IN THIS EDITION:

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

Introduction

In May 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 February Board meeting in Tampa, staff has continued to focus primarily 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) strategic planning for potential changes in insolvency workload; (v) conducting a “stress test” of the guaranty system’s ability to handle extreme challenges; (vi) exploring ways to maximize the system’s financial capacity; and (vii) Legal Seminar and Annual Meeting planning activities.

Current insolvency activity continues to be focused primarily 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), and Penn Treaty Insurance Company (a long-term-care writer in Pennsylvania).

Personnel & Operations

The Executive Committee authorized Peter Gallanis to bring aboard an experienced insurance insolvency practitioner who will be able to provide assistance immediately on both new and old insolvency cases. Cathleen Travis is the former Special Deputy Receiver for the State of Illinois, and before that served as General Counsel of the OSD (the Illinois Insurance Receivership office). Cathy started on April 8, 2009, and is commuting between Herndon and Chicago.

NOLHGA Meetings

2009 Annual Meeting

A number of internal planning sessions have occurred in connection with the 2009 Annual Meeting. DC Insurance Commissioner Thomas Hampton and NAIC President and New Hampshire Insurance Commissioner Roger Sevigny have confirmed their availability to speak at the meeting. Political columnist and TV commentator George Will is scheduled to provide the speech at the Welcome Luncheon. NOLHGA's 2009 Annual Meeting will also feature a briefing on major insolvency and rehabilitation activity modeled after the inaugural Major Insolvency Briefing held at the 2008 Annual Meeting, as well as a State GA Board Members Conference to encourage discussion among state board members and their administrators on issues of importance to the guaranty associations.

2009 Legal Seminar

Staff members have worked closely with the Planning Committee to finalize the 2009 Legal Seminar program, which will be held on July 9 and 10 at the Ritz-Carlton Hotel in Chicago. This year’s event will focus on the potential implications of the financial crisis to the insurance industry and the guaranty system and includes panels on the current status of the debate over federal regulation and systemic risk; how state regulators are handling their responsibilities in these difficult economic times; the challenges of raising and meeting capital requirements; regulatory alternatives to placing a troubled company in liquidation; and credit default swaps and their role in the financial system, with a particular emphasis on insurers.

The Legal Seminar Marketing Committee, which was formed to promote the Legal Seminar to members of the NOLHGA constituency, such as State Board Members, who may not have considered attending the seminar in the past, held a conference call on April 29. Marketing initiatives to date include NOLHGA Wire articles, a “Save the Date” postcard (mailed in March), a NOLHGA Journal interview with Legal Seminar Speaker Terri Vaughan (scheduled for June), and an ad in the May GA Update. An e-mail promoting the Legal Seminar was sent to all GA administrators in mid-May, along with a note asking them to forward the e-mail to their Board members.

April 2009 MPC Meeting

NOLHGA staff assisted in the planning and execution of the April 16–17, 2009, MPC meeting in Oklahoma City. Meeting materials can be downloaded from the meeting Web page (after log in).

Constituency Relationships

ACLI

Peter Gallanis and Bill O’Sullivan participated in an ACLI Solvency teleconference on February 18. 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 plans to address GA disclosure issues; (3) the ACLI Pension Committee’s review of GA coverage of unallocated annuities and the advertising prohibition; (4) the Lincoln Memorial/Memorial Service Company insolvency, including an update from NOLHGA Task Force representatives; (5) Medicare Part C and D assessment issues, including the possibility of following up with the Centers for Medicare and Medicaid Services; (6) the ACLI’s Executive Committee Task Force on Regulatory Reform, including an update on ACLI policy principles relating to systemic risk and a life guaranty association mechanism; and (7) the Executive Life of New York rehabilitation, including discussion of possible GA assessment accruals.

NAIC

In March, Peter Gallanis, Bill O’Sullivan, and Joni Forsythe attended the Spring NAIC Meeting in San Diego. The key receivership-related meetings included: (1) Restructuring Mechanisms for Troubled Companies, (2) the Receivership and Insolvency Task Force, (3) the Annuity Disclosure (A) Working Group (which is updating the industry disclosure/disclaimer notice regarding guaranty association coverage), and (4) the NAIC Joint Executive Committee/Plenary. In addition, NOLHGA and the NCIGF sponsored the Guaranty Fund Forum breakfast on March 15.

At the Joint Executive Committee/Plenary meeting on March 17, the NAIC approved an updated version of the Life and Health Insurance Guaranty Association Model Act.

Strategic Planning Outreach

In addition to the ACLI and NAIC matters discussed above, Peter Gallanis participated in a number of meetings and teleconferences with the NAIC CEO, General Counsel, and Executive Committee, and separately with the ACLI’s President, General Counsel, and Board Executive Committee, to discuss matters of strategic planning relating to economic developments and their implications for the guaranty system.

Financial Activity

The Accounting Department has been involved in overseeing the McGladrey & Pullen year-end audit of the 2008 NOLHGA operating financial statements. An Audit Committee meeting was held May 12 in Dallas, and a report was made to the Board at its May 13 meeting.

