2) Obama Invites Republicans To Healthcare Session

3) Lloyd's Of London Sees Regulation As Key Challenge

4) Study Shows How Medicare Rewards MDs For Overuse

5) Benmosche Sees P&C Unit, US Life At AIG's Core

6) CIT Sets John Thain's Salary At $6 Mln Per Year

7) BestWeek: Medical Professional Liability Pressure Builds as Market Awaits Shift

8) INSURANCE NEWSLINK Articles

9) BANK INSURANCE NEWS IN BRIEF - FEBRUARY 8, 2010

10) Ironshore Specialty Casualty Offers Customized Program For Public Entity Employment Risk

11) U.S. Won't Renegotiate UBS Tax Deal: Report

12) No Double-Dip Slump But Recovery Slow: Geithner

13) Insolvency Trends – 2010 An Annual Publication of the National Conference of Insurance Guaranty Funds

14) Lack of Paid Sick Days Allowed H1N1 to Spread in the Workplace

15) INSURANCE NEWSCAST "Pictures Of The Day"

Return To Top - - Print Article / Read Entire Article

Return To Top - - Print Article / Read Entire Article

The findings reflect the complexity of cutting health costs in the United States, showing how in some cases Medicare -- the insurance program for the elderly and disabled -- gives doctors incentives to provide too much care, they said.

Cutting costs and improving access for millions of Americans now without health insurance are major aims of President Barack Obama's efforts to overhaul the U.S. healthcare system but the legislation is stalled in Congress.

"It's incredibly complicated," said Dr. Micah Hemani, a bladder cancer expert at the New York University Langone Medical Center, who studied changes in treatment patterns in his group practice before and after the pay hike.

"What we found based on our billing data was that the number of procedures dramatically increased without a decline in the number of hospital-based procedures," Hemani, whose study appears in the journal Cancer, said in a telephone interview.

"If you adjust for the growth of our practice and you are doing more of these procedures but your hospital-based ones don't decline, you are spending more money."

Bladder cancer is the most expensive of all cancers to treat, with an average cost from diagnosis to death ranging from $96,000 to $187,000, according to Hemani and colleagues.

In theory, the Centers for Medicare and Medicaid Services decision in 2005 to pay doctors extra to do the procedure in their offices would cost less than doing it in a hospital, he said.

Instead, the number of outpatient bladder cancer procedures in Hemani's group practice doubled after the Medicare pay hike and costs to Medicare rose 50 percent overall.

LOWER BAR

With doctors getting paid more to do the procedure in their offices, Hemani said, "the threshold seemed to be lower after the reimbursement change."

Hemani said doctors, policyholders and patients should realize that "despite best efforts, there are factors other than just evidence-based medicine that influence how physicians treat patients."

"One of those factors implied by our study is financial reimbursement," he said.

Dr. Len Lichtenfeld, deputy chief medical officer of the American Cancer Society and a member of the Relative Value Update Committee that advises Medicare on physician payments, said when doctors do procedures in their offices, Medicare compensates them for using their equipment.

This fee often far outstrips the actual cost of doing the procedure, creating what Lichtenfeld called "an incredible distortion."

"We've tried to deal with some of these questions," Lichtenfeld said in a telephone interview of his work on the committee, noting the Centers for Medicare and Medicaid Services is taking steps to reduce reimbursement to physicians for certain outpatient radiology and cardiology procedures.

"It's a very political question right now."

Last week, a study commissioned by the Community Oncology Alliance found that changes to Medicare meant community cancer centers were reimbursed for only about half the cost of administering chemotherapy.

(Editing by John O'Callaghan)

© Thomson Reuters 2009 All rights reserved

* Envisions smaller AIG to repay US, be more focused co

* Tasks: ILFC, American General funding, FP wind-down

By Paritosh Bansal

NEW YORK, Feb 8 (Reuters) - American International Group Inc (AIG.N) Chief Executive Robert Benmosche envisions a smaller company in the future, with global property-casualty and U.S. life and annuity operations at its core, according to his comments in an internal company publication.

AIG, once the world's largest insurer, has to shrink because it must sell businesses to pay back the U.S. government as well as to become a more focused organization that is "not too big to fail," Benmosche said in a recent interview with Contact, a copy of which was obtained by Reuters.

"As we think about AIG for the future, the most important thing is that we are a company that pays back our obligations," Benmosche told the magazine. "And that we have survived the crisis. And that we are on our way to regaining our stature as the largest and most successful property-casualty operation in the world, with strong U.S. life and annuity companies, and several other businesses that enhance the nucleus."

