NCIGF Reps Meet with Members of Congress

Recently, a number of NCIGF members, board members and staff took Capitol Hill by storm to do some updating on the state guaranty fund system. Meetings like these are critical, especially after an election year that saw a shift in power in the House of Representatives and the election of 100 new members of Congress, many of whom are without a background in financial services. Here are a few quick takes from the day:

  • 16 total meetings; 15 of which were with members of the Senate Banking and House Financial Services Committees.
  • Cross-section of senior members and freshman members, including:
    • Senate Banking Committee Chairman, Mike Crapo
    • Housing, Community Development, and Insurance Subcommittee Chairman, Lacy Clay
    • Housing, Community Development, and Insurance Ranking Member, Sean Duffy
    • 4 House Financial Services Committee freshmen
  • Overarching theme in the meetings was support for the state system.
  • Members and staff expressed appreciation for NCIGF’s engagement.

Many thanks to those who participated, along with John Blatt, Amy Clark and me (from NCIGF staff): Chad Anderson (WGFS), Charlie Breitstadt (Nationwide), Allan Patek (WI), Barbara Law (GFMS), Barry Miller (DE), Brad Roeber (CA) and Frank Knighton (GA). I feel confident we are off to a good start with this Congress. We’ve invested large amounts of resources, especially since the financial crisis, to assure federal lawmakers that the state-based safety net is prepared to protect consumers. Now is not the time to let up.

Company Division Statutes Gain Steam in the States

Company Division Statutes, also known as restructuring statutes or business transfer mechanisms, are gaining steam in the state legislatures. These are statutes that permit an ongoing insurance company to divest itself of certain liabilities, along with a calculated amount of assets, and relinquish any ongoing responsibility for this business. The business divested would be put into an existing or newly created insurance company.   The statutes proposed typically call for a plan to be filed with and approved by the state’s commissioner of insurance.  Sometimes review and approval by the court is also required.  Requirements for notice to policyholders vary from state to state.  The most current proposals do not limit lines of business that can be subject to divisions.  Hence, types of insurance such as personal lines, workers compensation and long- term care could be involved.

This concept began to take shape many years ago when Rhode Island adopted Chapter 14.5 of its insurance code known as “Voluntary Restructuring of Solvent Insurers.”  The mechanism was narrowly crafted and applies to “insuring of any line(s) of business other than life, workers’ compensation, and personal lines insurance.”  (See RI Statute s. 27-14.5-1(6)).

Pennsylvania also had a related law (PA Bus Corp. Law § 1951 (repealed)) that provided for division of a solvent company. The statute was used most notably in 1996 by Cigna to divide the business of its Insurance Company of North America (“INA”) unit.  The newly formed entity, known as Brandywine, assumed certain run‐off blocks of business while INA continued to write new business. The law has since been repealed and replaced with the more generalized Associations Transaction Act (15 Pa.C.S.A. § 361) though its application to insurance policyholders is unclear.

In 2014, Vermont passed its Legacy Insurance Management Act (LIMA). According to the RunOff Re.Solve website (runoffresolve.com), LIMA allows a non-admitted insurer to transfer its discontinued commercial business to a third‐party company.  Such a division would require approval from the Vermont regulator, but the law does not mandate court approval. Personal lines coverages are excluded and policyholders can opt out of the transfer process.

Most recently, a litany of division statutes have been proposed in the following states and have progressed in the 2017 and 2018 sessions.  The current status of the proposals in these states is as follows:

Connecticut:  Division statute enacted in 2017

Georgia: Passed both houses and recently vetoed by the governor.

Illinois:  Division statute enacted in 2018.

Iowa: “Study” bill floated in 2018.

Oklahoma:  Division statute enacted May 2018.

Michigan:  Enacted in late 2018

Nebraska:  Proposal introduced in 2019

Again, these most recent proposals are not limited to certain lines of business nor is policyholder approval required. Whether there is guaranty fund coverage for the divided entity is also an issue of concern.  The NCIGF will be monitoring the issue closely and providing updates as things develop.

For additional details on division statutes please go to https://www.ncigf.org/library/ and search for “division.”

NCIGF Sees Progress at NAIC on LD and Troubled Co Regulation

NCIGF closed out 2018 on a very high note.  Regulators adopted very positive recommendations governing large deductible insolvencies, including that states be encouraged to adopt statutes that grant the receiver the authority to collect deductible recoveries.  If no statute is in place receivers are encouraged to execute an agreement with the guaranty funds to enable this process.  The Working Group noted that two large deductible model statutes are available – the NAIC and the NCIGF versions. 

While the issue is not quite wrapped up (NCIGF will be involved in continued discussions regarding the ultimate ownership of the deductible asset and the drafting of specific language for the Receivers Handbook) this progress is attributable the hard work of a number of our members.

Likewise, financial regulators invited NCIGF and NOLHGA to comment on the NAIC Troubled Company Handbook.  Our comments were supportive (and included some fine-tuning based on member liquidation experience) because the proposed revisions to the Handbook would improve guidance to regulators on issues NCIGF members have found especially challenging:

  • early communication with guaranty funds and pre-liquidation planning,
  • regulator attention to the condition and availability of digital data in a troubled company,
  • info on service arrangements (TPAs and MGAs),
  • gathering information on the type and location of collateral, such as that intended to secure large deductible obligations  

Especially impressive is the attention given to the importance of digital data in contemporary insolvencies.  There now appears to be universal agreement that this is a very critical element to a successful liquidation process and key to the collaboration between guaranty funds and receivers.

To be successful, NCIGF served as the “trusted expert” and the definitive source of information on insurance insolvency and its consequences.   As a result, we have enjoyed great cooperation from regulators on these issues, both of which matter to on a daily basis to NCIGF members and the policyholders you serve.  We will build on these developments in the coming year!

NAIC Chief Endorses Web of Trust

I recently received a report from an international insurance regulatory meeting in which U.S. insurance commissioners were participating.  The urgency and assertiveness of our regulators hit me like a ton of bricks.

NAIC president, Eric Cioppa—the Maine director of insurance– opined that cybersecurity regulation cannot be prescriptive, but instead must be principles based because it is too hard for the supervisors to keep pace with industry.  First, cybersecurity engagement must come from the very top of the company.  A culture that prioritizes cybersecurity is critical due to the weakest link phenomenon.  Second, an insurer must focus on total preparedness for when a breach occurs.  Without engaging in table topping, a breach could be devastating to the company.  The supervisors are not looking to second guess a company’s program, but are trying to focus on broad cybersecurity themes.

As we continue to push forward in implementing the Web of Trust, it’s not for nothing to understand how U.S. regulators are approaching the same problems at an industry level and to recognize that it’s not all that different from the work we have been doing and are prepared to do more of.  Given that our members’ claims-paying function is an extension of the insurance industry, what regulators think on the topic should very much matter to us. 

In my view the reasoning transfers to NCIGF’s role in making certain that our members are at the most effective level of cyber security; f regulators can require carriers to “open their kimonos” as part of their consumer protection mission when a company is in business, we should be doing the same on security, also for the purpose of protecting policyholders and claimants. Our goals are even more narrow than the regulator’s.

Beyond the cybersecurity piece, the report should provide a flavor for the scope of discussions at the IAIS and the active role U.S. regulators are playing in it.  This is a global version of the NAIC (and as Keith Bell reminds us, the NAIC actually created the IAIS).  I point this out because while some of our colleagues continue to digest the “international” aspect of insurance regulation and its application to the U.S., this report gives a tiny peek into its tangibility, importance and durability.