Three proofs of claim surveys had been conducted for Executive Life of New York, States General, and Thunor Trust. For three insolvencies, NOLHGA distributed $11.9 million in funds to affected member state associations. In addition, staff calculated and mailed the fourth quarter 2008 assessments.

NOLHGA Committee Activity

Accounting Issues Committee

The committee is near completion of a sample IRS Form 990 for inclusion in the Accounting Guidelines Manual. The revised Form 990 includes significant changes with respect to the questions on compensation, governance, and oversight.

Administrators Education Steering Committee

The committee coordinated a presentation on annuity basics and, at the recommendation of NOLHGA’s Coverage/Claims Committee, asked John Doscher, Chief Compliance Officer with Prudential Annuities Distributors, Inc., to provide attendees with a better understanding of the various types of annuities, fee structures, living benefits, secondary guarantees, innovations in annuity design, and more. Mr. Doscher had previously been recommended by former NOLHGA Board member Chris Chandler. The presentation was extremely well received.

Assessment Data Survey Task Force

Staff completed the engagement letter with PwC to perform the 2008 assessment data survey work. The engagement and related budget of $302,800 had been approved by the Board at its February 2009 meeting. The 2008 data requests were updated with the NAIC, and initial data files have been provided by the NAIC to NOLHGA.

Communications Committee

The committee completed its work on The Answers You Need, a brochure that informs consumers and others unfamiliar with the guaranty association system about the protections provided by guaranty associations. The brochure was mailed to all NOLHGA members in late February 2009. It has also been posted on the NOLHGA Web site in the Policyholder Information section.

Finance Committee

The committee met by teleconference in February 2009 to review the fourth quarter 2008 results and the proposed final 2009 budgets for the insolvency task forces. In fulfilling its role in monitoring insolvency task force expenses, the committee approved the proposed final 2009 insolvency task force budgets as presented by the MPC Chairman. The committee also met by teleconference on May 8, and a report was provided to the Board at its May 13 meeting.

Guaranty System Modernization – Assessment Subgroup

The committee completed the RFP package for the creation of a centralized membership database; the RFP was mailed to potential bidders in January. A teleconference with eight interested bidders was held to discuss the parameters of the proposal and answer any questions bidders had on process, system setup, etc.

Four bids were received, with cost estimates ranging from $15,000 to $350,000. Follow-up by the subgroup is in process.

Legal Committee

Staff arranged a telephonic meeting of the committee on March 26 for the purpose of organizing projects and subgroup assignments for 2009.

Communications

GA Update

The May 2009 issue of GA Update, which will mail in late May, features an article on NOLHGA’s organizational goals by NOLHGA Board Chair Chris Kelly, an update on the new IRS Form 990 by Lowell Miller (North Carolina), a report on adopting the new NAIC GA Model Act by Dave Perry (Montana) and MPC Chair Bart Boles, a section on new guaranty association personnel, and a brief rundown of some NOLHGA activities.

GA Update Online

A new issue of GA Update Online was distributed to the membership in February 2009. It featured relevant portions of the management report on NOLHGA activities provided to the NOLHGA Board of Directors at its February 2009 meeting.

NOLHGA Journal

The February 2009 NOLHGA Journal was mailed in early March. It featured an article on NOLHGA’s 2008 Annual Meeting, the President’s Column, and a “forecast for 2009” article featuring submissions from various members of the guaranty system. The next NOLHGA Journal, which should mail in June, will feature an interview with NAIC CEO Terri Vaughan, who will speak at NOLHGA’s 2009 Legal Seminar.

2008 Year-End Report

The NOLHGA 2008 Year-End Report to the Membership was mailed to all NOLHGA members in early April.

Media Relations

The department answered many requests from various national media sources and scheduled a number of interviews for NOLHGA President Peter Gallanis.

Presentation to House Financial Services Committee Staff

The department worked with the Insurance Services Department and other NOLHGA staff members to develop PowerPoint slides for a joint NAIC/NOLHGA/NCIGF presentation to staff members of the House Financial Services Committee. The presentation took place on April 27.

Web Site Additions/Improvements

The department worked with the Insurance Services and Information Systems Departments on additions/revisions to the NOLHGA Web site. The Press Room section of the site was redesigned, with the new section featuring links to a wide variety of media sources (in the previous version of the Press Room, articles were posted on the site itself and not simply linked).

The departments also collaborated on the posting of several additional insolvency Web pages on the public and password-protected sections of the site, including pages for the Medical Savings and Standard Life of Indiana cases.

Legal Department Activity

Since the February Board meeting, Legal Department staff members have been engaged in the following activities:

GA Model Act: Staff has provided technical support to several states considering adoption of the NAIC GA Model Act in 2009. In addition, staff has been involved in planning and discussions with the Legal Committee Model Laws Subgroup and the ACLI with respect to promoting efforts by states to adopt the NAIC Model Act in 2010 and future years.

