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
- 2023 Legal Seminar
- 2023 Annual Meeting
- Constituency Relationships
- MPC Activities
- Committee Activity
- Other Legal Department Activity
- Financial Activities
- Communications
- Systems Support/Technology/Website
Introduction
On August 31, 2023, the NOLHGA Board of Directors held its most recent quarterly meeting in Indianapolis. Relevant portions of the management report provided to the Board at the meeting are included in this issue of GA Update Online.
Since the June 2, 2023, Board meeting, significant staff time has been devoted to (1) conducting the 2023 Legal Seminar and July MPC meeting, hybrid meetings that were held in Chicago; (2) coordination and support for insolvency task force activity, including significant staff support for task forces such as Global Bankers Insurance Group, Penn Treaty/ANIC, and North Carolina Mutual; (3) continuing support for the LTC Re (Penn Treaty) and GABC (ELNY) runoff entities; (4) preparing for NOLHGA’s 40th Annual Meeting, which will be held as a hybrid meeting on October 26–27 in Salt Lake City; (5) preparing for the transition to new NOLHGA President Katie Wade, which began on August 23, 2023; (6) supporting member associations with business services, in particular technology hosting and cybersecurity services; (7) participating in (and in some cases helping lead) numerous MPC Executive Committee–chartered committees and subgroups, including the Small Block Options and GA Vendor & Consultant Directory Subgroups; and (8) providing support for other Board and MPC committees, subgroups, and activities.
2023 Legal Seminar
NOLHGA’s 2023 Legal Seminar was held on July 27–28 in Chicago (the meeting also featured virtual attendance). The Seminar program featured seven insurance commissioners as well as industry executives and guaranty system representatives. Comments from meeting attendees were positive. In addition, NOLHGA posted 10 messages on its LinkedIn page promoting the meeting and thanking our guest speakers.
2023 Annual Meeting
NOLHGA’s 2023 Annual Meeting, our 40th Annual Meeting, will be held at the Grand America Hotel in Salt Lake City, Utah, on October 26 and 27, with both Board and MPC meetings scheduled for October 25. Planning for the meeting program has begun. Bestselling author and journalist Ron Suskind will be the luncheon speaker for the meeting.
Constituency Relationships
ACLI
On August 13, the ACLI Receivership Committee met during the NAIC’s Summer National Meeting. Peter Gallanis and Bill O’Sullivan attended the meeting to provide reports on recent insolvency developments. Peter Gallanis, Mike Heard, and Bill O’Sullivan also continued to meet with ACLI staff to discuss pension risk transfer transactions and how NOLHGA might assist in educating federal government representatives on guaranty system protections available for consumers issued annuity certificates in those transactions.
The ERISA Advisory Council
On July 18, Peter Gallanis, Mike Heard, Bill O’Sullivan, and Kevin Griffith (Faegre Drinker) attended a meeting of the ERISA Advisory Council at the offices of the Department of Labor (DOL) in Washington, D.C. The purpose of the meeting was for interested parties to provide the Council with input on issues related to Interpretative Bulletin 95-1, which establishes guidance for Pension Plan Sponsors in meeting their fiduciary duties when selecting an annuity provider in connection with a pension risk transfer transaction. NOLHGA submitted a written statement in advance of the Council’s meeting, and Peter Gallanis made a presentation during the meeting. NOLHGA’s comments focused on the protections afforded insurance consumers under the state regulatory system, including by the guaranty system in the event an insurance company becomes insolvent and subject to liquidation.
Following the Council meeting, Peter Gallanis, Mike Heard, Bill O’Sullivan, and Kevin Griffith met with DOL staff to respond to their questions regarding the state guaranty and receivership systems.
NAIC
Peter Gallanis, Bill O’Sullivan, Mike Heard, and Joni Forsythe participated in the NAIC’s Summer National Meeting in Seattle in August, attending sessions relevant to guaranty association interests. During the meeting, NOLHGA and the NCIGF once again jointly hosted a luncheon for guaranty association representatives and other invited guests to discuss relevant NAIC activities. An overview of recent developments relevant to the guaranty system follows.
