IN THIS EDITION:

• Introduction
• NOLHGA Meetings
• Constituency Relationships
• Financial Activity
• NOLHGA Committee Activity
• Communications
• Legal Department Activity
• Systems/Technology

Introduction

In August 2010, the NOLHGA Board of Directors held its most recent quarterly meeting. Relevant portions of the management report provided to the Board are included in this issue of GA Update Online.

Since the May Board meeting in Chicago, the focus of staff has primarily been on the following responsibilities and activities: (i) insolvency management and support of insolvency task force activity; (ii) FSMC Education Project initiatives; (iii) constituency relationship work, especially relating to ACLI and NAIC matters; (iv) planning and executing the July MPC meeting and Legal Seminar held in New York City; (v) planning for the Annual Meeting in Seattle (October 4–6, 2010); and (vi) providing support for various Board committees and subgroups.

Current insolvency activity continues to be focused on Standard Life of Indiana; Penn Treaty Insurance Company (Pennsylvania); Executive Life of New York; Lincoln Memorial (Texas); Shenandoah Life (Virginia); American Community Mutual Insurance Company (Michigan); National States Insurance Company (Missouri); Executive Life Insurance Company (California); Imerica Life and Health Insurance Company (Arkansas); and Booker T. Washington (Alabama).

NOLHGA Meetings

2010 Annual Meeting

Work on the Annual Meeting program continued in the second quarter. Confirmed speakers include:

In addition, the Annual Meeting Web page went live, and a handout promoting the Annual Meeting was distributed at the 2010 Legal Seminar in New York. The registration brochure was mailed in early August.

2010 Legal Seminar

Staff members, working closely with the Legal Seminar Planning Committee, completed preparations and executed the 2010 Legal Seminar program. The event, which was held on July 15 and 16 at the Marriott Marquis Hotel in New York City, once again enjoyed strong attendance, with more than 145 paying registrants and total attendance (including staff, speakers, and guests) well over 200 people. Based on verbal comments made during the event and a preliminary review of the evaluation forms, the seminar appears to have been very well received.

Constituency Relationships

NAIC

The NAIC’s Financial Condition (E) Committee has formed a subgroup to assess the solvency impacts and concerns for health insurers resulting from the Affordable Healthcare for America Act. The subgroup’s immediate priority has been developing recommendations for calculating “medical loss ratios" and revising the NAIC blanks form to collect health data from insurers to conform to the data reporting requirements under the new law. The subgroup has developed drafts with respect to medical loss ratios, as well as a modified blanks form proposal and instructions. Industry groups and consumer representatives have submitted comments on the drafts.

The NAIC’s Financial Condition (E) Committee held a teleconference on July 7 to receive the subgroup’s report and recommendations. Following discussion and debate, the committee voted to approve the subgroup’s report and recommendations, including the revised blanks form and instructions. Those items are expected to be presented to Executive (EX) and Plenary at the upcoming August NAIC meeting. NOLHGA will continue to monitor developments on this project.

The Receivership Insolvency Task Force (RITF) recently received a referral from the Separate Accounts Risk Charge Working Group requesting RITF to provide input on the treatment of separate account products in insolvencies. Specifically, the RITF has been asked to provide input on whether guaranty associations cover separate account products and to comment on any related guaranty association or receivership issues relating to these products. Based on informal discussions with the Chair of RITF, we understand the group will be looking to NOLHGA to address guaranty association coverage and related issues. Given the Coverage/Claims Committee’s extensive work on separate account products, NOLHGA will be prepared to respond to the NAIC’s request for input.

ACLI

Peter Gallanis and Bill O’Sullivan attended the initial meeting of the ACLI’s Insurance Guaranty Working Group. The working group, which was recently formed at the request of ACLI company CEOs, has been charged with identifying aspects of the current guaranty system that could be improved and evaluating the various alternatives for addressing those issues. The group has since met telephonically, and Bill O’Sullivan, Dick Klipstein, Paul Peterson, and Sean McKenna helped produce a report for the group on benefit reductions and restrictions in life and health insolvencies over the last 20 years. In addition, Gallanis traveled to Birmingham, Alabama, for a July 27 meeting with the CEO of Protective Life (who chairs the CEO group to which the aforesaid working group reports) for the purpose of briefing him and the company’s senior management on guaranty association issues.

