Summer 2012 Volume 21, Number 1

FEATUREDARTICLES 1 IAIR’s President’s Message By Francesca G. Bliss 3 Equal Opportunity Offenders By Evan Bennett 10 In Memoriam: Stephen L. Wright from a career at the New York Liquidation Bureau, I very much wanted to stay involved with my “work family.” IAIR, an organization in which I have 11 View from Washington participated since its inception, has been key in bringing me in contact with some By Charlie Richardson of the most knowledgeable individuals in the insolvency industry. Their 13 The Perfect Receiver willingness to share their experiences and their know-how has proven to be By Patrick Cantilo, CIR-ML invaluable, as have the friendships which have been forged. I believe in the mission of this association and want to see it both grow and recapture the sense of 14 IAIR Welcomes its camaraderie that drew me in. Newest Members Despite there being a much talk about the decline in liquidations, the role we serve in 16 Same Difference, Right? the process, both as an organization and individually, is very important. In recent 2012 Insolvency Workshop years, we have tried to reinvent ourselves, in a way, by changing our mission and Wrap Up focusing more on how all of us can provide guidance through the various processes By Bart Boles and that troubled companies face - from a decline in performance, to rehabilitation, into Lowell Miller receivership and through liquidation. Having been in the liquidation office, I know 18 There are options – first-hand the importance of that role and that the expectations of what can be done A different approach to continually change. I also am not so naïve to think that alternate mechanisms are not available and viable. However, I do not see these as mutually exclusive. Whether handling reinsurance facing impairment, insolvency, rehab, liquid ation or run-off, our expertise and billings and collections collective institutional memory in dealing with such situations is critical, even if our By Ricardo Cantilo and roles “morph” a bit. The point that has become clear to me is the need to better Steve Street understand the various roles we each play - be it receivers, GA’s, reinsurers- and learn 23 IAIR Bulletin Board to work with - rather than against - one another. I really believe that it is essential that we continue to share ideas, best practices and build relationships through the organization. There are so many op portunities to do just that – participate in a committee, join the IAIR Linked-In group, attend an event, speak at an upcoming seminar, submit an article, bring your ideas, questions, and issues to the Roundtable discussions, or invite a colleague to join. These are just some of the ways to build the International Association association and make IAIR stronger and more vital. of Insurance Receivers C/O Palomar If you have time to spare and a passion for this industry, but you aren’t sure of the 11401 Century Oaks Terrace, Suite 310 best use of your time and talents, reach out to me at [email protected]. I’ll Austin, TX 78758 happily put you to work! 512-404-6555 | Fax: 512-404-6530 [email protected] Already there has been much to do. The most pressing item on the agenda has been preparing a Request for Proposal for a new Executive Director. I have been working (continued on page 2) IAIR’s President’s Message (continued)

with several colleagues, including Betty Cordial, Patrick Cantilo, IAIR’s immediate past Dick Darling, Doug Hartz, James Kennedy, president, has focused his efforts on the 3rd Lowell Miller and, of course, our ever present installment of IAIR’s Technical Development Bill Latza, to develop our RFP and distribute it Series –“The Central Government,” which will through various channels. We have received have occurred at the Aria hotel in Las Vegas by several responses and will be going through the time you read this report. As with all IAIR’s those in the coming weeks. In the interim, we past TDS programs, Patrick has again done an have been fortunate to have the assistance of outstanding job putting together this timely Palomar as Executive Director; we are very and innovative program. appreciative of their willingness and support. Dennis LaGory and Chris Maisel are already Education and communication have been the planning the 2013 Insolvency Workshop, which is overriding mission of IAIR since its inception, scheduled for January 30-Febrauary 1 in Savannah, and have remained the predominant focus of GA. Mark your calendars! We hope to shake it up the Association to this day. These past six a bit and make this a more interactive program months have been filled with planning many addressing topics YOU want – or more exciting events. This year’s 2012 Insolvency importantly –need to know about. So, please, let us workshop was a resounding success. Thanks to know the issues you’d like us to address. co-chairs Bart Boles and Lowell Miller for And, overseeing it all have been Doug Hartz putting together this wonderful program and and James Kennedy as co-chairs of the adding a touch of levity with the “unique” Education Committee, keeping all the planning visuals that accompanied each presentation. teams on track. Thanks to all for your hard Their tireless efforts were evident throughout the event. Also, a special thank you to Maria work and dedication to make this organization Sclafani of BMG for seeing this through and a and the resources the best there is. job extremely well done. There is some sad news I must share. We recently No one can truly appreciate the time it takes to put lost a unique and talented friend and colleague, Steve Wright. He was a long time member and 2 a program together until you have been in the driver’s seat. Folks on our education committee contributor within IAIR and passed away have been hard at work as well. Kathleen McCain, suddenly on May 9. Those that knew Steve will chair of the Issues Forum (those wonderful never forget his enthusiasm and innovative ideas CPE/CLE producing educa tional programs that involving the insurance insolvency field - a take place during the NAIC meetings) put together subject that he was always willing to talk about. a great program in New Orleans with Arlene Steve will be sorely missed by his many friends at Knighten, Supervising Attorney - Financial IAIR. His passing is a reminder to us all that life Solvency, Louisiana Insur ance Department, is short and precious. providing us with the latest and greatest news I may not be the most comfortable in the from the state of Louisiana and Holly Bakke giving limelight, but, as your president, I want to make us an overview of the international per spectives on this organization a stronger one that prospers in solvency regula tion. A recap of the AMCare case the future, or,-.as I said when running for the was presented from the folks who were there first board - to “pay it forward.” Setting a solid hand, including Ed Buttner, J.E. Cullens, Jr. and R. foundation for that to happen is important to me James George. The forum wrapped up with so those who come after will be able to succeed another brief and informative update on NAIC and lead IAIR through the various challenges the news and committees by David Vacca. industry will undoubtedly face in the future. I Also at NAIC, The Guaranty Fund Liaison want to hear from you – your thoughts, sug - Committee addre ssed the changing demands gestions, insights and even critiques. Those dealing with Justice in regard to CMS. We are contributions are what will make this fortunate to have gained Lynda Loomis as co- organization YOUR organization. New blood chair of the group with Wayne Wilson. Lynda leads to new ideas and continued growth. shared much regarding dealings involving Have a wonderful summer and I look forward to CMS and an offshoot sub-committee has been seeing you all at the upcoming NAIC meetings – formed to address the various dealings with the Atlanta in August and D.C. in November. Depart ment of Justice throughout the receivership process. Thank you, sincerely. frankie Equal Opportunity Offenders An Interview with Myron Picoult By Evan Bennett

to Business Insurance clearly been buttressed by the taking down of for many years and reserves. It should also be noted, with few has written numerous exceptions, that the industry was not subjected other articles for to the financial stress from the September 2008 various publications. financial meltdown that impacted many other He has never shied financial industries. This was the result of the away from controversy. industry’s investment portfolios not being You can reach Myron at stilted toward the type of investments that [email protected]. he lped create the meltdown.

Question #1 Where are we now? I believe nasty storm clouds appear to be gathering on the horizon. Myron, I was recently You ask why? Well, there are many reasons. 3 re-reading the article Myron Picoult The industry’s reserve cushion is either you wrote in 1985 basically gone or certainly pointing toward the titled “The State of Insolvency.” You are negative side of the fulcrum. Notwithstanding apparently psychic! When speaking about the the fact that there is finally some upward “…root of the problem,” you said “In essence, movement in rates, pricing adjustments greed and poor business judgment are at the (adjusted for reserve releases) have clearly root of the insolvency problem. Blame for the lagged, deteriorating accident year under - current state of affairs lies with company writing results. We are not yet in a classic “hard managements, regulatory authorities, rein - market.” A slowdown in economic activity has surance executives, accountants, and insurance pared premium growth and in some instances agents and brokers.” You left out attorneys, has had a favorable impact on claim activity as actuaries and the mail room clerks, but pretty has a subdued rate of inflation. However, this much covered it. You also noted that dynamic has not been enough to offset the “…managements did not realize the extent to overall shift to the negative side of the which prices or standards were reduced.” This underwriting equation and, as previously seems a bit like today’s world. Could you noted, it has not been appropriately recognized update us on your current thoughts? in the pricing/underwriting paradigm. Terms Answer: and conditions have likewise been Evan, the state of insolvency for the property- compromised and have not yet been casualty industry must be looked at in terms of appropriately adjusted in the pricing/ the past, the present and the future. underwriting model. In addition, in today’s operating environment, catastrophe losses now For the present, we have gone through about represent a higher proportion of loss payments eight years since we have had any meaningful than has ever been the case. Simply put, insolvency activity. This raises a question of underwriting standards and appr oaches are a why? Industry underwriting and earnings sham! Underwriting talent is disappearing as res ults have been relatively good, but have Equal Opportunity Offenders (continued)

