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
- Financial Services Modernization
- MPC Activities
- NOLHGA Committee Activities
- Communications
- Legal Activity
- Systems Support/Technology/Website
- Professional Development
Introduction
In August 2014, 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 Atlanta, staff has focused primarily on the following matters: (1) coordination and support for insolvency task force activity, (2) coordination and support for the July MPC meeting and Legal Seminar, (3) work on initiatives to promote and develop stronger relationships with the health industry, (4) planning and coordination for the Annual Meeting, and (5) providing support for other Board and MPC committees and subgroups. Insolvency activity continues to be heavily focused on Penn Treaty Insurance Company (Pennsylvania) and Lincoln Memorial (Texas).
NOLHGA Meetings
2014 Legal Seminar
The 2014 Legal Seminar was held on July 17–18 in New York City. The program featured segments on financial services regulatory reform, health care reform, captive reinsurers and alternative risk transfer arrangements, senior issues relating to retirement and the cost of care, significant litigation impacting the insurance industry, and single-state insolvencies. Among many others, speakers included: Josh Gotbaum, the Director of the Pension Benefit Guaranty Corporation; Ted Nickel, Wisconsin Insurance Commissioner; Susan Donegan, Vermont Insurance Commissioner; and Ken Kobylowski, New Jersey Insurance Commissioner. The program was attended by 199 people (including 156 paying registrants) and has received favorable reviews from attendees.
2014 Annual Meeting
Work on the 2014 Annual Meeting program continued, with the following speakers confirmed for the meeting:
- Basketball legend Bill Walton (luncheon speaker)
- Esfand Dinshaw: Chairman & CEO, Sammons Financial Group
- Patricia Guinn: Managing Director, Towers Watson
In addition, a promotional e-mail was sent to prospective attendees in June, and an Annual Meeting handout was prepared for distribution at the July Legal Seminar.
Constituency Relationships
Regional GA Meetings
Paul Peterson attended the Northeast Regional GA meeting held in Mystic, Connecticut. Topics of discussion included: succession management plans, backup contingency plans in the event the administrator is incapacitated, internal control procedures, use of outside counsel, changes to guaranty association operations/practices and the “GA Best Practices” guide developed by an MPC Executive Committee Subgroup, coverage of guaranteed features of variable annuities, insolvency issues (Penn Treaty, Medicare C&D, inflation benefit riders, assessing under a rehabilitation vs. liquidation order), board meetings, and education sessions/MPC meetings.
Paul Peterson and Holly Wilding are scheduled to attend the Midwest Regional GA Meeting in late August.
ACLI
On May 7 and May 19, staff participated in teleconferences with the ACLI’s Receivership Committee (formerly the Solvency Committee) and the ACLI’s Separate Accounts Working Group. The May 7 Receivership Committee’s discussion was focused on whether the ACLI should develop a policy specifically addressing guaranty association coverage for factored structured settlement annuities and/or life settlements. The May 19 Separate Account Working Group call was focused on the NAIC’s exposure of recommendations concerning separate account products and inviting input from ACLI Working Group members and interested parties concerning the recommendations.
NAIC
Since the last management report, staff has participated in calls and monitored activities with respect to the following NAIC matters:
(1) On May 9, the Receivership and Insolvency Task Force (RITF) met via phone to discuss a potential new charge related to developing guidance for large company resolution plans. The proposed charge reads as follows: “Evaluate the benefits and costs associated with requiring resolution plans for large insurance groups. Develop guidance on resolution plans for states with large insurance groups and address related issues developing in the federal and international standards.” Comments on the charge have been received from six interested parties (AHIP, ACLI, AIA, IAIR, NAMIC, and PCI), which have raised concerns with the charge. RITF discussed the comments on a July 25 call and has taken them under advisement.
(2) On June 25, the NAIC’s Index-Linked Variable Annuity (A) Subgroup met via phone to discuss risk and benefit comparisons for various product designs, including a review of comparison materials provided by the ACLI.
(3) On July 1, the NAIC’s Separate Account (E) Risk Working Group met via phone to discuss comments received on its exposed recommendations concerning separate account products.
Financial Activities
The Accounting Department has been involved in the development of the 2015 preliminary operating budget and with preparations for and coordination of materials for the Finance Committee’s August 6 meeting with representatives of major insolvency task forces. In addition to routine accounting-related tasks, staff also calculated and mailed the first quarter 2014 quarterly assessments.
Since the last Board meeting, the Accounting Department coordinated the following insolvency-related account distributions: (1) $7.1 million to affected members ($5 million in early access distributions related to Universal Life/Booker T. Washington; $119,000 and $1.9 million in premium collection refunds related to Lincoln Memorial and National States, respectively; and $85,000 due to a quarterly true-up of escrow account activity related to Life & Health Insurance Company of America); and (2) $4.5 million to TPAs and receivers to fund claims and expenses for three active insolvencies.
