IN THIS EDITION:

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

Introduction

In August 2009, 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 Dallas, staff focus 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) completion of planning and execution of NOLHGA’s Legal Seminar and the July MPC meeting; (v) Annual Meeting planning activities; (vi) preparation of materials and support for the 2010 NOLHGA preliminary operating budget; and (vii) providing support for various Board committees and subgroups.

Current insolvency activity continues to be focused on Executive Life of New York (New York); Lincoln Memorial (Texas); Executive Life Insurance Company (California); and, more recently, Medical Savings (Indiana), Standard Life of Indiana (principally an annuity writer), Penn Treaty Insurance Company (a long-term-care writer in Pennsylvania), and discussions of isolated troubled company issues with relevant regulators.

NOLHGA Meetings

2009 Annual Meeting

A number of in-house planning sessions for the 2009 Annual Meeting have been held. The meeting Web page went live in the second quarter, and additional speakers were added to the program. Confirmed speakers include:

• George Will: Political columnist and TV commentator (luncheon speaker)


• Edward J. Zore: Chairman, President, and CEO of Northwestern Mutual


• Thomas Hampton: DC Insurance Commissioner


• Roger Sevigny: NAIC President and New Hampshire Insurance Commissioner


• Bob Baur: Chief Global Economist for Principal Global Investors


• Stephanie Guethlein McElroy: Manager, Rating Criteria and Rating Relations for A.M. Best Company

A number of speaker invitations are still under consideration. The Annual Meeting Registration brochure should mail in early August.

2009 Legal Seminar

Staff members worked closely with the Legal Seminar Planning Committee to complete preparations for and execute the 2009 Legal Seminar program. The event, which was held on July 9 and 10 at the Ritz-Carlton Hotel in Chicago, broke prior attendance records with more than 145 paying registrants and total attendance (including staff, speakers, and guests) in excess of 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 by those in attendance.

2010 Legal Seminar

Legal Department staff is in the process of negotiating a hotel contract with the Marriott Marquis Hotel (New York City) to host the 2010 Legal Seminar. The tentative dates for the event are July 15–16.

MPC Activity

Among other MPC-related initiatives, organizational meetings for two new MPC subgroups—Expense Allocation and Business Continuity Plan—were held.

Constituency Relationships

ACLI

Peter Gallanis, Bill O’Sullivan, and Joni Forsythe participated in an ACLI Solvency Committee teleconference on June 2. The discussion items for the meeting included the following topics: (1) the Life and Health Insurance Guaranty Association Model Act, including a report on the ACLI’s efforts to support the adoption of the model act and related legislative developments in the states; (2) the NAIC Annuity (A) Disclosure Working Group’s revised draft GA disclosure notice and recommendations for adoption by the NAIC as a non-binding guideline; (3) the NAIC’s Receivership and Insolvency Task Force charge relating to reinsurance recoverables; (4) developments with respect to the NAIC’s draft White Paper on Alternative Restructuring Mechanisms for Troubled Companies; (5) the NAIC’s IRMA Critical Elements Advisory Group’s ongoing review of the new receivership model; (6) the favorable resolution of the viatical settlement coverage litigation in Nebraska; and (7) the Lincoln Memorial Life Insurance Company insolvency.

NAIC

The NAIC’s IRMA Critical Elements Advisory Group has continued its section-by-section review of the NAIC’s Insurer Receivership Model Act to identify provisions deemed to be both “critical” and “non-controversial.” The Advisory Group has been meeting via teleconference every other week and is nearing completion of its first pass through the entire model. The Advisory Group has plans for further review of various flagged provisions. Upon completion of its review, the group will make recommendations as to provisions of IRMA which may be best suited for legislative action in the states. NOLHGA staff is continuing to monitor the activities of the group and provide comments concerning provisions relevant to guaranty association interests.

On July 29, Peter Gallanis made a presentation on guaranty system preparedness to 10 insurance commissioners at the Northeast Zone strategy session in Cambridge, Maryland.