Receivership and Insolvency Task Force (RITF)
The RITF met during the Summer National Meeting and heard reports on the following matters:
Receivership Financial Analysis (E) Working Group: This group met in a confidential regulator-to-regulator session to discuss companies in receivership and related topics. Pursuant to its confidentiality agreement with the NAIC, NOLHGA staff attended the confidential session.
Receivership Law (E) Working Group: Deputy Insurance Commissioner Slaymaker (Pennsylvania) reported on the work that has been done since the Spring National Meeting at the drafting group and working group level on amendments to the NAIC’s Property and Casualty Guaranty Association Model Act (#540) to: (1) address continuation of coverage for policies included in Insurance Business Transfer and Corporate Division transactions, and (2) clarify coverage for cybersecurity insurance products.
When the working group met on May 23, draft amendments to Model #540 were exposed for comments. The working group reconvened on July 24, at which time the working group discussed the comments and ultimately adopted proposed amendments for recommendation to the RITF in conjunction with the Summer National Meeting. In her report, Deputy Commissioner Slaymaker noted that some additional clarifying amendments had been recently added to resolve perceived textual inconsistencies, and that the working group was suggesting that RITF expose the amendments for an additional 30-day period as a result of these additional changes.
Patrick Cantillo offered interested party comments in opposition to the draft amendments, proposing instead to substitute an alternative previously considered but not adopted by the working group. Joe Torti spoke in favor of exposing the amendments presented by the working group and starting them along the pathway toward adoption. The RITF adopted the working group report as well as a motion to expose the working group’s draft for an additional 30-day comment period ending September 14, noting that additional comments can be taken up at that time.
Lead State Template/Sample Text Describing the U.S. Receivership Regime: Commissioner Donelon (Louisiana) reported that NAIC staff had developed a template for use by state regulators to describe the U.S. insurance receivership system in discussions with foreign regulators or in discussions for developing resolution plans for internationally active insurance groups. He further indicated that the template was developed as a result of a recommendation from the Group Solvency Issues (E) Working Group in response to the IAIS’s Targeted Jurisdictional Assessment of the United States.
NAIC staff member Jane Koenigsman then provided a brief overview of the template, noting that it is intended as a summary of the U.S. receivership process to aid in discussions with foreign regulators. It is not a resolution plan or a handbook for U.S. receiverships. She added that the template was developed in consultation with U.S. regulators. As a template, it is designed to be customizable for each state insurance department structure, legal and regulatory references, lines of business, and other specifics relevant to the circumstances for which it is being used. Thus, it will need to be modified accordingly. Following her high-level overview, Ms. Koenigsman suggested exposing the template for a 30-day comment period, noting that comments from states with internationally active insurers would be particularly helpful. The RITF voted to expose the template for a 30-day period ending September 14.
International Developments: Robert Wake (Maine), who represents the NAIC on the IAIS Resolution Working Group, provided an update on international activities, including ongoing work on a policyholder protection issues paper, as well as progress made in discussions concerning core principles in resolution planning and in reaching consensus on a topic-focused and outcome-oriented approach to appropriate resolution powers. The working group met at the end of May and will meet again in early September. Mr. Wake also noted that he will be joined in September by Bill Arfanis (Connecticut) as the second NAIC representative serving on the Resolution Working Group.
Accreditation Standards for Receivership & GA Model Acts: NAIC staff was asked to provide background and an update concerning the recent history of efforts to enhance accreditation criteria related to receivership and guaranty association laws and related activity. Jane Koenigsman began by recounting the recent history of the accreditation standard debate, focusing primarily on the NAIC’s 2009 Insurer Receivership Model Act (IRMA), which has been adopted in only a few states. Ms. Koenigsman mentioned the 2009 Critical Elements Advisory Group, as well as a 2014 effort to narrow the accreditation focus to only the provisions in IRMA important for multistate receiverships—neither of which resulted in sufficient consensus to move forward. She also referenced a 2017 memorandum sent to state insurance departments to encourage adoption of IRMA provisions related to enforcement of stays and injunctions; a subsequent guidance concerning the definition of “Reciprocal States”; ongoing efforts to update the Receiver’s Handbook; and recent amendments to the NAIC’s Holding Company Act.
