MPC Meets in New Mexico
The following are summaries of task force insolvency reports presented during the Members' Participation Council meeting held Oct. 16 in Santa Ana Pueblo, N.Mex.
Staff Contact - Sean McKenna American Chambers Life Insurance Co. (Ohio) & Centennial Life Insurance Co. (Kan.)Mark Femal (Wis.), Charlie Richardson (Baker & Daniels), and Bob Tice (Andersen) conducted a panel discussion comparing the American Chambers and Centennial Life insolvencies to suggest some guidelines task forces can use in handling future healthcare insolvencies.
The panel traced the histories of both insolvencies, breaking down factors such as the speed of claims payment, unearned and post-liquidation premiums, PPO and drug card costs, and total expenses incurred. According to the panel, key lessons learned by the task forces include the importance of prompt payment of claims, dealing efficiently with policy cancellation issues, maintaining existing PPO and drug card arrangements, and good coordination with the third-party administrator. The panel also noted that asset recovery must be a top priority (just after policyholder protection) of any task force handling a healthcare insolvency.
Task Force Chairs - Chuck Gullickson (ACL) & Mark Femal (Centennial) Staff Contact - American Standard Life & Accident Insurance Co. (Okla.)Andrea Bowers (S.C.) briefed attendees on the current status of the Nicholas judgment, which the receiver plans to transfer to the participating guaranty associations. In addition to the judgment, the receiver will also transfer $500,000 in cash to help the associations pursue the judgment. Both the judgment and the $500,000 will be treated as early access distributions. Once the judgment transfer is complete, the receiver will be able to make a distribution to the uncovered policyholders and will then be in a position to close the estate.
Task Force Chair - Andrea Bowers Staff Contact - Bill O'Sullivan Bankers Commercial Life (Texas),Statesman National Life (Texas), &Professional Benefits Insurance (Texas)Neil Rucksdashel (Wash.), Bart Boles (Texas), Paul Peterson (NOLHGA staff), and Frank O'Loughlin (Rothgerber Johnson & Lyons) participated in a panel discussion concerning the Bankers Commercial Life, Statesman National Life, and Professional Benefits Insurance insolvencies, all of which are domiciled in Texas.
The discussion centered on premiums collected by guaranty associations (whether directly or though the estate) and measurement of guaranty association administrative expense claims against the estates. The panel also provided a summary of legal actions taken by the guaranty associations related to these issues, along with comments on future discussions with the receivers or courses of action to be contemplated.
Task Force Chairs - William Falck (BCL) & Neil Rucksdashel (Statesman) Staff Contact - Paul Peterson Executive Life Insurance Co. (Calif.)The Executive Life report focused on the Altus litigation and was held in closed session.
Task Force Chair - Art Dummer Staff Contact - First National Life Insurance Co. (Ala.)Joni Forsythe (NOLHGA staff) and Paul Peterson (NOLHGA staff) updated attendees on the latest developments in connection with the FNLIC insolvency. According to Forsythe, all significant litigation involving FNLIC has been completed, with the exception of proceedings relating to a $250,000 claim for rent by FNLIC's parent company for the receiver's use of building space and equipment during the conduct of the receivership proceedings.
Earlier this year, a special master was appointed to review and make recommendations with respect to approximately 70 outstanding claims against the FNLIC estate totaling about $7 million. The special master has recommended payment of NOLHGA's $2.5 million claim, though a dispute remains as to the priority to be afforded the expense portion of that claim. A hearing has been scheduled for Nov. 19 for final action on the claims.
According to Peterson, information currently available suggests that the guaranty associations should recover close to 100 percent of their claims, though the timetable for payment is not yet known.
Task Force Chair - Mike Marchman Staff Contact - Joni Forsythe Kentucky Central Life Insurance Co. (Ky.)Kevin Griffith (Baker & Daniels) provided a status update with respect to the Kentucky Central Life insolvency. Griffith reported that guaranty association post-closing support, true-up, and policy loan repayment by Jefferson-Pilot were completed in May 2000. Policy loan repayments and federated account balances were distributed to the guaranty associations by year-end 2000. During 2001, the task force prepared a comprehensive review and update of guaranty association funding and expense claims, and the updated claims have been submitted to the estate for payment. Outstanding guaranty association claims total approximately $27.4 million.
Griffith also provided an update on pending estate litigation as well as ongoing efforts to resolve outstanding issues with the assuming carrier; these include liability for maintaining post-closing minimum interest crediting rates under the plan, as well as approximately $3 million in unpaid policy loan interest owed to the guaranty associations.
Task Force Chair - John Colpean Staff Contact - Joni Forsythe National Heritage Life Insurance Co. (Del.)Dan Orth (Ill.) gave attendees background information on the cause and history of this insolvency. All covered policyholder obligations were resolved by the 23 affected guaranty associations by means of Assumption Reinsurance Agreements with MetLife and Madison National. Approximately 5 percent of policyholder obligations were uncovered by guaranty associations.
In an effort to resolve significant problems that were the focus of the receiver and in an attempt to introduce significant expertise in the area of managing and selling the estate's troubled real estate portfolio, a negotiated liquidation trust was formed, with two trustees appointed by the receiver and one by NOLHGA. Over time, the trust successfully managed and sold the vast majority of the estate's real estate assets, realizing significant revenue over the assets' estimated market value.
Meg Melusen (NOLHGA staff) walked attendees through the complex legal history of the case, highlighting some of the 13 criminal convictions and plea bargains associated with National Heritage and noting that the receiver has recovered approximately $40 million in cash and $140 million in real estate-related assets through litigation.
