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
• 2022 Annual Meeting
• 2022 Insolvency Workshop/April Education Program
• Constituency Relationships
• MPC Activities
• NOLHGA Committee Activity
• Other Legal Department Activity
• Financial Activities
• Communications
• Systems Support/Technology/Website
• Professional Development

Introduction

On May 19, 2022, the NOLHGA Board of Directors held its most recent quarterly meeting in New York City. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.

Since the March 1, 2022, Board meeting, significant staff time has been devoted to (1) planning for and conducting the April 2022 MPC meeting in Indianapolis—NOLHGA’s first hybrid meeting; (2) planning for the educational programs at the April MPC meeting and July Insolvency Workshop; (3) coordination and support for insolvency task force activity, including significant staff support for task forces such as SAIC, North Carolina Mutual, Global Bankers Insurance Group, Senior Health Insurance Company of Pennsylvania (SHIP), and Time Insurance Company; (4) continuing support for the LTC Re (Penn Treaty) and GABC (ELNY) runoff entities; (5) preparing for the retirement of NOLHGA Vice President of Accounting and Finance Paul Peterson, both by seeking a replacement and by training NOLHGA staff on some of his responsibilities; and (6) providing support for Board and MPC committees and subgroups.

2022 Annual Meeting

Staff is in the process of finalizing a contract with The Westin Tempe in Tempe, Arizona, to host NOLHGA’s 2022 Annual Meeting. This meeting is scheduled to be held on October 19 and 20, with an MPC meeting on the 18th (as well as a NOLHGA Board of Directors’ meeting). Both the Annual Meeting and MPC meeting will be hybrid meetings, with in-person and online attendance.

2022 Insolvency Workshop/April Education Program

Staff continued planning for the Legal Seminar/Insolvency Workshop program that will be held on July 28–29 at the Ritz-Carlton Washington, D.C. The program will be based on a hypothetical insolvency case and will involve significant participation by attendees, who will be assigned to different teams for the purpose of analyzing and presenting solutions to various insolvency issues. Planning efforts to date have included confirming that the Ritz-Carlton facilities can accommodate the program; planning the objectives, structure, segments, and content for the program; and identifying and recruiting planning team and presentation rosters. Additionally, the staff has commenced planning for the hybrid meeting production.

In addition, an educational program entitled Insolvency Fundamentals 101 was held at the April 2022 MPC meeting. The program focused on the fundamentals of guaranty association insolvency practice and was intended both to review core principles for newer guaranty association administrators and Board members and to serve as a foundation for attendees of the July Insolvency Workshop. The program was very well received, based on meeting evaluation forms.

Constituency Relationships

Paul Peterson continues to assist guaranty associations with the long-term care (LTC) insurance cost allocation (adopted as part of the 2017 amendments to the NAIC GA Model Act) and the data needed to complete the calculations.

NAIC

Since the last management report, staff has continued to monitor the activities of various NAIC task forces and groups. The NAIC’s Spring National Meeting was held as a hybrid meeting on April 4–8, and NOLHGA’s Joni Forsythe participated in relevant meetings virtually. An overview of recent developments at the NAIC on issues affecting guaranty association interests follows.

Receivership and Insolvency Task Force (RITF): The RITF met on April 6 in conjunction with the NAIC’s Spring National Meeting. In addition to receiving reports from its various subgroups, the RITF received a referral from the Restructuring Mechanisms (E) Working Group concerning a request to consider changes to the NAIC’s Property & Casualty Insurance Guaranty Association Model Act (#540). The proposed changes are intended to expand coverage to include property and casualty policies transferred from a member insurer pursuant to a Corporate Division or Insurance Business Transfer statute. The RITF exposed the request for Model Act changes for a 30-day comment period, which ended on May 6. The RITF is expected to schedule a follow-up session to review and discuss the changes and any comments received.

If approved by the RITF, the request would have to be considered and approved by the Financial Condition (E) Committee as well as the Executive Committee before any work on the request could begin. If approved by the Executive Committee, drafting in response to the request for amendments would be undertaken by the RITF’s Receivership Law Working Group (RLWG). In the meantime, the RLWG held a call on May 12 to review and discuss recommendations from the NCIGF concerning pre-liquidation planning in connection with property and casualty insolvencies.

