MEMORANDUM

To:                  Trade associations, independent companies

From:              Kevin Harris

Date:               October 9, 2003

Re:                   NCIGF Board Legislative Proposals in Final Form

I provide the following to you on behalf of the Board of Directors of the National Conference of Insurance Guaranty Funds.

The NCIGF Board organized a Task Force in November of last year, the charge of which was to: (i) identify and analyze problems and issues raised by recent large insolvencies, and (ii) develop potential solutions.  The Task Force members are as follows: Sonja Larkin-Thorne (chair), Steve Bennett, Paul Gulko, John Hartman, Mike Koziol, Lenore Marema, Mike Marchman, Larry Mulryan, Randy Seiner and Deb Wozniak.  Prior to his retirement, Phil Schwartz also served on the Task Force.  Kevin Harris and Dale Stephenson provided staff support.

In less than a year’s time, the Task Force analyzed the myriad issues raised by recent insolvencies, identified those most in need of immediate attention, developed legislative recommendations and secured NCIGF Board approval for such.  Special thanks for a job well done goes to Task Force Chair Sonja Larkin-Thorne, to each of the members of the Task Force, and also to Rowe Snider of Lord, Bissell & Brook who was retained to assist the task force.  Rowe played a key role in developing the Task Force’s recommendations.

The Task Force decided to initially address what were considered the most pressing issues. Attached you will find five different legislative proposals, with related explanatory memos.  Broadly speaking, the enclosed addresses four areas: (i) guaranty funds’ rights and obligations on large deductible policies (Exhibits 2-4), (ii) claims of large commercial insureds (Exhibits 5-8), (iii) access to records of insolvent insurers held by TPA’s (Exhibits 9-10) and (iv) coordination with and cooperation of regulators and receivers (Exhibits 11-12).  It is contemplated that the enclosed will be presented as a package, so an overall explanatory memo is also included (Exhibit 1).   The materials are further described below.

The NCIGF Board of Directors, having now exposed these materials for comment, hereby recommends the enclosed package of legislative proposals to trade associations and independent companies, and asks that the package be treated as a legislative priority for 2004.

It is important to note that while the NCIGF Board endorses and recommends the enclosed as “model” legislative solutions for some of the more significant problems caused by the recent insolvencies of commercial insurers, a separate analysis on your part will be required to determine which specific states should be considered for action.  We strongly recommend that, as with our past proposals, your analysis include consulting with representatives of the local guaranty fund and others involved locally.  Finally, we also ask that you hold off for now targeting Mississippi on any of the proposals because the Mississippi Guaranty Association has asked for additional time to study and consider the package.  We believe that you should have the benefit of any communication subsequently received from the Mississippi Association prior to considering action in Mississippi.

The Task Force is now beginning its work on a second round of topics that will likely generate additional proposals that the NCIGF Board may ask you to consider.  We will keep you informed. 

Thank you for your consideration of this matter.   Please contact me if you have questions. 

A detailed description of the proposals follows.

cc:       Guaranty Fund Managers

            NCIGF Board of Directors

Description of NCIGF Legislative Proposals

The charge of the NCIGF Board Task Force was to identify and analyze problems and issues raised by recent large insolvencies, and develop a comprehensive package of potential solutions.  The Task Force focused on what it viewed as the most pressing issues to recommend liquidation and guaranty fund act legislation that:

            • Clarifies law to ensure that guaranty funds’ rights and exposure on large deductible policies mirror those of the insolvent insurer (Exhibits 2-4.),

            • Calls for a renewed effort to place reasonable limits on guaranty fund coverage of claims of large commercial policyholders (Exhibits 5-8),

            • Facilitates guaranty funds’ obtaining records from and cooperation of TPA’s of an insolvent insurer (Exhibits 9-10), and

            • Enables better cooperation and information sharing from regulators and receivers prior to liquidation (Exhibits 11-12). 

The specific proposals that are attached are as follows (the attachments have file names that closely correspond to the below):

Overall memo explaining need for legislative proposals - Exhibit 1

Large Deductible cover and recover model legislation:

         • Legislative proposal - Exhibit 2

        • Explanatory memo - Exhibit 3

        • Section by section analysis - Exhibit 4

Revised net worth provision legislation:

         • Legislative proposal - Exhibit 5

        • Explanatory memo - Exhibit 6

Independent bar date legislation:

         • Legislative proposal - Exhibit 7

         • Explanatory memo - Exhibit 8

Liquidation act provision that authorizes guaranty funds to secure records from TPA's:

         • Legislative proposal - Exhibit 9

         • Explanatory memo Exhibit 10

Information sharing provision/Coordination provision:

         • Legislative proposal - Exhibit 11

         • Explanatory memo - Exhibit 12