AIG declined to comment.

After its near-collapse and bailout in September 2008, AIG set about trying to sell assets to repay the government, whose aid commitment eventually ballooned to $182.3 billion.

But Benmosche, who took over the insurer's reins in August last year, changed AIG's approach to repaying taxpayers. He has slowed divestments and taken some assets off the block, including an offering of property-casualty unit Chartis, moving AIG away from a wind-down mode to looking at preserving and even growing its core franchises.

He has also been bringing new people on board to strengthen the company's management and replace those who have left. AIG is expected to announce on Monday the hiring of Peter Hancock, a KeyCorp (KEY.N) vice chairman and financial services veteran, in a newly created role, overseeing finance, risk and investments. [ID:nN07153054]

AIG is still planning a public offering for American International Assurance (AIA) and is in talks with MetLife Inc (MET.N) to sell American Life Insurance Co (Alico).

Benmosche stopped the auction of Japanese units AIG Edison Life Insurance and AIG Star Life as "it was clear that we were not going to get the price for their value." AIG is now seeing how it can streamline their operations and processing, he told the magazine.

Benmosche listed a series of tasks before AIG, which is nearly 80 percent owned by the government, to become a "strong, independent company." These include finding short-term funding for aircraft leasing business International Lease Finance Corp (ILFC), winding down AIG Financial Products portfolios, dealing with loss-making mortgage insurer United Guaranty and getting the right values for AIA and Alico.

AIG is also looking for ways to better deal with the funding needs of American General Finance, which provides consumer finance, as its debts come due, he told Contact.

"When I arrived at AIG, the most important thing was that we stabilize the company and go back to producing good business results," Benmosche told Contact. "I believe we have accomplished that -- faster than I thought." (Reporting by Paritosh Bansal; Editing by Bernard Orr) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)

© Thomson Reuters 2009 All rights reserved

* Will get $500,000 in cash and rest in stock Feb 8 (Reuters) - CIT Group Inc (CIT.N) said its new chief executive John Thain will get an annual salary of $6 million, mostly in restricted stock.

The former Merrill Lynch chief will get $500,000 in cash, $2.5 million of restricted CIT stock with a holding period of one year and the remaining $3 million in stock restricted for three years, the company said in a regulatory filing.

Apart from salary, Thain may get an incentive award from the board for 2010 capped at $1.5 million, the commercial lender said.

Thain, who takes over from CIT's interim CEO Peter Tobin, was hired partly for the expertise he gained restructuring the New York Stock Exchange.

Thain's compensation is subject to federal regulations, including Troubled Asset Relief Program and Federal Deposit Insurance Corp regulations, CIT said. (Reporting by Supantha Mukherjee in Bangalore; Editing by Anil D'Silva)

© Thomson Reuters 2009 All rights reserved

An inability to hang the trend on a single clear-cut driver has created a challenge for those trying to identify what factors may drive an expected uptick in claims, and whether those will be short-lived or part of the permanent landscape.

Improved patient safety measures, doctors growing more risk averse and even state-level tort reform measures have been cited as factors contributing to a drop in claims frequency, BestWeek reports.

In BestWeek Europe, the European reinsurance sector is facing possible tax repercussions from a court decision that value added tax be paid in connection with the cross-border transfer of reinsurance contracts. The European Court of Justice ruled in October 2009 that the German tax authorities were entitled to apply VAT to a portfolio of reinsurance contracts that Swiss Re transferred from Germany to Switzerland.

And also in BestWeek U.S./Canada, Arizona could soon make history by abolishing its insurance fraud-fighting unit. Nine states have no specific anti-fraud division, but Arizona — in the midst of a budget stalemate between the governor and legislature — would be the first to create one, then eliminate it, according to the Coalition Against Insurance Fraud.

But it’s unfair to pick on Arizona. The fraud unit is only on the chopping block as part of a contingency plan should the legislature force the governor to cut more than $1 billion from the state budget. Many states are cutting back on anti-fraud efforts as they struggle to balance their budgets. According to a recent coalition survey, 23% of state fraud bureaus have eliminated positions within the past year and 35% of left positions unfilled.  

BestWeek is published by A.M. Best Co. for insurance professionals. To subscribe, visit http://www.ambest.com/sales/BestWeek.

