PHL Variable Insurance Company Task Force Appointed
On May 17, 2024, Connecticut Insurance Commissioner Andrew N. Mais filed in the Connecticut Superior Court, Hartford Judicial District, a Petition for Rehabilitation and Appointment of the Commissioner as rehabilitator of PHL Variable Insurance Company (PHL) and its subsidiaries, Concord Re, Inc., and Palisado Re, Inc. On May 20, the Superior Court entered an order placing the companies into rehabilitation proceedings and appointing Commissioner Mais as the statutory rehabilitator in accordance with the Connecticut Insurers Rehabilitation and Liquidation Act. The companies consented to the rehabilitation.
PHL, which is licensed in all states except New York and Maine, is a Connecticut-domiciled insurance company that issued life insurance and annuity products and related supplemental contracts. Concord and Palisado are captive insurance companies whose only business is the reinsurance of PHL’s liabilities. The Connecticut Insurance Department filed the petition after determining that the companies are in a hazardous financial condition and that other alternatives have been thoroughly explored.
In accordance with MPC Rules and Procedures, MPC Chair Margaret Sperry (Rhode Island) has appointed a Class IV Task Force for PHL Variable Insurance Company. Nancy Margolis (PA) will be the Task Force Chair, and the members will be Bart Boles (TX), John Colpean (MI), Barry Miller (DE), Pamela Olsen (MN), Brad Taman (FL/NC), Todd Thakar (CA), and Jessica Walker (CT).
NAIC Updates
Following more than a year of inactivity, the Restructuring Mechanisms Working Group exposed revised drafts of the Restructuring Mechanisms White Paper and the Best Practices Procedures for IBT/Corporate Divisions.
Key items in the white paper include:
- New language related to a reviewing commissioner requiring licensure of resulting insurer(s) in all states where the transferring insurer was licensed or had ever been licensed—something NOLHGA has recommended to ensure continued coverage on the life and health business subject to a restructuring transaction (p. 13). The new language suggests that such a requirement could give non-reviewing states the ability to veto a proposed transaction by not issuing a license to an assuming or resulting insurer. This argument only comes into play when one of the resulting insurers does not already hold all necessary licenses when the proposed transaction is submitted to the department for review.
- Updated list of states with insurance business transfer (IBT) and corporate division (CD) statutes (pp. 1–2, 6–8).
- Updated list of completed restructuring mechanisms transactions (pp. 10–11).
- A new section on Virginia’s law requiring approval from the Virginia Corporation Commission for the assumption of policy obligations without policyholder consent (pg. 15).
- New language related to use of IBTs or CDs involving long-term care (LTC) insurance (“Creating monoline LTC entities through restructuring mechanisms may result in significant long term solvency risk.”) (pp. 16, 22). The new language strongly discourages regulators from entertaining an IBT or CD involving LTC business and suggests that if a regulator does decide to do so, they should bring the transaction to all affected states and a “national solution” should be pursued.
- New language related to the use of protected cells in an IBT/CD transaction (p. 22).
- Incorporates a “no material adverse impact” standard throughout the best practices. Prior versions suggested that regulators and independent experts would need to certify that the reserves and capital position following a transaction would put policyholders and other key stakeholders “in the same or better position.” Several interested parties advocated for the “no material adverse impact” standard, which is consistent with the Oklahoma IBT statute.
- Limits the instances in which an independent expert would weigh in on guaranty association/fund issues to those where the independent expert has expertise in guaranty association/fund law.
- Features updates to the IBT narrative section that would require insurers to include (1) an update to their Own Risk and Solvency Assessment (ORSA) demonstrating how a proposed IBT transaction would impact the ORSA analysis for the insurers involved in the IBT; and (2) the form notice to be provided to any policyholder whose policy is part of a proposed transfer (p. 6).
- Includes updates to the IBT and CD narrative section that would require insurers to document how the transferring insurer following the transaction will provide a continuing level of quality service related to the administration of policies (pp. 6, 8).
- Has new language suggesting that if a parent is offering a financial guarantee or continued management services, such support must be legally enforceable before a regulator considers the support in their review of a proposed transaction (p. 8).
In other news, the Privacy Protections Working Group (PPWG) held its first call in some time on May 15, 2024. After a “how we got here” presentation on the current state and federal privacy landscape, representatives from ACLI, APCIA, the Big I, and NAMIC asked the working group to consider draft model language that the trades have been working on since last year. The industry draft substantially revises the existing model Privacy of Consumer Financial and Health Information Regulation (#672), which the trades feel is the best place to start and on which they have reached consensus on several priorities.
The working group is seeking feedback by May 30 on whether (1) drafting should continue on the new privacy model (#674), or (2) revisions should be made to the NAIC’s existing models (either #670 or #672), taking into consideration the industry draft. In addition to the industry draft, the working group circulated a Core Privacy Issues Quick Lookreference tool that compares the June 2023 version of the new privacy model to existing models #670 and #672. Comments will be discussed on the next call, scheduled for June 12 at 11:00 am ET.
The Statutory Accounting Principles Working Group (SAPWG) took the following action on its May 15 call:
- Adopted Item 2023-16, which relates to Schedule BA reporting categories. This item does not amend any SSAPs but would amend the current proposal in front of the Blanks Working Group detailing how to report non-bond debt securities under the revised bond definition. The working group incorporated most of the interested parties’ proposed changes. The Blanks Working Group will discuss this revised item on its next call.
- Directed NAIC staff to prepare a memo and Blanks proposal related to the reporting of collateral loans. The working group incorporated most of the interested parties’ comments regarding reporting lines for collateral loans that will be part of the Blanks proposal. The memo to Blanks will propose a change to the asset valuation reserve (AVR) instructions to allow collateral loans backed by mortgages to flow through AVR as an “Other Invested Asset with Underlying Characteristics of Mortgage Loans” as an interim step while further consideration occurs on the reporting of collateral loans and how they should flow through AVR.
- Adopted the exposed revisions to remove the SSAP 107 disclosures related to ACA transitional reinsurance and risk corridor programs. Additional changes will be proposed to Blanks to remove references to these programs.
- Exposed a revised version of the issue paper related to the principles-based bond project.
AI Activity
On May 15, the Senate AI Working Group released its long-awaited summary of last fall’s closed-door AI Insight Forums and a roadmap for driving U.S. innovation. The roadmap calls for $32 billion in annual R&D spending and recommends that relevant committees of jurisdiction develop legislation to advance priorities that emerged from the forums. (One of the priorities is “[e]nsuring enforcement of existing laws for AI, including ways to address any gaps or unintended harmful bias; prioritizing the development of standards for testing to understand potential AI harms; and developing use case-specific requirements for AI transparency and explainability.”) Senate Majority Leader Chuck Schumer (D-NY) said, “It’s very hard to do regulations because A.I. is changing too quickly. We didn’t want to rush this.” Of course, the go-slow approach opens the door for states to take action.
Staff Contact - Sean McKenna