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 Staff
• 2020 Annual Meeting
• Constituency Relationships
• MPC Activities
• Other Committee Activity
• Other Legal Department Activity
• Financial Activities
• Communications
• Systems Support/Technology/Website
• Professional Development

Introduction

On February 26, 2021, the NOLHGA Board of Directors held its most recent quarterly meeting; the meeting was conducted as a Zoom videoconference because of the COVID-19 pandemic. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.

Since the October 23, 2020, Board meeting (held via videoconference), significant staff time has been devoted to (1) planning and conducting the January 2021 MPC meeting, which was held online; (2) coordination and support for insolvency task force activity, including significant staff support for task forces such as AF&L/SAIC, North Carolina Mutual, Global Bankers Insurance Group, Northwestern National, Senior Health Insurance Company of Pennsylvania (SHIP), and Time Insurance Company; (3) continuing support for the LTC Re (Penn Treaty) and GABC (ELNY) runoff entities; (4) completing year-end activities for many committees, task forces, and subgroups; (5) reviewing and interviewing candidates for the vacant Senior Counsel position, resulting in the hiring of Michael McDonald (see below), and developing a strategy for adding a senior staff member in anticipation of Dick Klipstein’s impending retirement; and (6) providing support for Board and MPC committees and subgroups.

NOLHGA Staff

On January 19, 2021, Michael McDonald joined the NOLHGA staff as Senior Counsel. McDonald previously worked for the National Association of Insurance Commissioners (NAIC) as Financial Policy and Legislative Counsel in its Washington, D.C., office.

2020 Annual Meeting

NOLHGA’s 2020 Annual Meeting was held online on October 27 and 28. The meeting featured addresses by the incoming and outgoing Chairs; the President’s Address; panel discussions on the outlook for the economy and insurance industry in the post-pandemic world; and task force briefings on the Penn Treaty/ANIC, Global Bankers Insurance Group, Time Insurance Company, and SHIP receiverships. More than 170 people attended the meeting, which received high marks on evaluation surveys.

Constituency Relationships

Paul Peterson continues to provide presentations and other assistance to guaranty associations regarding the long-term care (LTC) insurance cost allocation that was adopted as part of the 2017 GA Model Act amendments.

ACLI

On December 14, 2020, Peter Gallanis and Bill O’Sullivan participated in a videoconference of the ACLI’s Receivership Committee and provided the committee with status reports on several pending cases.

NAIC

Since the October management report, staff has continued to monitor the activities of various NAIC task forces and groups, including the Long-Term Care Insurance (EX) Task Force; HMO Issues (B) Subgroup; Privacy Protections (D) Working Group; Receivership and Insolvency (E) Task Force; and Receivership Law (E) Working Group. An overview of recent activities was published in the February 10, 2021, issue of GA Update Online.

The NAIC’s Spring National Meeting is scheduled for April 7–9 and 12–14, 2021. The meeting will be held online.

NCOIL

With support from Faegre Drinker, NOLHGA and the NCIGF have been working on suggested amendments to NCOIL’s draft Corporate Division Model Act to ensure that policyholders who were eligible for guaranty association coverage prior to a corporate division transaction continue to be eligible for the same coverage post-transaction. The parties are planning to submit their suggested amendments in advance of NCOIL’s next meeting, which is scheduled for April.

IFIGS

On December 9, Peter Gallanis and Sean McKenna attended the Annual General Meeting of the International Forum of Insurance Guarantee Schemes (IFIGS), which was held online. Staff members also completed the IFIGS Member Profile and Strategic Plan surveys.

Other Industry

On December 17, Peter Gallanis was interviewed for Transamerica’s “Policy Matters” podcast, which is produced by the company’s Government Relations Department to educate employees about various issues facing insurers.

During January and February 2021, Peter Gallanis, Bill O’Sullivan, and MPC Chair Tom Sullivan participated in a series of videoconferences with industry representatives to generally discuss possible marketplace interest in acquiring blocks of LTC insurance in liquidation, and how such transactions might be evaluated, structured, and priced.

MPC Activities

MPC Health CO-OP Task Force/Legal Committee Federal Claims Subgroup

Since the October management report, the MPC Health CO-OP Task Force and the Legal Committee Federal Claims Subgroup have continued to monitor the flurry of settlement activity, ongoing offset disputes, the status of appeals, and other developments with respect to ACA litigation.

In addition, the task force has been tracking two additional developments relating to the ACA Health CO-OPs. The first development is that the New Mexico CO-OP officially closed operations at year-end. This leaves only 3 of the original 24 CO-OPs as going concerns. The second development is CMS’s publication on December 30 of final guidance for the treatment of risk corridor litigation recoveries for purposes of the Medical Loss Ratio (MLR). Consistent with earlier drafts, the CMS’s final guidance requires health insurers to recalculate MLRs for benefit years 2015 through 2018 to include amounts recovered in risk corridor litigation. To the extent insurers have greater rebate obligations based on the revised MLR calculations, they must submit revised MLR reports and pay the rebates to insureds enrolled in their health plans during each of the respective MLR reporting years.