Next, Dan Schelp (NAIC legal staff) provided an overview of the current applicable accreditation standards. He explained that most NAIC accreditation requirements are tied to a “substantially similar” standard, which requires that the state’s laws must include elements substantially similar to the significant elements in the applicable NAIC models. “Substantially similar” does not, according to Mr. Schelp, mean that the state must adopt every significant element, and it is not a uniformity requirement.
With respect to the receivership and guaranty association model laws, Mr. Schelp advised that the “substantially similar” standard was not applicable. Rather, the standard applicable to guaranty association laws requires that state laws provide a “regulatory framework” for the payment of obligations to policyholders when a company is deemed insolvent, “such as that contained in the NAIC’s model acts.” For receivership laws, the requirement is a “receivership scheme” for the administration of an insurer found to be insolvent, as set forth in the NAIC’s Insurer Receivership Model Act (IRMA).
Guaranty System Receivership Tabletop Exercise: Jane Koenigsman provided an update concerning the receivership tabletop exercise jointly proposed by NOLHGA and the NCIGF. Ms. Koenigsman noted that she has conducted a survey to determine interest, and that regulators in 28 states reported that they were interested in participating in this type of program. Most stated they were interested in participating in-person, with a preference for the program to be scheduled at the beginning of a National Meeting. With that direction, Ms. Koenigsman will determine if there is room for the tabletop exercise in the schedule for the NAIC’s Fall National Meeting.
The Receiver’s Handbook (E) Subgroup: The subgroup’s recent focus has been on Chapter 8 of the Receiver’s Handbook, which covers special receiverships, jurisdictional issues, and special entities. As a result of the 2017 amendments to the NAIC’s Life & Health Insurance Guaranty Association Model Act, which provides for guaranty association coverage of Health Maintenance Organization (HMO) products, discussion of HMO receiverships was moved from Chapter 8 into Chapter 6, the Guaranty Association Chapter. In addition, other edits to Chapters 7 and 8 have been completed. The subgroup held a call on August 18 to discuss exposure of Chapters 6, 7, and 8, and work will continue with respect to Chapters 9 through 11. During the August 18 call, the subgroup adopted Chapter 7 and voted to expose Chapters 6 and 8 for a 30-day comment period ending September 18. The subgroup’s work will continue with respect to Chapters 9 through 11, and the next call was scheduled for August 29.
Privacy Protections (H) Working Group
The working group met at the Summer National Meeting and announced its intention to ask for an extension on the development of a new model privacy law, the Insurance Consumer Privacy Protection Model Law #674, given the number of comment letters (over 35) received on the latest draft. Numerous states voiced concerns with the Model Law. Commissioner Schmidt (Kansas) commented that she believed the best course of action was to stop work on the Model Law. Among other reasons, she noted that Kansas has received strong opposition, and that the model appears to be fundamentally flawed. She also noted that the model could increase costs for consumers and create a confusing and conflicting compliance situation, and that limiting data sharing may even harm consumers.
Once the working group has finished reviewing the comments and meeting with interested parties, a revised redlined draft with an accompanying explanation of changes will be exposed for four to six weeks. Following that comment period, the working group will ask the Innovation, Cybersecurity, and Technology (H) Committee for a drafting extension once the group has a better understanding of how much additional time is needed.
Special Committee on Race and Insurance
At the Summer National Meeting, the special committee heard updates from each of its workstreams. The Property and Casualty Insurance workstream continues to work on addressing algorithmic bias. The workstream has recently focused on bias in underwriting and rating, meeting with insurers and reading reports on the topic. The Life Insurance workstream has shifted its focus to financial literacy and is developing a resource guide. The Health Insurance workstream is looking at market reforms that can be used to lower uninsured rates and reduce disparities. In late September or early October, the health workstream is planning a call to hear presentations related to mental health.
MPC Activities
MPC Business Continuity Plan Subgroup
Subgroup members conducted a roundtable discussion of the new BCP at the July MPC meeting in Chicago.
