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
- MPC Activities
- NOLHGA Committee Activity
- Communications
- Legal Activity
- Systems Support/Technology/Website
- Professional Development
Introduction
On August 22, 2018, the NOLHGA Board of Directors held its most recent quarterly meeting. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.
Since the May 24, 2018, Board meeting in Chicago, significant staff time has been devoted to (1) coordination and support for insolvency task force activity, including preparation for the July 2018 MPC meeting; (2) providing oversight for Lincoln Memorial litigation; (3) providing support for Board and MPC committees and subgroups; (4) supporting the operations of LTC Re and GABC; (5) providing information to member associations on changes to the NAIC GA Model Act; (6) planning and conducting the 2018 Legal Seminar; (7) planning for the 2018 Annual Meeting; and (8) standard operational tasks.
NOLHGA Meetings
2018 Annual Meeting
Planning for the 2018 Annual Meeting in Seattle continues. Confirmed guest speakers include:
- Robert Edsel: Author and Founder & President of The Monuments Men Foundation for the Preservation of Art (Luncheon Speaker)
- Washington Commissioner Mike Kreidler
- Terri Vaughan: Robb B. Kelley Visiting Distinguished Professor of Insurance and Actuarial Science, Drake University College of Business and Public Administration
- Karen Shaw Petrou: Managing Partner, Federal Financial Analytics
2018 Legal Seminar
The 2018 Legal Seminar took place on July 19–20, 2018, at the Marriott Marquis in New York City. The program featured segments on guiding a large insurer’s legal team; developments in solvency and macroprudential regulation; retirement security; tax law reform; reinsurance; HMOs in the new GA Model Act; long-term care; health insurance law; and cutting-edge developments in science and technology. Among many others, the speakers included FSOC Independent Member with Insurance Expertise Thomas Workman; MassMutual General Counsel Michael O’Connor; New Jersey Insurance Division Assistant Director Kristine Maurer; and Wisconsin Deputy Commissioner of Insurance J.P. Wieske.
The program was attended by 190 persons (including 162 paying registrants) and received favorable reviews from attendees.
Constituency Relationships
Several NOLHGA staff members participated in conference calls and/or e-mail exchanges with AON, Mercer, and an American Red Cross retirees’ organization to answer questions about the guaranty system and how it covers annuities in pension de-risking transactions.
Paul Peterson continues to conduct presentations and assist member guaranty associations in performing the necessary calculations for the LTC assessment cost allocation that was adopted by the NAIC as part of the new GA Model Act in December 2017.
Data files containing estimated assessable premium data for HMOs and for Medicaid premiums for the period 2013–2017 have been posted to QUEST and are available for use by the guaranty associations. Both files were created because of the changes to the NAIC’s GA Model Act.
In addition, NOLHGA has contacted 64 companies that have been identified as writing DI and/or LTC premium during the period 2013–2017 with questions regarding the premium data reported in their annual statements. We have received 59 responses, with 29 companies reporting changes to the information. We anticipate posting DI and LTC premium data for 2013–2016 later in August (2017 data will be included in the 2017 data survey files released on October 1).
Peter Gallanis met with Tennessee Insurance Commissioner Julie Mix McPeak and several members of her senior staff in Nashville on July 11 to discuss NAIC and international regulatory initiatives. He also met with new Federal Insurance Office Director Steve Dreyer and a top deputy on July 25 at the Department of Treasury in Washington to discuss pending areas of focus at the FIO. In addition, he met in Washington with Thomas Workman, the new FSOC Independent Member with Insurance Expertise, on June 13 to discuss the role of the guaranty system in resolution analysis.
NAIC
Bill O’Sullivan and Joni Forsythe attended the NAIC’s Summer National Meeting in Boston on August 4–5. In addition, NOLHGA and the NCIGF jointly hosted a luncheon on August 5 for guaranty association administrators, Board members, and invited guests to review NAIC activities affecting guaranty associations. Staff is also monitoring the activities of the International Association of Insurance Receivers (IAIR), including efforts by IAIR’s Receivers and Guaranty Fund Liaison Committee to address pre-liquidation planning issues. A summary of the meetings attended was published in the August 27, 2018, issue of GA Update Online.
ACLI
NOLHGA staff worked with industry representatives to revise the NAIC’s Guideline for providing policyholders with the summary notice of guaranty association protection under Section 19 of the GA Model Act. The purpose of the revisions was to reflect the recent amendments to the GA Model Act. On August 5, the ACLI presented the revised Guideline to the Receivership and Insolvency Task Force. Following discussion, the task force exposed the document for a 30-day comment period.
