National Organization of Life and Health Insurance Guaranty Associations
November 15, 2000
Dear Chief Executive Officer:
As it has for the past few years, NOLHGA is providing the enclosed data regarding
insolvency costs to assist the industry in establishing accruals for their respective share
of these costs. Life and health insurance companies have been under increased pressure
from auditors to establish appropriate accruals. The NAIC (Issue Paper No. 35 –
Accounting for Guaranty Fund and Other Assessments, released April 1997) and the
AICPA (SOP 97-3 – Accounting by Insurance and Other Enterprises for Guaranty Fund and Certain Other Insurance-Related Assessments, released December 1996), have
recently issued positions which require the establishment of a liability and expense for
guaranty fund and other assessments when a loss is probable and can be reasonably
The enclosed schedules provide estimates of the costs for insolvencies in which
NOLHGA has been involved. Please review the comments in the beginning of each
section, as they will provide a clearer understanding of the data that is presented and of
the limitations inherent in these estimates.
Please note the enclosed data is based on estimates that have been taken from a variety
of sources. The data has not been traced to appropriate financial statements.
Furthermore, because the data utilizes estimates, excludes costs incurred directly by the
state guaranty associations, and does not reflect the actual timing of assessments from
the guaranty associations, it will not agree with the actual state guaranty association
assessments. As such, the contents of this report may not be utilized in protesting
actual assessments made by the guaranty associations.
Please forward the enclosed material to the appropriate individual within your
company. We hope the enclosed data is useful and informative. If you should have any
questions, please contact me at (703) 787 - 4119.
Paul A. Peterson, CPA, FLMI
Vice President, Accounting and Finance
Please note the following general comments relating to sections within this package.
? Overview – lists insolvencies by certain categories and contains summary totals for each category. Note
the following general classifications:
• Ongoing Funding Insolvencies
The insolvencies listed reflect those in which an assumption reinsurance agreement has either been
closed or is anticipated to close in the near future and Guaranty Association funding will be required
for a number of years beyond year end 2000. Please note Executive Life Insurance Company is the
only insolvency currently included in this category.
• Open Insolvencies
The insolvencies listed are those that are still in an “open” status with no assumption reinsurance
agreement closed or those that are anticipated to close in the near future.
• Closed in 2000 Insolvencies
This category lists those costs associated with assumption reinsurance agreements or outstanding
claim benefits that have been paid or are anticipated to close during 2000.
• Closed Prior to 2000 Insolvencies
This category lists those costs associated with assumption reinsurance agreements which have been
closed prior to 2000.
• Estates Closed
This category lists those costs associated with estates that have been closed. No further costs or
recoveries should occur.
? Key Points
Provides general comments related to specific insolvencies.
? Anticipated Funding Schedules
This section contains Anticipated Funding Schedules for certain insolvencies in which anticipated
Guaranty Association funding occurs over a period of time extending beyond year-end 2000. Particular
attention should be given to these insolvencies since Guaranty Associations may fund their
participation in an assumption reinsurance agreement through a variety of methods (such as the use of
a note or borrowing the funds to accommodate capacity limitations), and it is likely that the timing of
actual assessments will not coincide with the enclosed schedules.
? Specific Insolvency Costs
This section lists estimated costs by insolvency. It provides breakdowns by state and account.
? Assessable Premiums 1988 -1999
This section contains the Total Assessable Premiums for the period 1988 through 1999, by state, by account,
by year. The data is obtained from the final Assessment Data Surveys as filed by member companies. The
data may be used to estimate your company’s pro-rata share of the estimated costs for all insolvencies.
This may be accomplished by calculating your share of the assessable premiums and applying that factor
to the estimated insolvency costs.
General Comments (continued)
? State Guaranty Association Premium Tax Offset Provisions
This report contains general data regarding premium tax offset provisions by state. Premium tax offsets
may be used in calculating your pro-rata share of the total costs, however, recoverability tests should be
conducted to determine if the offsets should be utilized in your calculations.
ALL AMOUNTS IN THE ENCLOSED REPORTS ARE SHOWN IN WHOLE DOLLARS
The data and enclosed funding schedules utilize estimates and exclude many costs incurred directly by the State Guaranty Associations and actual assessments made by the Guaranty Associations may not coincide with the anticipated funding schedules. They should only be used in estimating your share of the related insolvency costs. Since the data has not been audited, it MAY NOT be used in protesting actual assessments made by State Guaranty Associations. As such, neither NOLHGA nor the Guaranty Associations will attempt to reconcile the data presented in the enclosed reports to actual Guaranty Association assessments or explain differences thereon.
Key Points to Consider
KEY NOTES ON ALL INSOLVENCIES ARE:
? NOLHGA expenses are incurred as of September 30, 2000. Where known, expenses and claims incurred directly by
guaranty associations and recoveries from litigation, estate distributions etc. have been included.
