© 2019 National Association of Insurance Commissioners 1

Date: 3/25/19

2019 Spring National Meeting Orlando, Florida

RESTRUCTURING MECHANISMS (E) WORKING GROUP

Saturday, April 6, 2019 3:00 – 4:00 p.m.

JW Marriott Orlando—Mediterranean Ballroom Salons 4–8—Lobby Level

ROLL CALL Elizabeth Kelleher Dwyer, Co-Chair

Rhode Island Marlene Caride New Jersey

Buddy Combs, Co-Chair Oklahoma James Regalbuto New York Michael Conway Colorado Joe DiMemmo Pennsylvania Kathy Belfi Connecticut Raymond G. Farmer South Carolina Robert H. Muriel Illinois Amy Garcia Texas Judy Weaver Michigan David Provost Vermont Fred Andersen Minnesota Scott A. White Virginia John Rehagen Missouri Doug Hartz Washington Matt Holman Nebraska NAIC Support Staff: Dan Daveline/Casey McGraw

AGENDA

1. Consider Adoption of its March 11 Minutes Attachment A

—Superintendent Elizabeth Kelleher Dwyer (RI) and Buddy Combs (OK)

2. Hear Presentations from Interested Parties —Superintendent Elizabeth Kelleher Dwyer (RI) and Buddy Combs (OK) • American Council of Life Insurers (ACLI)—Wayne Mehlman (ACLI)/Rich Bowman (New York Life) • Swiss Re America Holding Corporation—Dave Scasbrook (Swiss Re) • ProTucket Insurance Company—Mory Katz (ProTucket) Attachment B • National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) Attachment C

and National Conference of Insurance Guaranty Funds (NCIGF) —Peter Gallanis (NOLHGA) and Roger Schmelzer (NCIGF)

3. Discuss Any Other Matters Brought Before the Working Group —Superintendent Elizabeth Kelleher Dwyer (RI) and Buddy Combs (OK)

W:\National Meetings\2019\Spring\Cmte\E\Restructuring\Restructuring Agenda.docx

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Attachment Four Financial Condition (E) Committee

4/8/19

© 2019 National Association of Insurance Commissioners 1

Draft: 3/21/19

Restructuring Mechanisms (E) Working Group Conference Call March 11, 2019

The Restructuring Mechanisms (E) Working Group of the Financial Condition (E) Committee met via conference call March 11, 2019. The following Working Group members participated: Elizabeth Kelleher Dwyer, Co-Chair, and Matthew Gendron (RI); Buddy Combs, Co-Chair (OK); Michael Conway represented by Rolf Kaumann (CO); Kathryn Belfi (CT); Robert H. Muriel (IL); Fred Andersen (MN); John Rehagen (MO); Matt Holman (NE); Marlene Caride represented by Kristine Maurer (NJ); Raymond G. Farmer represented by Daniel Morris (SC); Scott A. White represented by Doug Stolte (VA); and Dave Provost (VT). Also participating was Joe DiMemmo (PA).

1. Heard Opening Comments from Co-Chairs and Reviewed its Charges

Superintendent Dwyer indicated that this is the first conference call of the Working Group after just being appointed by the Financial Condition (E) Committee. Therefore, its purpose was primarily organizational such as planning and setting up the agenda for the Spring National Meeting. Superintendent Dwyer made the Working Group aware that various materials had been posted to the Working Group’s website, including two past NAIC white papers on the topic; an article written by Mr. Gendron; and the Oklahoma and Rhode Island statutes. She requested that other states send in their own similar statutes for reference material.

Superintendent Dwyer directed the Working Group to a copy of the charges that were distributed prior to the conference call and read them to be certain all members understood the overall work to be completed by the Working Group. She asked members of the Working Group for suggestions on approaches to meet the charges.

Ms. Maurer asked if the charges had been officially adopted, noting that she had some hesitation about making changes to model acts that are under the purview of another group. She also noted her concern about coordinating with other bodies, specifically the Receivership and Insolvency (E) Task Force. Superintendent Dwyer noted that the charges may not be worded as well as they could be, and her belief was that any recommendations would be proposed to the Financial Condition (E) Committee and then carried out by the applicable NAIC group.