GA Meetings
Paul Peterson attended the Northeast Regional Guaranty Association meeting held in June. Agenda topics included proposed changes to the NOLHGA Model Plan of Operations; the LTC cost allocation process; Penn Treaty assessment protests; early access accounting; assessment service providers; NOLHGA’s quarterly MPC expense billing process; bank accounts and FDIC limits; succession planning; audit services RFPs; outside counsel usage levels; records destruction; Board committees; dealing with delinquent assessment payments; and Board meetings.
Peter Gallanis participated in the Annual Meeting of the Massachusetts Life & Health Insurance Guaranty Association on June 12 and led a discussion of the ways in which NOLHGA provides services and assistance to its member associations. He also participated by telephone in a discussion of insolvency issues with the Board of the Illinois Life and Health Insurance Guaranty Association on June 29.
Financial Activities
The Accounting Department has been involved in the development of the 2019 preliminary operating budget; the preparation and coordination of materials for the Finance Committee’s August 21 meeting; and the review of 2019 preliminary work plans and budgets for major insolvency task force cases. In addition to routine accounting-related tasks, staff also calculated and mailed the first quarter 2018 quarterly assessments.
The department coordinated the following insolvency-related account distributions: (a) $301,000 to affected members ($261,000 and $18,000 in premium collections related to National States and Universal Life, respectively; and $22,000 due to a quarterly true-up of escrow account activity related to Life & Health Insurance Company of America); (b) $308,000 related to a Lincoln Memorial litigation proceeds distribution; and (c) $4.2 million to TPAs and receivers to fund claims and expenses for four active insolvencies.
Assessment Data Survey
The task force completed its review of the initial 2017 data survey filings in May. Of the 85 annuity writers reviewed (the top 75 companies writing annuity business and an additional 10 companies randomly selected from the next 75 companies), 53 required follow-up letters. All of the companies responded by August 1, with 19 refiling their data survey exhibits. The primary topics of inquiry dealt with:
- Fee income reporting on separate account business.
- Unallocated annuity premiums related to governmental retirement plans under IRS code sections 401, 403(b), and 457.
- Amounts remaining in the unallocated annuity account in states that do not cover unallocated annuities (if completed properly, the survey exhibit should be 0).
- 47 other companies were sent various follow-up inquiries. As of August 1, 46 have responded, with 7 companies refiling their exhibits. Follow-up issues included supplemental contract reporting, reporting of deposit-type contracts, missing entries on survey exhibits, separate account reporting, and variances from Schedule T reported premiums.
- 133 companies were sent follow-up letters relating to the reporting of Medicare, FEHBA, and stop-loss premium deductions. Of these, 120 companies responded, with 107 filing corrections to their survey exhibits.
- 132 P&C companies were asked to confirm the health premiums obtained from the NAIC (confirmation of state page information is requested from the companies since the survey exhibits are NOT part of the P&C annual statement); 53 have responded to date, with changes to the premium data dealing primarily with stop-loss deductions.
GA Assessment Information
The collection of 2017 assessment activity from the guaranty associations has been completed. This annual project entails collecting assessed, called, and refunded assessment information by state, account, and insolvency to publish assessment activity reports in the fall. As has been the trend for the past few years, the bulk of assessment activity has been in the health account, with Penn Treaty having the most activity. Capacity estimates and final reports should be completed and posted to NOLHGA’s website in November.
MPC Activities
MPC Chair Preference Poll Committee
Several staff members have been working with members of the MPC Executive Committee to automate the distribution and collection of ballots for the MPC Preference Poll. The committee initiated Stage I balloting in June and will use the same automated process to collect ballots for Stage II. The automated process mimics the former two-envelope process to ensure that votes are confidential and at the same time permits tracking of member guaranty associations that submit ballots.
MPC Health CO-OP Task Force
The task force continues to monitor and discuss issues and developments affecting the ACA Health CO-OPs (particularly in states where there is guaranty association coverage). Of the original 24 ACA Health CO-OPs, only four are still operating as going concerns (Maine, Montana, New Mexico, and Wisconsin). The other CO-OPs are in various stages of receivership or have been dissolved.
Much of the current task force discussion is focused on litigation with the federal government, including lawsuits filed by CO-OPs for amounts owed by the federal government under the ACA and disputes over the priority of federal claims in receivership proceedings. Given the focus on litigation, the CO-OP Task Force has been conducting joint meetings with the Legal Committee’s Federal Claims Issues Subgroup, the most recent of which was held on July 11. The status of the litigation is discussed under the Legal Activity section of this issue (below).