Harvey Case: In connection with the Harvey case in Nebraska (which involves a claim for GA coverage by investors in viatical settlement contracts), NOLHGA staff participated in a teleconference to assist the Nebraska GA counsel prepare for oral argument. The oral argument, which took place on March 3, reportedly went very well for the guaranty association. A ruling in favor of the Nebraska GA was issued in May.

Coverage/Claims Committee: The committee continues to review and consider how guaranty associations might cover variable insurance contracts with general account guarantees. On March 23, a subgroup of the committee met with an actuary from Hartford Life to obtain a better understanding on how these products are structured, reserved for, and administered.

NAIC IRMA Review: The NAIC has formed an advisory group to review and identify provisions of the NAIC’s Insurer Receivership Model Act (IRMA) that are deemed to be both “critical” and “non-controversial.” Upon completion of its review, the advisory group will make recommendations as to provisions of IRMA that may be best suited for legislative action in the states. NOLHGA is monitoring the activities of the group and providing comments concerning provisions relevant to guaranty association interests.

Medicare Secondary Payer Issues: Staff has been working with outside counsel to review and analyze the Medicare Secondary Payer Registration and Reporting Requirements recently imposed on certain health insurance business. A brief report was given in conjunction with the MPC meeting in April, and a follow-up memorandum has been sent to guaranty association administrators providing an overview of the new requirements.

Conflicts/Antitrust Policy: In mid-March, staff distributed compliance questionnaires to applicable persons as required under NOLHGA’s conflicts of interest policy and antitrust policy. The response rate for the questionnaires was 100%. There were no affirmative responses requiring action under the antitrust questionnaire. While several persons made disclosures in response to the conflicts questionnaire, none of the disclosures reflected actual conflicts of interest or other ethical issues. The results of the conflicts questionnaire have been shared with the Conflicts Committee.

Life & Annuity Privacy: Staff continues to support the efforts of a working group to develop recommended information security procedures for the MPC’s use in all multi-state insolvencies.

Document Management: As reported in the management report for the February Board meeting, staff has made preliminary revisions to NOLHGA’s existing document management policy for the purpose of making it more practical for NOLHGA to manage its documents. Among other features intended to facilitate compliance, the revisions provide for the use of designated “purge days” during which all staff will devote time to reviewing and disposing of documents consistent with the policy. Staff has already successfully conducted three purge days under the revised policy (the most recent of which occurred on May 19). Due to the Legal Department being short a staff member, the target date for presenting the final revised document management policy for Board approval has been revised to the August Board meeting.

Other Matters: Staff provided general legal support in connection with various corporate matters, including the collection and review of information related to time allocations and consultant expenses for purposes of NOLHGA’s 2008 proxy tax return, which was filed on or before May 15.

Systems & Technology

Network Systems Status

In March, NOLHGA’s Backup Test Web Server hard drive failed. A replacement was purchased and installed, and it is functioning well.

In addition, the IRC server experienced problems with low disk space that caused a Windows systems file to lock up the server. The problems were resolved. For more on the IRC, see below.

During the first quarter, the Systems Department prepared to upgrade the mail server to Microsoft Exchange 2007. Since the existing mail server was not properly equipped to handle the latest version of Exchange, the Systems Department purchased a new server to host the software. Exchange Server 2007 will provide staff members with improved archiving and administrative capabilities. Two of NOLHGA’s other servers required upgrades in order to work with the new mail server. The project was fully completed on April 30.

In addition to addressing minor day-to-day technical issues, the department continued to maintain servers, workstations, and laptops with the latest security server updates and service packs.

IRC SharePoint Migration Project

The Systems Department is working on a plan for management approval to move the Information Resource Center (IRC) from its current Lotus Domino.doc platform to a Microsoft SharePoint platform in 2009. IBM plans to discontinue support of Lotus Domino.doc products in a few years. During the first quarter, the Systems Department was able to configure a basic site using SharePoint that hosted documents for a few insolvencies. Moving all of the IRC’s documents over to SharePoint will pose a much bigger challenge. Given the enormity of the project, the Systems Department is seeking assistance from consultants with experience migrating from Lotus Domino to Microsoft SharePoint. Bids have been received from three consulting firms that offer services including migration support, SharePoint installation support, and SharePoint configuration support. These bids are being reviewed.

The Systems Department is also looking at ways the organization can offer more services to our members through SharePoint. In addition to providing a simplified interface for the IRC, SharePoint can provide users the ability to upload their own documents for retention purposes. It can also create a more personalized experience for members. Each user can sign into their own portal homepage with links to the NOLHGA Web site and other online resources provided by NOLHGA.

Software Upgrades

In March, the Systems Department upgraded staff computers from Microsoft Office Professional 2003 to version 2007. To assist the staff in getting up to speed with the new version of the Office suite, Kenny Bullock invited staff to participate in a group training session. For those members who were unable to attend because of prior commitments, Kenny offered to provide them with one-on-one training.

Technical Assistance for Administrators

The Systems Department continues to assist the guaranty association administrators by answering technical support calls and responding to e-mails. Recently, the department e-mailed information and warnings concerning specific and potentially hazardous viruses.