Volume IX , Number 20

MPC Meeting in Minneapolis

The following are summaries of insolvency status reports presented at the NOLHGA Members' Participation Council meeting, held May 18-19 in Minneapolis, MN. In addition, the presentations for Fidelity Bankers Life and Executive Life were held in closed sessions.

American Chambers Life (OH)

Task Force Chair Chuck Gullickson provided an overview of the American Chambers insolvency, which affects 38 states. According to Gullickson, one of the key challenges that the task force is focusing on is reducing a backlog of over 400,000 claims, including claims from business reinsured by the company. Gullickson reported that on April 24, the MPC Executive Committee had approved the task force's request to enter into a claims servicing agreement with Antares Management Solutions, who will administer claims payments and premium collection.

Noreen Tolar of Antares provided attendees with a status report on claims processing. According to Tolar, claims processing will begin next week. The initial focus of Antares, which has hired approximately 200 American Chambers employees, is allocating the backlog. Of the 400,000 claim backlog, only a portion are GA claims. The majority of the claims belong to Continental General or two other companies with which American Chambers had a fronting agreement.

Task Force member Frank Gartland apprised attendees of the disposition of American Chambers business. The company wrote primarily small group and association group health insurance policies. According to Gartland, all 22,300 small group certificates have been cancelled, while on the association side, there were approximately 27,600 certificates in force, of which 16,700 had been reinsured by Continental General, with another 10,900 having already been cancelled.

Task Force financial consultant Marc Siegel reported that American Chambers had approximately $30 million in assets and approximately $48 million in liabilities as of December 31, 1999. Siegel noted that some of the assets and liabilities on American Chamber's books were the result of fronting agreements with other insurers and that issues related to those agreements would need to be resolved before the full extent of the American Chambers' shortfall is clear.

Task Force member Mark Femal explained that a batch of approximately 12,000 pre-liquidation claims existed for which checks had either been cut or check numbers assigned. Femal noted that the task force was working to categorize those claims by state and that states would have the option of allowing the already cut checks to be sent to claimants.

Task Force Legal Counsel Charlie Richardson discussed a number of legal issues related to the insolvency. A key legal issue is the relationship between American Chambers and its bank. Richardson noted that the bank had moved aggressively to protect its interests in several American Chambers assets.

Task Force Chair - Chuck Gullickson;   Staff Contact - American Standard Life (OK)

NOLHGA's Bill O'Sullivan reported that only one substantial issue remains to be resolved with respect to the ASL case, that of the disposition of the approximately $8.5 million in proceeds from the sale of Colorado ranch property. O'Sullivan noted that the task force was seeking an agreement on the distribution of those assets.

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

Task Force Chair Mark Femal told attendees that activities related to the Centennial insolvency are winding down and, as such, few staff remain in the Centennial offices. The task force is also working to dispose of the LTD block.

Task Force Chair - Mark Femal;   Staff Contact - Kentucky Central Life (KY)

Task Force Chair John Colpean apprised attendees that the KCL plan ends on May 31 and that by and large it did not appear that most states would need to provide additional financial support, after taking into account predicted estate distributions, to policyholders. Task Force Legal Counsel Kevin Griffith reported on the various options states had depending on their statutes with respect to securing alternative coverage. Remaining issues the task force will be working on is developing an as needed shadow account for those states that may need it, resolving who bears the financial risk on future crediting rate changes and on determining the value of the remaining properties in the real estate portfolio and whether to extend or exercise overbid rights on those properties.

Task Force Chair - John Colpean;   Staff Contact - Joni Forsythe National Affiliated Investors Life (LA)

Task force chair Chuck Gullickson reported that on April 26 a liquidation order was issued and immediately stayed until the close of an assumption reinsurance agreement. At the same time, the court approved 1) an early access agreement from the estate which provides that NOLHGA/GA expenses are Class 1 priority claims and 2) an assumption reinsurance agreement, whereby Citizens Security Life/United Liberty Life will assume NAIL's business. It is expected that the agreement will close in early-mid July.

Task Force Chair - Chuck Gullickson;   Staff Contact - Paul Peterson Thunor Trust Companies

NOLHGA's Peter Gallanis reported on recent developments in the case, including a pending assumption reinsurance agreement for Franklin American Life and a substantial pending early access distribution. On the asset recovery side, Gallanis informed attendees that the receivers of the Thunor companies had filed a RICO suit against Martin Frankel and certain of his affiliates. Moving forward, the task force will be working to finalize the assumption reinsurance agreement for Franklin American, continue to work with receivers on asset recovery, file proofs of claim in Mississippi, finish early access agreements and complete the final accounting for Madison National.

Task Force Chair - Chuck LaShelle;   Staff Contact - Universe Life

Task Force Chair Tad Rhodes reported that the task force was working to conclude an early access agreement with the receiver. Rhodes requested, and the MPC approved, authorization to enter into a standard early access agreement.

Task Force Chair - Tad Rhodes;   Staff Contact - Paul Peterson

Managed Health Care Organization Panel

In addition to insolvency reports, Jack Falkenbach moderated a panel, coordinated by members of the Administrators' Education Committee, on managed health care organizations and their implications for the guaranty association system. Art Dummer, Executive Director of the Utah Association, shared his experiences related to a request by the Utah commissioner to consider expanding guaranty association coverage to managed care organizations (MCOs). According to Dummer, managed care plans can fail due to low levels of required capital. In hypothetically looking at extending guaranty association coverage, Dummer noted that hold harmless provisions would need to be recognized and relied on and guaranty associations would need to be empowered to seek enforcement. He also opined that managed care guaranty protection should be provided through a separate account, with no cross-support from the life and indemnity health accounts, and that an association that covered MCOs could well have a common but expanded Board of Directors would be appropriate. Dummer closed by noting that there is very little support for guaranty coverage to managed health care plans. Julia Philips, Life and Health Actuary, Minnesota Department of Commerce, shared an analysis of Risk-Based Capital data from HMO-type organizations. According to Philips, approximately one quarter of managed health care organizations are at some risk based on their risk-based capital ratios.Phil Griffin, Vice President of Public Policy at Preferred One, a Minnesota HMO, shared his view that managed care organizations should not be included in a guaranty system. According to Griffin, guaranty fund regulation would not insure solvency and in fact delay efforts to take care of consumers of insolvent MCOs. In addition, in light of hold harmless clauses in most contracts, a guaranty fund for managed care would amount to protecting providers rather then consumers. Finally, NOLHGA Chairman Bill Fisher shared with attendees the experience of Massachusetts in the Harvard-Pilgrim case. According to Fisher, the company had approximately 1.1 million members and was one three large managed care organizations in the state. In 1999 the company reported losses of $226 million and agreed to be placed in receivership in January of this year. With only two other large health care organizations in the state, any attempt to require those companies to fund Harvard-Pilgrim's obligation, through a guaranty mechanism, would have likely caused the insolvency of the other MCOs. Instead, the state unsuccessfully tried to sell the company and has finally settled on a rehabilitation plan for the company.

CALENDAR/CONFERENCE CALLS

July 20-21 NOLHGA Legal Seminar, Boston, MA