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 Meetings
- Constituency Relationships
- Financial Activities
- MPC Activities
- NOLHGA Committee Activity
- Communications
- Legal Activity
- Systems Support/Technology/Website
- Professional Development
Introduction
In October 2017, the NOLHGA Board of Directors held its most recent quarterly meeting. Relevant portions of the management report provided to the Board (as of the October 17 Board meeting) are included in this issue of GA Update Online.
Since the August 24, 2017, Board meeting in Boston, significant staff time has been devoted to the following priorities: (1) coordination and support for insolvency task force activity, including preparation for the October MPC meeting; (2) providing support for Board and MPC committees and subgroups; (3) planning for the upcoming 2017 Annual Meeting; (4) multiple initiatives related to the implementation of the runoff of guaranty association obligations through LTC Re and otherwise; (5) providing technical support to various external constituencies on major pending regulatory reform issues; and (6) standard operational tasks.
NOLHGA Meetings
2017 Annual Meeting
The speaker program for NOLHGA’s 2017 Annual Meeting featured:
- Adam Hamm: Managing Director, Protiviti
- John M. Huff: Partner, Dentons
- Leanne Gassaway, MHA: Senior Vice President, State Affairs, AHIP
- Eric Rangen: Chair & President, LTC Re
- Peter Goldstein: CEO, LTCG
- Gary E. Hughes: Executive VP & COO, ACLI
- Charles T. Richardson: Partner, Faegre Baker Daniels
- Robert L. Robinson: Chief Liquidation Officer, Penn Treaty
- Jane M. Bagley: Senior VP & Corporate Counsel, Penn Treaty
- Sharon M. Reed: Senior VP, Insurance Operations, Penn Treaty
- Lynne Olson: Historian & Best-Selling Author (Luncheon Speaker)
2018–19 Legal Seminars
Staff completed negotiations and signed a contract with the Fairmont Copley Plaza in Boston for the 2019 MPC meeting and Legal Seminar to take place the week of July 8–13, 2019. Staff is in final negotiations with the Marriott Marquis in New York City for the 2018 MPC meeting and Legal Seminar, which would be held during the week of July 16–20, 2018.
Constituency Relationships
GA & Regional Meetings
Paul Peterson attended the West and Midwest Regional Guaranty Association meetings, which were held in September and October, respectively. Agenda topics included general administrative issues, functionality of the Zak assessment system and related fees, the Lincoln Memorial assumption transaction, Penn Treaty/ANIC assessments, assessment data survey issues, the status of NAIC Model Act revisions, LTC, and MPC/Task Force participation.
On September 21, Peter Gallanis participated in the annual meeting of the Virginia Life, Accident & Sickness Insurance Guaranty Association in Charlottesville, Virginia.
NAIC
Since early September, NOLHGA staff has been participating in biweekly calls of an NAIC drafting group charged with recommending changes to the GA Model Act to address LTC issues and include HMOs as member insurers. In addition to participating on the drafting group calls, staff has been coordinating closely with representatives of the ACLI and the health insurance industry on this project.
Upon the completion of its work, the drafting group will submit its recommended changes to the NAIC’s Receivership Model Law Working Group (RMLWG) for its approval (this is expected to happen in October). Following RMLWG’s approval, the changes also will need to be approved by the NAIC’s Receivership Insolvency Task Force, Financial Condition (E) Committee, and Executive Committee/Plenary. The process for approving the changes is expected to be completed by the NAIC’s 2018 Spring National Meeting.
Financial Activities
The Accounting Department has been involved in finalizing the 2018 operating budget, which was reviewed and approved by the Finance Committee on October 4, 2017, and approved by the Board at its October 17 meeting. In addition to routine accounting-related tasks, staff also calculated and mailed the second quarter 2017 quarterly assessments.
Since the Board met on August 24, the Accounting Department coordinated the following insolvency-related account distributions: (a) $386,000 in premium collections to affected members related to National States ($350,000), Universal Life ($24,000), and Lincoln Memorial ($12,000); and (b) $3.3 million to TPAs and receivers to fund claims and expenses for three active insolvencies.