TRANSFORMING INFORMATION INTO INTELLIGENCE IN A CLICK    

Keychoice Underwriting names launch team

Aviva has better fourth quarter for life sales

Positive return from Willis

Zurich net income up 6% or 2009

Aon produces solid operational performance in fourth quarter

Markel reports 27% increase in book value per common share

Mapfre bullish

Jubilee merges syndicates

Property Claims-Mapping the Future

Operational Efficiency in Financial Services

Guidewire client receives Model Insurer of the Year Award

Cigna improves

Portuguese insurers produce profit in 2009

Bank of Beijing to buy ING Chinese jv stake

Bank of Communications in Chinese insurance jv with Commonwealth Bank of Australia

Net income down at Aetna

Performance Ratio Benchmarking in UK Motor Insurance 2009

ENTERPRISE FINANCIAL SELLS COSTLY INSURANCE AGENCY

LIGHTYEAR RENAMES ACQUIRED ING NETWORK CETERA FINANCIAL GROUP

BNY MELLON TO ACQUIRE PNC’S GLOBAL INVESTMENT SERVICING

NATIONWIDE SETTLES VARIABLE ANNUITY CLAIMS WITH CA, KS, MN, MO AND WI

LIFE INSURANCE WEB SEARCHES UP 15% IN 2009

STAGED ACCIDENTS LEAD 14% JUMP IN BOGUS INSURANCE CLAIMS

LIFE INSURERS AND BROKERS OPPOSE ADMINISTRATION’S COLI AND DRD PROPOSALS

HOUSE SUBCOMMITTEE CONSIDER COLI BILL

LABOR AND TREASURY SEEK COMMENTS ON EMPLOYER-SPONSORED RETIREMENT PLANS

SEC TO REQUIRE DISCLOSURE ON CLIMATE-LAW RISKS

WORKPLACE RETIREMENT PLANS NEED WORK, AMERICANS SAY

BOCOM AND CBA LAUNCH BANCASSURANCE JOINT VENTURE

ING ASIA PRIVATE BANK SALE NETS ING $316 MILLION

PAKISTAN ISSUES BANCASSURANCE GUIDELINES

INSURANCE EARNINGS CONTINUE UP AT WELLS FARGO

BNY MELLON REPORTS “EXCELLENT GROWTH” IN ASSET AND WEALTH MANAGEMENT EARNINGS

RESULTS NOT SO SUNNY AT SUNTRUST

DISCONTINUED P&C BUSINESS HITS GMAC’S INSURANCE EARNINGS

This suite of services was developed in response to increased incidents of public employee-initiated litigation.  The EEOC (Equal Employment Opportunity Commission) announced earlier this month that it received a record number of employment discrimination complaints in the previous year, and the trend is expected to accelerate in the current year given the continued economic climate.

"Over the past several years, the public sector has experienced an explosion of litigation by public entity employees involving workplace issues," said Susan Kostro, Senior Vice President, Ironshore Specialty Casualty.  "Ironshore's creation of an array of EPLI risk management services enables us to assist public entity employers to prepare and manage litigation exposure in the new environment of governmental regulation and enforcement of employee workplace issues."

Ironshore has partnered with Seyfarth Shaw LLP, a leading national labor and employment law firm to develop these new services.

Together, the two entities have designed a set of customized products and services to aid public employers in recognizing the potential for employee litigation occurrences, and to keep abreast of current employment labor laws and regulations.  Service offerings include a series of training programs and educational materials for human resource professionals, an EPLI compliance training platform for public entity employers, and a quarterly newsletter for Ironshore EPLI public sector insurance clients.

About Ironshore

Ironshore provides broker-sourced specialty commercial property and casualty coverages for risks located throughout the world.  Through its platform in Bermuda, including Iron-Starr Excess, Ironshore writes property and excess casualty insurance for global commercial risks.

Ironshore's U.S. operations write commercial property and casualty insurance, including a variety of coverages in the Management & Professional Liability, Healthcare Liability, Construction and Environmental specialty areas, as well as Energy Property and Casualty within its Global division.  Specialty coverages are underwritten at Lloyd's through Ironshore's Pembroke Syndicate 4000.  The Ironshore group of insurance companies is rated A- (Excellent) by A.M. Best with a Financial Size Category of Class XI.  Syndicate 4000 operates within Lloyd's where the market rating is A (Excellent) by A.M. Best and A+

(Strong) from both Standard & Poor's and Fitch.  For more information, please visit: www.ironshore.com.

About Seyfarth Shaw LLP

Seyfarth Shaw is comprised of over 750 attorneys located in ten

offices nationwide.   Seyfarth Shaw, recently named one of the leading

employment law groups in the country, provides a broad range of legal services in the areas of labor and employment, employee benefits,

litigation and business services.   The firm represents numerous

federal, state and local governmental entities.  For more information,

visit: www.seyfarth.com

ZURICH (Reuters) - The United States is unwilling to re-enter talks to alter a key deal struck with Switzerland to end a damaging tax case against Swiss banking group UBS AG (UBS.N) (UBSN.VX), the U.S. ambassador in Berne was quoted saying in a Swiss Sunday paper.

