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 Activity
- Communications
- Legal Activity
- Systems Support/Technology/Website
- Professional Development
Introduction
In August 2015, 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 been centered around the following matters: (1) coordination and support for insolvency task force activity; (2) coordination of and support for the July MPC and task force meetings; (3) finalizing the program and logistics for NOLHGA’s 23rd Annual Legal Seminar held in July; (4) initiatives related to financial services modernization; (5) a number of non-routine operational matters (i.e., planning new space and negotiating a new office lease); and (6) providing support for other Board and MPC committees.
Insolvency activity remains heavily focused on Penn Treaty Insurance Company (Pennsylvania), Lincoln Memorial (Texas), and recent health insurer failures.
NOLHGA Meetings
2015 & 2016 Annual Meetings
Work on the speaker program for the 2015 meeting continues. The following speakers have been confirmed to date (a number of other invitations are outstanding):
- Bob Woodward: Pulitzer Prize–Winning Journalist (Luncheon Speaker)
- Eric Dinallo: Partner, Debevoise & Plimpton; Former New York State Superintendent of Insurance
- Karen Shaw Petrou: Co-Founder & Managing Partner, Federal Financial Analytics
- William H. McCartney: Co-Chair, Bipartisan Policy Center Insurance Regulatory Reform Task Force; Former NAIC President
2015 Legal Seminar
The 2015 Legal Seminar was held on July 23–24 in San Francisco. The program featured segments on insurance regulatory reform, resolution planning, health care reform, captive reinsurers and principles-based reserving, cybersecurity, tax reform, litigation developments, and recent health insolvencies. Among many others, the speakers included Arthur J. Murton: Director, Office of Complex Financial Institutions, Federal Deposit Insurance Corporation; Mike Kreidler: Commissioner, Washington State Office of the Insurance Commissioner; and Peter L. Hartt: Insurance Division Director, New Jersey Department of Banking and Insurance. The program was attended by 188 people (including 156 paying registrants) and received favorable reviews from attendees.
Constituency Relationships
GA Board Discussions
On May 14, Peter Gallanis discussed Penn Treaty and some of the issues in that case with the Board of Directors of the Rhode Island guaranty association (at that Board’s request).
On June 10, Dick Klipstein attended the joint Annual Meeting of the Oregon and Washington associations, also to review the Penn Treaty situation.
Health Insurance Trades
During June, Peter Gallanis, Dick Klipstein, and Bill O’Sullivan attended meetings with representatives from America’s Health Insurance Plans (AHIP) and the Blue Cross and Blue Shield Association (BCBSA). The purpose of the meetings was to discuss recent trends and developments, including health insurance environmental factors, ACA implementation, health COOPs, King v. Burwell, and long-term-care insurance. Bill O’Sullivan has responded to a number of follow-up questions from the BCBSA.
NAIC
Staff participated in calls and monitored the activities of various NAIC subgroups and working groups, including: 1) the Unclaimed Life Benefits Model Drafting Subgroup, which is working on an NAIC model law to address insurers’ obligations with respect to Death Master File searches and the handling of unclaimed life insurance benefits; 2) the Contingent Deferred Annuity (A) Working Group, which is focusing on cancellation issues and consumer protection in the event of involuntary terminations; and 3) the Receivership Model Laws Working Group, which is preparing a survey for state insurance departments in an effort to identify state receivership laws corresponding to the FSB Assessment Methodology for the Key Attributes of Effective Resolution Regimes for Financial Institutions.
Other
NOLHGA representatives conducted a call with several representatives of Aon Hewitt to discuss guaranty system protection and operations.
Financial Activities
The Accounting Department has been involved in the development of the 2016 preliminary operating budget and with preparations for and coordination of materials for the Finance Committee’s August meeting with representatives of major insolvency task forces. In addition to routine accounting-related tasks, staff also calculated and mailed the first quarter 2015 quarterly assessments.
Since the May Board meeting, the Accounting Department coordinated the following insolvency-related account distributions: (1) $9.5 million to affected members ($8.1 million in estate distributions related to Universal Life/Booker T. Washington and $108,000 and $1.3 million in premium collections related to Lincoln Memorial and National States, respectively) and (2) $12.6 million to TPAs and receivers to fund claims and expenses for four active insolvencies.