Assistance to Association with Domestic Insolvency--Signature Life

Paul Peterson assisted the Arkansas guaranty association in developing a plan to sell the business of Signature Life Insurance Company. Signature Life was a small Arkansas-only company with primarily individual annuity business.

Member Associations

Director of Communications Sean McKenna attended the joint annual meeting of the North Carolina and South Carolina guaranty associations on April 28–30, where he conducted a presentation on the information offered on the NOLHGA Web site. Peter Gallanis attended a “Bob Ewald Appreciation” event of the Illinois guaranty association on May 13. He also attended the annual meeting of the Idaho guaranty association on June 17–18 and briefed attendees on major insolvency developments and on federal financial services legislation.

Financial Activity

Accounting

The Accounting Department has been involved in the development of the 2011 preliminary operating budget and with preparations for and coordination of materials for the Finance Committee’s August 4 meeting with representatives of major insolvency task forces. In addition, staff calculated and mailed the first quarter 2010 assessments. For three insolvency cases, NOLHGA distributed $11.8 million in funds to affected member state associations.

GA Assessments

The process of collecting 2009 assessment activity information from guaranty associations has begun. The request asks for guaranty associations to submit assessed, called, and refunded activity by insolvency, by account. The compiled data will be published this fall.

NOLHGA Committee Activity

Assessment Data Survey Task Force

The task force identified the top 75 annuity insurers and developed reports used for a May 27–28 meeting. Ten additional companies were randomly selected for review. Of the 85 companies, follow-up letters were sent to 67. The primary follow-up questions dealt with the reporting of annuity deposits and separate account fee income. In addition to these companies, another 23 companies were sent follow-up letters dealing with incorrect completion of the adjustments exhibit. Finally, requests to collect premium data were sent to P&C and BC/BS companies.

Coverage/Claims Committee

At the request of the committee, the ACLI has formed a working group to assist in the review of coverage issues relating to joint annuities and guaranteed separate account products. Since April, committee representatives (including NOLHGA staff) have participated in several teleconferences of the ACLI working group. Recently, the working group presented some recommended positions to the ACLI’s Solvency Committee. The Solvency Committee has taken those recommendations under advisement.

MPC Business Continuity Subgroup

Staff provides support to the MPC Executive Committee Business Continuity Subgroup, appointed in the spring of 2009. The objective of the group is to develop a plan which includes strategies, actions, and procedures to resume business and service operations in the event of unexpected loss in staff or damage to a guaranty association office. This past quarter, the subgroup shared the draft plan with the Life and Annuity Privacy Group and finalized an appendix on pandemic influenza issues.

Finalized documents were submitted to the MPC Executive Committee for consideration at the July MPC meeting. They include an Overview, a Concepts and Guidelines document, an Appendix on Pandemic Influenza Issues, a detailed template Business Continuity Plan, and a scaled-down plan intended for use by a small guaranty association.

Communications

Communications Strategy

The Communications Department took part in conference calls and meetings concerning the ACLI and NOLHGA communications strategy for the possible liquidation of ELNY and related matters.

GA Update

The first 2010 issue of GA Update was mailed to subscribers in early May. The issue included an article on NOLHGA’s goals by NOLHGA Chair Steve Lobell, an article adapted from NOLHGA President Peter Gallanis’s President’s Address at the 2009 Annual Meeting, and segments on new guaranty association personnel and NOLHGA’s recent activities.

GA Update Online

Two issues of GA Update Online were published during the second quarter. The May 7 and May 19 issues featured relevant portions of the management report on NOLHGA activities provided to the NOLHGA Board of Directors at its February 2010 and May 2010 meetings, respectively.

NOLHGA Journal

The second 2010 issue of the NOLHGA Journal was mailed to subscribers in June. The issue featured an article on the work of NOLHGA’s GA Laws Committee by Committee Chair Merle Pederson, a preview of the 2010 Legal Seminar, and the regular President’s Column.