"The United States does not want to renegotiate. It has a perfect agreement," Donald Beyer was quoted as saying by Sonntag, adding the United States had received repeated reassurances from Berne that it would do everything in its power to honor the agreement.

"Now it is all about implementing it under Swiss law. That is a thing for the Swiss government not for the United States," Beyer said.

A Swiss court last month ruled in favor of a UBS client seeking to prevent her account data from being given to the U.S. tax agency, throwing doubt on Switzerland's ability to deliver details of most of the 4,450 UBS client accounts as agreed in August.

The Swiss government said it was sure it could resolve the legal impasse stopping it from handing over the data on clients the U.S. suspects of dodging taxes, either by negotiating with the United States or if necessary by forcing a parliamentary vote on the treaty.

Parliamentary backing would be the best way to secure the treaty, Beyer said when asked if the Swiss parliament should ratify the treaty, adding not finding a solution was unimaginable.

The United States has said it would withdraw the summons seeking client names if it got 10,000 UBS account holder names voluntarily, providing these included the 4,450 names it was seeking under the terms of the treaty.

Beyer said it was unlikely so many UBS clients had come forward in a U.S. tax amnesty, despite newspapers reporting 14,700 U.S. tax payers had declared themselves.

"It is absolutely unlikely that 10,000 UBS clients are among those," he said.

"The agreement between UBS and the United States is already active. It does not stand and fall on the number 10,000" he added.

Separately the Swiss finance minister said in an interview published on Sunday Switzerland must consider the automatic exchange of tax information with European Union governments if Swiss banks are to have unlimited access to EU markets.

 (Writing by Jason Rhodes; Editing by David Holmes)

© Thomson Reuters 2009 All rights reserved

WASHINGTON (Reuters) - The risk the U.S. economy will slip back into recession is lower now than at any time in the past year, Treasury Secretary Timothy Geithner said on Sunday, while conceding that recovery will be slow and uneven.

In an interview on ABC News' "This Week", Geithner said the U.S. economy expanded at nearly a 6 percent annual rate in the fourth quarter of 2009 and said the economy was definitely "healing" after the financial crisis that drove it into recession in late 2007.

"This is going to take a while, and it's going to be uneven," Geithner said in an interview taped before leaving for the Canadian Arctic on Friday to attend a meeting of Group of Seven finance ministers and central bankers in Iqaluit, capital of a vast native Inuit territory called Nunavut.

ABC released portions of the Geithner transcript on Friday.

Geithner claimed there were even some encouraging signs in Friday's report on U.S. unemployment for January, which showed another 20,000 jobs lost but a dip in the unemployment rate to 9.7 percent from 10 percent in December.

He said the Obama administration is doing everything it can to enhance recovery prospects and played down chances that growth might stall and push the United States back into recession.

"I think we have much, much lower risk of that today than at any time over the last 12 months or so," Geithner said.

He also dismissed an interviewer's suggestion that rising levels of U.S. indebtedness might put pressure on the U.S. triple-A ratings and potentially cause rating agencies to downgrade it.

"Absolutely not," Geithner said. "That will never happen to this country."

The U.S. Treasury is heavily reliant on borrowed money to fund the government's day-to-day operations, which it raises by selling U.S. notes and bonds throughout the world in rising volumes to fund budget deficits that are forecast to hit $1.6 trillion in fiscal 2011.

Geithner said there was no sign that investor interest was waning in U.S. debt and added that, to the contrary, it was sought out because of trust in the U.S. ability to repay.

"If you step back and look at what has happened throughout this crisis, when people were most worried about the stability of the world, they still found safety in (U.S.) Treasuries and the dollar," he said. "You're still seeing that every time."

(Reporting by Glenn Somerville; Editing by Peter Galloway)

© Thomson Reuters 2009 All rights reserved

Property and Casualty Guaranty Funds: Built to work for 40 Years

Forty years ago the property and casualty guaranty fund system was built to work; it continues to work today.

In the late 1960s policymakers and the insurance industry created the property and casualty guaranty funds to address a public policy imperative: to provide a safety net that addresses the needs of personal insurance consumers if an insurance company fails.