retiring professionals are not being replaced Question #2 at an appropriate pace. As a result of the Myron, can you expand on your comment about aforementioned, underwriting disciplines have industry leadership and the status quo? deteriorated. Answer: As for the future....Well, a very quick and simple I am quite sure that many industry observers calculation of current marginal rates of return and people within the industry will not be and comparable returns over the past few years happy with my perspective. Nonetheless, I clearly shows that the returns are at best beli eve the thought process has to be discussed. marginal if not slipping into negative territory. The question is whether this deterioration is This industry has to learn to make money the old endemic to the industry or purposeful? If you fashioned way…via underwriting profits - given were running a carrier and you were being the state of the yield curve. In the twenty-five compensated well and were not in any year period from 1979 through 2003, the spotlights, would you want to rock the boat or industry failed to post an underwriting profit. even risk it? What appears to be missing in too From 2004 to 2011, underwriting profits were many executive suites is what an insightful achieved in only three of those years. These management consultant calls a “chief contrarian” results pale in comparison to the industry’s who has the intestinal fortitude and historical underwriting record. Current responsibility to ask the “what if ” questions! statutory statements will provide a clearer While there are always exceptions to the rule, it picture of the state of underwriting. While I am appears that industry bench strength has very sensitized to the need to adjust operating diminished over the past 20 years or so. results for GAAP purposes, let’s not forget that there is no such thing as a GAAP checking In the past, company executives came from within account…it’s all about real cash folks! the sales or underwriting side of the business. They had a close affinity for the workings of the Industry leadership appears to be on the wane. 4 business. Then we started to morph toward The “bench strength” is not what it used to be! investment professionals and then we saw a shift While it is not nice to say this, one wonders if toward a focus on “financial wizardry” to cope regulators are suff iciently sensitized to the level with or engage the world of complex financial of risk that appears to be growing. Furthermore, contracts and the rise of synthetic paradigms. The one wonders if there are enough “professional perception was that these folks were going to take receivers” and lawyers around that truly advantage of the plethora of synthetic investment understand the risk factors and the process vehicles and provide hedges against material needed to contain insolvency problems. losses. It seems that basic risk management Editorial Comment: techniques and marginal analysis have been In 2010, State Insurance Examiners began shuffled to the background. Admittedly, there conducting “Risk Focused Examinations” and were appears to be more of an awareness of the problem using a revised Financial Condition Examiners today, but the damage has already been done. Handbook that was developed by the National What is even more disturbing is that we have been Association of Insurance Commissioners (“NAIC”). down this path several times in recent memory. This new approach was to better equip examiners to Size has also been in vogue. Perhaps this was/is identify current solvency risks, monitor them on an being done to try and satisfy Wall Street’s ongoing basis and hopefully mitigate future problems insatiable appetite for both top and bottom line that might endanger a company. Some of the growth. In this business, there are clearly times enhancements in this risk-focused approach were to when it would be cheaper to walk away from provide regulators with a better understanding of the deficiently priced business or, as I have often Corporate Governance function, the insurer’s commented, “…it would be cheaper to send the management, their business and risks, and focus on underwriting department on a long vacation to larger risk areas. Disney World than to permit them to write Has this helped? I believe it has, but this still has to business.” It would probably result in a smaller be measured! “loss” to the enterprise. Equal Opportunity Offenders (continued)

Editorial Comment: Question #4 There has been a great deal of consolidation in the Myron, did we learn anything from the collapse industry over the last 10-15 years. There are fewer of the AIG Empire? companies competing for a client base, which actually has declined within certain lines recently due to the economic Answer: slump. How are these companies handling their The parts of AIG that got into trouble were not underwriting risks, claims, reinsurance and investments the insurance entities. It was the financial service as they grow larger and perhaps become “…too big to components. Some would no doubt argue that mess up!” Well, that remains an open question. the regulators watching over the insurance subsidiaries did their job, but other overseers These “larger” enterprises need to understand their (Federal regulators and rating agencies) risks, put their visions to paper and monitor their dropped the ball on the other operations. The operations more effectively, because of their size and fact remains that there was apparently little complexity. They still need expertise and have to be coordination between the various overseers and accountable to their insureds. They also need to be virtually no effective insights into the perils of customer focused and sensitized to the fact that their deficient management by those that were clients (personal and commercial) are now more inclined supposed to be protecting the public’s interest than ever to seek other vendors. These new executives, as and shareholder interests. The latter clearly you mentioned, also need to be disciplined to walk away points to questions about what the various from poorly priced business that currently cannot be boards knew, understood and were doing! bailed out by investment returns. When I look back at the failure many years ago This “new” crop of leaders must also be adept at of Long Term Capital and the subsequent rescue stepping out of the box to find business solutions. orchestrated by the Federal Reserve Bank of They need to be creative. As Robert Kennedy once New York, I conclude that we have not learned said “Some men see things as they are and say why? from that experience. Go no further than the I drea m of things that never were and say why not.” relatively recent demise of the investment firm 5 This industry is clearly in need of leadership that is MF Global and the mind boggling credit default not afraid to dream and say “…why not?.” problem at J. P. Morgan this past May. Question #3 Admittedly, political polarization is partly to blame for the lack of progress and, if that is not Myron, what do you think about the title? fixed, there will surely be an event that will Answer: result in a lot of finger pointing and losses to Evan, I love it. It is right on the mark, because the shareholders and taxpayers. But the fact remains industry’s miscues over the years can be traced to that there are regulatory and corporate tools in poor regulation and management/ corporate place that are not being effectively used to governance deficiencies. The spread between top- monitor internal operations! performing companies and those at the bottom of In February 1990, a report by the Subcommittee the barrel is very broad. This underscores the on Oversight and Investigations of the importance of quality underwriting, appropriate Committee on Energy and Commerce titled overall pricing and management having a keen “Failed Promises: Insurance Company Insolvencies” focus on using corporate capital effectively. was released. The Committee was chaired by In an environment where regulators are weak, John D. Dingell of Michigan and it became the rating agencies control the dynamics, not the known as “The Dingell Report.” “Failed regulators. It’s as if the regulators have Promises” should be required reading for all abdicated their responsibilities to the rating current overseers, together with a vibrant agencies. Unfortunately the performance of the discussion about what Chairman Dingell’s rating agencies, leading up to the financial Committee found, what the Committee’s meltdown in 2008, and their subsequent approach to correcting the deficiencies were attempts to regain credibility, leave much to be and just what has changed over the past desired. I believe that a key question to be asked twenty-two years! of all industry players at this time is “…who is It should also be noted that the Industry Audit filling the current regulatory void?” and Accounting Guide for Property-Liability Equal Opportunity Offenders (continued)

