Bankers Commercial Life Insurance Company (Texas)
Expense and Claims-Paid Reports Due by March 1
As a reminder, guaranty associations’ inception-to-date (as of Dec. 31, 2001) expense and claims-paid reports are due March 1. Please send your completed forms to Candace Jennings via e-mail ([email protected]) or fax (703.481.5209). You may contact Jennings at 703.787.4114 if you need another copy of the request.
Task Force Chair - William Falck; Staff Contact - Paul PetersonMPC Meets in Savannah
The following are summaries of task force insolvency reports presented during the Members’ Participation Council meeting held Jan. 31 in Savannah, Ga.
Staff Contact - Sean McKenna American Chambers Life Insurance Company (Ohio)Chuck Gullickson reported that the task force is working with Madison National Life Insurance Company to assume the small number of life policies in this estate. He noted that Madison National has asked for a two-year true-up period rather than the usual 180-day period, and he indicated that the task force would probably agree to the company’s request. The task force continues to work with the liquidator on asset-recovery efforts and completion of the early access agreements between the liquidator and the guaranty associations (the liquidator entered into early access agreements with each association separately). Gullickson added that Protective Life is appealing a ruling against it in a suit in which it claimed that American Chambers owes the company $2 million.
Task Force Chair - Chuck Gullickson; Staff Contact - Bankers Commercial Life Insurance Company (Texas) and Statesman National Life Insurance Company (Texas)Neil Rucksdashel (Wash.) and Frank O’Loughlin (Rothgerber, Johnson and Lyons) updated meeting attendees on the progress the task forces have made on issues with the receivers regarding guaranty association claims (the BCL and Statesman task forces presented some of these issues to the MPC membership at the October 2001 MPC Meeting). They reported that discussions with the receivers of the two estates are ongoing and that the receivers and task force representatives have agreed to a series of meetings to discuss the role of guaranty associations and the nature of the costs they incur. The task forces hope the meetings will result in a resolution. The first meeting is scheduled for Feb. 11 in Austin, Texas.
Task Force Chairs - William Falck (BCL) + Neil Rucksdashel (Statesman); Staff Contact - Paul Peterson Guarantee Security Life Insurance Company (Fla.)Marty Eltrich of Guaranty Reassurance Corporation (GRC) reported that GRC received approximately $23 million in the sale of Cotton Ginny, a women’s apparel unit that was one of the GSLIC estate’s assets. He added that GRC expects to make a distribution of $20–$25 million in 2002 and that total guaranty association costs will be far less than anticipated. GRC also plans to transfer any remaining open issues and associated funding to NOLHGA, distribute the balance of funds to the guaranty associations, and close down by year-end
Frank Gartland reported that the task force hopes that the receiver will be able to wrap up the GSLIC estate this year. Task force representatives are confirming the plan distribution provisions and are coordinating with the receiver, GRC, and Midland National. The parties hope to complete policyholder allocation accounting and distribute the remaining GSLIC estate assets.
Task Force Chair - Frank Gartland; Staff Contact - Inter-American Life Insurance Company (Ill.)William Falck reported that the OSD is holding approximately $12 million due to concerns over the appeal in the Employer’s Re litigation and over tax issues. Inter-American was part of the Beaven family of companies, which filed returns on a consolidated basis; although there appears to be no tax liability, the IRS will not allow Inter-American to file a separate return. Falck added that the estate will likely continue for two more years, but an additional early access distribution has been proposed for further consideration by the OSD.
Task Force Chair - William Falck; Staff Contact - Joni Forsythe Reliance Insurance Company (Pa.)Tad Rhodes briefed attendees on the latest developments in this insolvency. He noted that the settlement agreement was on track to finish in the next month and that the next bill to the guaranty associations would be issued Feb. 2. Rhodes also reported that Combined Insurance Company of America will assume all remaining policies within the next few weeks.
Task Force Chair - Tad Rhodes; Staff Contact -Panel Looks at Variable Products Coverage Issues
A panel of industry and guaranty association experts at the Savannah MPC Meeting discussed the growing number of “variable products” with guarantees and the effects these guarantees could have on the guaranty association system.