MPC HMO Orientation Materials Subgroup
This subgroup was appointed by the MPC Executive Committee at the April MPC meeting in Savannah to develop educational materials for use by guaranty associations with HMO member insurers. The subgroup was asked to work quickly, as several states had already adopted the most recent amendments to the GA Model Act, including the provisions adding HMOs as member insurers. To fulfill its charge, the group prepared two documents for guaranty associations to have available as templates to adapt to the needs in their state: (i) a brief introductory letter providing a broad overview of the guaranty system, its purpose, and operations; and (ii) a PPT deck adapted from NOLHGA’s new Board member introductory materials going into greater detail regarding the operations of the guaranty association. Both documents (with some suggested changes) were approved by the MPC Executive Committee during a telephone conference held June 25, 2018. The approved documents were subsequently distributed to the member guaranty associations and made available on the NOLHGA website.
MPC Model Plan of Operations Subgroup
After the MPC Executive Committee approved the revised Model Guaranty Association Plan of Operation document in April, the subgroup distributed the revised draft to the member guaranty associations for review and comment in May. The subgroup intended the draft (which was last updated in 2005) to modernize the Model Plan, reflecting the 2017 revisions to the NAIC Life and Health Insurance Guaranty Association Model Act and addressing updates in technology as well as the interplay between the Model Plan and other guaranty association policies such as best practices and governance guidelines. Several guaranty association comments were received and incorporated into a final draft, which was approved by the MPC Executive Committee on July 18 and subsequently distributed to the member guaranty associations and posted to NOLHGA’s website.
MPC Security Advisory Committee (SAC)
The SAC continued its work to oversee the guaranty system’s compliance with the MPC Security Procedures. Among other matters, the committee’s recent activities included: (1) issuing the annual compliance questionnaire to guaranty associations and Business Associates, tracking responses, and following up to resolve issues; (2) distributing a monthly security breach report together with a Cybersecurity Bulletin to guaranty association administrators and NOLHGA staff to keep them informed about activity involving third parties; (3) updating the lists of persons who have completed NOLHGA’s security training program; and (4) cross checking Quest access with the authorized persons list.
MPC Electronic Document Management
The Systems Department is currently working with members of the Electronic Document Management Subgroup to evaluate several cloud-based document management systems for guaranty association use. The subgroup has decided to focus on three systems: SharePoint, G-Suite, and Dropbox Business. Members of the subgroup will meet by phone later this month to decide whether all three systems will adequately address the requirements of most associations. The subgroup will provide its report to the MPC Executive Committee before the October meeting.
NOLHGA Committee Activity
GA Laws Committee
The committee will be meeting by teleconference on September 5 to review GA Act legislative activity over the past year and anticipated legislative activity for 2019. Since the adoption of the updated NAIC Life and Health Insurance Guaranty Association Model Act in December 2017, NOLHGA staff has been tracking legislative activity (or anticipated legislative activity) in states where GA Act bills have been introduced or are under consideration. This includes 13 states that enacted legislation during 2018 (Alaska, Arizona, Connecticut, Idaho, Illinois, Indiana, Louisiana, Maine, Missouri, North Carolina, Utah, Virginia, and West Virginia). NOLHGA staff has reviewed and provided comments on the draft bills and has kept guaranty association administrators apprised of legislative developments.
Legal Committee
As previously reported to the Board, a member guaranty association has requested that NOLHGA file an amicus brief in its appeal of a regulatory order upholding certain assessment protests filed against the association. The specific issue that NOLHGA is being asked to address is a ruling that the association should be considered a government entity while carrying out its statutory duties under its enabling act. The association’s request for amicus support has been referred to NOLHGA’s Legal Committee, which held a teleconference on August 15 to consider the request.
Communications
NOLHGA Journal
The second 2018 issue of the NOLHGA Journal was mailed to subscribers in June.
GA Update Online
The June 5, 2018, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its May meeting.
Legal Activity
Legal Committee/Federal Claims Subgroup
The subgroup continues to monitor developments with respect to ACA claims-related litigation, with an emphasis on cases having potential implications for health insurer insolvencies. These proceedings include lawsuits and appeals filed in federal courts across the country, as well as administrative agency appeals and proceedings in state receivership courts. The amount at issue for the health industry is substantial (over $12 billion), and the outcome of this litigation will impact the ultimate costs of ACA Health CO-OP insolvencies. As reported in previous management reports, the litigation can be divided into the following categories: (1) risk corridor payment obligations; (2) cost-sharing reduction and reinsurance obligations; (3) risk adjustment challenges; and (4) receivership “netting” and priority challenges.
