Centennial Life (KS)
Opt-Out Deadline Nears
Affected guaranty associations are reminded that the opt-out period expires December 11 for the LTD Assumption Reinsurance Agreement among the Centennial Liquidator, NOLHGA, Participating Guaranty Associations and Hartford Life and Accident Insurance Company. Please send participation certificates to Bill Howard at NOLHGA. The Task Force and Hartford have formed a transition team to transfer records to Hartford from those GAs who are administering their own claims and the TPA currently administering most of the claims, Disability Management Alternatives. The transition team held its first teleconference December 6, and established a timetable for transfer of electronic and physical files before year-end 2000. The goal is for Hartford to begin making benefit payments next month.
Task Force Chair -Mark Femal; Staff Contact - Executive Life (CA)Maryland Hearing in Unisys Case
On October 27th, a hearing was held in Baltimore City Circuit Court on cross-motions for summary judgment filed in the Unisys case against the Maryland Life and Health Insurance Guaranty Corporation. Unisys filed the suit in May seeking guaranty association coverage of ELIC GICs for its retirement plan participants residing in Maryland. At the hearing, the guaranty association claimed that under the terms of the parties' tolling agreement, the statute of limitations had expired several years ago. In the alternative, the guaranty association argued that GICs owned by a non-resident plan trustee are not covered by the Maryland statute. Unisys contended that the language in the tolling agreement was sufficiently broad to allow the action to proceed, and that as "beneficial owners" of the GICs, Maryland resident plan participants should be covered. Ruling from the bench, the judge denied both parties' motions. A written order is expected in the near future.
Task Force Chair -- Art Dummer; Staff Contact - Thunor TrustFrankel To Be Extradited
On December 2, The Washington Post reported that German officials indicated that they would extradite Martin Frankel to the United States.
Task Force Chair -- Chuck LaShelle; Staff Contact -Insolvency Cost Data Available
NOLHGA's annual insolvency cost information report is now available at NOLHGA's website, www.nolhga.com. Interested parties may download this two-part report from the website for the years 1999 and 2000. A password for access to NOLHGAnet is necessary and may be obtained by calling Beth Watson at 703.787.4112. A link to the information appears on the home page under 'Announcements'. The download will begin once either the 'Cost' or 'Comments' links are clicked. Both parts must be downloaded separately. These files were created in Microsoft Office2000, and it is recommended that they are opened using Office97 or higher. Technical issues should be directed to Beth Watson, and questions regarding the report should be directed to Paul Peterson at 703.787.4119.
Staff Contact - Paul PetersonWinter 2000 NAIC Report
The following is a summary of meetings attended by NOLHGA staff at the Winter NAIC meeting:
Insolvency (E) Task Force
The Task Force met on December 5 and heard reports from its Uniform Data Standards, Receivers Handbook, Federal Issues and Uniform Receivership Law Working Groups. The Task Force also considered the following matters and took the actions as indicated:
(a) At the recommendation of the URL Working Group, the Task Force voted to recommend to its parent committee that the Insurers Rehabilitation and Liquidation Model Act be revised using the current model act a starting point and incorporating the Uniform Receivership Law, where appropriate. The 2002 Winter National Meeting is the target deadline for completing this project. The Task Force also voted to recommend the reconstitution of the URL Working Group (renamed as the Receivers' Model Act Revisions Working Group) to handle this project;
(b) Following a presentation by a representative of the California Insurance Department, the Task Force voted to recommend the NAIC's adoption of a resolution supporting the preservation of Internal Revenue Code Section 501(c)(15) for the benefit of insolvent insurers (see related discussion below under report on Federal Issues Working Group);
(c) The Working Group voted to receive a report from NOLHGA on Life and Health Guaranty Association assessment and capacity; and
(d) The Working Group also discussed and adopted recommended charges for 2001.
Insolvency (E) Task Force Working Groups
Receivers Handbook Working Group
The Receiver's Handbook Working Group heard status reports on materials to be included in the Handbook supplement to be published early in 2001. The principal materials will consist of additions to Chapter 8 (Special Receiverships) on HMO insolvencies.
The Working Group also discussed areas to be covered in the next annual supplement to the Handbook. A subgroup was appointed to examine the Gramm-Leach-Bliley Act and consider how it should be covered in the Handbook. In addition, the following areas were raised as possible areas to cover in the next supplement: (i) Statement of Statutory Accounting Principle 55; (ii) the Department of Labor's Claim Regulations and (iii) HMO case law and other legal developments.
Federal Issues Working Group
The California Conservation and Liquidation Office sponsored a presentation on a recent U.S. Treasury Department proposal to amend Internal Revenue Code Section 501(c)(15). According to the presenters, IRC Section 501(c)(15) is beneficial to insolvent insurers meeting certain requirements because it allows such companies to be exempt from the payment of Federal income tax. They pointed out that, absent the ability to rely on this exemption, insolvent companies could have taxable income as a consequence of investment income on estate assets, favorable reserve development and litigation recoveries. As a consequence, Section 501(c)(15) could allow for more money to be distributed to policyholders and other estate claimants, and could permit receivers to close an estate without retaining funds for contingent tax liabilities.
There also was a report on Fabe Cure legislation. Massachusetts recently enacted such legislation bringing to 35 the number of states having "Fabe cured" their liquidation priority statute. In addition, Fabe Cure legislation is under consideration in New Jersey.