Insurance Entities (as of June 1, 2011) issued by of such events. The National Association of Insurance the American Institute for Certified Public Commissioners (“NAIC”) efforts to improve the Accountants (“AICPA”), mentions in Chapter 6 financial disclosure of the W/C carve out type of (on Reinsurance) that it would be beneficial for business should help make regulators more aware of an insurance company’s auditors to read “Failed these kinds of transactions after they take place. Promises” as “Several important reinsurance However, existing insurance laws and regulations issues are discussed in the Subcommittee on related to managing general agents, reinsurance Oversight and Investigations of the Committee intermediaries and reinsurance transactions appeared on Energy and Commerce’s report Failed to be inconsequential or ineffective in preventing these P romises: Insurance Company Insolvencies.” flawed reinsurance transactions from occurring. Consequently questions remain as to whether ad- Editorial Comment: ditional regulatory tools are needed in these oversight Apparently not many company managements read, areas and in cases where reinsurance activities cross understood or paid attention to Failed Promises between property-casualty and life-health sides of the because, only a few years after this report, the industry. I am also interested in knowing the extent to Unicover fiasco surfaced and in 2001 Mr. Dingell which regulators have reviewed the actions of was once again involved in dealing with the companies and parties involved with the failed insurance industry’s problems. Did the company reinsurance activities to determine whether or not any management’s try and do some bad things using the existing applicable laws and regulations were violated.” age old modus o perandi “we won’t get caught?” Regulators and the industry media were also Question #5 following the Unicover and Reliance situations and Do we have effective regulation to detect and voicing their disparate views, the problems, the prevent insolvencies? seriousness of the problem and possible approaches to correcting the situation. In a letter to The Honorable Answer: 6 Nathan S. Shapo, then the Director of the Illinois I doubt that this will ever be the case. As a Insurance Department, Mr. Dingell cited the general rule of thumb, regulators are outclassed following: “The Unicover-rela ted reinsurance trans - in terms of people and funds to effectively actions have resulted in $1 billion to $2 billion of monitor the entities that are entrusted to them. industry losses, demonstrating that even The regulatory mindset and appropriate funding sophisticated companies can be naïve when under - will have to change. It remains to be seen if the writing exposures in areas of the business with which FIO will help to change that perspective. they are not familiar.” Regulators have to be on top of product innovation, pricing, capital utilization and risk He also mentioned the various model laws, acts and management techniques if they are to even have regulations for reinsurance promulgated by the a shot at corralling both the number and size of NAIC (post Failed Promises) and asked the regula- insolvencies. tors, if they noticed any problems in their own state’s regulation. Following are excerpts from that letter. Furthermore, the question has to be raised about whether regulators are using the most qualified “A report recently completed by the General individuals they can get for particular Accounting Office (report to the Honorable John D. review/consulting positions. Unfortunately, Dingell, Ranking Member, Committee on Energy favoritism appears to play into the process, and Commerce, dated August 24, 2001, GAO-01- which at times shadows political influence and 977R Reinsurance and Ratings) emphasized activism. While this may well be the world we weakness in corporate governance, internal controls, currently live in, it is not necessarily the way the and risk management as managing general system is supposed to work. Indeed, there is a agents/underwriters were ‘given the pen’ to need for a lot more transparency in this process. underwrite on behalf of insurance companies without proper controls and limitations... Editorial Comments: In light of the insurer losses experienced as a result of Regulators are allowed to employ experts and other failed W/C carve out reinsurance activities, it is qualified professionals and many such officials utilize important that we identify the lessons learned and such skill sets. However, this path is not the one used by implement corrective actions to help prevent a repeat some regulators and a study would seem to be in order. Equal Opportunity Offenders (continued)

Often, the higher fees charged by the “experts” have Question #7 been used by some regulators as an escape hatch not to Myron, is there effective regulation? use such professionals when a “political choice” is chosen. In addition, many “experts” feel that they Answer: must constantly lower their rates to bid on a project. It The one constant today is change. The pace of is true that an RFP process is employed at many states change is faster than ever before, because of the and carriers (who are paying for the state internet and globalization. In general, regulators examinations) are sensitive to pricing. However, tend to be reactive versus being proactive. prospective bidders often note “…that it is often futile Marketplace dynamics and product innovation to bid since the RFP may always go to the lowest bidder should not come as a surprise to a regulator. If (and they could not work at certain lowered rates and regulators do not have the staff and funds to survive) and/or the project is already ‘earmarked’ for a effectively perform their job, they have to special vendor…so why bother.” Hence, some available aggressively seek change. We have seen the well qualified professionals do not bother bidding on results of naiveté and lax regulation on state business. The sad part of this is that many of these individual carriers and the financial system as a states could use the assistance of such experts. The whole. It is not pretty. consistency of this comment also speaks to the need for The use of permitted practices is basically a a review of the process. “kick the can down the road” concept. It can only be validated if the problem(s) that Question #6 precipitated the situation(s) have been Are the regulators leaving money on the table? addressed and effectively resolved. More Answer: importantly, have the dynamic(s) that created Well, we really don’t know because it appears the problem been eliminated? Yearly and that they are not looking too hard. However, my triennial audits are totally inefficient. Regulators gut feeling is that they are leaving money on the who use “permitted practices” must be able to table and that begs the question of why! It also show on-going reviews to correct the 7 raises the query of just what changes have been deficiencies sooner rather than later. In addition, made to improve solvency regulation post the managements have to be able to show what Dingell report. corrective measures have been put in place and how the results relate to an expected time line. Editorial Comment: This would be interpreted as effective In my opinion, the Examiners Handbook, risk focused regulation. Furthermore, regulators should have exams, as well as the various Model Act adoptions by their ears to the ground to pick up unsound the states are an improvement and have helped. pricing practices and questionable product However, it is not a panacea that will magically solve designs. The modus operandi should be to nip all of their problems. But they still might be leaving problems in the bud and not wait until they are money on the table. While each situation is different, full blown. We are not talking about regulators funding for insurance departments has been under “running” the business. We are talking about pressure for many years and has been reduced. This effective regulation to provide a level playing too could put a damper on the ability of Regulators to field for all purveyors and their customers… hire qualified individuals and consultants with the existing and prospective. appropriate backgrounds to handle certain problem Question #8 areas. For example, these experts might have the investment, claims, underwriting and reinsurance Myron, earlier you noted the industry’s “bench backgrounds and skills, or segments of the strength.” Could you elaborate? aforementioned, necessary to possibly turn a failing Answer: company around. Likewise, these individuals may In my opinion, the depth of the management also be more adept at collecting the proper amount of bench strength in many carriers today is below reinsurance recoverable, because they have a more what I experienced when I was an analyst and a complete understanding of reinsurance, reinsurance banker covering the insurance industry. There programs and reinsurance collections. Money can are always exceptions to the rule, but too many very easily be left on the table in these instances. management teams seem to be more addicted to Equal Opportunity Offenders (continued)

satisfying Wall Street’s earnings and revenue Question #9 growth demands than operating their Why aren’t the regulators being more proactive organizations effectively, given the dynamics of and what do they have to lose by being the traditional underwriting cycle. I am aware of proactive? a multitude of situations where companies have expanded their operations geographically Answer: and/or into additional product lines. There are a Within the industry, the standard line is “…a lot of tentacles, but in too many instances, there good regulator is one who doesn’t do anything.” is no central nervous system in place to In addition, it is painfully obvious that funding effectively monitor and interpret the data being for regulatory operations is a problem and there accumulated. All too often, this ultimately is is always the ever present “political problem(s).” manifest in a meaningful problem. There are some exceptions to the rule. However, in order to be proactive, a regulator has to be I believe that most industry observers would prepared and able to withstand industry wrath acknowledge that underwriting is a key facet to and a lot of political heat from legislators who the industry’s success. Underwriters have been are “tied” to the industry. retiring at a fairly rapid pace. Where are the new recruits coming from? How are they being Editorial Comment: tutored? Are there enough of them to fill the In 1990 in “State Actions to improve Insurance voids being created? There are things that cannot Solvency Regulation” the NAIC et. al wanted to be learned from a book. Experience is the only illustrate how they were dealing with and were going teacher! Intelligent underwriting systems to deal with regulation in the future. Included were admittedly can help, but they can only do so better educated examiners, more timely exam - much. Indeed, there will always be instances, in inations, the use of experts and Model Acts etc. As of both personal and commercial lines, where a 2010, the Examiners Handbook was illustrating a judgment call, based on experience and intuition 8 Risk Focused Approach to enable examiners to - not just statistical data, has to be made. Are the become more involved in the examination and work carriers up to the task? with the companies they examine to mitigate Do t he people that comprise the Executive Suite problems before and as they arose. This was viewed as foster teamwork? Do they truly have the a good thing and still is. Regulators were, as a result, necessary people skills and do they encourage supposed to not just perform a checklist approach to and accept disparate views and tough questions an exam, but were to read, understand and question from their direct reports? Finally, it is also items. Has this been more effective or is it just lip common knowledge that, for the most part, it is service? This remains to be answered and not just by cheaper to keep existing customers and sustain citing fewer insolvencies. high retention ratios as opposed to ignoring your customer base and primarily trolling for Question #10 new customers. When was the last time you Has regulation improved over the past decade heard a Chief Executive Officer talk about policy or two and what are the criteria for retention and customer service? How often has improvement? Are few or no insolvencies the company’s CEO visited the customer service criteria for success? center(s) unannounced and sought input from Answer: the folks on the front lines about what they need Evan, I am sure there are people who would say to perform their jobs more efficiently? Only a that regulation has improved over the past few top performers have a customer centric decade or so and point to the decline in focus. This is a concept that more carriers should insolvencies, particularly in light of the financial seek to emulate. tsunami experienced in 2008. I do not agree with The bottom line to all of this is that very few t hat conclusion. To begin with, we have ceded insurance enterprises seem to have management capital regulation to the Europeans. Next, it teams that can and do think out of the box! Such appears that regulators have kicked the can organizations have true management depth. down the road with the use of permitted practices to give carriers more time to enhance Equal Opportunity Offenders (continued)