Assessment Data Survey
The review of 2014 data survey filings was completed in May. Of the 85 annuity writers reviewed (the top 75 companies writing annuity business, plus an additional 10 companies randomly selected from the next largest 75 writing companies), 59 required follow-up. This is consistent with 2013 results. The primary topics of inquiry were:
- reporting of amounts received on deposit-type contracts
- separate account premiums and related non-guaranteed deductions
- changes in premium volume between 2014 and 2013
- fee income reporting on separate account business
- certain premiums reported on Schedule T not reported on the survey
- unallocated annuity premiums related to governmental retirement plans under IRS code sections 401, 403(b), and 457
- 50 companies were sent follow-up inquiries for items dealing primarily with the reporting of deposit-type contracts, separate account premiums, and fee income reporting
- 76 companies were sent letters related to the reporting of Medicare premiums
- 21 Blue Cross/Blue Shield companies were sent letters regarding missing surveys (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)
- 159 P&C companies were requested to confirm their 2014 health insurance premiums obtained from the NAIC (confirmation of state page information is requested from the companies since the survey exhibits are not included in the P&C annual statement)
Financial Systems Project
Integration of NOLHGA’s legacy systems (NIRS, NOLHGAB, and SAS) remains under development. Though these systems have performed adequately to date, the applications that run these systems have become difficult to maintain and cannot be integrated. Staff members are also working on more effective measures to collect insolvency financial information from task force staff contacts on a timely basis.
Guaranty Association Assessment Information
This annual project entails collecting assessed, called, and refunded assessment information by state, account, and insolvency. The request for 2014 assessment activity was sent to guaranty associations on June 22, with responses requested by July 31. Final reports will be produced in November.
Insolvency Financial Cost Information
NOLHGA staff completed a preliminary review of the A.M. Best annual statement database to determine if it could meet our needs for information on insurance companies, premium data, etc. Similar queries were written to those used by NOLHGA staff in the SNL database to collect company demographic and premium data that are used in the assessment data survey review. The results of the queries were comparable. As a result, NOLHGA purchased the Bestlink database from A.M. Best on a trial basis to parallel test all features of the system with SNL to determine if it would be a suitable alternative for use in our normal insolvency processes. We anticipate a substantial savings (the Bestlink database is 50% of the price of the SNL database), provided it can meet all of our data and information requirements.
Financial Services Modernization
Pension De-Risking
On July 31, Peter Gallanis, Bill O’Sullivan, Sean McKenna, and Kevin Griffith (Faegre Baker Daniels) spoke to Matt Pilon of the Hartford Business Journal about the implications of pension de-risking transactions to the guaranty system. Mr. Pilon is writing an article on trends affecting Connecticut’s corporate pension plans, including annuity buyout transactions.
Peter Gallanis and Bill O’Sullivan continued to work with Faegre Baker Daniels and Towers Watson to finalize a report comparing protections afforded by the Pension Benefit Guaranty Corporation (PBGC) with protections provided by the state receivership and insurance guaranty systems.
Stress Test Model Development Project
In addition to ongoing Education Project briefings of Congressional teams and responding to related inquiries about the guaranty system, the Financial Services Modernization Committee and NOLHGA staff have done considerable work on a proposal to develop a model to “stress test” the guaranty system.
International Insurance Resolutions
On May 26–27, Peter Gallanis made a presentation on the U.S. insurer resolution system at the annual conference of the International Forum of Insurance Guarantee Schemes (IFIGS) in Madrid. IFIGS is used as a resource on insurer resolution issues by IAIS and FSB.
MPC Activities
MPC COOP Task Force
The MPC’s COOP Task Force was formed to assist interested guaranty associations in preparing for and responding to the possible insolvency of ACA health insurance COOPs in states where the COOP is a member insurer. In particular, the task force will: (1) gather and disseminate financial and other information to assist guaranty associations in monitoring member insurer health COOPs in their states; and (2) serve as a mechanism for those guaranty associations to coordinate and collaborate on common approaches for resolving legal and other issues of common interest relating to member COOPs, including issues arising under the ACA affecting member COOPs and other health insurers. The task force includes 13 member guaranty associations, each of which has signed a Confidentiality and Joint and Common Interest Agreement reflecting their commitment to preserving the confidentiality and/or privileges related to information that is shared among task force members. The task force has held two teleconferences since its formation in May.
MPC Executive Committee Banking Relations Subgroup
The subgroup consolidated and reported the results of the State Guaranty Association Survey of Banking Services and Relationships at the July MPC Meeting. The survey was designed to secure information on guaranty association banking services and relationships. The summary results are now going to be further subdivided based on state size.
Document Storage & Retention Working Group
The working group met in June at the office of the Illinois guaranty association to work on development of a report that will address the challenges associated with electronic document storage and retention. The group is planning to distribute the report prior to the Annual Meeting.
MPC Audit Notification Subgroup
This subgroup was recently appointed to consider the issue of providing appropriate and adequate notification to affected guaranty associations in situations where the claims administration is either going to be or has been audited. In July, the subgroup proposed amendments to Chapter 5 of the MPC Insolvency Task Force Guidelines to clearly state that the task force should notify affected guaranty associations both prior to the audit and then again when the results are available for review. Proposed changes were also submitted for reference purposes and due to changes in FASB requirements regarding the SAS 70 audit.