Since the last Management Report, there have been various developments in these cases, the most significant of which are summarized below:
Risk Corridor Cases: On June 14, a three-judge panel for the Court of Appeals for the Federal Circuit ruled that the federal government had no further obligation to make payments under the ACA’s risk corridor program. The court’s ruling reflected a split decision by the panel, with one justice issuing a strong dissent. The plaintiff-insurers have filed petitions for re-hearing en banc, seeking review by all active judges on the court. These petitions have been joined by two other plaintiffs, which consented to an expedited entry of judgment in their cases so they could join in the petitions for re-hearing. The other risk corridor lawsuits (about 44 in number) continue to be stayed pending final action in these appeals.
Risk Adjustment Cases: In response to an earlier court ruling that vacated the use of statewide average premiums in calculating payments, CMS announced on July 7 that it would cease making risk adjustment payments to insurers across the country. CMS initially filed for reconsideration of the court’s ruling but subsequently issued an expedited Final Rule to address the issues raised by the court’s ruling. With the issuance of the Final Rule, CMS announced it would resume risk adjustment payments to insurers. Payments are expected to begin in September/October.
Cost-Sharing Reduction/Reinsurance Cases: While many of these actions had been stayed pending resolution of risk corridor appeals, those stays are now being vacated to allow the claims to proceed. At least nine of these cases are now proceeding with cross-motions for dismissal and/or summary judgment. As previously reported, the federal government agreed to settle ACA reinsurance claims filed by the receiver of the Kentucky Health CO-OP. We understand that settlement has been finalized and has resulted in the federal government paying the receiver $16.2 million.
Receivership Netting Claims/Federal Priority Challenge Cases: In an action by the receiver for the Illinois CO-OP challenging offsets taken by the federal government, a federal district court denied the government’s motion to remove the case to federal court and remanded the case to state receivership court for resolution. The federal government has appealed the remand order to the Court of Appeals for the 7th Circuit, but the receiver will be able to pursue his claim in state receivership court during the pendency of the appeal.
Director & Officer Liability Insurance
On July 31, Legal Department staff completed and submitted an application for the renewal of NOLHGA’s Director and Officer Liability insurance coverage. On August 8, Great American (NOLHGA’s D&O carrier) agreed to renew NOLHGA’s coverage for the same premium, coverage levels, and policy terms as last year. Staff has authorized NOLHGA’s broker to bind the renewal coverage, which will go into effect when NOLHGA’s existing D&O policy expires on September 1.
Systems Support/Technology/Website
Network Systems Status
During this quarter, NOLHGA hired SystemExperts, an IT compliance and security consultant, to perform a security audit of its network, the website, and the secure claims portal. Fortunately, the firm was unable to break in or gain unauthorized access to any of the systems, but it did provide some recommendations for strengthening system security. The Systems Department has reviewed and reported on the recommendations and is currently working to address them.
Several departments are working together to run NOLHGA’s new online billing system in parallel with NOLHGA’s legacy electronic systems through 2018. The Systems Department successfully migrated legacy data to the new system and ran tests to ensure the results of both systems match. Several reports, workflows, and administrative screens were added to the new system. The legacy systems will be decommissioned by year-end.
In addition to addressing minor day-to-day technical issues, we continued to maintain servers, applying the latest server updates and service packs.
Technical Assistance for Guaranty Association Administrators
The April, May, and June editions of the Cybersecurity Bulletin and the SAC Security Breach Reports were distributed to the membership and NOLHGA staff. The department is planning to distribute an updated Technology Brochure to members in October.
Technical support was provided to the members during the quarter by phone and email. The department engaged in several remote-terminal sessions and one on-site visit to diagnose and solve more-complex desktop issues.
Website Updates
Minor changes were made to the NOLHGA website during the past quarter. These changes were introduced primarily to help improve site performance. The Systems Department worked with members of the Legal Department to ensure Legal Seminar materials were provided in electronic format to help attendees fulfill their CLE requirements.
The Communications Department sent out its 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 site.
In addition, several departments met to analyze NOLHGA’s membership database to confirm that the system retains records of task force and committee members who no longer serve on those groups for various reasons. The departments are also working on redesigning sections of the NOLHGA site to better display this historical information.
Professional Development
Joni Forsythe and Meg Melusen participated in advanced online legal research training sessions provided by Lexis Nexis on May 14, 16, and 23.
Meg Melusen also attended the following professional development courses: “Preparing for the New Global Privacy Standard” and “Navigating Cybersecurity Risks and Challenges: A Primer for Nonprofits.”
Sean McKenna attended the Duke Leadership Program seminar at Duke University on June 10–15.