Assessment Data Survey
Premium data was released to guaranty associations on October 1, 2017. Similar to prior years, the delivery was made via Quest. Files were uploaded to Quest, and guaranty associations were notified that the data was ready for downloading. Also, a letter was mailed to insurance commissioners informing them of the availability of the data and that they could obtain copies upon request to Strohm Ballweg (NOLHGA’s outside consultant for this project). Only a handful of insurance departments have requested the information over the past few years.
Testing for the life and annuity accounts included 114 inquiries to companies dealing with a variety of issues, some of which involved separate account fee income; guaranteed vs. non-guaranteed annuity business; and governmental 403b business. As a result of those inquiries, 31 companies filed corrected survey exhibits.
Testing in the health account was again expanded to include business written that involves Medicare, stop loss, FEHBA, and Medicaid. A total of 160 inquiries were sent regarding the premiums reported for these products; 146 responses were received, and 115 corrected data survey exhibits were filed by the member companies. In addition to these, 38 BCBS survey filings were reviewed with 22 requiring follow up (14 filed corrected data survey exhibits).
To reduce the number of member companies that do not file the data survey exhibits, new annual statement filing instructions have been finalized with the NAIC that will require all guaranty association member companies to begin filing the data survey exhibits as part of their annual statements. Data survey instructions have been developed for the three types of annual statements filed (life, health, and property). This change is directed primarily at those companies filing the health or P&C blank. The new instructions are expected to be adopted for use beginning with the 2018 annual statement filings.
Guaranty Association Assessment Information
The collection of 2016 assessment activity information from the guaranty associations has been completed. This annual project includes collecting assessed, called, and refunded assessment information by state, account, and insolvency. The data is used to publish assessment-level activity reports in the fall. As has been the trend in recent years, assessment activity is generally limited to the health account. Most assessments dealt with CO-OPs that were provided coverage by the guaranty associations during 2016. (Assessments for Penn Treaty were generally done in 2017.) Capacity estimates and final reports are expected to be completed and posted to NOLHGA’s website in November.
MPC Activities
MPC CO-OP Task Force
The MPC CO-OP Task Force continues to hold periodic teleconferences to review and discuss issues affecting the ACA Health CO-OPs. Among other issues, the task force’s discussions have focused on federal claims submissions; offsets and priority issues; amounts owed to the CO-OPs under the ACA cost-sharing programs; proposals for the sale/factoring of ACA litigation recoveries; and lawsuits filed by CO-OPS and other health insurers against the federal government to recover amounts owed under the ACA.
Recently, two additional CO-OPs (both of which are not members of a guaranty association) have been placed into receivership. On August 2, 2017, Minuteman Health (Massachusetts) was ordered into rehabilitation and is expected to be placed in liquidation by late 2017/early 2018. The company’s individual policies are expected to remain in-force until year-end. Evergreen Health (Maryland), which had no individual business during 2017, was ordered into liquidation on September 1. Both companies were in the process of converting from ACA CO-OPs to for-profit writers but apparently were unable to obtain needed financing to continue operations.
Only four (one of which is a member insurer) of the original 24 ACA Health CO-OPs are planning to issue health insurance in 2018. The task force is monitoring these CO-OPs, including reviewing their quarterly financial reports and rate and plan filings for 2018 business. The federal government has not publicly announced (as of 10/10/17) whether it will continue to fund cost-sharing reduction payments for eligible insureds. If these payments are discontinued, it will likely have a significant adverse impact on the remaining CO-OPs participating on the ACA exchanges.
MPC Electronic Document Management Subgroup
A group of participating guaranty associations and members of NOLHGA staff are negotiating an agreement with an outside vendor to build and host a shared cloud-based electronic records management system. The group had a call on September 25, 2017, to discuss the latest changes to the terms of the agreement. The member associations involved in the shared arrangement include Alabama, Connecticut, Indiana, Montana, North Carolina, North Dakota, Oklahoma, Rhode Island, and Washington.
