MPC INSOLVENCY TASK FORCE REPORTS

The following are summaries of insolvency task force reports presented February 18 at the Tucson MPC meeting:

Centennial Life (KS)

After providing a brief overview of recent events, Special Deputy Receiver Dan Watkins praised NOLHGA and the task force members for their work and discussed several key issues regarding the Centennial insolvency, including the status of the AXA litigation. Watkins noted that the AXA receivable remains the largest estate asset. Watkins also reported that the claims processed through January 31 were 53,000 aggregating about $14.5 million. With about 2,500 claims being processed weekly, Watkins envisions that most claims would be processed by September.

Bob Tice of Arthur Andersen provided attendees with a summary of financial data. As of December 31, the estate had unrestricted assets of $4.5 million and the Aegon Trust had a balance of $6.2 million.

Eric Smithback of Milliman & Robertson reported on several alternatives the task force was examining with regard to the disposition of the LTD block, one of which was a sale of the block through an assumption reinsurance agreement. A sale of the block would require $30 million in GA funding. The task force is in the process of developing a bid package for a possible assumption transfer.

Charlie Richardson reported on the AXA litigation, which to date has consumed significant resources. The amount in dispute is approximately $40-50 million. The trial is set for September, with depositions ending on April 15. Richardson also reported that a judge ruled against Universe Life in its filing of a garnishment against any settlement Centennial receives from AXA.

Linda Becker discussed LTD Block claim management, which has been outsourced to Disability Management Alternatives (DMA). Becker noted that DMA on February 26 will notify claimants that all payments will be made on the first of each month and, where appropriate, will mail additional checks to claimants so that payments remain up to date. It is anticipated that this will ease management of the block. Additionally, GAs must wire or send funds to the Centennial/Guaranty Association account by February 24 so that payments made to bring claimants up to date will be covered. From that point on, GAs must maintain a one month balance.

Finally, Mark Femal reported that an audit of claim processing for blocks 7-9 revealed that process accuracy was at 90 percent and financial accuracy was at 99 percent.

Task Force Chair - Mark Femal;   Staff Contact - Executive Life (CA)

In a major development, NOLHGA has learned that the Receiver filed suit Thursday against a number of Aurora investors for disgorgement of funds paid to Aurora on the grounds that relationships among certain Aurora investors were not disclosed to the California Department of Insurance. More news on this development will follow next week.

Don Kinney reported that the task force, with assistance from Arthur Andersen, will begin a review of the implementation of the Enhancement Agreement. Arthur Andersen will randomly survey a statistically valid sample of contracts to determine the accuracy of payment and crediting of contracts as required under the Enhancement Agreement. Testing will begin in mid-March and a final report is expected to be issued in June.

Bob Tice reminded attendees that the 8th installment payment of $66 million is due April 30, and a true-up bullet payment will be due June 6th.

Task Force Chair - Art Dummer;   Staff Contact - Confederation Life (MI)

Chuck LaShelle delivered the good news that it now appears that GAs will incur no additional costs in the Confederation Life case and will receive refunds of all expenses and interest paid. In 1994, the projected shortfall was $800 million. LaShelle also informed attendees that the $2 billion payout annuity block was sold to Pacific Life on January 20. Additionally, $22 million in prior GA funding for this block will be refunded upon closing in mid-1999.

LaShelle also reported that the shortfall in the GIC block will be largely covered by the $144 million surplus from the sale of the payout annuity block.

Task Force Chair - Chuck LaShelle;   Staff Contact - Summit Life (PA)

Task Force Chair Tad Rhodes reported the third distribution received in January brings total recoveries to date to $77 million, or 65 percent of GA costs. The total GA costs thus far amount to approximately $118 million. Remaining issues to be resolved include valuation of statutory deposits assigned to GAs and interest on assumption funding and promissory notes.

Task Force Chair - Tad Rhodes;   Staff Contact - Paul Peterson Universe Life (ID)

Task Force Chair Tad Rhodes reported that the Universe insolvency, which affects 25 states, has assets of $16.2 million and liabilities of $14.2 million. However, $9 million of those assets is a receivable from the insolvent Centennial Life which is not likely to be recovered.

Dana Carroll reported that the task force is beginning the process of selling two blocks of Universe business. The long-term care block, 763 policies, has garnered interest from six insurers and it is hoped that an assumption reinsurance agreement can be concluded by April 1. The individual non-cancelable accident and health blocks are also being marketed, with interest from two insurers. The task force has also set an April 1 deadline to close an assumption reinsurance agreement.

John Finston of LeBoeuf, Lamb, Greene and MacRae, reported on the morass of complicated legal issues present in this insolvency. The recission of the transactions between Universe and Centennial has raised the issue of which GAs are responsible for certificates issued when Centennial had control of the business.

Task Force Chair - Tad Rhodes;   Staff Contact - Monarch Life (MA)

Task Force Chair Mark Femal reported that the estate had $11.8 million in capital and surplus, a decrease of $700,000 from 1997. Variable universal life business produced a gain of $14.8 million while disability income business showed a $17.5 million loss in 1997. The task force will continue to monitor the insolvency.

Task Force Chair - Mark Femal; Mid-Continent Life (OK)

Task Force Chair Sonya Ekart reported that new Oklahoma Insurance Commissioner, Carroll Fisher, has stated his intent to resolve the Mid-Continent case through negotiation and settlement. Fisher has dropped the previous appeal of a judge's decision to allow a rate increase on Mid-Continent's policies and it now appears that a premium increase will be effected. Fisher is also investigating a sale of Mid-Continent, although no action has been taken yet.

Task Force Chair - Sonya Ekart;   Staff Contact - Bill O'Sullivan American Standard Life (OK)

Task Force Chair Andrea Bowers reported that the sale of the main estate asset, a Colorado ranch, had been delayed until April 19. Attendees were also informed that the proof of claim filing deadline is March 22. Finally, the task force will seek a meeting with the new deputy receiver to discuss the execution of an early access agreement.

Task Force Chair - Andrea Bowers;   Staff Contact - Bill O'Sullivan Fidelity Mutual Life (PA)

Task Force Chair Frank Gartland reported that the rehabilitator's offer to GAs for payment of unpaid assessments, without interest or penalties, which was contingent on the estate getting full tax offsets, is likely to be altered. The task force had urged GAs to reject that offer when it was made. In a new court filing, the rehabilitator has dropped the tax offset condition. While not yet approved by the judge, approval is likely and the task force is recommending GAs accept the offer.

Task Force Chair - Frank Gartland;   Staff Contact - Sean McKenna