IN THIS EDITION:

• NAIC Meeting Recap
• Runoff/Restructuring
• GA Model Acts
• Receivership and Insolvency Task Force (E)
• Financial Condition (E) Committee
• Guaranty Fund Managers Forum

NAIC Meeting Recap

The September 2008 NAIC Fall National Meeting in Washington, D.C., was attended by NOLHGA staff members, including Peter Gallanis, Dick Klipstein, Bill O’Sullivan and Joni Forsythe. Updates on the principal guaranty association–related activities appear below.

Runoff/Restructuring

The Restructuring Mechanisms for Troubled Companies Subgroup is working to produce a whitepaper analyzing various aspects of alternative restructuring mechanisms for financially troubled companies. The subgroup is reviewing existing runoff practices in the United States and has identified four mechanisms to be addressed in the whitepaper. During its September meeting, the subgroup heard presentations by a series of consultants concerning Schemes of Arrangement and Part VII Portfolio Transfers--two statutory restructuring tools used by troubled companies in the U.K. to restructure, terminate, or transfer various lines of business. In early October, the subgroup expects to begin its review and discussion of New York Regulation 141 Commutation Plans, to be followed by review of the yet untested Rhode Island Voluntary Restructuring Statute and regulations. NAIC staff expects to release a preliminary working draft of the whitepaper in the near future.

More information on these alternative restructuring mechanisms can be found in the October 2008 issue of GA Update.

GA Model Acts

The Model Act Revision Working Group (MARG) continued its review of the Life and Health Insurance Guaranty Association Model Act. The discussion was focused primarily on Medicare Part C and D health insurance written by licensed insurers and, in particular, whether any clarification is needed regarding the treatment of these products under the Model Act. The meeting included presentations on Medicare Part C and D products by representatives from the Centers for Medicare and Medicaid Services (CMS) and America’s Health Insurance Plans (AHIP). Bill O’Sullivan (NOLHGA) and Kevin Griffith (Baker & Daniels) also addressed the group, providing an overview of NOLHGA’s analysis of these products under the Model Act and discussing questions concerning guaranty association coverage and assessment for these products in light of preemption concerns. Discussion of these issues was tabled at the close of the meeting and will be taken up again on an interim conference call to be scheduled by NAIC staff.

Receivership and Insolvency Task Force (E)

The Receivership and Insolvency Task Force (RITF) heard reports from its various subgroups, including the Receiver’s Handbook Working Group, the Receivership Technology and Administration Working Group, MARG, and the Structured Settlement Technical Group. Following recommendations by the Technology and Administration Working Group, RITF approved a motion to adopt Receivership Data Privacy and Security Procedures for Life and Health Insurers in liquidation and directed NAIC staff to begin work on data privacy and security procedures for conservation and rehabilitation proceedings.

The Structured Settlement Technical Group reported on its analysis of issues regarding the treatment of structured settlement annuities in the insolvency context. Following discussion of the technical group’s recommendations, RITF voted to maintain the existing structured settlement language within the Life and Health Insurance Guaranty Association Model Act but to increase coverage for structured settlement annuities to $250,000, consistent with recently proposed increases for other annuity products.

RITF also discussed five options for the inclusion of optional language governing the treatment of assumed business for purposes of the Property and Casualty Insurance Guaranty Association Model Act. The task force expects to make final recommendations on this issue for E Committee consideration in advance of the NAIC’s December meeting.

Financial Condition (E) Committee

The Financial Condition (E) Committee received reports from 14 different task forces and working groups, including RITF and the Restructuring Mechanisms subgroup (summarized above). E Committee also adopted the report and recommendations from the Reinsurance Task Force, including a proposed Reinsurance Regulatory Modernization Framework that provides for the establishment of an NAIC Reinsurance Supervision Review Department, and development of minimum standards governing qualification of U.S. and non-U.S. reinsurers.

The NAIC is expected to vote on the Reinsurance Regulatory Modernization Framework proposal at its December meeting. The proposal, designed to modernize the regulation of reinsurance in the United States, is intended to facilitate cross-border reinsurance transactions by establishing single-state licensing, certification, and supervision of both U.S. and foreign reinsurers by “qualified” state supervisors and by reducing reinsurance collateral requirements for eligible foreign companies. Details of the proposal are set forth in a September 12, 2008, NAIC report.

This reinsurance modernization proposal calls for the creation of a Reinsurance Supervision Review Department (RSRD) within the NAIC and outlines a role for the RSRD that would include, among other things, establishing qualification standards for state reinsurance supervisors who would have exclusive jurisdiction over the reinsurers they supervise; evaluating foreign regulatory regimes to create and maintain a list of jurisdictions deemed eligible for reciprocal regulatory recognition; maintaining and revising reinsurance collateral reduction criteria; establishing uniform standards and procedures for use by qualified state supervisors; and serving as the data repository for U.S. and non-U.S. reinsurance market activities. The framework would also appear to impose mandatory standards and requirements governing ceding and assuming carriers (e.g., credit for reinsurance, among other things) that may conflict with existing state laws.

For this and other reasons detailed in the September 12 report, the proposal includes recommendations for seeking federal enabling legislation to provide the NAIC with “appropriate authority” to implement this new reinsurance regulatory framework. Specifically, the report refers to a 2007 reform bill--The Nonadmitted and Reinsurance Reform Act of 2007 (HB 1065 / SB 929)--as creating an opportunity to put this issue before Congress.

Guaranty Fund Managers Forum

NOLHGA and the NCIGF jointly hosted a breakfast briefing to review NAIC activities impacting guaranty associations and to update attendees on recent insolvency-related activities. The forum is not included on the NAIC’s meeting agenda, so those planning to attend an upcoming NAIC meeting should contact NOLHGA for details.