their capital levels and recapture weakened asset some really bad bets were made via deficient values. While some breathing room was most pricing and loosened underwriting standards in likely appropriate, the time frame in some cases recent years. As I have previously noted, focus must be questioned. A report recently issued by and the ability to think and execute out of the Fitch Ratings noted that ratings over the 2007- box remain very positive industry mainstays. 2010 period have slipped some and indicated a Being part of a herd may appear safe, but it does return to the 2007 levels is unlikely given the not provide any incremental operating leverage. agency’s perspective on volatility and Let’s say, it looks like the clock is ticking. investment risk. Admittedly, the rati ng agencies, in general, are being more proactive given their Question #12 dismal performance leading up to the 2008 Have we learned from past insolvencies? meltdown, which was aided and abetted by their actions. However, Fitch’s current perspective Answer: appears to be more in line with reality than the Evan, I assume that “we” refers to the regulators, rosy picture drawn by many carriers. Relatively company managements and policyholders. I low investment yields and deficient pricing in would love to answer in the affirmative, but I do many sectors over the past few years would not not believe much has been learned form the appear to point to a ro bust earnings recovery. Mission, Baldwin, Transit, United, Reliance, etc. Indeed, when one looks at commercial lines debacles. Most policyholders tend to be more underwriting performance between 2007 and focused on price than quality. In fact, most never 2011, developed accident year loss ratios paint a really seek out a carrier’s rating, nor the rather dismal picture. appropriate information needed to truly understand a carrier’s balance sheet strength. Question #11 Prospective policyholders would do well to seek Are company managements much better at out companies and individuals who have gone avoiding pitfalls? through an insolvency to really understand how 9 and why it is not a pleasant experience. Answer: Regulators basically continue a “hands off Thank you for throwing me a great big policy” of not wanting to place an enterprise basketball to swing at. The industry’s dismal under receivership unless all else fails. The underwriting performance over the past few modus operandi of “…not on my watch” decades would say no. The confluence of less remains very much alive. Finally, company than effective capital utilization at times, foggy managements.... Well, the record speaks for risk management applications and subpar itself. In the twenty-five years period from 1979 returns on equity all speak volumes. The returns through 2003, the industry failed to post an are even more damning when one adjusts for the underwriting profit. From 2004 to 2011, risk factors and the volatility of the business. As underwriting profits were achieved in only three I noted at the beginning of the interview, in the of those years. These stati stics pale relative to the “old” days, company leaders came up through industry’s historical record. For example, from either the underwriting or sales ranks. They 1920 to 1980, the industry posted an under- understo od the business and had an affinity for writing profit in forty of those sixty years. There the product and the markets served. is no question that the dynamics of the business There are exceptions to the rule. There are has changed in terms of liability exposures, carriers that have produced fairly consistent catastrophe exposures and the overall com- underwriting results over the years and have plexity of the product in terms of coverage, been able to grow their companies. Unfort - insured layers and the responsibility of the unately, too many companies have tried to be too insured an d the insurer. However, the industry’s many things to their agents and customers. The focus on developing an underwriting profit, end result has been poor return on equity, poor with few exceptions, has clearly lagged. policyholder service, inconsistent markets and the inevitable charges. It remains to be seen if Equal Opportunity Offenders (continued)

Question #13 losses we have seen in recent years has clearly Has regulation changed from the traumas of exceeded even the most pessimistic pro- Mission and Unicover? gnostications. The lesson to be learned for both company managements and regulators is Answer: “…don’t ignore things that can happen, don’t be Well, if it has changed for the better, it has been afraid to ask the “what if?” questions and most very well camouflaged. Regulators have always importantly, probe for the answer(s) to those been and remain reluctant to take over a carrier. It questions.” Finally, use the talent that exists both is a costly and time consuming process for all within and outside the industry to get to those involved, including the policyholders who were questions if the talent does not exist in your left holding the bag. Regulators are modestly organization. Most organizations and enter- proactive when it comes to holding down rate prises can use/need a different perspective from increases, when permitted. On other counts, they time to time. Such an approach is needed to are rarely proactive. The use of permitted forestall or root out any systemic risk that begins practices, which has been around for a while, in to invade individual companies or the industry. essence has provided troubled carriers with a Thanks Evan. I really enjoyed our conversation. lease on life. The real question is whether or not those carriers have really made good use of the extra oxygen that was provided to them. Over the Evan D . Bennett is Director of Reinsurance Consulting at Blackman Kallick in Chicago, past few years, the industry has been living off of Illinois. He has over 30 years of experience reserve releases and permitted practices, while in the insurance/reinsurance industry and basically ignoring deteriorating marginal rates of has performed reinsurance audits and reviews, reinsurance contract analysis, and return. It now looks like the excess reserve well is other reinsurance projects for insurance dry. So, where do we go from here? companies and departments of insurance . He has also served as an expert witness and Question #14 consultant on various arbitration and 10 litigation projects throughout his career. Myron, any thoughts about the Hurricane Evan is a frequent presenter at industry and Katrina Syndrome? IAIR events and is the Chair of IAIR’s Audit and Communications Committees. You can reach Evan at 773-230-0554 or Answer: [email protected]. What a great question and a wonderful way to end the interview. The magnitude of catastrophe

IN MEMORIAM: STEPHEN L. WRIGHT

It is with sadness that we share with you the news of Stephen L. Wright’s passing. Steven was a long time member of IAIR and was involved in many different capacities. As a member, Steve contributed on committees and was very active in the insurance industry throughout his career, both as an estate manager and examiner. Below is an excerpt from the obituary published in the Nevada Appeal. Stephen L. Wri ght passed away on Wednesday, May 9, 2012, at his home in Carson City, Nevada. He attended the University of Nevada, Reno. Stephen was a Senior Market Conduct Examiner and the Director of Special Projects for the Huff Group, Kansas City, Missouri. Other important positions held by Stephen during his professional career included Chief Insurance Examiner, State of Nevada Division of Insurance, Estate Trust Manager for the California Department of Insurance, and Program Manager for the FDIC. He was committed to fair competition in the private sector and consumer protection. Stephen's love and concern for his country knew no bounds. His innate loyalty extended to his friends. We shall all miss his beautiful and noble thoughts, as well as his wide and warm heart. View from Washington By Charlie Richardson

Federal Advisory Committee on Insurance The Federal Advisory Committee on Insurance (“FACI”) met on March 30 at the Treasury for the first time for about three hours to discuss logistics, ethics requirements, its role and a few initial topics on which to advise the FIO. Director Michael McRaith announced Brian Duperreault, President and Chief Executive Officer of Marsh & McLennan Companies, as the Chairman. Two subcommittees were created: “Regulatory and Supervisory Balance,” which will examine the state of the “playing field” for insurance companies and to see whether it is a level one; and“Accessibility,” which will look at the effect of changing demographics and socio-economic patterns domestically and internationally. Members and McRaith noted that international issues were at the forefront of many concerns, and the two initial subcommittees will delve into those issues. FACI will meet quarterly, with interim teleconferences. McRaith hinted that other issues will be added after the release of the FIO Report. There was no mention of the receivership/ guaranty systems. Below is a list of FACI members: 11 Michael McRaith Loretta Fuller Monica Lindeen Director, Federal Insurance Office Chief Executive Officer, Insurance Montana Insurance Commissioner – Committee Decision Maker Solutions Associates Christopher Mansfield Brian Duperreault Scott Harrington Senior Vice President Committee Chairman: President Alan B. Miller Professor and General Counsel, and Chief Executive Officer, in the Health Care Management Liberty Mutual Group Marsh & McLennan Companies and Insurance and Risk Sean McGovern David Birnbaum Management Departments at Director and General Counsel, Economist and Executive Director, the Wharton School, University Lloyd’s North America of Pennsylvania Center for Economic Justice Michael Sproule Michael Consedine Scott Kipper Executive Vice President Pennsylvania Insurance Nevada Insurance Commissioner and Chief Financial Officer, Commissioner Benjamin Lawsky New York Life Jacqueline Cunningham Superintendent of Financial William White Virginia Insurance Commissioner Services, State of New York DC Insurance Commissioner John Degnan Thomas Leonardi Senior Advisor to the CEO Connecticut Insurance of the Chubb Corporation Commissioner Dodd-Frank Carping One of my favorite literary and potty mouth authors and commentators from the last century was Dorothy Parker. Parker said one time of Eleanor Roosevelt, “Beauty is only skin deep, but ugly goes all the way to the bone.” View from Washington (continued)