To accomplish this, policymakers developed a nationwide system of insurance guaranty funds. The statutorily created guaranty funds draw on a combination of the insolvent company’s remaining assets and industry assessments on healthy insurers in each state to seamlessly step into the shoes of a defunct company’s claims department and pay the covered claims of policyholders and claimants, who otherwise would likely be adversely impacted by the insolvency of the insurance company.

Today, the guaranty fund system remains true to its original intent: to work to deliver protection to those least able to weather the impact of an insurance company insolvency.

On Capitol Hill

For the guaranty funds, 2009 was an active year in Washington D.C.

As 2009 dawned, questions and predictions about the future of financial services in the United States were in no shortage. As

the federal government acted to shore up an uncertain marketplace, consumer protection took on newfound significance. For this reason, attention was directed to the guaranty fund system.

Members of Congress and their staffs, officials at the Federal Reserve, Department of Treasury and the FDIC sought information from the NCIGF, a provider of assistance and support to the nation’s property and casualty guaranty fund system. The NCIGF, along with the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA), NCIGF’s counterpart on the life and health side, met throughout the year with lawmakers and administration officials to answer questions about the system.

By year’s end, the U.S. House of Representatives passed a bill that if enacted essentially recognizes the system as the preferred way to help resolve an insurance company failure.

In the Trenches – Report on Active Estates

According to a recent A.M. Best article 1 “Insurance company impairments for both life/health and property/casualty writers are up by at least 30% compared with 2008. At least 20 insurers became impaired this year, up from 15 in 2008 and 14 in 2007. It can be difficult to track impairments because sometimes regulators take a financially troubled company under confidential supervision in an effort to save it.” Note that an “impairment” would not necessarily trigger a property and casualty guaranty fund to undertake claim payments. However, the property casualty guaranty funds did see their share of new activity in 2009.

In Florida, for example, as of November 2009, two Florida property and casualty insurance companies were found insolvent and are being liquidated. American Keystone Insurance Company was a residential property insurer. First Commercial Insurance Company and its subsidiary wrote various commercial coverages. Earlier, in October, a Georgia workers’ compensation insurer, Southeastern U.S. Insurance, was placed into liquidation.

In November, several guaranty funds were preparing to undertake responsibility for a small workers’ compensation insolvency involving large deductible coverage and Professional Employer Organization (PEO) insureds. In the case of Park Avenue Property & Casualty Insurance Company, the Oklahoma regulators had to act quickly and decisively due the conditions of the estate. The company was liquidated with no prior notice to the guaranty funds (or the freshly appointed deputy liquidator for that matter). The guaranty funds and the receiver are now hard at work to transition the files with minimal disruption of ongoing benefits to injured workers.

Any insolvency brings with it its unique complications. This one involved many issues related to data conversion and electronic files. The Park Avenue insolvency did much to identify the need for proven and tested electronic systems to ensure quick and secure transfer of insolvency-related claims information between guaranty funds and receivers. As the Park Avenue insolvency well illustrates, in modern insolvency practice, data is a key consideration. While small in number of claims, this situation is a case study in why it is important to keep the guaranty fund safety net in place and “ready to roll” literally at a moment’s notice.

There is a growing trend to close some of the larger estates ordered liquidated in the early 2000s or before. Notably the Commonwealth Court of Pennsylvania has rendered a final bar date order in PHICO – a large medical malpractice insolvency which occurred in 2002. Remaining operations have been moved out of the old PHICO offices in Mechanicsburg, PA and into the Pennsylvania insurance department. To date the estate has distributed almost $300 million dollars to the guaranty funds in early access.

The California Conservation & Liquidation Office (CLO) has indicated it is undertaking similar efforts. The CLO has completed five final distributions in the last two years and anticipates completing two more in 2010. All seven of these estates are expected to be judicially closed by year-end 2010. In addition to these closure estates, the CLO has distributed in excess of $2.7 billion in early access payments and final distributions over the past five years as the organization works to position large insolvencies such as the Superior National estates, Fremont and the Mission estates for closure in the next couple of years. In Illinois, the liquidator reports seven estates were closed in 2008, with distributions totaling $9,408,359, and another five in 2009, with final distributions totaling $96,338,423. Early access distributions to guaranty funds totaled $17.4 million in 2008 and more than $14 million in 2009. Illinois plans to close at least four more estates in 2010.

The American Mutual Companies (American Mutual Liability Insurance Company and American Mutual Insurance Company of Boston) will also wind down soon. In a recent status report the liquidator states that if a proposed commutation is approved by the court the only remaining reinsurance recoveries will total less than $2.5 million. Estate staff has completed the claim determination process and claims are being submitted to the court for allowance and disallowance. The plan is then to make a significant distribution to Policy Class 2a (workers’ compensation policy claims). This would leave only claims of the federal government, if any, and collection of the relatively small reinsurance balance.