The RITF also heard an update on federal activities, including the NAIC’s proposed State Insurance Receivership Priority Act (SIRP Act), which would make the federal government subject to claims filing deadlines in insurance receiverships and exempt receivership proceedings from the federal priority statute. RITF representatives and NAIC staff have continued to work with Rep. Madeleine Dean (D-PA) to incorporate modifications to the proposed SIRP Act legislation to resolve concerns raised by the Department of Justice. Rep. Dean plans to introduce the legislation in 2022.

Restructuring Mechanisms (E) Working Group: The working group met on March 28 in lieu of meeting at the Spring National Meeting. During the meeting, the group adopted a referral to the RITF concerning a request proposed by the NCIGF for changes to the NAIC’s Property & Casualty Insurance Guaranty Association Model Act (described in the previous section). The working group also continued discussion of comments received in connection with a previously exposed draft whitepaper on restructuring mechanisms. Additional input related to comments on the whitepaper was requested by April 29. A follow-up session to discuss additional comments is expected.

In the meantime, the Restructuring Mechanisms (E) Subgroup, which reports up to the Restructuring Mechanisms (E) Working Group, held a videoconference meeting on May 4 to review and discuss draft papers entitled Foundational Principles for Reviewing Corporate Division and Insurance Business Transfer Transactions and Best Practices for Corporate Division and Insurance Business Transfer Transactions. Following an overview and discussion, the subgroup exposed the two papers for a 45-day comment period; both exposed papers mentioned potential guaranty association impacts of Insurance Business Transfer/Corporate Division transactions.

The subgroup also received a report from the Property & Casualty Risk-Based Capital Working Group (RBC Working Group) on its charge to consider the need for changes to the RBC formula to better assess the minimum surplus requirements for property and casualty companies in runoff. The RBC Working Group reported that it would not be workable to make a set of adjustments to apply to all runoff companies. However, the working group did recommend: (1) certain criteria that could be used to identify runoff companies; (2) the use of interrogatories to assist in identifying runoff companies; and (3) modifying the RBC instructions to eliminate certain considerations for runoff companies.

Long-Term Care Insurance (EX) Task Force: As previously reported, this task force is charged with developing consistent state-based regulatory approaches to address issues related to LTC insurance. The task force appointed three subgroups to proceed with its three principal workstreams: (1) The Multistate Rate Review Subgroup, which was tasked with developing a consistent, national approach to reviewing rate increase requests; (2) the Reduced Benefit Options Subgroup, which was tasked with developing recommendations for providing consumers with appropriate options for benefit modifications as alternatives to rate increases; and (3) the Financial Solvency Subgroup, which was tasked with exploring restructuring techniques and pre-rehabilitation planning options that can be used to minimize risk to consumers.

Since the last management report, the Multistate Rate Review Subgroup concluded its work on the Multistate Rate Review Framework Document, and that Framework Document was adopted by the NAIC’s Executive and Plenary Committees on April 8.

The task force will now work on implementation issues, and it expects to have the Rate Review Framework process operational by September. To that end, the task force has begun working on technical updates to the NAIC’s System for Electronic Rates and Forms Filings (SERFF), incorporating the Multistate Rate Review process into that system and developing filing instructions for insurers. The task force will also be working to develop instructions for the Multi-State Actuarial Team to document communications, review controls, and procedures.

Receiver’s Handbook (E) Subgroup: The subgroup, which was appointed by the RITF, continued its charge to conduct a review and update of the Receiver’s Handbook for Insurance Company Insolvencies. As previously reported, drafting and review teams were organized for each chapter of the Handbook. NOLHGA and NCIGF staff have volunteered to assist in this effort and are submitting comments on issues related to guaranty association interests as each chapter is considered.

Since the last management report, drafting groups have completed their work on Chapters 1 through 4. Work has commenced on Chapter 5 (Claims in Receivership). Next up will be Chapter 6, which deals with guaranty association issues. Given the importance of this chapter, NOLHGA and the NCIGF have jointly volunteered to take a first cut at revising the chapter.

Following adoption of revisions by the drafting groups, each chapter will be presented to the subgroup for further review and discussion. The subgroup expects to complete its charge by December 2022.