That’s what a lot of people in the business by Rep. Ed Royce for the House Financial community, generally, and in the banking sector, Services Committee, academic and data specifically (and their supporters in Congress-pri - presentations by researchers from Georgia State marily Republicans) are saying about Dodd-Frank and St. Johns and by Ernst & Young, and a terrific and the 10 federal implementing agencies, now that industry panel made up of the leaders of the the economy appears to be slowly but surely National Association of Professional Surplus climbing out of the depths of the 2008-2009 hole. Lines Offices, Ltd., the American Insurance There have been over 50 amendments or Association and the NCIGF. repealers introduced, some of which are bound to FIO Director Michael McRaith had been expected succeed if the Senate flips to GOP control next to speak at the Summit, but due to a delay in the year. For example, in April, the GOP-led House release of the FIO Report, he did not. Financial Services Committee took direct aim at The concluding speaker was the Financial the Orderly Liquidation Authority (“OLA”) Stability Oversight Council’s voting member Roy provisions of Dodd-Frank as part of its Woodall, and I think it’s fair to say he kept the implementing legislation relating to the audience fully engaged to the very end. For those controversial GOP budget. The majority vote was of you who have known Mr. Woodall for decades to repeal the OLA completely. There were similar since he served as insurance commissioner in moves against the new Office of Financial Kentucky, I think we can say that he is diggin’ his Research, now with 70 employees, and the role and has really come into his own. He is Consumer Financial Protection Bureau, with 750! highly regarded both on and off the Hill. The Dodd-Frank complexity has created a Rep. Royce said he supports Dodd-Frank's backlash of sorts – not one as strong as the creation of the FIO, which for the first time backlash, even vitriol, against TARP, the stimulus established a centralized voice on insurance bill, and healthcare reform – but a backlash issues in international forums and negotiations nevertheless. FIO Director Michael McRaith got a for the U.S. industry. He reaffirmed his support 12 small taste of that at his first Congressional for Optional Federal Charter legislation as a way hearing last October, just as other Treasury to facilitate a more national insurance market. officials led by Secretary Geithner get grilled Mr. Royce commented on the NAIC, specifically every time they are on the Hill. mentioning his letter in which he questioned the The point is that most parts of Dodd-Frank have status of the organization and acknowledged now been run over by every interest group in DC, receipt of a response from the NAIC thats i as the really dark days of 2008 and 2009 get probably not going to end the conversation. farther away and Republicans can say that Dodd- Bottom line, Rep. Royce thinks that state-by-state Frank is an example of regulatory excess that is regulation isn’t necessarily the best way to fuel a now holding back the recovery. national insurance market in the 21st Century, So far, none of this has washed over FIO. Indeed, and he has no intention of exchanging recipes any Director McRaith’s non-stop reach out to state time soon with the NAIC, whose status and role regulators, Congress and all segments of the has been questioned in a very public way. industry has kept criticism of the insurance Finally, the debate at the Summit, and at the FACI sections of Dodd-Frank to a bare minimum. meeting, centered significantly on all things NFI Insurance Reform Summit international. Everyone’s eyes are focused there, including the NAIC as it pushes forward its On March 21, the 8th Annual Insurance Reform Solvency Modernization Initiative. Summit we help put on with Networks Financial Institute was held in Washington. Several of you Charlie Richardson is a Partner at the law firm were there. The Summit is always held the first Faegre Baker Daniels in its Washington, D.C. office where he chairs the firm’s Insurance week of March before Congress gets going, but practice group. Charlie assists insurance was pushed back this year to accommodate the companies and others with all types of likely issuance of the FIO report. That sure did us corporate, federal legislative, regulatory, public policy and compliance matters. He a lot of good. practices in the area of insurance company There were important presentations by rehabilitations, liquidations and troubled company workouts. Commissioner Susan Voss for the NAIC, a speech The Perfect Receiver By Patrick Cantilo, CIR-ML

1. Forget the goal. Especially in the consultants. However, thought should be given to beginning, receiverships can be the institutional knowledge lost in the process and very daunting. It is easy to get so the learning curve that will confront replacement immersed in the initial challenges employees. A more judicious “default” approach is that one loses sight of the finish to retain employees as long as possible given the line. Good trial lawyers begin work that must be done and available resources. working on their jury charge on Undoubtedly, some members of management may day one, the same day on which need to go, but wholesale house cleaning can be good receivers begin working on very counter-productive. their closing plan. It is imperative 6. Don’t waste money on consultants. Many to set an exit strategy early and work inexorably companies have exceptional staffs and it is easy to toward that goal. This will reduce the chance of rely on their expertise and familiarity, thereby expensive and time-consuming distractions. saving the considerable cost of consultants. How 2. Don’t dilly-dally, just go! In the face of exigent expensive is it later, though, when it turns out that circumstances, it is tempting to just forge ahead, company staff was unable or unwilling to identify 13 letting developments set the direction. However, the most serious problems and address them it is the wise receiver who makes a reasonably effectively. An astute independent analysis early in robust receivership management plan early and the process can provide the confidence that the sticks to it to the end unless there is a persuasive receivership management plan is responsive to the reason to change it. real challenges facing the company and does not 3. Hide the ball. Receivers come under fire from overlook critical functions. many fronts and can easily fall in the trap of 7. Take your time.This stuff is hard. Given the need revealing little and being astutely circumspect so to familiarize oneself with the company and its as to avoid giving opponents unnecessary ammo. problems, it is easy to see why many receivers take While caution is always in order and confi - some time to begin working on the receivership dentiality sometimes essential, the default mode management plan, let alone begin the more should be to be clear and candid. Far more often challenging phases of the rehabilitation or than not this will reduce the number and severity liquidation. But time is our enemy. Adverse of conflicts with which a receiver must deal. The selection decimates the value of blocks of business, informed creditor is less likely to be skeptical or wrongdoers hide their tracks, agents lose interest, cynical to the point of litigation. key employees are lured away by competitors, and 4. Shoot everybody.Finding targets is not the hard the stuff in the refrigerator begins to smell bad. part; rationing ammo is. While in many cases Hard as it is, the good receiver moves quickly to people who deserve dearly to be sued out of identify the key functions that the receivership existence permeate troubled companies, the wise must perform and begins very quickly to devote receiver resists that temptation, initiating only that resources to those functions. Put another way, it is litigation that is important to the overall receiver - easy to focus on taking control and put off starting ship plan and has a reasonable chance of success at the actual rehabilitation or liquidation - but thecost a reasonable cost within a reasonable time. of delay can be substantial. 5. Clean house quickly.Similarly, it is tempting to get These seven traps are by no means all that is rid of existing management and supervisors and important. But avoiding them can make replace them with “untainted” newcomers and receivership management much more effective. IAIR Welcomes its Newest Members

