MPC Insolvency Task Force Reports

The following are summaries of insolvency task force reports presented during the August 26-27 NOLHGA Members' Participation Council meeting, held in Couer d'Alene, ID.

American Standard Life (OK)

NOLHGA's Bill O'Sullivan reported that with the completion of the sale of the Colorado ranch on August 9 for $8.25 million, there are three tasks remaining for the task force in the American Standard Life insolvency. These tasks include: resolving the claim of the Pennsylvania Guaranty Association/LACOP estate against the ranch sale proceeds; finalizing an early access agreement with the ASL receiver; and completing IBNR true-up closing under the assumption agreement. Assuming no further opposition from David Nicholas - ASL's former controlling stockholder - these items could be completed in 8-10 weeks. Mr. Nicholas' motion to intervene in the liquidation proceedings was recently denied by District Court Judge Nancy Coates on August 16th. It is anticipated that Nicholas will appeal Judge Coates' ruling.

Task Force Chair - Andrea Bowers;   Staff Contact - Bill O'Sullivan Centennial Life (KS)

Bob Tice of Arthur Andersen provided attendees with an overview of planned estate distributions. Tice reported that within the next month the receiver would distribute to guaranty associations the $5.3 million in the GA cash account. Tice also anticipates that the receiver will, at a later date, refund approximately $2.1 million in administrative expenses, $1.9 million in unearned premiums, as well as other Class 1 administrative expenses submitted by NOLHGA and the guaranty associations.

Charlie Richardson of Baker & Daniels brought attendees up to date on the status of various Centennial litigation matters. Centennial has settled its claim against AXA for $36 million. Additionally, a September 14 trial date has been set for the suit between former Centennial management and AXA. Richardson also reported that Universe Life has sued AXA in Idaho for a portion of the AXA/Centennial settlement relating to certain reinsurance agreements between Centennial and Universe. In turn, AXA filed an interpleader action against Centennial and Universe in the Centennial liquidation court and tendered to that court $11.2 million of the $36 million settlement.

NOLHGA's Bill Howard reported on efforts related to the sale of Centennial's "Other" block. Howard said that 11 companies were contacted regarding the block, with eight requesting information packages. Thus far, however, no bids have been received. Task Force Chair Mark Femal closed with a summary of outstanding issues related to the LTD block. The main focus of the task force over the next several months will be dealing with the DMA claim review of LTD claims, the collection of billings due from ERC and a possible commutation of the LTD block.

Task Force Chair - Mark Femal;   Staff Contact - Confederation Life (CN)

Task Force Chair Chuck LaShelle reported to the MPC that guaranty associations can soon expect a $55 million distribution, which is a refund of guaranty association contributions to the Confederation GIC block, plus interest. The task force anticipates that by January 2000, most issues relating to the insolvency will be resolved and the total cost of the insolvency to the guaranty system will be zero. LaShelle also said the task force was developing a procedure for guaranty associations to file claims in Canada for unpaid assessments against the estate.

Task Force Chair - Chuck LaShelle;   Staff Contact - Executive Life (CA)

Bob Tice of Arthur Andersen provided attendees with an update of their review of the implementation of the enhancement agreement. Four hundred contracts, representing a broad range of Executive Life contracts, were selected for testing. Tice provided an overview of the testing procedures followed and the results thereof. A final report will be completed in about a month.

A status report on the Altus litigation was also provided by Task Force Chair Art Dummer and Project Manager Don Kinney.

Task Force Chair - Art Dummer;   Staff Contact - Kentucky Central Life (KY)

Task Force Chair John Colpean summarized issues relating to the termination of the plan on May 31, 2000. The task force is working with Jefferson Pilot to clarify outstanding issues related to the end of the plan.

Task Force Chair - John Colpean;   Staff Contact - Joni Forsythe Mid-Continent Life (OK)

Task Force Chair Sonya Ekart brought the MPC up to date on the status of the Mid-Continent insolvency. Ekart noted that the receiver had requested proposals for the transfer of the Mid-Continent business and received proposals from 10 companies. The receiver has indicated that a determination will be made in the next several weeks. The task force will continue to provide input to the receiver with regard to guaranty association issues as the proposal process continues.

Task Force Chair - Sonya Ekart;   Staff Contact - Bill O'Sullivan National Affiliated Investors Life (LA)

Project Manager Paul Peterson presented background information on National Affiliated Life, a Louisiana-domiciled company. Guaranty association involvement, if necessary, will be minimal, as the Louisiana Department of Insurance is deciding whether to sell the company or transfer the policies through an assumption reinsurance agreement. If guaranty association involvement is necessary, the cost to guaranty associations is estimated at slightly under $1 million. The task force agreed that the insolvency would be handled internally by NOLHGA staff and that minimal, if any, outside consulting services would be used. A preliminary task force report will be mailed to affected associations this week. The task force will also continue to monitor Louisiana Department action concerning National Affiliated.

Task Force Chair - Charles Gullickson;   Staff Contact - Paul Peterson New Jersey Life (NJ)

Task Force Chair William Falck told attendees that participating guaranty associations were required, as part of the assumption reinsurance agreement with American General, to make up any difference between surrender charges and payouts on certain types of policies. American General and the task force have set that shortfall at $145,000. Affected guaranty associations will be notified of their obligation in the near future.

Task Force Chair - William Falck; Settlers Life (VA)

Task Force Chair Mike Marchman provided attendees with background on Settlers and its business, which is predominately pre-need life insurance with some health policies. A rehabilitation order was issued on May 14, largely the result of a reinsurance agreement Settlers entered into with the now insolvent First National Life, in which Settlers transferred $45 million in assets to First National Life of America, which are now missing. (First National is one of the Thunor Trust-controlled companies). This has resulted in a $22 million shortfall.

According to Marchman, the Settlers receiver is continuing to pay claims and does not anticipate the need for any guaranty association funding. The receiver is actively seeking a buyer for the company and has set a September 30 deadline. Marchman also noted that Settlers has filed suit against First National seeking return of the $45 million. The task force will continue to monitor the case and work with the receiver.

Task Force Chair - Mike Marchman;   Staff Contact - Thunor Trust Companies

Task Force Chair Chuck LaShelle updated attendees on the status of the bid process for five of the seven Thunor Trust Companies (Franklin Protective, Family Guaranty, First National Life, Farmers and Ranchers, and International Financial Services Life). The MPC named Madison National Life as the winning bidder to assume the policies of all five companies. Participating guaranty associations will provide approximately $122 million to fund the policy liabilities. It is anticipated that the actual transfer will be finalized on November 15.

LaShelle also apprised attendees that Franklin American Life was being offered for sale by the receiver. The task force will monitor the process.

The MPC also approved a confidentiality agreement that would allow the sharing of information between receivers, task force members, and NOLHGA staff.

Task Force Chair - Chuck LaShelle;   Staff Contact - Universe Life (ID)

The Universe working group met with representatives of the receiver in Boise on August 24. Universe Life Task Force Chair Tad Rhodes announced that an agreement with MedAmerica to assume Universe's long term care block had fallen through. However, the task force sought new proposals from MedAmerica and Central States of Omaha. Both companies submitted bids. On the strength of Central States of Omaha's bid and familiarity with Universe's policies, the MPC awarded the block to Central States. A mid-October assumption is expected.

Rhodes also noted that the task force was working to resolve issues relating to a number of group universal health policies and to negotiate the transfer of individual medical policies to Madison National Life in mid-October.

Task Force Chair - Tad Rhodes;   Staff Contact - Bill O'Sullivan