IN THIS EDITION:

• Introduction
• NOLHGA Meetings
• Constituency Relationships
• Financial Activity
• MPC Activity
• NOLHGA Committee Activity
• Communications
• Legal Department Activity
• Systems/Technology
• Additional Support Activity

Introduction

In October 2009, the NOLHGA Board of Directors held its most recent quarterly meeting. Relevant portions of the management report provided to the Board, along with a summary of guaranty association–related activity at the September 2009 NAIC Fall National Meeting, are included in this issue of GA Update Online.

Since the August Board meeting in Chicago, staff focus has primarily been 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) completion of planning for the Board, MPC, and Annual Meetings; (v) finalization and support of materials for the 2010 NOLHGA proposed operating budget; and (vi) providing support for various Board committees and subgroups.

Current insolvency activity continues to be focused on Executive Life of New York (New York); Lincoln Memorial (Texas); Executive Life Insurance Company (California); and, more recently, Booker T. Washington (Alabama), Golden State Mutual (California), Standard Life of Indiana, Penn Treaty Insurance Company (Pennsylvania), Shenandoah Life (Virginia), and confidential discussions of isolated troubled company issues with relevant regulators.

NOLHGA Meetings

2010 Annual Meeting

Holly Wilding and De Gadd completed negotiation on the 2010 Annual Meeting contract. NOLHGA’s 27th Annual Meeting will be held October 4–6, 2010, at the Grand Hyatt Seattle.

2010 Legal Seminar

Staff completed contract negotiations with the Marriott Marquis Hotel (located in New York City) to host the 2010 Legal Seminar. The event will take place on July 15–16. There also will be an MPC meeting at the hotel on July 14.

Constituency Relationships

NAIC

The September 2009 NAIC Fall National Meeting in Washington, D.C., was attended by NOLHGA staff members Peter Gallanis, Bill O’Sullivan, and Joni Forsythe. Updates on the principal guaranty association–related activities appear below.

Life Insurance & Annuities (A) Committee: On September 21, the Life Insurance and Annuities (A) Committee’s Annuity Disclosure Working Group met to continue its discussion of proposed changes to annuity illustrations and disclosures, including disclosure of guaranty association coverage. At the request of the working group, NOLHGA and the ACLI worked together to provide input with respect to a proposed model template that could be used as guidance for purposes of guaranty association disclosures. A joint draft was submitted to the working group in June. The group also received input and comments from funded consumer representatives and other interested party representatives.

Lacking consensus for a final draft, the working group recommended two versions of the proposed guaranty association disclosure document to its parent (A) Committee. One version of the disclosure is substantially similar to the June draft. The second mirrors the first, except that it includes the following new paragraph:

You have the right to cancel your policy within a certain number of days as stated in your policy. If, after reviewing this notice, you decide that this policy is not right for you, you can cancel the policy within the time period stated in your policy and purchase another policy that better fits your needs. To cancel your policy, contact the insurance company at: [Phone] [Internet] [Mail].

At its September 22 meeting, (A) Committee accepted the report and recommendation of the working group and agreed to report both versions of the proposed disclosure document to the NAIC’s Receivership and Insolvency (E) Task Force (RITF) for their consideration in conjunction with the December NAIC meeting. RITF will be asked to adopt one or both versions of the disclosure document as non-binding guidance.

Receivership and Insolvency Task Force: At its September 22 meeting, RITF continued its review of comments regarding the timing and collection of reinsurance recoverables in receivership, including potential solutions and best practices; received a brief federal legislative update by Francine Semaya; and adopted proposed 2010 charges. NAIC staff also provided a brief update concerning ongoing discussions with respect to the application of the Medicare Secondary Payer mandatory reporting requirements in the context of receiverships.

Runoff/Restructuring: On September 22, the Restructuring Mechanisms for Troubled Companies Subgroup briefly reviewed new and revised sections recently added to its draft white paper discussing alternative restructuring mechanisms for financially troubled insurance companies. Additional sections relating to case studies and the benefits, risks, and controls for U.S. claimants in the context of foreign restructurings are expected to be completed within the next week. The subgroup decided to expose the draft white paper for interested regulator and interested party review until October 15.

Guaranty Fund Managers Forum: NOLHGA and the NCIGF jointly hosted a luncheon briefing on September 22 to review NAIC activities impacting guaranty associations and update attendees on recent insolvency-related activities. Following a welcome and opening remarks by Peter Gallanis and Roger Schmelzer (NCIGF), Indiana Insurance Commissioner Carol Cutter addressed the group, sharing some of her insights and perspectives with respect to current events and NAIC activities. Forum attendees also heard brief status reports with respect to insolvency-related issues and meetings on the NAIC agenda.