MPC Security Advisory Committee (SAC)
The SAC continued its work to oversee and maintain compliance with the MPC Security Procedures, which included: (1) working on a draft Incident Management Response Plan to serve as a guide for responding to security breaches involving confidential policyholder information; (2) following up on questionnaire responses to confirm NOLHGA business associates’ compliance with the Security Procedures; and (3) distribution of a compliance questionnaire to guaranty association administrators.
MPC Preference Poll Committee
Stage 1 of the MPC Preference Poll process has been completed, and Stage 2 is now underway. This process, which includes confidential ballots, is the mechanism by which three candidates are identified to serve as MPC Chair. The MPC Chair is appointed annually by the incoming Chair of the NOLHGA Board and serves a term of one year.
NOLHGA Committee Activity
Communications Committee
The committee has begun work on the 2015 edition of The Nation’s Safety Net, a brochure that illustrates the policyholder protection provided by the guaranty system.
The committee’s Social Media Subgroup has reviewed the findings of its 2013 report as a first step in studying and implementing the report’s recommendations.
Coverage/Claims Committee
The committee’s working group on Contingent Deferred Annuities (CDAs) continued to consider possible approaches for applying guaranty association coverage limits to CDAs. In addition, the committee’s HMO Working Group held several teleconferences to discuss coverage and assessment issues relating to HMO business, and the Trust-Owned Annuity Working Group scheduled a meeting with the Insured Retirement Institute to obtain background on the use and structure of custodial accounts to own annuities for the benefit of individuals.
Communications
GA Update Online
The May 19, 2015, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its May meeting.
NOLHGA Journal
The second 2015 issue of the NOLHGA Journal was mailed in early June. The issue featured a preview of the 2015 Legal Seminar, an article on developments in international insurance regulation and their implications for the U.S. market, and a President’s Column on the role of the insurance sector in providing secure retirement income.
Press Relations
Several NOLHGA representatives spoke with a reporter from LifeHealthPro.com in May for an article on variable annuities.
In June, NOLHGA representatives also provided information to a reporter from The New York Times for an article on variable annuities with guaranteed income riders and to a second reporter from LifeHealthPro.com for an article on how the guaranty system would respond to the failure of one or more health insurers.
Legal Activity
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.
D&O Insurance Renewal
Legal Department staff applied for the renewal of NOLHGA’s D&O Policy with Great American Insurance Company. The renewal quote is for the same coverage levels and policy terms as NOLHGA’s existing policy but at a slightly lower premium. Management has directed NOLHGA’s broker to bind the renewal policy, which will become effective on September 1.
Electronic Recording of Meetings
On July 17, a memorandum was sent to all member associations and NOLHGA’s key legal consultants providing an overview of the Legal Committee’s analysis of electronic recording of conversations and meetings, as well as a reminder that the recording of NOLHGA calls and meetings is prohibited without the express consent of NOLHGA management. The notice also alerts members and legal consultants to a change in the legend to be included on all NOLHGA agendas for the purpose of incorporating an express statement prohibiting electronic recording of meetings.
Systems Support/Technology/Website
Network Systems Status
An outside consulting firm was hired to assist NOLHGA in determining whether its network and/or website have vulnerabilities that could enable a malicious user to gain unauthorized access to confidential information. After completing the network test, the firm issued a report that identified several potential vulnerabilities that NOLHGA’s Systems Department personnel will address in August. The website test is scheduled for August.
In addition, NOLHGA has restructured its disaster recovery agreement with Evault due to the need for additional backup storage space.
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
As part of an ongoing member outreach program, the Systems Department continued contacting members by phone and email. This program, initiated by the Systems Department a few years ago, has helped the department familiarize itself with the ongoing IT-related challenges facing guaranty associations.
The May edition of the NOLHGAnet was distributed to guaranty association administrators and NOLHGA staff.
Technical support was provided to the members during the quarter by phone and email. The department engaged in several remote-terminal sessions with guaranty association administrators to diagnose and solve more-complex desktop issues.
Office Training
The Systems Department conducted a cybersecurity training session for the staff. Topics included a discussion on phishing emails, bad email attachments, fraudulent websites, public Wi-Fi usage, and mobile security.
Professional Development
Kenny Bullock attended a “Windows Server 2012 R2 Virtualization” course. The online course demonstrated the features and benefits of the Windows Server Hyper-V version of Virtualization, a software technology that makes it possible to run multiple operating systems and applications on the same server at the same time. This technology is being considered as a way to further enhance the efficiency and reliability of NOLHGA’s operating system.
On July 13, Joni Forsythe attended a CLE webinar on Cyber Insurance titled Cyber Insurance: A Practical Guide to Risk Mitigation in a Connected World. The program was sponsored by the American Corporate Counsel Association.
On April 28, Meg Melusen attended a presentation titled Data Breach Legislation and the Internet of Things by FTC Commissioner Maureen Ohlhausen and House Subcommittee Chairman Michael Burgess.