Other

The Communications Department collaborated with NOLHGA President Peter Gallanis on an article dealing with the readiness of the guaranty system to respond to the failure of one or more large insurance companies. The article, “Weathering the Crisis,” will be published in the newsletter of the Society of Financial Services Professionals. The Department also worked with Gallanis on an article for The Brief, the periodical of the American Bar Association’s Tort and Insurance Law Practice Group, which is an adaptation of the “white paper” on the guaranty system prepared for the 2009 ABA National Institute on insurance receiverships. The article will be published this Fall.

Legal Department Activity

Since the last Board meeting, Legal Department staff members have been engaged in the following activities:

Model Act Initiative: Staff organized a teleconference of the Board GA Laws Committee on July 27 for the purpose of reporting on efforts to update guaranty association laws across the country and to discuss possible priority states for 2011. In addition, staff continued to provide technical and other support to the ACLI and individual states with respect to updating guaranty association laws.

Privacy/Security: The Privacy Working Group is close to finalizing a draft of recommended data security procedures for final review and approval. In anticipation of seeking the necessary approvals, the group organized several focus group meetings to obtain input from guaranty association administrators. In addition, the working group made a presentation during the July MPC meeting to provide an update on the project and remind people of the importance of adopting procedures to protect policyholder data in multi-state insolvencies. The next step will be to submit draft security procedures for MPC Executive Committee and Legal Committee approval. Once those approvals have been obtained, the draft security procedures will be presented to the full MPC and the NOLHGA Board for approval.

Conflicts Policy: In early June, staff reported to the Conflicts Committee on the results of the annual questionnaire process under NOLHGA’s Policy Statement on Conflicts of Interests and Business Ethics. All persons subject to the Policy Statement completed the questionnaire. In several cases, respondents made affirmative disclosures regarding their activities. However, the disclosures did not constitute actual conflicts of interest or raise other ethical concerns. As a result, no follow-up action was required.

Other Matters: Staff also engaged in the following activities: (1) secured U.S. Patent and Trademark registration of “NOLHGA” as a service mark; (2) provided “help desk” support to member associations and other constituencies regarding guaranty association legal questions; (3) updated the guaranty association law summaries on NOLHGA’s Web site; (4) provided support with respect to insolvency authority issues and drafting confidentiality, engagement, and other agreements; and (5) obtained MPC approval for guidelines on closing meetings to protect confidential information.

Systems/Technology

Insolvency Web Page Updates

The Communications and Insurance Services Departments sent out their quarterly request to active task forces for any updates to the insolvency Web pages on the public and password-protected sections of the site. Requested changes to several pages were made.

NOLHGA Events

The online registration form for the Annual Meeting was significantly revamped. The new registration form will provide our staff with additional attendance information. This information will be used to predict attendance for the various functions and to determine NOLHGA's success in attracting various segments to the event.

Security Procedures

Currently, NOLHGA and its members are developing security procedures that will effectively protect information stored on electronic devices. In light of this new policy possibly taking effect later this year, the Systems Department will begin testing and preparing to install PGP Encryption on electronic devices starting with laptops and desktop computers. After adequate software testing and staff encryption training, PGP Encryption will be installed on staff computers.

Technical Assistance to GAs

The Systems Department sent information to the guaranty association administrators about fake virus alerts and instructions on how to deal with malicious software. It also continued to assist our constituents by answering general technical support inquiries.

Web Security

NOLHGA is working on developing a solution to the dual password issue involving QUEST and the NOLHGA Web site. NOLHGA's membership must use a separate username and password to sign into QUEST. The solution, when implemented, will make use of a single sign-on technology that will allow members to get from the NOLHGA.com password-protected areas to QUEST without entering a separate set of credentials.

A new online report is under development that will enable NOLHGA staff to quickly determine what sections and documents of the NOLHGA site are available to the various groups authorized to access information. The report will also provide staff with better information regarding member use. Additionally, a new reporting system was implemented that assesses the popularity of the various password-protected sections of the NOLHGA site. This information will be help management determine what changes, if any, should be made to the current security model.

Web Site Redesign

The Communications, Insurance Services, and Information Systems Departments met with NOLHGA management to discuss ways to improve the design of the password-protected section of the NOLHGA Web site, with the goal of making the most-useful information easier for members to access. The departments also met with the Legal Department to discuss ways to improve the functionality of the “Updating Your GA Act” section of the site. Work on both projects is ongoing.