Members

On May 18, Peter Gallanis attended the annual meeting of the Indiana Life & Health Insurance Guaranty Association and briefed members on major insolvency developments and pending Capitol Hill discussions.

On June 25–26, Dick Klipstein attended the annual meeting of the Washington Life & Disability Insurance Guaranty Association and discussed with attendees several rehabilitation matters.

Industry

On June 23–24, Peter Gallanis attended an off-site planning meeting of the Prudential “External Affairs” team, at which he made a presentation on guaranty system planning and preparedness efforts in response to the economic situation.

Other

On June 4 and 5, Peter Gallanis delivered a paper on the current state of the life and health guaranty system at the ABA/TIPS national institute on insurer insolvency issues in New York City. The paper was an updated version of the “white paper” included in the materials for the Board’s May meeting and previously circulated to guaranty association administrators.

Financial Activity

The Accounting Department has been involved in the development of the 2010 preliminary operating budget and with preparations and coordination of materials for the Finance Committee’s August 5 meeting with representatives of major insolvency task forces. In addition, staff calculated and mailed the first quarter 2009 assessments.

NOLHGA Committee Activity

Accounting Issues Committee

This committee has continued work on drafting a sample IRS Form 990 for inclusion in the Accounting Guidelines Manual.

Assessment Data Survey Task Force

The task force completed uploading the 2008 survey data from the NAIC and identified the top 75 annuity writing companies along with an additional 10 companies selected randomly for review. Reports were completed for use during a review meeting held May 28–29. Of the 85 companies, follow-up letters were sent to 54 companies. The principal follow-up questions dealt with the reporting of annuity deposits and separate account fee income. In addition to these companies, another 24 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.

Communications Committee

The committee is developing a set of standardized responses to common questions received by guaranty association administrators from members of the public. The goal is to ease the burden on administrators by providing them with standard answers and to enhance the uniformity of the guaranty system’s responses to these questions.

The committee began this project with a May 7 e-mail to guaranty association administrators asking them to submit the questions they have received the most, as well as any answers they have developed. The committee will next evaluate the responses and prepare a draft Q&A document.

Coverage/Claims Committee

The committee continues to review and consider how guaranty associations might cover variable insurance contracts with general account guarantees. In addition, the committee presented its working positions on covering joint annuities during the July MPC meeting for the purposes of getting feedback from guaranty association administrators. The committee is in the process of evaluating the feedback received and plans to hold a follow-up session at the September MPC meeting.

Guaranty System Modernization Task Force—Assessment Subgroup

A follow-up letter was sent to the four companies that submitted bids regarding the development of a centralized membership database asking them to clarify their proposed process and/or fee structure. Responses were received by June 30, but the subgroup has yet to review.

Life Industry Market Analysis

Staff developed a database of life insurance company information and consolidated the data based on NAIC group codes to identify the 50 largest companies and other characteristics about the U.S. life insurance industry. This analysis is being used to support the Stress Test initiative undertaken by Tillinghast on behalf of NOLHGA.

Communications

GA Update

The May 2009 issue of GA Update was mailed to subscribers in May. The issue featured a cover story by NOLHGA Board Chair Chris Kelly on the challenges facing the organization and its member associations, as well as articles on the new IRS Form 990 (by Lowell Miller of the North Carolina association), the importance of adopting the new NAIC GA Model Act (by Dave Perry of the Montana association and MPC Chair Bart Boles of the Texas association), new guaranty association personnel, and NOLHGA’s recent activities.

The next GA Update will be distributed at the October Annual Meeting.

GA Update Online

Two issues of GA Update Online were distributed to the membership in the second quarter. The May issue featured relevant portions of the management report on NOLHGA activities provided to the NOLHGA Board of Directors at its May 2009 meeting, and the June issue updated the membership on guaranty association–related activities at the NAIC Summer National Meeting.