The Guaranty Fund Managers Forum is not listed on the NAIC meeting agenda. Those planning to attend an upcoming NAIC meeting should contact NOLHGA for an invitation.

Other Information: In addition, there was a Joint NAIC Executive Committee/Plenary meeting on September 23 during which the NAIC reviewed progress with respect to the enactment of various NAIC model laws, including the recently adopted 2009 Life and Health Insurance Guaranty Association Model Act.

NCIGF

Sean McKenna, Director of Communications, met with Nick Crews (Vice President, Guaranty Fund Services & Communications for the National Conference of Insurance Guaranty Funds) to discuss various communications and meeting issues.

Industry

Peter Gallanis and representatives of Baker & Daniels and Sidley Austin developed for the ACLI Guaranty Association Study Group various materials related to contingency planning if industry economics were to become seriously negative and participated in telephonic meetings of the group on August 31 and September 11. In addition, Peter Gallanis and Bill O’Sullivan discussed coverage issues related to life settlements with industry representatives on September 14.

Financial Activity

The Accounting Department has been involved in finalizing the 2010 operating budget. The proposed 2010 operating budget was approved by the Finance Committee on October 1 and was presented to the Board for approval at its October meeting.

In addition, staff calculated and mailed the second quarter 2009 assessments. For three insolvencies, NOLHGA distributed $9.3 million in funds on behalf of its affected members.

MPC Activity

The September 1, 2009, Asset Recovery Report was made available to guaranty associations on NOLHGA’s Web site on September 11. The semi-annual report sets forth 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 report also includes two other reports: The Estate Assets & Net Cost Summary, a chart that numerically illustrates an estimate of total estate assets remaining in all of the open multi-state insolvency cases; and the Closed Estates Summary, a separate listing of estates that are known to be closed and the dates of closing.

NOLHGA Committee Activity

Accounting Issues Committee

Work continued on the drafting of a sample IRS Form 990 for inclusion in the Accounting Guidelines Manual. The sample is near completion, and an updated manual is anticipated to be published by early November.

Assessment Data Survey Task Force

The review of responses from member companies to the follow-up letters was completed. Of the 54 companies that were sent follow-up letters, 31 eventually filed corrected data surveys. Of 26 additional companies outside the “top 85” that were sent follow-up letters, 9 filed corrected data surveys. In addition to completing the reviews, staff was able to identify the companies that write Medicare-related health insurance and found 10 that have taken deductions for these premiums totaling nearly $15 billion. By-state breakdowns were included in the package mailed to guaranty associations to permit them to add the premiums back into their database should they decide that this business is subject to assessment. Packages were mailed to guaranty associations and insurance commissioners on October 2.

Communications Committee

A subgroup of the committee met to discuss the development of standardized responses to common questions received by guaranty association administrators from members of the public. The goal of this project is to ease the burden on administrators by providing them with standard answers and to enhance the uniformity of the guaranty system’s answers to these questions.

The subgroup is continuing work on this project, with the goal of having a final document completed by year-end.

Coverage/Claims Committee

The committee, which had previously presented its recommendations regarding the application of guaranty association coverage limits to joint annuities during the July MPC meeting, organized a follow-up discussion of joint annuities during the September MPC meeting in Minneapolis. Based on the response, additional discussions with member guaranty associations will be held in an effort to build consensus on this issue. The committee also is planning to hold a meeting before year-end to continue its work on separate account coverage issues.

GSMTF Accounting Subgroup

On September 9, a request was sent to all guaranty associations to complete the annual online survey to collect financial information and to provide to NOLHGA copies of their audited financial statements. The financial information will be compiled, verified, and summarized for distribution to the guaranty associations in the fourth quarter.

Legal Committee

Staff planned and executed an in-person meeting of the Legal Committee, which took place in Chicago on September 30.

Communications

GA Update

Work on the October 2009 GA Update was completed. The issue features an article by NOLHGA Chairman Chris Kelly on the importance of state associations adopting the new NAIC GA Model Act, an article written by outgoing MPC Chair Bart Boles on his experiences as MPC Chair, an update on financial services regulatory reform activities by Charlie Richardson (Baker & Daniels), and segments on new guaranty association personnel and NOLHGA’s recent activities.

The October issue was distributed at the Annual Meeting and then mailed to all subscribers.

GA Update Online

The August issue of GA Update Online featured relevant portions of the management report on NOLHGA activities provided to the NOLHGA Board of Directors at its August 2009 meeting.