Ohio has also taken action in this regard. Recently the liquidation court judge approved an order to distribute an additional amount of almost $74 million dollars in final distributions to Class 2 (policyholder class claimants) in the PIE insolvency.

The liquidator of Transit Casualty Insurance Company (a Missouri domiciled company) is seeking to close the estate in 2010. Transit Casualty has been in liquidation since December 3, 1985. Transit was domiciled in Missouri and was licensed in all fifty states. The company wrote in multiple commercial lines of business including workers’ compensation, commercial auto, and general liability. Transit had exposure for asbestos and environmental claims, among many others.

The Transit liquidation court issued a proof of claims bar date of December 31, 1987. Any claims filed after December 31, 1987 were deemed post-bar date or late-filed claims under Missouri Statute 375.1206 and Rule 75.06(b). This permitted the liquidator to consider and allow these late filed claims in his absolute discretion under certain conditions, provided that doing so would not prejudice the orderly administration of the estate. In an October 31, 2000 Order, as the estate was readying to close, the liquidation court also established March 15, 001 as the final cut off date for the presentation of any additional claims and additional evidence in support of claims.

As of early 2010, Transit has only a handful of remaining claims, the majority of which are Post Bar Date claims. It is expected that in order to close the estate in 2010, the liquidator will seek yet a further court order to terminate any remaining and future Post Bar Date claims, to the extent they were not already terminated by the October 2000 order, on the grounds that having to address these claims while attempting to wrap up the estate’s final affairs will prejudice the orderly administration of the liquidation. In the words of the Missouri

Supreme Court – which recently issued a ruling on the subject of Transit’s October 2000 claims bar date – “the curtain has fallen.”

Once there is a determination on the status of the remaining claims, it is expected the liquidator will make a final distribution to the guaranty funds and other policyholder level creditors early in 2010, and a smaller final distribution in late 2010 or early 2011.

Meanwhile at the NAIC….

While the guaranty funds, in partnership with the liquidators of insolvent estates, grapple with new activity and receivers the NAIC adopted new model acts for both the property casualty and life and health guaranty funds in 2009. While to date there has not been major overhauls of the property and casualty acts being proposed in the state legislatures based on this model, there is some interest in the increased covered claim cap level of $500,000 recommended by the NAIC. Recent hikes include Connecticut (to $400,000), Rhode Island (to $500,000) and Vermont (to $500,000). Amendments are being proposed to raise the cap to $500,000 in Illinois and Iowa. The NCOIL model property and casualty guaranty fund act is also in play with policymakers also considering the provisions of this model when amending their states’ laws.

The NAIC also continues to vet its Insurer Receivership Model Act (IRMA). Most recently a task force has been formed to identify “critical elements” of IRMA that all jurisdictions should have on their books.

The NAIC is close to adopting a white paper written by the Restructuring Mechanisms for Troubled Companies Task Force. This task force, which reported to Financial Condition (E) Committee, was charged with evaluating the advantages and disadvantages of various alternatives to placing insolvent companies into liquidation. The paper was intended to provide regulators a tool to assist them in evaluating the advantages and disadvantages of various alternate mechanisms to liquidation, including runoffs and UK style schemes of arrangements. The NCIGF participated in the deliberations and offered written and oral comments that focused attention on the need for regulators to consider the public policy objectives behind the alternative mechanism and be certain that the interests of policyholders and consumers were placed above the interests of general creditors and investors.

The NCIGF’s comments are reflected throughout the NAIC’s white paper and are summed up in its concluding paragraph:

First and foremost, it is the responsibility of regulators to protect insurance consumers. Thus, proponents of alternative mechanisms for troubled insurers should be pressed to prove to the regulator’s satisfaction that the claims of greater efficiency or flexibility will not be used to strip policyholders and claimants of their policy rights so that value can be returned to investors. And regulators should ensure all alternative mechanisms for troubled insurers place the interests of consumers ahead of other competing interests, coupled with a clear statement of goals and objectives and a meaningful oversight mechanism.

The Task Force and the E Committee adopted the final paper at the December 2009 NAIC meeting in San Francisco. We expect it to be adopted without further substantive change by the Commissioners at an upcoming NAIC meeting. Once final, the white paper is expected to be made an appendix to the NAIC Troubled Company Handbook.