Frank O'Loughlin (Rothgerber Johnson & Lyons) provided an update on current litigation instituted by the receiver. Several large cases against wrongdoers are still in the pre-trial discovery and motion stages. One case in New York with significant recovery potential has been the subject of an unfavorable order by the federal court and is on appeal. O'Loughlin also reported that very recent information indicates that Shalom Weiss, a major perpetrator of fraudulent transactions regarding the failure of National Heritage, will not be extradited to the United States from Austria. Apparently, Weiss has been released on bond pending the filing of charges against him in Austria and trial on such charges.
Task Force Chair - Dan Orth Staff Contact - Reliance Insurance Co. (Pa.)Tad Rhodes (Okla.) and Peter Gallanis (NOLHGA President) updated attendees on the Reliance insolvency, noting that the terrorist attacks on the World Trade Center and the Pentagon on Sept. 11 had accelerated the liquidation of the company.
The task force is currently working to transfer a large block of Reliance's annuity and health insurance business to Combined Insurance Co. of America (which currently serves as a reinsurer for Reliance) before the policies are canceled on Nov. 2. A plan to facilitate this transfer had been in place before the order of liquidation, and the task force feels that the transfer of the policies to Combined Insurance is the best course of action for policyholders and the involved guaranty associations.
Gallanis noted that because the transfer would include 250 group policies (mostly association business), it is likely that every state guaranty association would have some participation if the policies are not transferred. Rhodes added that all parties involved, including the receiver and the Pennsylvania Insurance Dept., support the arrangement.
At the recommendation of the task force, the following resolutions were approved by the MPC:
1. Combined Business ApproachRESOLVED, that, based on the presentation and recommendation to the Council made by the Reliance Task Force on October 16, 2001, the Council authorizes the Task Force to proceed as described to the Council and to advise the Council when the transaction has been completed. If any agreement requires participation by the guaranty associations of a kind contemplated by Section 1.3 of the MPC Rules and Procedures, that agreement would be presented to the MPC Executive Committee for emergency action. 2. Early Access Agreement (with Liquidator Policy Servicing Provisions)RESOLVED, that pursuant to Sections 1.3 and 7 of the MPC Rules and Procedures, the Council (1) approves the Reliance Task Force's recommendation that NOLHGA enter into an Early Access Agreement with the Liquidator of Reliance (which includes certain provisions for continued servicing of the accident and health business by the Liquidator), in substantially the form presented to the Council at the Council's meeting on October 16, 2001; (2) authorizes the President of NOLHGA to execute the Early Access Agreement when in final form acceptable to the Task Force; and (3) shortens, in accordance with Section 7.2 of the MPC Rules and Procedures, the opt-out period for affected guaranty associations to 10 days from receipt of notice to the associations. Task Force Chair - Tad Rhodes Staff Contact - Unison International Life Insurance Co. (Okla.)Bart Boles (Texas) reported that the Unison International insolvency should be closed down in 2002. Total guaranty association recoveries amount to $6.7 million; part of this amount, a distribution totaling $2.4 million, has been received from the estate and is being allocated for distribution to the affected guaranty associations before the end of October. Boles estimated that the final recovery percentage for associations will be almost 32 percent and added that remaining issues for the task force include a complete asset sale and resolving any outstanding litigation.
Task Force Chair - Bart Boles Staff Contact - Bill O'SullivanNOLHGA Plans Expanded Web Presence
MPC Meeting attendees also received an update on NOLHGA's new Web strategy during "NOLHGA & the Web," a presentation by Bryan Owen, NOLHGA's manager of information systems. Owen explained the thinking behind the organization's efforts to redesign its Web site and integrate the site with its membership database and Information Resource Center.
According to Owen, NOLHGA's desire to improve both communications with its members and the quality and timeliness of the information it provides is the driving force behind the restructured Web presence. For instance, making the membership database available on-line (while strengthening site security) will offer members a quick and easy resource for contact information on other members. And by integrating the database with the Web site and the Information Resource Center, a change made in one section of the Web will instantly be made in the others as well. This switch to an integrated, database-driven Web structure will streamline the update process and improve the timeliness of NOLHGA's on-line information.
Owen added that the NOLHGA Web site is also slated for a complete redesign to incorporate new information and usability features. The public portion of the site will provide real-time industry news as well as links to related sites (NOLHGA is considering hosting sites for state guaranty associations that don't currently have them), and the password-protected portions of the site will identify users and tailor the information on the site to their needs.
Phase I of NOLHGA's new Web presence is scheduled to debut in January 2002. To help ensure expectations are met and the Web site provides the desired functionality, NOLHGA's Systems Dept. has set up a Web Task Force of guaranty association administrators to help with the initial design and architecture of the site. Anyone interested in joining this task force or participating in the Web redesign should contact Bryan Owen at 703.787.4112 or [email protected].
Staff Contact -New Location for Aurora
Aurora National Life Assurance Co. moved its corporate headquarters on Oct. 15. The new address is 27201 Tourney Road, Suite 225, Valencia, CA 91355. Telephone: 661.253.1688 or 800.315.2652; fax: 661.253.3163 or 661.253.1226
Staff Contact -NOLHGA Journal Correction
The listing for the meeting of the Southeastern Regional Guaranty Association in the Fall 2001 issue of the NOLHGA Journal is incorrect. The meeting is tentatively scheduled for June 20-21, 2002, in Little Rock, Ark.
Staff Contact - Sean McKenna