MPC Security Advisory Committee (SAC)
The committee met in May, July, and August and has continued its work to oversee compliance with the MPC Security Procedures. Among other matters, the committee completed its annual review of compliance questionnaires completed by guaranty association representatives and NOLHGA consultants who have access to confidential personal information of policyholders. The committee received completed questionnaires from all applicable persons, and there were no material compliance issues disclosed.
On August 2, members of the committee met with NOLHGA Task Force Privacy and Security Officials to discuss the committee’s draft cybersecurity due diligence guidance, which establishes guidance on maintaining the security of policyholder information during various aspects of an insolvency task force’s work. The committee members requested that the Privacy and Security Officials provide comments on the draft.
Committee Activity
Accounting Issues Committee
The committee held a virtual meeting on August 17. The agenda included subgroup updates on various technical issues; developing a presentation on “How to Read Financial Statements” for guaranty association Administrators; and handling of negative premium data. The committee’s fourth quarter meeting will be scheduled during the first week of December, after the NAIC’s Fall National Meeting.
Communications Committee
The committee completed its review of NOLHGA’s social media practices and began work on its next project—overseeing the production of the latest issue of The Nation’s Safety Net, a brochure that illustrates the coverage provided by the state guaranty associations.
Coverage/Claims Committee
The committee and its subgroups met in June and July to review and discuss the coverage of registered index–linked annuities (RILAs) and jointly owned deferred annuities. Following its meeting in July, the committee distributed a memorandum to the guaranty associations analyzing the coverage of RILAs. The committee also gave a presentation at the July MPC meeting on the coverage of RILAs and joint deferred annuities. The committee anticipates completing its work on joint deferred annuities in September.
GA Laws Committee
As previously reported, GA Act bills have been introduced in eight states this year. Bills have passed the state legislatures in four states (Montana, New York, Colorado, and Vermont), and bills in two states (New Mexico and Rhode Island) failed to pass. The New Mexico bill was introduced late in the session and ran out of time. In the case of the Rhode Island bill, we have been advised that additional education on the role of the guaranty association may be needed to gain passage of the GA Act amendments. To that end, staff has provided the Rhode Island association with additional background information and materials that can be used to assist in that effort. Set out below is a summary of the bills that are still pending:
California: The bill appears to have been introduced as a placeholder to meet the initial deadline for bill introduction, with the expectation that a completed bill could be substituted at a later date. However, there has been no further activity since the bill was introduced in February, and the 2023 legislative session will end in mid-September. Accordingly, it appears unlikely that GA Act legislation will advance in California this year.
District of Columbia: A GA Act bill was introduced last year but failed to pass due to other legislative priorities. The bill was reintroduced on February 8, 2023, and was referred to the Committee on Business and Economic Developments. A public hearing was held on June 28, at which time testimony and informational comments were received from representatives of the District of Columbia Department of Insurance, Securities & Banking; the District of Columbia Insurance Federation; the American Council of Life Insurers; and the District of Columbia Life & Health Insurance Guaranty Association. All comments at the hearing were generally supportive, and no opposition to the bill has been noted. The City Council is in recess until mid-September. However, the legislative session in the District runs through year-end, so there is still time for the bill to get through the legislative process in 2023.
Public Policy Coordination Committee/Education Project
Since the last report, Peter Gallanis, Mike Heard, Bill O’Sullivan, Joni Forsythe, 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.
Education Project activity since June has focused principally on the pension risk transfer studies being conducted by the Department of Labor and its ERISA Advisory Council; the summer NAIC meeting activities and projects; and discussions related to the 2023 Legal Seminar, all of which are discussed in detail elsewhere in this report.
Other Legal Department Activity
Director & Officer Liability Coverage
Legal Department staff worked with NOLHGA’s outside broker to obtain renewal coverage for NOLHGA’s Director and Officer Liability insurance. The renewal application was completed and submitted to the broker on July 11, and a renewal quote was received on August 7. The renewal, with the same policy form and coverage levels as prior years, resulted in no rate increase for the coming year. The renewal policy went into effect on September 1.