Uniform Receivership Law Working Group
This Working Group has engaged in an extensive analysis of the Uniform Receivership Law (URL) for the purpose of making a recommendation on the possible amendment of the existing liquidation/rehabilitation model to reflect some or all of the URL. Having completed its analysis in prior sessions, the Working Group deliberated over possible recommendations for the completion of this project. Several members of the Working Group stated that it was premature to decide on an approach at this point and suggested that further study of the URL and related issues was appropriate. Other members of the Working Group felt that it was time to choose an approach so that work could begin on considering possible changes to the NAIC model. Ultimately, the Working Group voted to recommend to the Insolvency (E) Task Force that the existing NAIC model be retained as a base document and that a review of the URL be undertaken for the purpose of amending the existing model to the extent deemed appropriate. The Working Group recognized that this approach would not preclude the use of the structure and organization of the URL in an amended model if that was deemed appropriate.
Financial Condition (E) Committee
Financial Services Holding Company Working Group Analysis/ Examination/Review (E) Working Group
Insurance Holding Company Model Act Review Subgroup
The charge of this subgroup is to assess the implications of the Gramm-Leach-Bliley Act (GLB) on the NAIC Insurance Holding Company System Model Act and other relevant model laws, and recommend changes for consistency with GLB.
At its meeting on December 4, the Model Act Review Subgroup reviewed proposed amendments to the NAIC's Insurance Holding Company System Regulatory Act and the Investment of Insurers Model Acts (the Defined Limits and the Defined Standards Versions) to bring them into compliance with GLB by: (1) limiting the Insurance Department's period of review on proposed acquisition transactions to 60 days; (2) limiting the period to require restoration of capital in connection with change of control transactions to 60 days; and (3) limiting restrictions on insurer investments in depository institutions to not less than 5% of admitted assets.
The next day (December 5) at the meeting of the parent Financial Services Company Working Group, there was additional discussion about the proposed amendments, the related GLB requirements and how to implement them through amendments to the NAIC model acts. In light of some of the questions raised, the Working Group decided to allow for an additional comment period on the amendments through year-end.
Insurance Group Review Subgroup
The charge of this subgroup is to: (1) identify and document best practices for insurance departments to perform group-wide reviews of insurance holding companies and their affiliates, (2) assess information needed by insurance regulators from non-insurer functional regulators and other sources about holding company groups to enhance regulatory oversight over insurers and (3) design standard review procedures for processing Forms A, B and D, and extraordinary dividend filings.
The subgroup met on December 3 to receive comments on its initial draft of a document entitled "Framework for Insurance Holding Company Regulation." The purpose of the document is to provide guidance on best practices for insurance departments to perform group reviews of insurance holding companies and affiliates. The Subgroup has requested that all comments on the draft Framework, including those from the public, be submitted by January 15 so that they can be considered during a subgroup teleconference later in January. The Subgroup also indicated it might be necessary to test the final Framework in a pilot program.
Interstate Insurance Receivership Commission
After handling certain operational matters, the Commission discussed technical amendments to the Uniform Receivership Law proposed by the Reinsurance Association of America. The Commission decided to expose the amendments for comments for a 6-week period before taking action on the amendments. Interested parties were asked to submit comments to Cathy Travis, Secretary for the Compact Commission.
Financial Services Modernization (G) Task Force
The Task Force met on December 5 and heard status reports from each of its working groups. During its report, the Privacy Issues Working Group stated that New York had adopted privacy regulations that were substantially similar to the privacy regulations previously adopted by the NAIC. It also was reported that 25 states will need to take legislative action to adopt privacy regulations. Nevertheless, most states have indicated they will be able to adopt privacy regulations by the targeted compliance date of July 1, 2001, although some states have indicated they will need additional time.
Coordinating with Federal Regulators Working Group
The working group approved information sharing agreements with the FDIC, the OCC and the Federal Reserve Board (FRB). The agreement with the FRB was approved subject to language being added to clarify the FRB's obligation to share information, in particular in a troubled company scenario. The approved agreements will next be submitted to the Financial Services Modernization (G) Task Force, Executive Committee and Plenary for approval, and assuming those approvals, will be sent out to the various states for adoption.
In addition, the following subgroups of the Working Group provided status reports: Risk Based Capital and Regulatory Arbitrage, Troubled Company Issues, Insurance Risk and OCC Examination procedures. The Troubled Company Subgroup reported that it had meetings scheduled with the FRB, the OCC and the NAIC Insolvency (E) Committee. These meetings are to be conducted in executive session.
Finally, it was reported that the FRB is contacting applicable state insurance departments when it receives a Financial Holding Company application involving one or more insurance company affiliates.
Executive (EX) Committee
National Treatment of Companies Working Group
The Working Group voted to recommend to its Executive Committee parent the appointment of an Ad Hoc National Treatment Task Force consisting of representatives from California, Illinois, Maine, Nebraska, North Carolina, Pennsylvania, Texas, Virginia and Wisconsin. The Task Force's charge would be to recommend and engage in a "limited launch" program for the purpose of testing certain national treatment mechanism from June 2001 to November 2002. The limited launch program would specifically deal with licensing, solvency monitoring, holding company transactions, market conduct and certain governance issues.
Staff Contact - Bill O'Sullivan