ACLI

On April 13, Peter Gallanis and Bill O’Sullivan participated in a videoconference meeting of the ACLI’s Receivership Committee. Among other matters, the committee discussed: (1) the SHIP Rehabilitation Proceedings; (2) the Penn Treaty/ANIC litigation with respect to the claim rights of uncovered policyholders (the Warrantech issue); (3) the Scottish Re Rehabilitation proceedings; and (4) Insurance Business Transfer and Corporation Division developments.

MPC Activities

MPC Executive Committee Asset Recovery Report Subgroup

The Asset Recovery Report was posted on the NOLHGA website in the first week of March. The semi-annual report provides individual estate information such as what assets, if any, have been distributed or are expected for distribution and what outstanding issues must be resolved prior to estate closure.

The Asset Recovery Activity Report is combined with the Net Cost Summary—a chart that provides an estimate of total estate assets remaining in all the open multi-state insolvency cases. Also included is the Closed Estates Summary—a listing of estates that are known to be closed and the dates of closing.

The subgroup is now chaired by Leah Cooper (West Virginia), and its members are Peter Inoue (Hawaii), Lori Nestor (Arizona), Sonni Peterson (Ohio), Don Thomas (Alaska), and Joanna Akiyama (NOLHGA).

MPC Insolvency Task Force Information Subgroup

The subgroup continued its work in developing a listing of key information for each insolvency and potential insolvency for which a task force has been formed so that guaranty association administrators can access the information when they are preparing reports for their Boards or insurance departments. The subgroup plans to have its redesign of the task force pages in the Receiverships section of the NOLHGA website ready for review by the MPC Executive Committee by the end of the second quarter.

MPC Model Plan of Operations Subgroup

The subgroup, which is reviewing the NOLHGA Model Plan of Operations for potential updates, will meet in May to complete its initial draft of revisions and will share that draft with a focus group of guaranty system representatives. After receiving input from the focus group, the subgroup will present its recommended work product to the MPC Executive Committee. The subgroup expects to complete its work this year.

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) monitoring persons taking NOLHGA’s online security training program and maintaining an updated list of “authorized persons” (i.e., guaranty system representatives authorized to access personal data); (2) researching what confidential personal information (CPI) is stored on QUEST and what information may no longer be needed; (3) drafting outreach to guaranty associations regarding cyber insurance questionnaires to identify any potential additional steps to be taken; (4) investigating the advantages and disadvantages of zero-trust network access; (5) tracking and monitoring state and federal legislation regarding privacy and cybersecurity; and (6) monitoring the activities of the NAIC Privacy Protections Working Group.

NOLHGA Committee Activity

Coverage/Claims Committee

On March 29, the committee met by videoconference to review and approve its work plan for 2022. The focus of the committee’s efforts during the coming year will be on completing its work on unallocated annuity contracts and commencing a review of registered index–linked annuities.

GA Laws Committee

Staff has continued to work with guaranty associations and their counsel in various states, as well as with ACLI and industry representatives, to monitor progress and provide input and technical comments and revisions to GA Act bills. During 2022, GA Act bills have been introduced in New Jersey, Ohio, Rhode Island, and Washington. The Washington bill was passed by the legislature on March 8 and signed by the Governor on March 24. The bills in the other states are at various stages of the legislative process.

With the passing of legislation in Washington, there are now 35 states that have adopted updates to their GA Acts reflecting the 2017 amendments to the NAIC GA Model Act. Staff will continue to coordinate with the ACLI and guaranty association representatives to support and encourage adoption of conforming amendments in the remaining states.

Public Policy Coordinating Committee/Education Project

Since the last Board meeting, Peter Gallanis, Mike Heard, Bill O’Sullivan, and Sean McKenna have met monthly with representatives from the NCIGF and Faegre Drinker to discuss regulatory and policy developments at the international, federal, and state levels and strategies with respect to the Education Project.

Other Legal Department Activity

Conflicts & Antitrust

NOLHGA’s annual compliance questionnaires under NOLHGA’s Conflicts and Antitrust Policies were distributed to covered individuals on February 9, with responses due by February 28. The total number of people completing this year’s questionnaire was 163. Based on staff’s review of the responses, the Board Conflicts Committee was notified that no material conflict issues have been disclosed in the questionnaire process that would require action by the committee.