The NAIC is also working through accounting issues related to guaranty fund assessments. Adopted in 2001, SSAP No. 35 requires an insurer to record a liability for guaranty fund assessments for the ultimate loss expected from insolvent insurance estates as of the date the insolvency/liquidation occurs. The insurance companies have experienced great difficulty getting enough current information to calculate the ultimate expected assessment exposure. A survey performed by industry in 2006 indicated that property and casualty insurers did not appear to have any consistency in their estimates in applying the current SSAP 35 guidance.

The AICPA SOP 97-3 takes the approach that two events must occur to trigger liability for post-insolvency assessments: 1) the insolvency itself and 2) the writing of the premium in the base year for guaranty fund assessments. The liability to be recorded is what can be reasonably estimated and relates to premium writings for the year preceding the year of assessments. This estimate coincides with the way the majority of guaranty funds make assessments, which is also based on premiums for the year preceding the year of assessments.

NAIC’s SSAP 35 Subgroup of the NAIC Statutory Accounting Principles Working Group has been considering revisions to SSAP 35. The NCIGF provided substantial input in the process. At this point an issue paper has been prepared and exposed for comment. The draft contemplates replacing SSAP 35 and adopting SOP 97-3 with certain limitations that would be carried over from SSAP 35 (requirement to report assessment in Taxes, Licenses and Fees and the Recognition criteria from SSAP No. 5 – Liabilities, Contingencies, and Impairments of Assets.)

It is expected that the NAIC Statutory Accounting Principles Working Group will adopt the change to SSAP 35 in summer 2010; the change will then become effective later that year.

Rehabs and Run Offs

Highlands Insurance Company, a Texas domiciled company, continues in runoff. Under the court’s June 2008 order approving the Second Amended Plan of Rehabilitation, the special deputy receiver was directed to develop a Monitoring Plan to assist the Special Master in monitoring the progress of the Highlands runoff. Key to this determination is whether the critical assumptions that formed the basis of the special deputy receiver’s Economic Cash Flow Model (ECFM) are proving accurate as the runoff progresses.

The special deputy receiver has undertaken a four phase monitoring plan. Phase 1 of the plan will review critical financial, asset recovery, reinsurance, and claim assumptions utilized in the ECFM. This will include review of investment rates of return, recovery of assets, actual versus projected claims payouts, and administrative expenses, among others. Phase 2 will conduct an updated analysis of the estate’s claims liabilities. Phase 3 will include an actuarial review of the estate’s receivership loss and loss adjustment expenses for all lines of business, including environmental and mass tort exposures. Phase 4 will take the updated financial and claims information and the findings from the actuarial analysis and run them through the ECFM. This phase is expected to be completed at the end of February 2010.

If the updated information supports the contention that there will be sufficient assets to pay all policyholder claims in full, it is expected the runoff will continue. If it appears that there will not be sufficient assets to pay these claims in full, it is expected that the special deputy receiver will petition the court to place the company into liquidation. The Monitoring Plan cautions, however, that “[I]t is appropriate to note that the ECFM projects development over a significant time horizon. Utilization of the ECFM to look at isolated points in time is not an appropriate use of the analysis.” Until the results of the updated ECFM are known, and parties have an opportunity to evaluate long-term implications of the results, the ultimate fate of Highland’s will remain unknown.

Frontier Insurance Company was placed into rehabilitation in October 2001. Since that time, the rehabilitator has been paying claims and has stated its desire to see Frontier eventually returned to financial health. According to Frontier’s 2007 annual statement, as of year-end 2007, it had a negative surplus of $103 million. It is unclear how the rehabilitator’s plan will be affected by the current financial downturn.

The Kemper insurance companies are operating under a runoff plan filed with the Illinois Division of insurance in 2004. The runoff continues to progress.

Two Courts; Two Decisions; Two Days

In June, the highest courts in two states, Louisiana and Nevada, ruled on the status of self-insurance and workers’ compensation.

The Nevada Supreme Court ruled the MGM Mirage and Steel Engineers (SEI), two Las Vegas companies, had the right to recover for payments from the Nevada Insurance Guaranty Association for their covered workers’ compensation claims payable by the companies’ insolvent excess insurance carrier. In its June 25, 2009 MGM Mirage vs. Nevada Insurance Guaranty Association decision, the Nevada Supreme Court determined that “… self-insured employers under Nevada’s workers’ compensation law are not insurers for the purposes of the NIGA Act.” The court therefore concluded that MGM’s and SEI’s claims are ‘covered claims’ as defined in [the NIGA act].”

MGM and SEI were self-insured to cover workers’ compensation claims, but are required by law to buy additional insurance coverage for excess claims. The two companies both purchased policies for the excess coverage from Reliance National Insurance Company, which was declared insolvent in 2001. The two Nevada companies then had to cover the claims of the injured workers.