Variable Products: A Survey of What’s New, How the GAs Assess Them, and Coverage Issues, a panel presentation organized by the Administrators’ Education Steering Committee, provided meeting attendees with an analysis of the growing popularity of variable annuities, the types of guarantees these annuities can include, and the implications these guarantees might have for the guaranty system as a whole. Moderator and Committee Chair Chuck Gullickson (South Dakota) outlined the key issues for the attendees, noting that while guaranty associations are not obligated to cover policies in which the risk is borne by the policyholder, guarantees that cover portions of some variable annuities could pose a problem for the guaranty system.
Dennis Hewatt, national sales manager for Nationwide Insurance Company, provided an overview of the different guarantees (death benefit, fixed account option, living benefits, and others) that can be part of variable annuities. He pointed out that the guaranty system faces a daunting challenge in preparing for these guarantees, since new ones are constantly being created; according to Hewatt, many of the guarantees the system will deal with in the next 5 to 10 years haven’t been invented yet.
Kevin Griffith (Baker and Daniels) explained the many coverage issues that these types of products present to the guaranty system. While statutory exclusions provide protection for guaranty associations when risk is borne by the policyholder, he said, the shared risk inherent in some variable products raises a number of questions for the guaranty system. What are the guaranty associations’ coverage and exclusion options? What claims to assets will associations have? Will it be possible to reinsure these kinds of benefits? While these issues “haven’t had a chance to rear their ugly head,” he said, guaranty associations need to develop a position on association rights and limits before the issues arise. Dave Perry (Montana) echoed Griffith’s comments and added that there could be challenges in trying to move variable products to a healthy insurer.
Paul Peterson (NOLHGA staff) explained how guaranty associations assess these products. The data survey instructions indicate that insurance companies may deduct premiums from any non-guaranteed product; in other words, if the investment risk is borne entirely by the policyholder, the premiums are deducted.
Staff Contact - Sean McKennaMPC Guidelines Updated
Bill O’Sullivan (NOLHGA staff) briefed MPC Meeting attendees on the changes to the MPC Guidelines made by the Guidelines Committee, which he chairs with Art Dummer (Utah). The committee identified and addressed nine areas in updating the guidelines, and O’Sullivan briefed the MPC on four of these areas:
Health Cases: The guidelines now highlight the differences in health carrier (as opposed to life insurance) insolvencies, particularly in the areas of claims handling, administration, and canceling policies.
Reinsurance: The new guidelines contain an explanation of reinsurance (prepared by Dummer) that can serve as a valuable resource for guaranty associations in continuing coverage.
Deposit Funds: This subject was covered in the existing guidelines, but the new guidelines highlight what O’Sullivan called “a trap for the unwary”: a provision in receivership statutes in many states that provides for subordination of claims of any entity that accepts deposit funds.
Gramm-Leach-Bliley: The new guidelines adopted information from a Legal Committee report on GLB concerning privacy requirements and their potential impact on guaranty associations’ ability to access information and share it with other parties, as well as bank/insurance company affiliations.
O’Sullivan concluded by noting that the MPC Guidelines, which he called “a summary of our hard-earned insolvency experience,” can serve as a valuable resource for the system provided they are kept up to date. With that in mind, the Guidelines Committee will continue to monitor the guidelines and revise them when appropriate.
Staff Contact - Bill O'SullivanFSM Committee Plans Educational Efforts in 2002
NOLHGA President Peter Gallanis told MPC Meeting attendees that the Financial Services Modernization Committee plans a program of communications intended to educate public policy leaders on the history and effectiveness of the guaranty system and to point out its value to consumers, regulators, and the industry. The committee will also continue its efforts to identify potential improvements to the current system; Gallanis noted that the NAIC and state regulators have been working on improvements to the overall system of regulating insurers and are paying closer attention to the receivership and guaranty association mechanisms.
Gallanis also provided meeting attendees with an overview of financial services modernization activity in the past few months. He reported that the ACLI Board voted in November 2001 to seek enactment of its federal charter proposal. He also noted that the National Insurance Chartering and Supervision Act introduced by Sen. Charles Schumer (D-N.Y.) and a similar federal chartering bill proposed by Rep. John J. LaFalce (D-N.Y.) do not advocate creating a federal guaranty mechanism; instead, both bills rely on the current state guaranty association system. Gallanis added that two other pieces of federal legislation on this issue are expected to be introduced this year.
Staff Contact - Sean McKenna