Dan Daveline (NAIC) noted that when the charges were adopted by the Financial Condition (E) Committee, the chair of that Committee, Commissioner David Altmaier (FL), indicated his interest in a conversation between the Committee and the Working Group at the Summer National Meeting. He noted that such a conversation would likely result in a further refinement of the charges and future direction of the work at that point, based on the discussions and work completed at that point in time.

Mr. Gendron noted that there is no current open model act, noting that a decision would have to be made by the Committee to open such a model.

Ms. Maurer said she appreciated the comments, adding that conversations by the appropriate area of expertise occurring sooner rather than later would be helpful to the process to avoid backtracking later.

Superintendent Dwyer noted that during the development of the white paper in accordance with the charges, the Working Group would be presenting existing requirements, which may be helpful, although Rhode Island’s statutes are narrower.

Ms. Belfi noted that the discussions on determining the perceived need are important, noting that the topic was discussed in prior NAIC workstreams. She stated that she looks forward to outreach to those states that have enacted legislation so that people could better understand the need. She referred to not only understanding the need from state insurance regulators but also understanding the need from the industry. She noted that past surveys had been helpful, and a future survey may be warranted.

Superintendent Dwyer responded that during this conference call, she will be asking for solicitation of views for discussion at the Spring National Meeting, but she agreed that such a survey may be helpful.

Attachment A

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Attachment Four Financial Condition (E) Committee

4/8/19

© 2019 National Association of Insurance Commissioners 2

Mr. Andersen stated that he believes the white paper should address consumer protection issues, noting that it seems as if those issues are currently out of the scope of the white paper, given the charges. Superintendent Dwyer responded that she did not believe that issue is outside of the scope of the white paper and agreed that this does need to be considered. Susan Voss (American Enterprise) stated her appreciation for addressing the issues of guaranty funds. Mory Katz (ProTucket Insurance Company) stated that as an insurance company formed under the Rhode Island statutes, he offers his assistance in the future, including possible delivery of papers ProTucket has authored on the topic. Superintendent Dwyer responded with appreciation, noting that people should be aware that anything submitted to the Working Group would become public and potentially part of the white paper. She stated that the discussion at the Spring National Meeting would be limited to one hour, noting that the Working Group would work to try to accommodate an appropriate number of speakers, but this would result in limiting presentations to 10 minutes or less. She asked that anyone interested in submitting anything to the Working Group or presenting in the future should contact NAIC staff. Mr. Daveline commented that for the Spring National Meeting, materials would have to be distributed soon, and he recommended that the co-chairs decide on the presenters in the near future so the agenda and materials could quickly be finalized. Wayne Mehlman (American Council of Life Insurers—ACLI) stated that the ACLI has been developing principles, guidelines and elements it views as important for such structures, noting that the ACLI volunteered to provide such to the Working Group. He stated that the ACLI is hoping to complete its work within a couple of weeks. Superintendent Dwyer noted that she and her staff are aware of related laws in Arizona, Connecticut, Illinois, Mississippi, Pennsylvania and Vermont. She requested that these statutes be sent to NAIC staff and an entire future conference call be used for those respective states to describe their laws and purpose and any limitations around them. It was noted that Casey McGraw (NAIC) would synthesize the information into the white paper. Stephen J. Johnson (Stradley Ronon) stated that as a former state insurance regulator, these restructuring statutes give a lot of flexibility for regulators and companies to deal with these issues. He pointed to the one deal he was involved in: Cigna property/casualty (P/C). He stated that it resulted in a divided company, where the active companies were separated from the legacy runoff in Brandywine Holdings. He noted that, without such, Cigna P/C would have been downgraded and put into runoff. As a result of the restructure, the companies could continue to sell new business. This business was taken over by ACE, which is now part of Chubb, and is now part of the ongoing business of that group. Superintendent Dwyer asked if Mr. Johnson or someone else could present on that corporate division use. Mr. Johnson stated that he is reluctant because he is no longer with the Pennsylvania Insurance Department; however, it may be possible for the department to circulate the order from 1996 on the transaction. Mr. DiMemmo indicated that Pennsylvania could send the order to NAIC staff, so it could be a reference for the Working Group. Superintendent Dwyer asked Mr. Johnson if the restructure statute was also used for the Senior Health Insurance Company of Pennsylvania (SHIP). Mr. Johnson responded that it was not, indicating that it was the result of the sale of Conseco Senior Health Insurance Company for $1. Carolyn Fahey (Association of Insurance & Reinsurance Run-Off Companies—AIRROC) offered her assistance as a resource to the Working Group in the future. Peter Gallanis (National Organization of Life and Health Insurance Guaranty Associations—NOLHGA) mentioned that one of the issues contemplated by the charges is related to guaranty association coverage and how that works in the context of some of the proposed statues, noting that he would be happy to educate the Working Group on this issue. Barbara Cox (National Conference of Insurance Guaranty Funds—NCIGF) stated that the NCIGF would assist in educating the Working Group, working jointly with the NOLHGA.