Financial Activities
The Accounting Department has been involved in the development of the 2024 preliminary operating budget and with preparations for the Finance Committee’s August 30 meeting, during which the committee reviewed 2024 preliminary works plans and budgets for major insolvency task force cases. In addition to routine accounting-related tasks, staff also calculated and mailed the first quarter 2023 quarterly assessments.
The department coordinated the following insolvency-related account distributions: (1) $1,314,000 to affected members ($1,132,000 and $134,000 in premium collections related to North Carolina Mutual and National States, respectively; and $48,000 due to quarterly true-ups of escrow account activity related to Life & Health Insurance Company of America); and (2) $2,772,000 to TPAs and receivers to fund claims and expenses for five active insolvencies.
Assessment Data Survey
The redesigned assessable premium exhibits were used as part of the 2022 annual statement filings for life, health, and P&C companies submitted by April 1 to the NAIC. The number of companies that filed the assessable premium exhibits increased from last year’s total of 1,288 to 1,369. Follow-up letters were sent to companies that did not file the premium exhibits, and Schedule T premiums will be used without adjustments for these companies.
On May 17, the task force conducted its review of the 2022 assessment data company filings in a hybrid setup, with some members in Madison, Wisconsin, and some participating remotely. Strohm Ballweg uploaded all test reports and related annual statement files to a secure ShareFile portal. Task force members were assigned specific NAIC numbers for review and were able to download the files via a secure link. Members were asked to complete a checklist and respond to Strohm Ballweg with any follow-up questions for insurers. All company reviews were completed within two to three days.
Of the top 85 annuity writers reviewed (which included the top 75 companies writing annuity business and an additional 10 companies randomly selected from the next 75 companies), 56 companies required follow-up letters, primarily relating to the following issues:
- Deposit and separate account reporting
- Significant changes in assessable premiums from 2021 to 2022 (increases and large decreases)
- Fee income reporting on separate account business
- Dividend deductions
Additional letters were sent to companies regarding life/annuity, health, and P&C filings:
- 95 P&C companies received letters reminding them to file the exhibits as part of the annual statement.
- 110 companies were sent follow-up letters related to the reporting of Medicaid, Medicare, CHIP, FEHBA, and stop-loss premium deductions.
- 69 companies received letters related to the reporting of disability income (DI) and LTC premiums, which are used in the new LTC cost allocation formulas.
ADS data will be made available to the guaranty associations via Quest on or about October 1. As in prior years, it will include premium information for DI, LTC, Medicaid, Medicare, FEHBA, CHIP, and HMOs. In addition, formulas for the premium exhibits continue to be updated as states adopt the new 2017 provisions. Updated formulas will be provided to the NAIC in October.
Guaranty Association Expense Information
The annual survey of guaranty association financial information has been completed. Verification of the entries on the online survey with submitted audited financial statements from each guaranty association is almost complete. The final report (with assessment figures) will be published on the NOLHGA website by year-end. The financial figures in the report are used to illustrate the costs of the guaranty system as a whole.
Communications
Publications
The June 12, 2023, issue of GA Update Online contained details of the management report provided to the NOLHGA Board for its June meeting. The second 2023 issue of GA Update was published in August.
Systems Support/Technology/Website
Network Systems Status & Website
The Systems Department is in the process of upgrading all the staff workstations to Windows 11. Ten workstations have been upgraded so far. In addition, a new workstation and mobile device were purchased and set up for NOLHGA’s new President.
Technical Assistance for Guaranty Association Administrators
The department presented a webinar on OneDrive for Business in August. A “getting started” guide for OneDrive for Business will be distributed later this year.
Cybersecurity
The department added endpoint protection and mobile device management protection to company mobile phones. The new threat protection will block access to harmful websites and apps. Device management protection will ensure all devices are protected with a six-digit PIN code and enables the organization to remotely wipe any lost or stolen mobile devices.
NOLHGA recently engaged an outside firm to run penetration tests on NOLHGA’s websites and network. The testing will take place in September.
Publications & Online Events
The department remained heavily involved in the planning and execution of NOLHGA’s hybrid events, including the July MPC meeting and July Legal Seminar.
New editions of the NOLHGAnet were published in May (on Outlook Mobile) and June (on OneDrive for Business). Updated technology guidelines will be distributed later this year.