Jonathan L. Bing practice based in Hartford. During his fifteen Jonathan Bing was appointed years with the firm, he worked primarily in the Special Deputy Superintendent of financial services, insurance and reinsurance the New York Liquidation Bureau industries including the life, health and (“NYLB”) in July 2011. Prior to property-casualty sectors. joining NYLB, Mr. Bing was elected to represent the Upper John J. D’Amato, CPA East Side and East Midtown Manhattan in the John D’Amato is a Senior New York State Assembly for five terms, from Manager with RSM McGladre y in January 2003 through June 2011. His most Austin, Texas, performing notable legislative achievements include the statutory financial and market 2006 law that expanded the statute of limitations conduct examinations, ad hoc for workers’ compensation claims made by 9/11 solvency and operational reviews rescue, recovery, and clean-up workers. Mr. Bing and providing internal audit services. also authored several laws to reduce Previously, John was a Senior Financial administrative burdens in the insurance and real Consultant with Rector and Associates, Inc. estate industries in order to allow these Mr. D’Amato holds a Bachelor of Science in businesses to be more successful during difficult Business Administration from the University of economic times. Hartford, West Hartford, Connecticut (magna Mr. Bing received his JD from New York cum laude). University School of Law, a BA from the University of Pennsylvania and a 2009 Honorary Nicole Debien, CPA Doctor of Law degree from LIM College. Nicole Debien is a Consultant for Veris Consulting, Inc. 14 Edward W. Buttner IV, FLMI, specializing in forensic accounting CFE, CFF and litigation consulting services, Prior to joining Veris Consulting, including accounting and Inc. as a Senior Managing Director, financial reporting matters, Ed Buttner was the Principal in his auditing malpractice and economic damages own firm. Mr. Buttner devoted calculations. She frequently conducts research much of his practice to forensic related to GAAP, SAP, GAAS and other industry accounting and expert witness services, specific authoritative literature. She has primarily serving the insurance industry. With assisted counsel through all phases of the over 25 years of experience, Mr. Buttner has litigation process. testified on numerous occasions and in Ms. Debien received her Master of Science in numerous jurisdictions. Accounting and BS in Commerce, with Mr. Buttner was a partner in Ernest & Young, distinction, from the University of Virginia’s having principal responsibility for serving its McIntire School of Commerce. insurance clients in the southeast region. Mr. Buttner operates out of Jacksonville, Florida. Lee Harrell Lee Harrell, of counsel in the Joseph F. Clark, AIE, FLMI, Jackson, MS office of Baker CFE, CFF Donelson, concentrates his prac- Joseph Clark is a Managing tice in the area of insurance with Director with RSM McGladrey in an emphasis on insurance charge of the Regulatory regulatory matters. Prior to Insurance Consulting Practice joining Baker Donelson, Mr. Harrell worked serving several state insurance with the Mississippi Insurance Department departments. Previously, Mr. Clark was the (MID) for sixteen years, first as Special Assistant partner-in-charge of a Big 5 accounting firm’s Attorney and General Counsel, then as Deputy national insurance regulatory consulting Commissioner and Special Counsel. IAIR Welcomes its Newest Members (continued)

Mr. Harrell was part of the investigatory team Mr. Wallis is a Certified Arbitrator (ARIAS-US) that first discovered the massive insurance and member of ARIAS-UK’s Panel of Arbitrators fraud perpetrated by Martin Frankel. He and AIRROC’s Panel of Arbitrators and a director coordinated multi-jurisdictional asset recovery of Intermediaries & Reinsurance Underwriters efforts and assisted in the successful prosecution Association, Inc and a member of the Journal of of Frankel and others. Reinsurance Editorial and Association Governance committees. Patricia Neesham, CPA, CFE Patricia Neesham is a Manager with RSM Kevin L. Wheeler McGladrey and performs financial and market Kevin Wheeler, of Higgs Fletcher & conduct examinations. Previously, she was a Mack LLP, specializes in complex Senior Examiner with Huff, Thomas and business disputes, insurance Company, Chief Market Conduct Examiner and matters, patent and trademark Chief Market Analyst with the Oregon Division infringement litigation and of Insurance and served as Special Deputy securities arbitrations and advises Receiver for six companies in various stages of small to mid-sized companies in contract, liquidation. Ms. Neesham holds a Bachelor of intellectual property and insurance matters. Mr. Arts in Accounting from Fort Lewis College. Wheeler received his JD from the University of San Diego School of Law. Margaret C. Spencer, CPA, CIE, MCM, RHU, CPCU, CLU, Paul Wilkening CIA, CFE Paul Wilkening is the Deputy Commissioner of Margaret Spencer, a Managing Administration with the Oklahoma Insurance Director with RSM McGladrey, Department, where he manages staff of over 120 provides leadership for market employees in two state offices and is Assistant 15 regulation, financial and General Counsel to the Oklahoma Receivership insolvency consulting engagements for insurance Office, Inc. regulatory clients. Prior to joining the Oklahoma Insurance Prior to joining RSM McGladrey, Ms. Spencer was Department, Mr. Wilkening was the sole a principal with a Big 5 accounting firm and practitioner of the Wilkening Law Fir m in Tulsa, Director of the firm’s insurance regulatory Oklahoma, a civil and criminal litigation firm. consulting practice. Ms. Spencer holds a Bachelor of Business Administration – Accounting from Al Willis the University of North Florida. Al Willis is the Assistant Division Director for the Florida Department of Financial Services, Jeremy R. Wallis managing the Administrative Services, Jeremy Wallis, of Wallis Resolutions, Accounting, Claims and Estate Management is a Reinsurance Consultant sections of the Division of Rehabilitation and specializing in reinsurance treaty Liquidation. Previously, Mr. Willis was the Acting underwriting and claims Deputy Commissioner, Director of Life and management. He is a Director of Health Financial Oversight and Bureau Chief of MAPFRE Insurance Company. the Bureau of Specialty Insurers with the Florida Office of Insurance Regulation.

To submit an article, please contact Michelle Avery at [email protected]. Same Difference, Right 2012 Insolvency Workshop Wrap Up By Bart Boles and Lowell Miller

of “other entities” fall two types of organizations that each company should be carefully analyzed during are usually the largest creditors in any receivership: rehabilitation and the involve ment of the guaranty the insurance guaranty associations and guaranty associations or guaranty funds should be included as funds. IAIR recognizes these entities’ vital role in a possible beneficial tool to either result. receiverships and made the decision to dive into the Evan Bennett, Hal Horwich and Joel Glover depths of the guaranty systems during its Annual discussed the most significant asset in the majority Insolvency Workshop that was held at the Westin San of receiverships: reinsurance. They emphasized the Diego on January 19 and 20, 2012. This year’s theme importance of accurate records and development of was The Nuances and Perceptions Between Receivers relationships with the reinsurers, especially for and the Guaranty Systems: Do You Know What You ongoing, long-tailed claims. Although it may seem Don’t Know?” Although guaranty associations and obvious that the claims related records will be guaranty funds have the same over all goal, to protect provided by both guaranty systems, it was found the obligations to policyholders under the insurance that ongoing reinsurance reporting and stand - policies of an insolvent in surance company, the ardized reporting was far more prevalent among the workshop’s presenters went beyond this surface property and casualty guaranty funds. objective on a variety of receiver ship issues to identify 16 where the two guaranty systems are similar or unique The next panel discussed some of the challenges in their responsibilities, approaches, processes and facing guaranty associations and receivers as new potential impact on receivership activities. insurance products, or new features on old products, are developed and introduced. Chuck Gullickson, Barbara Cox of the National Conference of Joe DiMemmo and Wayne Wilson made all attendees Insurance Guaranty Funds (“NCIGF”) and Joni sit up and take notice as they described the Forsythe of the National Organization of Life and continually and rapidly changing products and how Health Insurance Guaranty Associations they must be addressed through the existing statutes (“NOLHGA”) began the work shop with material that were probably a little dated when adopted. on the processes and committees their Although it was clear that coverage determinations organizations use to facilitate and coordinate are the obligation of the guaranty associations or guaranty funds’ and associations’ activities for funds, receivers possess many of the financial and multi state insolvencies. At times it might seem like institutional records that need to be reviewed as part herding cats, with state-by-state slight variations in of the coverage determination. In addition, the final laws defining coverage and monetary limits, but coverage determinations impact the receiver’s with cooperative efforts the systems work administration obligations to quantify policyholder amazingly close to the way they are intended. level claims and distribution assets. The panel made A panel comprised of Dave Edwards, Frank everyone realize that “high octane” marketing O’Loughlin and Dan Watkins provided some departments can not only lead a company down the perspectives on the pros and cons of involving a insolvency path (i.e., “I don’t care about the adequacy guaranty fund or association early in the rehab - of the pricing for the benefits, I just want to sell it”) ilitation process while the need for liquid ation is still but also create headaches for guaranty systems and being evaluated. It was evident that there have been receivers as the company’s administration systems instances where such early involvement provided and receivership and guaranty laws are trying to significant benefits to the rehabilitation efforts or close the gap while running on “cheap gas.” allowed for a more seamless transition to liquidation. Chris Maisel mediated a discussion between This panel also mentioned some areas where perils Steve Durish and Bart Boles over the approaches loom. They stressed that the unique set of facts for of the two guaranty systems with respect to Same Difference, Right? (continued) policy and claims administration. While both pound gorilla lurking in the corner of the room, systems have their own set of critical claims and namely the Dodd-Frank Act. Patrick Hughes and issues that require immed iate attention, Charlie Richardson, as if coaching attendees in evaluating which data, personnel, and the tradition of Lombardi and Landry, presented hardware/software that might be useful going the X’s and O’s within this morass of law. They forward unveiled some unexpected differences in revi ewed the starting lineups among the federal approach. Also, some of these specific resource regulators and tentatively game-planned the needs are controlled not only by the receiver, but potential impact. Their presentation concluded also by the integral aspect of the receiver’s with everyone prepared for Dodd-Frank season administration plans for the estate and would and the conviction that life will stay interesting. require coordination and/or sharing with the A wise man once said, “There’s a fine line between guaranty association or fund. wrong and visionary, unfortunately you have to be How could an update on the past year’s litigation a visionary to see it.” As we look forward to the 2013 and legislation impacting receiverships be IAIR Insolvency Workshop, we must provide a anything other than a total yawner, just make sure sincere thank you to all of the presenters in San Mary Cannon Veed and Philip Curley make the Diego who stepped up, said “yes,” and then presentation. Not only did these consummate demonstrated their vision by sharing experiences professionals convey the relevance of this complex and expertise in the workshop so that “wrong” material, they did it with precision and humor. doesn’t find it’s way into the receivership process. Jan Funk, Bruce Gilbert and Mike Fitzgibbons revealed unexpected complexity to the various issues Lowell Miller has served as Executive Director of the North Carolina Life & Health Insurance Guaranty to be finalized when closing the receivership Association since 1995. He also serves on several proceeding. The estate closure sounded simple in NOLHGA insolvency task forces and committees. concept until they walked us through auditing Proofs of Claim, reconciling early access distri - butions, finalizing uncovered claims, escheating, Bart Boles has worked in various capacities for the Texas Life and Health Insurance Guaranty Association since 17 completing regulatory filings, dealing with federal, 1988. During that time he also served on the NOLHGA state and local taxing authorities, and distributing Board of Directors, as Chair of NOLHGA's Members the final remaining assets. Participation Council, as chair of a number of multi state insolvency task forces, and has participated various The closing panel was asked to deal with the 800- other NOLHGA committees and task forces.

