RECEIVERSHIP AND INSOLVENCY (E) TASK FORCE Wednesday June 28, :00 p.m. Central (2:00 p.m. Eastern) ROLL CALL

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1 Date: 6/16/17 Conference Call RECEIVERSHIP AND INSOLVENCY (E) TASK FORCE Wednesday June 28, :00 p.m. Central (2:00 p.m. Eastern) ROLL CALL Richard J. Badolato, Chair New Jersey Gary Anderson Massachusetts TBD, Vice Chair Texas Patrick M. McPharlin Michigan Lori K. Wing-Heier Alaska Chlora Lindley-Myers Missouri Allen W. Kerr Arkansas Bruce R. Ramge Nebraska Dave Jones California Barbara D. Richardson Nevada Margauerite Salazar Colorado John G. Franchini New Mexico Katharine L. Wade Connecticut Maria T. Vullo New York Stephen C. Taylor District of Columbia John D. Doak Oklahoma David Altmaier Florida Teresa D. Miller Pennsylvania Gordon I. Ito Hawaii Elizabeth Kelleher Dwyer Rhode Island Jennifer Hammer Illinois Todd E. Kiser Utah Doug Ommen Iowa Mike Kreidler Washington Ken Selzer Kansas Ted Nickel Wisconsin James J. Donelon Louisiana AGENDA 1. Consider Adoption of Model Law Development Request Form to Amend Model #520 Kristine A. Maurer (NJ) and James Kennedy (TX) 2. Consider Adoption of Memo to Financial Condition (E) Committee Kristine A. Maurer (NJ) Attachment One Attachment Two 3. Adjournment 2017 National Association of Insurance Commissioners 1

2 Attachment One

3 As Adopted June 21, 2017 by Receivership Model Law (E) Working Group REQUEST FOR NAIC MODEL LAW DEVELOPMENT This form is intended to gather information to support the development of a new model law or amendment to an existing model law. Prior to development of a new or amended model law, approval of the respective Parent Committee and the NAIC s Executive Committee is required. The NAIC s Executive Committee will consider whether the request fits the criteria for model law development. Please complete all questions and provide as much detail as necessary to help in this determination. Please check whether this is: New Model Law or Amendment to Existing Model 1. Name of group to be responsible for drafting the model: Receivership Model Law (E) Working Group 2. NAIC staff support contact information: Jane Koenigsman, jkoenigsman@naic.org, Phone Please provide a brief description of the proposed new model or the amendment(s) to the existing model. If you are proposing a new model, please also provide a proposed title. If an existing model law, please provide the title, attach a current version to this form and reference the section(s) proposed to be amended. Life and Health Insurance Guaranty Association Model Act (#520). Propose to revise the model to address guaranty association assessments and coverage issues identified specifically regarding long-term care insurer insolvencies. Such issues may include the potential inclusion of HMOs as member insurers of a state guaranty association. 4. Does the model law meet the Model Law Criteria? Yes or No (Check one) (If answering no to any of these questions, please reevaluate charge and proceed accordingly to address issues). a. Does the subject of the model law necessitate a national standard and require uniformity amongst all states? Yes or No (Check one) If yes, please explain why: Model #520 sets standards to protect policy owners, insureds, beneficiaries, annuitants, payees and assignees against losses which might otherwise occur due to an impairment or insolvency of an insurer. Insurers writing long-term care are most often multi-state insurers therefore it is important to have substantially similar treatment of benefits in receivership across states. Currently all 52 accredited member jurisdictions have adopted a version of Model #520 in a substantially similar manner, including but not limited to the most recent version or an older version of the Model. b. Does Committee believe NAIC members should devote significant regulator and Association resources to educate, communicate and support this model law? Yes or No (Check one)

4 As Adopted June 21, 2017 by Receivership Model Law (E) Working Group 5. What is the likelihood that your Committee will be able to draft and adopt the model law within one year from the date of Executive Committee approval? (Check one) High Likelihood Low Likelihood Explanation, if necessary: 6. What is the likelihood that a minimum two-thirds majority of NAIC members would ultimately vote to adopt the proposed model law? (Check one) High Likelihood Low Likelihood Explanation, if necessary: As stated above, the NAIC s Life and Health Insurance Guaranty Association Act (#520) is adopted in its current or older version in all 52 accredited member jurisdictions. 7. What is the likelihood that state legislatures will adopt the model law in a uniform manner within three years of adoption by the NAIC? (Check one) High Likelihood Low Likelihood Explanation, if necessary: Recent insolvency of a large LTC insurer has emphasized the need for revisions to the model. 8. Is this model law referenced in the NAIC Accreditation Standards? If so, does the standard require the model law to be adopted in a substantially similar manner? Yes, Part A Accreditation Standard 14. Guaranty Funds requires that state law should provide for a regulatory framework such as that contained in the NAIC s model acts on the subject, to ensure the payment of policyholders obligations subject to appropriate restrictions and limitations when a company is deemed insolvent. Although strict adherence to the NAIC Guaranty Fund Models is not required, states are required to have a regulatory framework such as contained in Models #520 and # Is this model law in response to or impacted by federal laws or regulations? If yes, please explain. No