After Reliance was pronounced insolvent, the two Las Vegas companies asked the Nevada Insurance Guaranty Association to cover their excess losses. The association denied the claims on the basis that the two companies were insurers under the law and were not eligible to recover the money they paid in excess claims.

The court ruled the MGM and SEI were not insurers “because they are not in the business of insurance.”

The following day, on June 26, 2009, the Louisiana Supreme Court reversed lower courts’ rulings and held that a self-insured fund was an insurer for purposes of Louisiana Insurance Guaranty Association coverage. As a result, the court found the insolvent Reliance Indemnity Company was the fund’s reinsurer, and not its excess insurer. (Louisiana Safety Association of Timbermen – Self Insurers Fund v. Louisiana Insurance Guaranty Association) To view the decision, visit: http://www.lasc.org/opinions/2009/09C0023.pdf

The Louisiana Safety Association of Timbermen (LSAT) formed the Louisiana Safety Association of Timbermen’s Self Insurers Fund as a means of securing workers’ compensation for association employees. The Fund obtained insurance coverage from Reliance for the 1998 policy year, and Reliance was placed in liquidation in October 2001. The Louisiana Insurance Guaranty Association (LIGA) in 2004 concluded that the policy between the Fund and Reliance was one of reinsurance and that it was not covered under LIGA.

The Fund sued LIGA, seeking coverage for all past and future losses. The Supreme Court ruled that Section 23:1195 (A) (1), when read together with the applicable revised statutes addressed self-insurers, thereby demonstrating that the state Legislature intended to exclude only workers’ compensation self-insurers. Therefore, the Supreme Court held that “self-insurance is one of the means of securing workers’ compensation to employees.” Recognizing “it was good business practice for the Fund to buy reinsurance to cover part of its risk,” the court determined it did not make LIGA liable for reimbursement of claims covered by the reinsurance, as it “would effectively make LIGA liable for claims that are exempt from LIGA’s responsibility.”

For More Information…

We hope that Trends 2010 provides a helpful summary for those interested in various insolvency related issues. We encourage those who wish to find out more on specific topics to review the following resources:

• Our Web site at www.ncigf.org – Our Web site contains a compilation and summary material on guaranty fund law, publications on various topics and a wealth of assessment, financial and other information about property casualty guaranty funds.

• www.naic.org – This is the official Web site of the National Association of Insurance Commissioners. Various insurance topics and NAIC committee activities are covered on this site.

• www.ncoil.org – NCOIL has adopted a property casualty guaranty fund model which is obtainable on this site.

• www.iii.org – The Web site of The Insurance Information Institute provides many informational resources on the insurance industry.

The NCIGF is a nonprofit association incorporated in December 1989 and designed to provide national assistance and support to the property and casualty guaranty funds located in each of the fifty states, Puerto Rico and the District of Columbia.

National Conference of Insurance Guaranty Funds (NCIGF)

"Work attendance by infected employees is a public health issue due to contagion," says Robert Drago, Ph.D., Professor of Labor Studies and Women's Studies, Pennsylvania State University and co-author of the Briefing Paper. "Employees who attended work while infected with H1N1 are estimated to have caused the infection of as many as 7 million co-workers."

The United States is one of the few developed nations without universal paid sick days. The vast majority of public sector employees receive paid sick days, but two out of five private sector employees have no access to paid sick days, leaving the nation ill-prepared for outbreaks of contagious illness.

"The data suggest that only two-thirds of private sector employees took time away from work when infected with H1N1, despite advice to stay home. Workers without paid sick days must choose whether to go to work sick or lose pay, a choice that many can't afford to make," notes Kevin Miller, Ph.D., Senior Research Associate at IWPR and co-author of the Briefing Paper.

Absence due to illness during the H1N1 pandemic reached its peak in October.  The drop in absence rates between October and November was twice as steep in the public sector as it was in the private sector, suggesting that presenteeism - attending work while ill - among private sector employees without paid sick days may have extended the duration of the outbreak in that sector.

The report can be found here: http://www.iwpr.org/pdf/B284sickatwork.pdf 

The Institute for Women's Policy Research (IWPR) conducts rigorous research and disseminates its findings to address the needs of women, promote public dialogue, and strengthen families, communities, and societies. IWPR's work is supported by foundation grants, government grants and contracts, donations from individuals, and contributions from organizations and corporations. IWPR is a 501 (c) (3) tax-exempt organization that also works in affiliation with the women's studies and public policy programs at The George Washington University.