The Insurance Receiver is intended to provide readers with information on and provide a forum for opinions and discussions of insurance insolvency topics. The views expressed by the authors in the Insurance Receiver are their own and not necessarily those of the IAIR Board, Newsletter Committee or IAIR’s Executive Director. No article or other feature should be considered as legal advice. Newsletter Committee: Michelle Avery, CPA, Chair Evan Bennett, Arati Bhattacharya, Francesca G. Bliss, Richard J. Fidei, Douglas Hartz, Esq., CIR-ML, Harold Horwich, CIR-ML, James Kennedy, Esq., Dennis LaGory, Esq. Officers: Francesca G. Bliss, President, Patrick Hughes, Esq., 1st Vice President, Bruce Gilbert, 2nd Vice President, Donna Wilson, CIR-ML, Treasurer, Alan Gamse, Esq., Secretary, Patrick Cantilo, Esq., CIR- ML, Immediate Past President Directors: Michelle J. Avery, Evan Bennett, Betty Cordial, CIR-ML, Richard Darling, CIR-ML, Joseph DeVito, AIR, James Kennedy, Esq., Dennis LaGory, Esq., Lowell E. Miller, Daniel A. Orth III, Vivian Tyrell, Esq. Legal Counsel: William Latza, Esq. and Martin Minkowitz, Esq., Stroock & Stroock & Lavan LLP There are options – A different approach to handling reinsurance billings and collections By Ricardo Cantilo and Steve Street

The collection process can occasionally be process (particularly when it comes to long-tail painfully burdensome due to the complexity of claims) and mitigation of cost – costs driven up the relationships that sometimes can involve by a range of factors, such as too many touch brokers, sub-brokers and reinsurers from which points in the system, too many hand-offs, too the receiver needs action. Legacy business can much reconciliation, or simply too many have tails of up to 40 or 50 years and records, inconsistencies – must be the way forward. often made up of fixed data and unformatted A successful solution to the problems above text, need to be maintained for up to 80 years. must focus on: The main issues are not a secret to anyone. It is • complete control and transparency; vital to provide brokers and/or reinsurers with • improved cash flow; adequate and timely notices and billings with • a single platform to access all markets and their respective supporting documentation. It is brokers; equally important to identify the right contact • the opportunity to replace a non-performing 18 person at the broker and/or reinsurer. It is of broker on legacy business or, if appropriate, paramount importance to keep the relationship retain the broker for their advocacy skills and with brokers and reinsurers as active as possible, market relationships – but not processing; which means that all correspondence with them • reducing processing costs (or even needs to be dealt with as soon as possible. eliminating them) along with increased In the current environment, brokers play an efficiency – better client servicing as important role in the billing and collection automation eliminates the need for broker re- process. However, most brokers would probably processing and potential errors; prefer not to be weighed down by the burden of • standard presentation of claims; and back-office processing long after any brokerage • reduced exposure to dormancy, particularly or commission has been banked. Generally, from legacy business. brokers wish to concentrate on the areas where Systems like STRIPE (Straight Through they add value – namely, in the identification of (Re)Insurance Processing Environment) can risks, structuring programmes, placement and provide a solution. STRIPE is a web-based claims advocacy. The burden to the broker platform (developed by Tawa) enabling insurers balance sheet in balancing the cost of processing and cedants to deal with their (re)insurers versus adding true value to the (re)insurance directly, reducing re-processing of data. It transaction is becoming increasingly unsus - supports the single keying of data and allows the tainable and is even further exacerbated when immediate, secure and evidenced delivery of looking at legacy portfolios where the client transactions to all worldwide markets. It relationship is no longer current. significantly improves cash-flow though in - None of this should be a barrier, however, to stantaneous notification to (re)insurers, improving the time it takes to speed up eliminating backlogs and other inefficiencies collections and notifications or to finalize associated with traditional claims collection settlement and commutation. A combination in processes. re-engineering and technology has to be the Importantly, STRIPE figures out the connectivity solution. Simplification of an overly complex issues between parties and delivers the There are options – A different approach to handling reinsurance billings and collections (continued) information to and from those parties via the Global rules, not local standards, are critical and web. As previously mentioned, it is able to work the use of ACORD messages (industry standards directly with all markets, including the London that support the definition and sharing of Market, through ECF (the London market insurance data amongst worldwide industry electronic claim file initiative) and CLASS (claim participants), for instance, has opened the door to loss advice and settlement system), where it has initiatives like STRIPE. The good news is that this been necessary to involve a London-based broker standardization should see hubs competing for in the process. It is also capable of transacting business, while market participants use their ACORD messages, an interna tionally recognised leverage to obtain greater functionality and even standard of messaging in the (re)-insurance more value. market. This level of universal connectivity is It’s been a long time coming, but with the advent critical. Ultimately, it works to remove layers of of technological initiatives, we can at last say that process and cost wherever your business sits in the market is finally starting to realize real the (re)insurance chain. progress on how it uses technology to strip out There are, of course, challenges to market-wide those frictional costs. adoption of system driven solutions. Top of the list is probably tradition – and our industry is Ricardo Cantilo, a Vice President of Chiltington steeped in it – which can make it hard to persuade International is a lawyer specialised in Insurance and companies to adopt a new approach. People have Reinsurance. After heading the Chiltington a way of doing things and can be apathetic, if not Argentina office, he has transferred to the U.S. operation where he is instrumental in the resistant, to embracing change. Sufficient market development of services to the Latin American volume, however, can create critical mass and, market through the United States and devotes much of his time to reinsurance billing and collection with nearly 300 organizations now using and matters. communicating through a specific web platform, that may be enough to persuade many that the 19 Steve Street, a Director of STRIPE Global Services Ltd., has over 30 years risk of adopting a new approach is minimal and of experience in reinsurance management positions in brokers and (re) the pot ential upsides significantly outweigh any insurers, focusing on reinsurance claims, consulting and business perceived risk. development.