MPC Asset Recovery Report Subgroup
On September 1, 2017, the Asset Recovery Report was made available to guaranty associations on NOLHGA’s website. The semi-annual report provides individual estate information such as what assets, if any, have been distributed or are expected to be available in the future, 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 held in all open multi-state insolvencies. Also included is the Closed Estates Summary, a listing of estates that are known to be closed and their closing dates.
MPC Guidelines Working Group
The Guidelines Working Group continued working on updates to the MPC Insolvency Task Force Guidelines to reflect key insolvency and other related developments. The working group continues to target the first quarter of 2018 to complete its work.
MPC Security Advisory Committee (SAC)
The SAC’s recent activities included: (1) reviewing and following up on issues raised in the annual security procedures compliance questionnaire to guaranty associations and business associates; (2) updating the lists of persons who have completed NOLHGA’s security training program; (3) confirming that all persons with access to policyholder information on Quest are authorized to access such information under the MPC Security Procedures; (4) distributing a monthly security breach report to guaranty association administrators and NOLHGA staff to keep them informed about breach activity involving third parties; and (5) tracking the activities of the NAIC Cyber Security Task Force.
LTC-Related Assistance
Staff continues to provide assistance to guaranty associations regarding inquiries from member companies about the Penn Treaty case and other LTC-related assessment notices.
NOLHGA Committee Activity
Accounting Issues Committee
The committee held an in-person meeting on September 12, 2017, at the offices of the Illinois Life and Health Insurance Guaranty Association in Oak Brook, Illinois. The committee reviewed several Accounting Guidelines Manual topics:
- Update to Chart of Accounts
- Proof of Claim Format
- Sample Assessment Notice
- Disclosure Checklist
- OFAC Update
- SAPWG SSAP 35 R
Brendan Mackinnon of Plante & Moran presented the steps for “Auditing a Guaranty Association,” with a good discussion by the group. The next meeting of the committee will be held in conjunction with the MPC meeting in January 2018 in Newport Beach, California.
Financial Services Modernization Committee (FSMC)
Staff delivered an oral report on FSMC matters to the Board at its quarterly meeting. A similar report was made at the October MPC meeting.
On September 15, at the request of FIO and the Secretariat of the Financial Stability Board (FSB), Peter Gallanis made two presentations on the U.S. guaranty system and its funding mechanics at a Basel workshop of the FSB’s Cross-Border Crisis Management Group for Insurers.
Legal Committee
The Federal Claims Subgroup continues to monitor developments with respect to federal claims-related litigation arising out of health insurance insolvencies. The subgroup is currently tracking developments in 58 proceedings, including lawsuits and appeals filed in federal courts across the country, as well as administrative agency appeals and proceedings in receivership courts. The outcome of this litigation will determine the ultimate costs of ACA Health CO-OP insolvencies. The litigation can be divided into three general categories:
Risk Corridor Litigation: The risk corridor cases are collection actions in which ACA CO-OPs and other health insurers are seeking recovery of more than $8 Billion in ACA risk corridor payments from the federal government. There are 38 risk corridor actions pending (6 new cases were filed since the most recent Management Report), including 2 class actions and 4 appeals. There are now five decisions on the merits in these cases, with the government prevailing in three of those cases and the plaintiffs prevailing in two. Four of the cases are currently on appeal, with the fifth having been stayed following a reported decision on the merits.
ACA Risk Adjustment Litigation: These cases involve claims by health insurers against the government, challenging the government’s risk adjustment calculation methodology and its enforcement of large risk adjustment assessments, while at the same time withholding risk corridor payments owed to insurers. There are two pending lawsuits that have been filed by ACA CO-OPs. In both cases, briefing on summary judgment motions is now complete. In one of the cases, a hearing took place on September 29 for argument on the motions. In the other case, the parties have filed a joint notice alerting the court that briefing is complete and that the case is ready for decision.