Assessment Data Survey
The review of 2013 data survey filings for 85 annuity writing companies (the top 75 companies writing annuity business and an additional 10 companies randomly selected from the next 75 writing companies) was completed in May. Of these 85 companies, 56 required follow-up letters to be sent. The primary topics of inquiry dealt with changes in premium volume between 2013 and 2012; accounting and reporting of deposit and separate account premiums; unallocated annuity premiums related to governmental retirement plans under IRS code sections 401, 403(b), and 457; and fee income reporting on separate account business.
An additional 50 companies were sent follow-up inquiries for items dealing with the reporting of deposit and separate account premiums, separate account fee income reporting, and erroneous amounts reported in the unallocated annuity account on the exhibit.
Data requests were also sent to 162 P&C companies asking them to confirm the health premiums obtained from the P&C annual statement (note: data must be compiled by accessing information on the state pages and then requesting the companies to confirm the data, since the survey exhibits are not part of the P&C annual statement) and 16 Blue Cross/Blue Shield companies (these companies failed to file the data survey exhibits as part of their annual statement filings; absent a response, Schedule T premium data will be used).
Strohm Ballweg has begun the compilation of Medicare-related premium data to identify which companies have excluded the premium and in what states. This process is approximately two months in advance of when the testing was done in past years, which will allow us to follow up with Medicare writers regarding deductions they may or may not have taken on the data survey and to obtain corrections from the member companies prior to the release of premium data in October. Assessable premium data will be made available to guaranty associations via Quest in October.
Insolvency Financial Cost Information
NOLHGA staff completed the calculation of guaranty association recovery and coverage ratios, estimated policyholder loss ratios, and total estimated estate assets. This data is used to respond to various queries from outside parties (such as Congress) regarding insolvency and guaranty association activities.
Financial Services Modernization
Staff continued to work with outside consultants from Faegre Baker Daniels and Towers Watson to develop a model for analyzing and comparing protections afforded by the Pension Benefit Guaranty Corporation (PBGC) with protections provided by the state receivership and insurance guaranty systems. A preliminary version of the model shows that the state receivership and guaranty system protections favorably compare to those provided by the PBGC. The next steps in the project are to run an additional scenario and prepare a report reflecting the results.
In addition, staff has been working with the NCIGF and outside consultants to develop a plan and process for modeling the abilities of the Life & Health and P&C guaranty systems to handle the failure of a large U.S. insurance group. This project is precipitated in part by the recently issued FIO Report, which recommended that NOLHGA and NCIGF periodically model the potential adverse impacts of a significant insolvency event on the two guaranty systems and share the results with FIO.
MPC Activities
A quarterly MPC meeting was held in conjunction with the Legal Seminar in July in New York. In addition to routine task force meetings and reporting at the General Session, a number of projects by various MPC Executive Committee subgroups are nearing completion. These projects include: (1) development of an Insolvency Task Force Resource Guide; (2) finalization of a GA Best Practices document; (3) development of an online survey on GA Operations; and (4) circulation of a final report documenting findings of the MPC D&O Subgroup concerning the availability and pricing of D&O coverage for guaranty associations. The MPC D&O Subgroup will now turn its focus and attention to the investigation of cyber breach liability insurance.
In addition, staff arranged and participated in calls of the newly appointed MPC GA Expense Group, constituted to respond to receiver questions regarding GA expense claims.
MPC Security Advisory Committee (SAC)
The SAC continued its work to oversee and maintain compliance with the MPC Security Procedures, which included: (1) distributing the 2014 compliance questionnaire and compiling the responses; (2) working on a breach contingency response plan; and (3) developing a compliance questionnaire for outside consultants.
NOLHGA Committee Activities
Communications Committee
The Chair of the Communications Committee met by conference call with the Chair and Staff Contact for the Coverage/Claims Committee to discuss revising the FAQs dealing with coverage on the NOLHGA website and the state guaranty association sites hosted by NOLHGA. Subsequently, the Coverage/Claims Committee provided the Communications Committee with updated FAQs on coverage, and the Communications Committee is in the process of reviewing those FAQs for inclusion on NOLHGA’s website.
Coverage/Claims Committee
The committee met in Chicago on May 29 to continue its work on 2014 projects.
Communications
GA Update Online
The May 30 issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its May meeting.
Year-End Report to the Membership
The NOLHGA 2013 Year-End Report to the Membership was mailed to members in late May.
Health Insurer Study Group
Staff distributed the Health Insurer Study Group report, entitled “Current Trends and Demographics in the Health Insurance Industry and Their Implications for the Guaranty Associations,” to all guaranty association administrators and Board members on July 2.