A SPECIAL THANKS TO OUR 2012 CORPORATE SPONSORS FOR THEIR CONTINUED PARTICIPATION AND SUPPORT!

Arnstein & Lehr, LLC Lowell Miller Accountant, Inc. Computershare Quantum Consulting, Inc. DataCede Robinson Curley & Clayton, P.C. DeVito Consulting, Inc. Scribner, Hall & Thompson, LLP FitzGibbons & Company, Inc. Semmes, Bowen & Semmes, P.C. Insurance Regulatory Veris Consulting, Inc. Consulting Group Zolfo Cooper (Cayman) Limited Law Office of Daniel L. Watkins For sponsorship opportunities, please contact: Sheri Hiroms • 512-404-6555 • [email protected]

We invite you to join IAIR's Corporate Sponsor Family

The IAIR Sponsor Program offers three levels of participation: Each level of participation includes the value-added benefits described below reducing the effective cost of the sponsorship.

PLATINUM $7,500 annually SPONSOR

• Credit against IAIR dues for up to two representatives of description of the services it provides and a link to a page Sponsor (value up to $750). designated by the sponsor on the sponsor’s web site. • Credit against IAIR Workshop registration fees for up to three • Speaker role annually for a representative of the Sponsor (or representatives of Sponsor (value up to $1,650). its designee) at one of the IAIR Issues Forums or an IAIR • One representat ive of Sponsor to serve on IAIR Board of Workshop, or an article in the Receiver, IAIR to have final Advisors, consisting of past IAIR presidents and IAIR approva l on speaker/author and topic. Platinum Sponsors. • Two full page ads each year in Receiver magazine (current • IAIR will post sponsors’ logos at the bottom of the IAIR value $1100). Home Page in a “Thank You to Our Sponsors” area. • Space on a materials table for Sponsor at all IAIR events. Additionally, a tab at the top of the IAIR Home Page will • Recognition of Sponsor on the IAIR website, in each issue of be labeled “IAIR Sponsors” and will link to a page where the Receiver, and at all IAIR events. sponsors will be grouped by category as Platinum, Gold • These value-added benefits reduce the effective cost to the or Silver. That page will display for each sponsor the Sponsor by 47% to $4,000. following: the sponsor’s logo, its name or trade name, a brief

GOLD SPONSOR $4,000 annually 21

• Credit against IAIR dues for one representative of Sponsor description of the services it provides and a link to a page (value up to $375). designated by the sponsor on the sponsor’s web site. • Credit against IAIR Workshop registration fee for one • One full page ad each year in Receiver magazine (current representative of Sponsor (value up to $550). value $550). • IAIR will post sponsors’ logos at the bottom of the IAIR • Space on a materials table for Sponsor at all IAIR events. Home Page in a “Thank You to Our Sponsors” area. • Recognition of Sponsor on the IAIR website, in each issue of Additionally, a tab at the top of the IAIR Home Page will the Receiver, and at all IAIR events. be labeled “IAIR Sponsors” and will link to a page where • These value-added benefits reduce the effective cost to the sponsors will be grouped by category as Platinum, Gold or Sponsor by 37% to $2,525. Silver. That page will display for each sponsor the following: the sponsor’s logo, its name or trade name, a brief

SILVER SPONSOR $1,500 annually

• Credit against IAIR dues for one representative of the Silver. That page will display for each sponsor the following: Sponsor (value up to $375). the sponsor’s logo, its name or trade name, a brief • A 10% discount on IAIR Workshop registration fee for one description of the services it provides and a link to a page representative of the Sponsor (value of at least $55). designated by th e sponsor on the sponsor’s web site. • IAIR will post sponsors’ logos at the bottom of the IAIR • Space on a materials table for Sponsor at all IAIR events. Home Pag e in a “Thank You to Our Sponsors” area. • Recognition of Sponsor on the IAIR website, in each issue of Additionally, a tab at the top of the IAIR Home Page will the Receiver, and at all IAIR events. be labeled “IAIR Sponsors” and will link to a page where • These value-added benefits reduce the effective cost to the sponsors will be grouped by category as Platinum, Gold or Sponsor by 29% to $1,070.

IAIR Bulletin Board

Wishing Doug Hartz a Speedy Recovery!

As many of you may already know, Doug Hartz had a bike mishap this Spring and suffered multiple injuries, including a fractured clavicle and hip. Most frightening was the condition of his helmet, which all but shattered, leaving doctors amazed. Of course they don't know Doug....we've all known for years that he has a really hard head. Thank goodness! All kidding aside, we are truly happy to hear that Doug is recovering well and is back in action. You just Doug Hartz at the 2012 Insolvency Workshop can't keep a good man down! in San Diego, CA

In Unity There is Strength

It’s great to see Dick, current IAIR Board member and receiver extraordinaire and Roger, President of the NCIGF together at the IAIR Insolvency Workshop. The more we work together and understand the hurdles we each face, the better we can serve the policyholders. You may be interested in an upcoming NCIGF 23 two-day Accounting/IT Conference to be held September 11 and 12 at the Hilton Skirvin Hotel in Oklahoma City, OK, to discuss and share expertise about the latest guaranty fund-related accounting and information technology deve- lopments. Topics such as understanding the Dick Darling and Roger Schmelzer data exchange difficulties between the GF and receivership communities and the need for UDS uniformity will be covered. For more information, contact Lynn Cantin at events@ncigf. Also, the NCIGF is interested to know if IAIR members would be interested in attending a seminar they are planning for November in Fort Lauderdale and possibly participating in a joint insolvency exercise. Let us know your thoughts on the matter.

All the Best to Dan Orth on his Retirement

Dan Orth has recently announced his intentions to retire, effective June 30th. Dan has participated in IAIR events for as long as we can remember. He has served on the board several times and has served as chair of the Governance Committee. Thank you, Dan, for your long tenure, dedication and insights instilled upon the organization. Hopefully, we will continue to see you at some of our events.

Dan Orth participating in a recent IAIR Board Meeting If you are interested in participating as an IAIR sponsor, advertiser or wish to receive information about IAIR membership or committee participation, please contact Sheri Hiroms, Administrative Services Manager, PALOMAR FINANCIAL, LC, telephone 512-404-6555 • [email protected]

NAIC Summer NAIC Fall IAIR Insolvency Meeting Meeting Workshop August Nov/Dec Jan/Feb 11-14 29-2 30-1 2012 2012 2013 Atlanta Gaylord National Hotel Hilton Savannah DeSoto Marriott Marquis and Convention Center Savannah, GA Atlanta, GA Washington, DC

IAIR 2012 Committee Chairs 24 Executive Committee Publications Committee Elections Committee Francesca G. Bliss (Subcommittee of Communications) (Subcommittee of Governance) Dennis LaGory, Esq. Dick Darling, CIR-ML Strategic Planning Committee Francine L. Semaya, Esq. External Relations Committee Member Services Committee Mary Cannon Veed, Esq., AIR-Legal Douglas Hartz, Esq., CIR-ML Operations Committee Douglas Hertlein Donna Wilson, CIR-ML Jenny Jeffers Dale Stephenson Guaranty Fund Committee Education Committee (Subcommittee of External Relations) (Subcommittee of Member Services) Accreditation & Ethics Lynda Loomis Douglas Hartz, Esq., CIR-ML Joseph DeVito, CPA, AIR Wayne Wilson James Kennedy, Esq. Michael FitzGibbons Finance Committee International Committee Designation Standards Donna Wilson, CIR-ML (Subcommittee of Member Services) (Subcommittee of A&E) Vivien Tyrell, Esq. Daniel Watkins, CIR-ML Governance Committee Daniel A. Orth, III Membership Committee Communications Committee (Subcommittee of Member Services) Evan Bennett Audit Committee Kerby Baden (Subcommittee of Governance) Donna Wilson, CIR-ML Marketing Committee Evan Bennett (Subcommittee of Communications) Phillip Curley, Esq. By Laws Committee Joseph McDavitt (Subcommittee of Governance) Dennis LaGory, Esq. Newsletter Committee (Subcommittee of Communications) Michelle Avery, CPA www.iair.org