ACA Netting and Priority Challenge Litigation: These cases involve (i) requests for declaratory and injunctive relief challenging CMS’s improper use of ACA netting regulations without accounting for risk corridor payments owed to insurers, and (ii) challenges to offsets taken by the federal government against companies in receivership as violating state receivership priority statutes.
Communications
Committee/Task Force Support
The communications department serves as staff contact and support for the MPC Insolvency Task Force Guidelines Working Group, which is revising the MPC Task Force Guidelines. The working group held several conference calls and is planning an in-person meeting.
The communications department participated in several conference calls of the Penn Treaty/ANIC Task Force’s Communications Coordination Subgroup.
Media Relations
The department helped in preparing information for reporters from The Capitol Forum and Policy Genius magazine for articles on LTC and the guaranty system, respectively.
GA Update Online
The September 13, 2017, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its August meeting.
NOLHGA Journal
The final 2017 issue of the NOLHGA Journal was distributed at the Annual Meeting.
Education Project Support
The communications department assisted in preparing a presentation on the U.S. guaranty system that NOLHGA’s President conducted at a meeting of the Financial Stability Board’s Cross-Border Crisis Management Group for Insurers in Basel in September.
Legal Activity
Joint Working Group on NAIC Model Act Changes
As previously reported, NOLHGA formed a joint working group to provide technical support in connection with the NAIC’s efforts to formulate amendments to the GA Model Act to address LTC-related issues and include HMOs as member insurers. The working group has held several teleconferences, and it continues to meet at least weekly to discuss the status of the NAIC efforts and the key issues being discussed during the biweekly calls with the NAIC’s drafting group.
The working group’s efforts are focused on providing technical guidance with respect to the GA Model Act to ensure that any amendments will not inadvertently create operational issues for guaranty associations. The working group is not, however, taking positions on substantive policy issues.
GA Model Act Initiative
NOLHGA staff contacted each of the remaining six guaranty associations that have not updated their GA Acts to offer support in pursuing functional consistency legislation in 2018.
Healthcare Reform
Staff monitored developments with respect to proposed healthcare reform legislation and the Trump Administration’s comments on cost-sharing reduction payments under the Affordable Care Act, and the potential implications to health insurance writers and premium rates.
Director & Officer Liability Insurance
Staff arranged for the renewal of NOLHGA’s Director and Officer Liability insurance policy, with an effective date of September 1, 2017. Except for a reduction in the deductible amount, the renewal policy is on the same terms as the prior policy.
Systems Support/Technology/Website
Network Systems Status
The Systems Department upgraded the organization’s online invoice approval system, which was implemented on October 1, 2017.
In August, the Systems Department renegotiated NOLHGA’s agreement with Evault. Evault will continue to provide backup and remote disaster recovery support for NOLHGA's web server and domain controller. NOLHGA's DNS Server, SharePoint Server, and Mail Server have been replaced by cloud-based services, and therefore no longer require backup and remote disaster recovery support. The Systems Department has scheduled a disaster recovery test for later in the year.
Technical Assistance for Guaranty Association Administrators
The Systems Department continues to reach out to guaranty association administrators as part of its member outreach program. This program, initiated by the department a few years ago, has helped the department familiarize itself with the ongoing IT-related challenges facing guaranty associations.
The August edition of the Cybersecurity Bulletin was distributed to guaranty association administrators and NOLHGA staff. A new technology brochure was distributed at NOLHGA’s Annual Meeting.
Updates were made to the MPC Security Training Program to address recent changes in the cybersecurity landscape.
Technical support was provided to the members during the quarter by phone and e-mail. The department engaged in several remote-terminal sessions with guaranty association administrators to diagnose and solve more complex desktop issues.
Professional Development
Sean McKenna completed the seminar The “Write” Way to Lead: Powerful Tools to Create Impact & Inspire Performance, which was conducted by the American Management Association, in September.