Attachment A

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Attachment Four Financial Condition (E) Committee

4/8/19

© 2019 National Association of Insurance Commissioners 3

Mr. Stolte stated that with respect to the Restructuring Mechanisms (E) Subgroup, as co-chair with David Smith (VA), the Subgroup would like to solicit comments on the its charges, as well as the definition of “runoff.” He stated that comments from regulators and interested parties would be used to start the Subgroup’s discussions during a future conference call. He asked that comments be submitted to NAIC staff within 45 days. Mr. Johnson suggested that as the work progresses, it may be best to think about flexibility, given that it is generally a win-win when companies can “skinny down,” even if it ends up going into receivership. He also recommended that while there are similarities, there are differences between running off life, health, long-term care, commercial P/C and personal lines P/C insurers, as well as professional reinsurers. 2. Called for Presentations Superintendent Dwyer reiterated her previous request for presentations or written documents. Then decisions will be made on how many presentations can be accommodated, noting that time for further digestion of comments or presentations could take place in the future. There was a goal to document many of the comments into the initial drafting of the white paper by the Summer National Meeting. Having no further business, the Restructuring Mechanisms (E) Working Group adjourned. W:\National Meetings\2019\Spring\Cmte\E\Restructuring\3-11 Restructure Minutes.docx

Attachment A

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www.pro-global.com Copyright © by Pro Insurance Solutions Ltd.Copyright © by Pro Insurance Solutions Ltd.

Restricted- Do not distribute or make copies

Rhode Island Voluntary Restructuring of Solvent Insurers

Spring 2019 Meeting National Association of Insurance Commissioners

Albert B. MillerU.S. General Counselal.miller@pro-global.com

Attachment B

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General Overview

Companies evolve and are recast everyday in all industries. The insurance industry is no different.

Rhode Island IBTs provide restructuring options for insurance run-off portfolios.

In some carriers, insurance run-off diverts capital, resources, and management from on-going core operations.

Restructuring transactions enhance capital efficiency and sufficiency of the industry.

Done with proper regulatory oversight, they are good for the industry, participants and policyholders.

Attachment B

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Rhode Island administrative review process includes 30 day public comment period.

Requires review by an independent expert retained by transferee company.

Review by independent expert retained and controlled by RI DBR.

Both transferring policyholders and left behind policyholders cannot be materially adversely affected.

Policyholders and affected parties have notice and an opportunity to be heard and object during court proceedings.

Transferor’s domiciliary regulator must approve or not object.

RI Insurance Department must approve.

RI Court must approve.

Rhode Island IBT – Policyholder Protection

Attachment B

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Insurance Business Transfer

Fundamentally, an IBT is the acquisition of a portion of a company.

IBT approval is akin to a Form A process, but with significant additional safeguards (e.g. court approval and review by at least two independent experts).

IBTs are not for troubled companies and not “good bank, bad bank.”

Can separate live from run-off business.

Brings operational, management and administrative efficiencies.

Releases capital for core or new business opportunities.

Provides clean, final exit from unwanted business.

Reduce risk and complexity within the company.

Provides economic, legal and operational finality.

Attachment B

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IBT Benefits

Financially Stronger Companies – both transferring and assuming company.

More efficient use of capital and resources at both the transferring and assuming companies.