Financial Activities

The Accounting Department has been involved in overseeing the year-end audit of the 2021 NOLHGA operating financial statements and with preparations for the Audit Committee’s May 18 review of the audit results. In addition to routine accounting-related tasks, the department also calculated and distributed the fourth quarter 2021 quarterly assessments.

The department coordinated the following insolvency-related account distributions: (1) $5,382,000 to affected members ($5,228,000 due to an early access distribution related to Senior American Insurance Company; $148,000 in premium collections related to National States; and $6,000 due to quarterly true-ups of escrow account activity related to Life & Health Insurance Company of America); and (2) $1,245,000 to TPAs and receivers to fund claims and expenses for four active insolvencies.

Assessment Data Survey

Data specifications and delivery dates for the 2021 survey year were finalized with the NAIC. New data file formats from the NAIC were developed due to the redesigned premium exhibits that went into effect at year-end 2021. Test files were received in March, and modifications were made for the final formats.

Initial data files were received in April from the NAIC, and a review by Strohm Ballweg identified few issues (although a few modifications were necessary). Overall, the file formats appear to have worked well, considering this was the first year with the new formats. Strohm Ballweg has imported the data into the survey database in preparation for the May task force meeting. In addition, the follow-up letters and tests have been modified for the new formats and are ready to be used during the May review.

Task force members will perform the review of the company filings remotely. Strohm Ballweg will upload all test reports and related annual statement files to a secure ShareFile portal. Task force members will be assigned specific companies for review, and they can download the files via a link provided in an email from Strohm Ballweg. The members can complete a review checklist provided in the email to respond to Strohm Ballweg with any necessary follow-up questions. The initial Zoom meeting to go over the review material and the new process was held on May 23. Task force members should complete the assigned reviews and respond to Strohm Ballweg in approximately one week.

Data capture for disability income (DI), LTC, Medicaid, Medicare, FEHBA, CHIP, and HMO premium information for 2021 will be done in a fashion like that used in prior years, and this information will be provided to the guaranty associations in October when the data is released.

Beginning in 2021, annual statement filing instructions were modified to include the new premium exhibits as a supplemental filing in the life, health, and property/casualty annual statements. As a result, additional follow-ups are planned for all life, health, member HMO, and property/casualty companies that were supposed to file the data survey premium exhibits but failed to do so. We are hopeful that the number of companies filing the exhibits will increase from last year.

Communications

GA Update Online

The March 8, 2022, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its March meeting.

NOLHGA Journal

The first 2022 issue of the NOLHGA Journal was distributed to subscribers in March.

Year-End Report to the Membership

NOLHGA’s 2021 Year-End Report to the Membership was distributed to the members in April.

Systems Support/Technology/Website

Network Systems Status

The Systems Department has moved most of the staff files from our on-premises backup system to OneDrive for Business, which makes it easier for the staff to share files and folders. We are planning to move department drives from shared network drives to SharePoint later this year.

A new hardware device is being configured to perform real-time backups of staff OneDrive files and email. We are currently looking into ways to replicate this information to an offsite facility.

The department upgraded the server that hosts NOLHGA’s accounting software. The upgraded server runs as a virtual machine, which is a software-based representation of a physical server. Virtualization technology lowers the cost of replacement hardware and leads to quicker recovery times.

Changes in office technology have led to significant improvements in our ability to recover data. Our current disaster recovery plan is being updated to reflect these changes; the revised plan should be completed by the end of the second quarter.

Technical Assistance for Guaranty Association Administrators

The department continued to provide Help Desk support to the member guaranty associations, replying to general IT inquiries, making requested updates to their hosted websites, and reconfiguring their email accounts (as necessary).

Online Events

The department helped the events team produce the April MPC meeting, which was conducted as a hybrid event.

Website Updates

The department is customizing updates to several JavaScript libraries and style sheets. These updates have led to improvements in the NOLHGA website.

Professional Development

Michael McDonald attended a webinar entitled An Introduction to Cybersecurity Frameworks and Improving Your Company’s Cyber Hygiene presented by Faegre Drinker on March 2, 2022, and began an online version of Harvard University’s Introduction to Computer Science course designed especially for lawyers.

Michael McDonald and Sean McKenna attended the Networks Financial Institute’s 17th Annual Insurance Public Policy Summit, entitled An Established Framework Faces New Challenges, on May 11.