insolvencies. The subgroup is currently tracking developments in 84 matters, including 9 new lawsuits filed since the February management report. These proceedings include lawsuits and appeals filed in federal courts across the country, as well as administrative agency appeals and proceedings in receivership courts. The amounts at issue for the health insurance industry reach upwards to $10 billion, and the outcome of this litigation will determine the ultimate costs of ACA Health CO-OP insolvencies. As reported in previous management reports, the litigation can be divided into the following categories: (1) risk corridor payment obligations, (2) “cost-sharing reductions,” (3) “risk adjustment” obligations, and (4) “netting” and priority challenges.

Since our last report, a settlement has been reached between the federal government and one of the failed ACA CO-OPs (Kentucky), which provides for a stipulated judgment in the amount of $16.2 million in favor of the plaintiff. The settlement resolves the receiver’s claims for reinsurance payments owed by the government, as well as the priority of the government’s federal loan claims.

GA Act Legislative Activities

Since the NAIC’s adoption of the amendments to the GA Model Act in December 2017, NOLHGA staff has been tracking legislative activity (or anticipated legislative activity) in various states and providing detailed analysis and technical support to guaranty associations and industry representatives on draft bills. To date, bills based on the Model Act amendments have been enacted in seven states (Arizona, Idaho, Indiana, Maine, Utah, Virginia, and West Virginia) and are awaiting signature by the Governor in four additional states (Alaska, Connecticut, Louisiana, and Missouri). Another 2 states have introduced bills that are currently pending (California and Illinois), and 10 more states (Alabama, Florida, Kentucky, Michigan, Nevada, New Jersey, North Carolina, Rhode Island, South Carolina, and Wisconsin) are considering the possibility of legislation and/or developing drafts.

Conflicts & Antitrust Policies

The annual compliance surveys under NOLHGA’s Conflicts of Interest and Antitrust Policies were distributed to covered individuals in March. NOLHGA received 100% of the responses required under the respective policies. This year, that group included 138 individuals. Staff has reviewed all responses and completed the necessary follow-up inquiries.

Although there were a few affirmative disclosures noted in response to the 2018 conflicts questionnaire, staff investigated and determined that none of the disclosures raised material risks of an existing conflict of interest or potential conflict of interest under the Conflicts Policy. The 2018 survey results were reported to the NOLHGA Board’s Conflicts Committee on April 12.

Systems Support/Technology/Website

Network Systems Status

During this quarter, the Systems Department provided NOLHGA staff with access to Outlook 2016 Essentials training videos through Microsoft’s LinkedIn training interface. The department selected videos that were most relevant for the staff’s needs. The training addressed eight topics, and staff members were given two weeks to complete the training. On April 10, the Systems Department held a review session with the staff. Additional video training through the LinkedIn interface was distributed on May 25.

Expensify (an expense report app and website) licenses were acquired to enable NOLHGA staff members to more efficiently track and report trip expenses for reimbursement. Most staff members attended a hands-on training session on April 10, and a NOLHGA user guide was developed and distributed to all staff members. Several software products were evaluated before Expensify was selected.

A new mobile timesheet interface was introduced to provide a convenient way for certain staff members to track their time. The interface has been configured to send out automated reminders to staff members.

Several departments are working together to run NOLHGA’s online financial and billing system in parallel with NOLHGA’s legacy electronic systems through 2018. The Systems Department is currently working on migrating legacy data to the new system. Several preliminary tests have been run to ensure that the results generated by both systems match. The legacy systems will be decommissioned by year-end.

Several staff members are working with members of the MPC Executive Committee to automate the distribution and collection of the MPC Chair Preference Poll. The automated process will ensure that voters’ identities remain hidden, even from those charged with collecting and compiling the results.

Technical Assistance for Guaranty Association Administrators

The March editions of the Cybersecurity Bulletin and the SAC Security Breach Report were distributed to guaranty association administrators and NOLHGA staff.

Technical support was provided to the members during the quarter by phone and e-mail. The department engaged in several remote-terminal sessions with guaranty association administrators to diagnose and solve more-complex desktop issues.

Website Updates

Minor changes were made to the NOLHGA website and NOLHGA-hosted guaranty association websites to improve site performance and update content (such as addressing changes to the GA Model Act).

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, several departments met to discuss the best way to designate active and inactive task forces and committees on the NOLHGA website while still maintaining information on inactive groups for archival purposes. A set of recommendations were passed on to NOLHGA management.

Professional Development

Joni Forsythe attended the 2018 Insurance Resolution Workshop sponsored by the International Association of Insurance Receivers in Scottsdale, Arizona, on February 8–9.

On March 8, Meg Melusen attended a webinar entitled Cybersecurity and the Value of Information Sharing.

On March 14, Peter Gallanis moderated a presentation at the 14th Annual Insurance Public Policy Summit, A Year & Change: Insurance in a New Administration, sponsored by Networks Financial Institute. Sean McKenna attended the summit.

On March 20, Mr. Gallanis participated (with NOLHGA Chair Mark Backe and Richard Bowman of New York Life) in a panel discussion of LTCI solvency issues and recent revisions to the NAIC’s Life and Health Insurance Guaranty Association Model Act at the annual conference of the Intercompany Long-Term Care Insurance Conference Association in Las Vegas.

Dick Klipstein spoke at the same conference, as part of a panel discussion on the effects of an LTCI insolvency on policyholders and other stakeholders. The panel also featured NOLHGA Board member Keith Passwater (Anthem), Bob Robinson (Penn Treaty), and moderator Peter Lucas (TriPlus Services).

Mr. Gallanis also participated in the annual NAIC International Forum in Washington, D.C., on May 14–15.