The final guidance document further states that insurers must revise their calculations and pay the rebates based on the full amount of risk corridor recoveries, even if they sold their right to receive all or a portion of those amounts to a third party. Finally, the CMS guidance provides that health insurers must provide the revised MLR reports and rebates within 150 days of the later of their receipt of risk corridor recoveries or the publication of the guidance.

MPC Security Advisory Committee (SAC)

The SAC continued its work to oversee compliance with the MPC Security Procedures. Among other matters, the committee’s recent activities included: (1) conducting a review of emerging technologies and legal developments and their implications to the Security Procedures; (2) completing a risk assessment of technological, legal, and other developments (consistent with the Security Procedures); (3) developing a document to provide guidance to guaranty associations on best practices for avoiding cybersecurity threats; (4) identifying 2021 special projects for the committee, including developing practices for mitigating cyber risks associated with providing outside contractors with access to confidential personal information (CPI); and (5) communicating with guaranty association administrators on a regular basis, including providing associations with monthly reports on breaches and other developments and a year-end report on the SAC’s activities.

Other Committee Activity

Accounting Issues Committee

The committee held a virtual meeting on November 10, 2020, during which it reviewed the rosters for the committee and each of its subgroups and deliberated over several topics, including updates and revisions to the Accounting Guidelines Manual; tax changes (Forms 990, 990-T, and 1099); FASB ASU 2016-14 footnote disclosure; ASU 2014 – 16 Topic 606 Revenue Recognition; 2020 COVID-19 disclosure in financial statements; LTC composite expense allocation; and electronic payments.

The committee decided to conduct a presentation in conjunction with the January 2021 MPC meeting in lieu of holding a committee meeting in January. The committee met in mid-December and again in early January to plan the presentation, which addressed three topics: the Accounting Guidelines Manual (with a particular focus on Form 990 and LTC assessments), external audits, and electronic processing.

Administrators Education Steering Committee

The committee organized and hosted an interactive stand-alone webinar in December on business continuity and succession planning.

Communications Committee

The committee held a conference call in November 2020 to discuss the second phase of its project to provide new guaranty association administrators with an overview of the resources NOLHGA offers. This phase involves developing a guide to the materials available on the NOLHGA website, and NOLHGA staff members are working on a design to share with the committee.

Coverage/Claims Committee

The committee met by teleconference on December 17 to review draft amendments to the GA Model Act’s definition of unallocated annuity contract. The purpose of the amendments is to clarify the coverage of annuities owned in trust. At the end of the call, the committee asked the subgroup that had prepared the amendments to share the draft with the ACLI, interested industry members, and guaranty associations to obtain their input.

GA Laws Committee

On November 12, 2020, the committee sent a letter to guaranty association Board Chairs and administrators reporting on the adoption of the GA Model Act amendments during 2020. The letter reported that seven states (Georgia, Maryland, Minnesota, Mississippi, Pennsylvania, South Carolina, and South Dakota) had enacted bills adopting some or all of the 2017 Model Act amendments, bringing the total number of states which have adopted such bills to 34. The letter also encouraged states that have not yet adopted the 2017 amendments to do so.

During February 2021, staff has been working with several guaranty associations on bills to incorporate the 2017 Model Act amendments into their GA Acts.

Legal Committee & Coverage/Claims Committee HMO Legal Issues Subgroup

In December 2020, the joint subgroup of NOLHGA’s Legal Committee and Coverage/Claims Committee finalized its report on unique legal issues that could arise in HMO insolvencies. The report provides analysis and guidance on three legal issues: (1) which court has jurisdiction over HMO receivership proceedings (federal bankruptcy court vs. state receivership court); (2) how guaranty association coverage would apply to HMO healthcare providers; and (3) the priority of guaranty association claims in an HMO insolvency. On January 7, 2021, the subgroup’s report was approved on a joint call of its two parent committees and was subsequently distributed to all member guaranty associations. A presentation on the report was made during the January MPC meeting.

Public Policy Coordinating Committee

On February 3, Peter Gallanis, Bill O’Sullivan, and Sean McKenna met by videoconference with representatives from the NCIGF and Faegre Drinker to discuss the goals and objectives of the Education Project for 2021. The group discussed the change in control at the federal level and what that might mean for federal policy with respect to insurance. The group also discussed the current status of and anticipated activities at the international, federal, and state levels that might affect the guaranty systems. Finally, the group discussed preliminary plans for conducting educational outreach sessions with certain members of Congress, NAIC officers, and other state insurance commissioners during 2021.