5 Attachment Two

6 To: Superintendent Eric A. Cioppa (ME), Chair, Financial Condition (E) Committee From: Kristine A. Maurer (NJ), Chair, Receivership and Insolvency (E) Task Force Date: June 28, 2017 Re: Guidance for Recognition of Receivership Stays and Injunctions The Receivership Model Law (E) Working Group of the Receivership and Insolvency (E) Task Force has as one of its charges the following: Continue to study the states receivership laws and practices in comparison to the Financial Stability Board s (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) and its corresponding assessment methodology. Identify and provide recommendations for possible enhancements to the U.S. receivership regime based on the study, as well as recommendations to the FSB for possible future enhancements to either the Key Attributes or the assessment methodology. To address this charge, the Working Group identified several key topics for consideration. One primary enhancement to the U.S. receivership regime is to address differences in state laws and practices related to receivership stays and injunctions. On May 16, 2017, the Working Group adopted recommendations for recognition of receivership stays and injunctions. Attachment A details background information regarding this topic and a recommendation for state insurance departments consideration. The Task Force supports the guidance and recommendations of the Working Group as outlined in Attachment A and requests the Committee s support in encouraging states to consider these enhancements to their laws and practices. Additional recommendations for possible enhancements to the U.S. receivership regime may be identified and forwarded to the Committee as the Working Group and Task Force continue work related to this charge. If you have any questions please contact NAIC staff, Jane Koenigsman, jkoenigsman@naic.org.

7 Attachment A Receivership Model Law (E) Working Group Guidance Regarding Recognition of Receivership Stays and Injunctions Introduction Most state receivership laws provide for a stay of actions in which the insurer is or may become a defendant. Stays are a critical tool in a receivership. They can prevent the cost and uncertainty involved with litigating claims in multiple forums, and safeguard the assets of the insurer against preferences. This ensures the fair and consistent treatment of all claims, and reduces the cost of litigation to the receivership. A survey of states receivership laws revealed inconsistencies with respect to the scope of stays, and the recognition of stays issued in receiverships in other states. This guidance suggests clarifications to address deficiencies in receivership laws regarding stays. Background State insurance receivership laws are derived from one of the NAIC model acts. The original 1939 Uniform Insurers Liquidation Act was supplanted by NAIC Model 555 (the Model ). The NAIC has adopted three versions of the Model: the Insurers Supervision, Rehabilitation, and Liquidation Model Act; the Insurers Rehabilitation and Liquidation Model Act ( IRLMA ); or the Insurer Receivership Model Act ( IRMA ). Every state has a law that is either derived from, or incorporates elements of, one of the Models. A majority of receivership acts are based on a version of the Model that contained two stay provisions: Actions by and Against Rehabilitator ( Rehabilitation Stay ) and Attachment, Garnishment, and Levy of Execution ( Attachment Stay ). The Rehabilitation Stay provides for a temporary stay of actions in which the insurer is a party, or is obligated to defend a party. Typically the stay is a period of 90 days, and can be extended by the court. This section also states that the rehabilitator shall petition the courts in other states for stays when necessary. The Attachment Stay prohibits attachments, garnishments, or levies of execution during the pendency of an insolvency proceeding. In some states the stay applies to any delinquency proceeding, while in others it applies only to a liquidation proceeding. Also, some states apply the stay to insolvency proceedings in any other state, while others limit it to proceedings in a reciprocal state. These provisions can force receivers to seek stays or defend lawsuits in multiple forums, particularly in a rehabilitation. The patchwork of differing stays can also result in inconsistent outcomes in different states. The NAIC attempted to address these problems in the 1999 version of IRLMA. Section 5 (C) provided a broad stay of actions against the insurer or the liquidator, and recognized liquidation stays in other states: The courts of this state shall give full faith and credit to any stay of all new actions against the liquidator or the company or the continuation of existing actions against the liquidator or the company, when such injunctions are pursuant to an order to liquidate an insurer issued in accordance with corresponding provisions in other states.

8 In 2005, IRMA 1002(A) extended the recognition of stays to all receivership proceedings: The statutory provisions of another state and all orders entered by courts of competent jurisdiction in relation to the appointment of a domiciliary receiver of an insurer and any related proceedings in another state shall be given full faith and credit in this state. For purposes of this Act, another state means any state other than this state. This state will treat all foreign states as reciprocal states. Recommendations An effective stay provision promotes judicial economy and predictability, which benefits all participants in the receivership process. However, the significant improvements in the NAIC Model regarding stays have not been widely adopted. States should review their receivership laws, and consider the following: 1) States with no stay provisions, or provisions based on older NAIC models, should compare their laws to the more recent NAIC Models, and evaluate the benefits of a more comprehensive stay. 2) States with no reciprocity provisions, or provisions based on older NAIC models, should consider adopting a provision similar to IRLMA 5 (C) (2) or IRMA 1002 (A). In the alternative, a state could update its definition of a reciprocal state to include any state that has adopted an act that is substantially similar to any of the receivership model acts promulgated by the NAIC.