Enhanced management focus on the core businesses at the transferring company post IBT.

Attachment B

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ProTucket Insurance Company

Rhode Island domestic insurer seeking IBTs pursuant to R.I. General Laws §27-14.5 and the associated regulation found at 230 RICR 20-45-6.

By Rhode Island law, no direct workers compensation, no direct personal lines (including long term care), no life, no life reinsurance.

Currently focused on assumed reinsurance portfolios.

IBT portfolios will be reinsured with largest reinsurers in the world.

Loss projection to very high level of actuarial certainty.

Attachment B

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ProTucket IBTs

Cedents/Policyholders protected by robust approval procedure and due process protections.

Cedents included in IBT have dedicated capital protection because every Protected Cell of ProTucket will be protected by strong, high limit reinsurance.

ProTucket’s sole business is to transact IBTs.

Attachment B

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Conclusion

ProTucket IBTs and the Rhode Island approval process produce financially stronger companies without prejudicing the security of cedants or policyholders.

Attachment B

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Attachment B

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Click to edit Master title style

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Insurance Business Transfer/Corporate Division: Potential Life & Health GA Implications1

Rest ruc tur ing Mechanisms (E) Work ing Group

P e t e r G a l l a n i sP r e s i d e n tN O L H G A

N A I C S p r i n g M e e t i n gO r l a n d o , F l o r i d a

A p r i l 6 , 2 0 1 9

1 While NOLHGA neither endorses nor opposes any specific Insurance Business Transfer or Corporate Division proposal, we do wish stakeholders to be aware of potential guaranty system safety net implications for insurance consumers and other stakeholders.

Attachment C

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Conditions for Coverage by a State’s L&H GA2

2

Person Must be Eligible for CoveragePrimarily Resident State Policyowners

Product Must Be Covered Policy

Insolvent Company is “Member Insurer” of GACompany Must Be/Have Been Licensed in GA’s State

Public Policy Rationale for Licensing Requirement

If Not Member Insurer: Policyholders are “Orphans”

2 The conditions for GA coverage must be met at the time the GA is triggered.

Attachment C

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Orphan Coverage

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All L&H GA Acts Have Orphan Coverage Provision

Domiciliary State GA Covers “Orphans” (e.g., Policyholders in Non-Licensed States)

Avoids Coverage Gaps Due to Exceptional CircumstancesE.g., Policyholder Moves to Non-Licensed State

The Orphan Exception was Never Intended to Swallow the Rule that Individuals are Covered by the GA in their State of Residence.

Attachment C

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Business Transfer/Corporate Division Hypothetical

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“Company X” Succeeds to Business in 50 StatesLicensed Only in State of Domicile

L&H GA CoverageCompany X Not “Member Insurer” in 49 StatesGAs in 49 States Provide No CoverageDomiciliary State GA Provides Nationwide Coverage

Potential IssuesPotential Capacity Strain for Domiciliary State GASmaller Assessment Base in the 49 Other StatesFairness Issue for Domiciliary State Member InsurersNo Regulatory Authority for Commissioners in the 49 States where Company Xis not Licensed.

Attachment C

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Supporting the Insurance Promise

NCIGF Presentation on Property Casualty Guaranty Funds and

Restructuring Mechanisms

Roger SchmelzerPresident & CEO

Attachment C

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GOAL

Continue to protect policy claimants the system is intended to protect

Attachment C

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3

Coverage Issues

“Typical” covered claim definition:

"Covered claim" means an unpaid claim, including one for unearned premiums, I.That arises out of and is within the coverage and not inexcess of the applicable limits of an insurance policy towhich this part 5 applies issued by an insurer if suchinsurer becomes an insolvent insurer…Col St. s 10-4-503 (4) a.

Attachment C

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Coverage Issues

“Typical” insolvent insurer definition:

"Insolvent insurer" means an insurer licensed to transact insurance business in this state, either at the time the policy was issued or when the insured event occurred, and against whom an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the insurer's state of domicile or of this state and which order of liquidation has not been stayed or been the subject of a writ of supersedeas or other comparable order. Col. St. s. 10-4-503 (5).

Attachment C

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