Other Legal Department Activity

Cyber Liability Insurance

In January, Legal Department staff began working with NOLHGA’s outside broker to secure renewal coverage for the organization’s cyber liability insurance policy. The renewal application was submitted on January 26, and cyber coverage was bound with Tokio Marine/Houston Casualty Company on February 2. Notwithstanding the potential for increased risks in the work from home environment, NOLHGA’s renewal premium increased by only an immaterial amount for the same amount of coverage ($3 million) that NOLHGA has had in prior years.

Conflicts & Antitrust

NOLHGA’s annual compliance questionnaires under its Conflicts and Antitrust Policies were distributed to covered individuals on February 1. After staff has a chance to review the responses, a report on the results will be provided to the Board Conflicts Committee.

Financial Activities

In addition to routine accounting-related tasks, the Accounting Department calculated and distributed the third quarter 2020 quarterly assessments and the 2021 annual membership dues; invoices for the dues were sent in January 2021. The Controller also participated in an audit planning session with RSM US on February 18, 2021.

The department coordinated the following insolvency-related account distributions: (A) $917,000 to affected members ($576,000 due to a final estate distribution related to First National Life; $224,000, $49,000, and $34,000 in premium collections related to National States, Northwestern National, and Universal Life, respectively; and $34,000 due to quarterly true-ups of escrow account activity related to Life & Health Insurance Company of America); and (B) $1,526,000 to TPAs and receivers to fund claims and expenses for four active insolvencies.

Assessment Data Survey

The redesigned assessable premium exhibits and related annual statements instructions were adopted by the NAIC Blanks Committee in December 2020. The effective date of the new exhibits is year-end 2021.

Guaranty Association Assessment Information

The final reports of guaranty association 2019 assessment activity and capacity estimates were completed and posted to the NOLHGA website on October 30.

Data files and reports reflecting estimated guaranty association insolvency costs that are used by member companies to establish assessment accruals were posted to the website on November 6. Related information regarding gross liabilities, covered obligations, and net cost to guaranty associations was posted to the company pages in the Receiverships section of NOLHGA’s website shortly thereafter.

Communications

GA Update Online

The February 10, 2021, issue of GA Update Online contained an update on NAIC activities affecting the guaranty system.

NOLHGA Journal

The November 2020 issue of the NOLHGA Journal was distributed to subscribers via email.

Systems Support/Technology/Website

Network Systems Status

The Systems Department migrated various web applications—including NOLHGA’s website and guaranty association websites hosted by NOLHGA—from an on-premises hosting environment to Azure (Microsoft’s cloud hosting service). Azure provides better protection against potential cyber threats and provides a more scalable and reliable platform. A security firm was hired to perform an assessment of the new environment, helping to ensure that appropriate measures were in place to prevent a potential breach or disruption of services.

Some user-friendly features were added to the online form used to collect annual dues information from guaranty associations. In addition, minor improvements were made to the NOLHGA site, primarily to help improve overall site performance.

Other than addressing minor day-to-day technical issues, we continued to maintain servers, apply the latest server updates and service packs, and adapt to the challenging circumstances staff members face while working from home. The department continues to maintain and implement computer security updates by emailing detailed instructions to the staff on how to manually install the updates.

Technical Assistance for Guaranty Association Administrators

The October, November, and December 2020 and the January 2021 editions of the Cybersecurity Bulletin, which included the SAC Security Breach Reports, were distributed to the membership and NOLHGA staff. The December edition of the NOLHGAnet was also distributed.

The department also continued to provide technical support to member associations by phone, email, and videoconference.

Online Events

The Systems Department continued to provide platform support for online events hosted by NOLHGA and various task forces and committees. This included NOLHGA’s 2020 Annual Meeting (hosted in partnership with an online production company), the October 2020 and January 2021 MPC meetings, the 2020 Annual Business Session, the October Board Meeting, and a December Education Webinar hosted by members of several committees. During these meetings, we worked with others on staff to improve the overall registration process and help facilitate online voting and polling. Presenters received advanced platform training while we tested the quality of their cameras and microphones.

Professional Development

In November 2020, Kenny Bullock and Dan Hicks attended the Microsoft Azure Fundamentals virtual training course presented by Global Knowledge. The two-day course provided a foundational knowledge of core Azure concepts, services, and solutions and management tools.

Gus Estrada completed the virtual seminar The Voice of Leadership, which was conducted by the American Management Association.

During October and November, Joni Forsythe attended legal education webinars pertaining to ethics and business risks. The webinars included: Justice is Collar Blind (October 8), Ethics for Corporate Counsel (October 15), Business Risks of COVID (November 5), and Legal Ethics Inquisition (November 9).

In December, De Gadd completed a training course on PowerPoint and Kelli Schanze completed a seminar on Microsoft Teams.

On October 23, Peter Gallanis participated in a panel presentation on legacy LTC insurance issues conducted by the New York City Bar.