NOLHGA Journal

The September 2009 NOLHGA Journal featured an interview with Wisconsin Insurance Commissioner Sean Dilweg, coverage of the 2009 Legal Seminar, and a President’s Column on the 2008–2009 economic crisis and the strength of the guaranty system safety net.

Legal Department Activity

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

Legal Committee/Model Act Subgroup: Staff worked with members of the subgroup to accomplish the following: (1) provided guidance to MPC Executive Committee members in making outreach calls to guaranty association administrators on updating their GA Act; (2) summarized the results of the MPC outreach calls; (3) prepared an analysis that compares the key provisions of the current NAIC Model Act with the GA Acts in the top 20 states by insolvency activity; (4) organized a meeting with ACLI representatives to discuss the results of the subgroup’s work and possible priority states for 2010 legislative action; (5) following the meeting with the ACLI, contacted guaranty association administrators in the potential priority states to confirm their interest in updating their state’s law; and (6) provided technical and coordination support in individual states with respect to updating the GA Act.

Privacy/Security: Staff continued to support the efforts of a working group to develop recommended data security procedures for the MPC’s use in multi-state insolvencies. The group recently retained a security consultant to recommend technology-based solutions to incorporate into the procedures. The group’s objective is to present recommended data security procedures to the MPC early in 2010.

Guaranty Association Disclosure Notice: At the request of the NAIC’s Annuity Disclosure Working Group, NOLHGA and the ACLI have developed a consumer-friendly template that can be used by guaranty associations to draft the disclaimer notice regarding coverage required by Section 19 of the GA Model Act. Notwithstanding the ACLI’s objections, the NAIC Working Group incorporated into the template optional language concerning the policyholder’s right to return the policy during the free look period. The template will now be referred over for consideration by the NAIC’s Receivership and Insolvency Task Force in conjunction with the December NAIC meeting.

Medicare Secondary Payer Issues: Staff has been working with outside counsel to monitor developments with respect to the new Medicare Secondary Payer rules and regulations and to develop guidance and recommendations concerning compliance strategies that can be used in future health insolvencies. It is contemplated a final report on this matter will be circulated to guaranty associations by year-end.

Pandemic Study Group Referral: Staff has worked with Legal Committee members to respond to certain issues raised by the MPC Executive Committee’s Pandemic Study Group. The proposed response was discussed with NOLHGA’s Legal Committee in conjunction with its September 30 meeting and will be forwarded to the MPC Executive Committee for its consideration.

Other Matters: Staff also accomplished the following: (1) provided general “help desk” support to member associations and other constituencies regarding guaranty association legal questions; (2) updated the law summaries on NOLHGA’s Web site; and (3) contributed to the MPC’s asset recovery report.

Systems/Technology

IRC Conversion Project

The Information Systems, Communications, and Insurance Services Departments are working together to prepare the launch of the new and revised Information Resource Center (IRC). The launch is scheduled for January 2010. The new system is developed in Microsoft SharePoint, which provides a much more robust document management system. SharePoint makes search, navigation, and development much easier.

The Systems Department, in partnership with Quest Software, has successfully migrated the documents for all but two insolvencies over to SharePoint. The documents for Lincoln Memorial and Medical Savings will be migrated later, since these are active files. The Insurance Services Department is busy reclassifying many of the secondary documents with assistance from the Legal Department. SharePoint provides a much simpler interface for uploading and updating these documents.

The departments are working together to develop a timeline for testing the new software, notifying members of the capabilities offered by Sharepoint, and conducting training sessions for interested members. The Systems Department plans to convene a small working group of guaranty association members to try the new software prior to launch and provide comments and suggestions.

NOLHGAnet Publication

The September edition of the NOLHGAnet was developed for distribution to guaranty association administrators and NOLHGA staff.

Technical Assistance

The Systems Department continues to assist guaranty association administrators by answering technical support calls and e-mail inquiries.

Additional Support Activity

Insolvency Financial Cost Information

Staff completed a very rough estimate of the total face amount of policyholder obligations that may have been covered by guaranty associations over the years (estimate $945 billion). However, there were limitations in the available data, and use of the estimate should only be made with certain disclosures discussing the limitations attached.

Select Insolvency Issue Analysis

Staff confirmed the following for the Coverage/Claims Committee: (1) how limits were calculated in the London Pacific case and (2) how the IRS Section 72s issue was resolved by the company prior to the liquidation. Both of these issues dealt with the recent MPC presentation regarding the application of limits for annuity business.