Legal Activity
Since the last Board meeting, and in addition to many assignments required in connection with the Legal Seminar and internally, NOLHGA’s Legal Department has been engaged in the following activities:
GA Model Act Initiative: Staff continued to provide drafting and/or other support to various states that have expressed interest in updating their guaranty association acts. Since the last Board meeting, Louisiana amended its guaranty association act to achieve functional consistency with the NAIC Model Act. In addition, (1) a bill which amends the District of Columbia Guaranty Association Act to achieve functional consistency has been signed by the Mayor and forwarded to Congress for a 30-day review period; and (2) the New York legislature approved a bill to conform the New York guaranty association act to the NAIC Model Act provisions on orphan coverage, structured settlement annuity coverage, and assessment capacity. The New York bill awaits the Governor’s signature.
NOLHGA D&O Coverage: Staff is investigating options to replace NOLHGA’s D&O insurance coverage in light of its current carrier’s decision to exit the nonprofit D&O market. Based upon work of the MPC’s D&O Subgroup and discussions with member associations that currently have D&O coverage, staff has interviewed three D&O brokers to develop a market strategy for seeking coverage. Based on those discussions, we will pursue a dual track of working with two of these brokers to find replacement coverage for NOLHGA. Those brokers will target separate portions of the market and collectively will provide us with access to four highly rated (A or A+) carriers (Hudson, Great American, RSUI, and Chubb) that are providing D&O coverage to member guaranty associations, as well as some additional companies that will likely be interested in providing quotes. Staff expects to complete applications for coverage in early August. The brokers have advised they expect to receive quotes 7 to 10 days following the submission of applications, which should be well in advance of the expiration of NOLHGA’s current policy on September 1, 2014.
Other Matters: In addition, staff (1) prepared and submitted NOLHGA’s 2013 proxy tax filing; (2) reviewed and responded to inquiries concerning proposed Oklahoma legislation pertaining to payment of claims in receivership; (3) provided support for instituting a litigation hold following GABC’s receipt of notice of subpoena; and (4) provided “help desk” support for members and other constituents concerning various receivership and guaranty association issues.
Systems Support/Technology/Website
Network Systems Status
The Systems Department worked with EVault (NOLHGA’s online backup service) to perform a full test of its remote disaster recovery service. The service is able to recover NOLHGA’s mail and web servers within one hour of a declared site-wide disaster. During the test, EVault was able to quickly recover all of the servers, though we did experience some difficulty getting all of the services to run properly. The Systems Department will conduct another test in the near future to ensure all services can be fully and promptly restored.
An outside consulting firm was hired to help NOLHGA determine whether its online systems have vulnerabilities that might be exploited by a malicious Internet user. After completing the test, the firm issued a report that identified several potential vulnerabilities along with recommendations for limiting these vulnerabilities. Overall, the findings and recommendations were considered minor by the consulting firm, and follow-up testing was not suggested by the firm. The Systems Department will address these recommendations by the end of the third quarter.
Other than addressing minor day-to-day technical issues, we continued to maintain servers, workstations, and laptops with the latest security server updates and service packs.
Technical Assistance for Guaranty Association Administrators
The Systems Department continued its member outreach program, with the goal of reaching out to all member associations by year-end. At the time of this report, the department had spoken with 18 associations. Most have been appreciative of the program, and the calls have usually included discussions regarding specific technical issues that members are struggling with.
In June, the Systems Department hosted two Outlook training sessions for interested guaranty association administrators and staff; both sessions were held at NOLHGA’s offices. Ten members attended and were actively engaged throughout the day-long sessions, and the two sessions were well received. The Systems Department plans to offer an encryption webinar for members later this year, along with a published technology update.
In addition, technical support was provided continually to administrators throughout the quarter by answering technical support calls, responding to e-mails, and offering IT-related recommendations.
Website Updates
Work on a redesign of the NOLHGA website’s homepage continued. The new design is nearly complete.
The 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 website was sent out.
Professional Development
Sean McKenna completed a course on the Adobe InDesign layout program in May.
On June 5–6, Joni Forsythe attended a two-day technical development series program titled “The Data Clouds Look Stormy: Information and Data Management in Receiverships.” The program was presented by the International Association of Insurance Receivers and cosponsored by the Insurance Regulation Committee of the American Bar Association’s Tort, Trial and Insurance Products Section.
Holly Wilding coordinated a one-day teambuilding workshop in Herndon for all staff, held on June 16 and led by Deb Knupp of the Akina Corporation. The workshop focused on being a high performance team and what the organization looks like when it is operating at its best. All staff members were given the opportunity to complete an online exercise in advance that provided insight into a person’s top five strengths.