NOLHGA Journal

The June 2009 NOLHGA Journal featured an interview with NAIC CEO Terri Vaughan and a preview of NOLHGA’s upcoming Annual Meeting. The next NOLHGA Journal will feature coverage of the 2009 Legal Seminar.

Web Site Additions/Improvements

Several members of staff were involved in a project to make some refinements to the new Press Room section of the site to make it easier for users to navigate through the posted articles. The Press Room now includes a much longer list of articles relevant to insurance regulation and the guaranty system (which are now also organized into categories), a table of contents that enables users to quickly jump between categories, and links to other industry news sources.

The department also sent out a quarterly request for any updates to the insolvency Web pages on the public and password-protected sections of the site. Requested changes to the pages have been made.

Legal Department Activity

Since the May 2009 Board meeting, Legal Department staff have been engaged in the following activities:

Legal Committee/Model Act Subgroup: The subgroup met by teleconference during May and June and accomplished the following: (1) prepared a script for use by the MPC Executive Committee in making “outreach” calls to guaranty association administrators to determine the prospects for updating their guaranty association laws; (2) revised and updated the Legal Committee’s prior report identifying the most important provisions of the NAIC Model Act for purposes of achieving functional uniformity within the guaranty system; and (3) prepared a proposed list of the top 20 states for updating guaranty association laws. The subgroup’s next steps will be to provide guidance to MPC Executive Committee members in making their outreach calls to GA administrators and to prepare an analysis comparing the key provisions of the current NAIC Model Act with the GA Acts in the top 20 states.

Harvey Case: On May 15, the Nebraska Supreme Court affirmed a lower court’s order denying guaranty association coverage for investors in viatical settlement contracts. However, unlike the court below, the Nebraska Supreme Court found that the company which issued the viatical settlement contracts was not a “member insurer” of the guaranty association. This was the result that the Nebraska association (supported by amicus briefs filed by NOLHGA and the ACLI) sought to achieve in seeking appellate review in the case.

Medicare Secondary Payer Issues: Staff has been working with outside counsel to further investigate compliance requirements under the Medicare Secondary Payer Registration and Reporting rules and to develop guidance and recommendations concerning compliance strategies for future NOLHGA health insolvency task forces.

Privacy/Security: Staff has been working to implement the MPC Life and Annuity Privacy procedures and continues to support the efforts of a working group to develop recommended data security procedures for the MPC’s use in all multi-state insolvencies.

Discovery Plan: Staff prepared a recommended action plan for NOLHGA’s response to future electronic discovery requests.

Systems & Technology

Network Systems Status

IBM will discontinue support for Domino-based products in the coming years, thus precipitating NOLHGA’s migration of the Information Resource Center (IRC) to SharePoint. SharePoint offers a more robust document management system with far more capabilities than Domino. Support for SharePoint is also much easier to find. The Systems Department expects to make the SharePoint-based IRC available to guaranty association administrators, NOLHGA board members, NOLHGA staff members, and NOLHGA consultants in January 2010.

To further this effort, NOLHGA has contracted Quest Software to perform the migration of the IRC from Lotus Domino to Microsoft SharePoint. The migration is expected to take three weeks to complete and will involve moving nearly all of the 30,000 documents from Lotus Domino to SharePoint. The Systems Department expects the migration will be complete by the end of August. During this time, the IRC will be available, but users may be unable to upload documents to some or all of the insolvency folders.

The Systems Department has subscribed to a new service which queries the availability of the NOLHGA Web site, the IRC, and the NOLHGA-hosted Web sites every five minutes. If any site is unavailable, the service immediately sends an e-mail to Systems Department personnel. As a result, whenever any of the sites crash, Systems Department personnel are able to respond more quickly. In addition, the Systems Department purchased a security certificate for the IRC. The certificate encrypts documents sent to and from the IRC, making it more difficult for cyber-criminals to intercept sensitive information hosted on the IRC.

Technical Assistance for GA Administrators

The Systems Department continues to assist the guaranty association administrators by answering technical support calls and e-mail inquiries.