? Neither NOLHGA nor the Guaranty Associations make any representations or warranties as to the accuracy of the
Ongoing Funding Insolvencies This section contains estimated costs by insolvency, by state, by line. The insolvencies listed reflect those which require
Guaranty Association funding beyond year-end 2000.
Executive Life Insurance Company
Reports in previous years presented estimated costs of each guaranty association’s liability discounted to
September 1993. Beginning with the 1995 report, costs were shown as if Guaranty Associations paid off all
obligations by 2000. Under the Enhancement Agreement, Guaranty Associations have the option to make
annual installment payments, prepay or defease their obligations. Since GA costs grow with interest over time,
deferral of Guaranty Association payments through annual installment payments result in higher aggregate
(undiscounted) costs than, for example, making a one-time defeasance payment. Obviously, the ultimate
aggregate (undiscounted) cost will depend on how each Guaranty Association chooses to fund their
As in the prior year report, the current estimate reflects the following assumptions regarding Guaranty
Association funding of ELIC obligations:
Guaranty Associations make annual installment payments through 2000.
Guaranty Associations opt to defease with a one-time defeasance payment in 2001 of approximately
$782 million, representing the estimated present value of future obligations otherwise due in 2002 and
beyond. The reader should note that the Guaranty Association may extend the payment period
beyond 2001 and continue to make annual installment payments until all covered obligations are
Discount rates used were approximately 4.93% for all remaining obligations.
Other comments pertinent to the estimates include:
The estimates are net of approximately $305 million received in 1995 through 2000 from the ELIC
Trusts. Future recoveries, if any, from the Trusts cannot be estimated and therefore are not included in
The estimates are exclusive of any possible future indemnity charges. Such charges, if any, cannot be
estimated and therefore are not included in this presentation.
The estimates include actual administrative charges from Aurora through 2000 and allocated
NOLHGA costs through September 30, 2000. The estimates exclude future Aurora administrative costs
and allocated NOLHGA costs.
The estimates include actual and projected costs related to Article 22 and 23 of the Enhancement
Agreement. While there are no arrangements currently in place to defease such obligations, the
estimates assume that the present value of such costs is paid in 2001.
Executive Life Insurance Company (continued)
Because of the uncertain nature of the Guaranty Association obligations, the schedule included in the
Anticipated Funding Schedule Section for Executive Life MOST LIKELY WILL NOT coincide with actual
assessments from the guaranty associations as a result of (a) factors previously mentioned; (b) differences
between actual and estimated amounts due as a result of changes in interest rates and other factors; and (c)
guaranty associations which may be, or anticipate, experiencing capacity limitations.
Anticipated funding period: Annual payments due April 1992 - 2000
Bullet payment due June 1998
? Defeasance payment due May 2001 (as reflected in the attached
? On-going installment payments well beyond 2001, April of each year.
OPEN INSOLVENCIES This section contains estimated costs by insolvency, by state, by line. The insolvencies listed reflect those, which are still in
an “open” status with no assumption reinsurance agreement being closed, or those that are anticipated to close in the near
American Chambers Life Insurance Company New case in 2000, placed into liquidation 5/00. Costs estimates include estimated reserves for life and claims paid
directly by the guaranty associations.
Bankers Commercial Life Insurance Company New case in 2000, placed into liquidation 6/00. Costs estimates include minor reserves for life policies, unearned a&h
premiums and IBNR claim reserve. In addition, cost estimates include claims paid the guaranty associations, net of
premium collections, through September 00.
Continental Investors Life Insurance Company Placed under supervision in 1995, no known GA involvement at this time.
Fidelity Bankers Life Insurance Company No GA funding required under current conditions. Business sold: Closing 6/12/93. Costs reflect expenses incurred by NOLHGA.
Fidelity Mutual Life Insurance Company Total costs reflect NOLHGA expenses incurred, no current plans for guaranty association participation.
Guarantee Security Life Insurance Company
Costs reflect both the Guaranty Association funding required to establish GRC and the funding required in
the sale of the business via assumption reinsurance. The sale of the business closed 11/97. Costs include the
initial $32 million capital contribution. Guaranty Associations anticipate receiving a $94 million liquidating
dividend in future year as GRC operations wind down.
Monarch Life Insurance Company Total costs reflect NOLHGA expenses incurred, no current plans for guaranty association participation.
Old Southwest Life Insurance Company New case in 1999, part of Thunor Trust companies. Single state case, no data available.
CLOSED IN 2000 INSOLVENCIES
This section lists those costs associated with or outstanding claim benefits payments by Guaranty Associations or assumption reinsurance agreements that have closed during 2000.
Centennial Life Insurance Company Placed into liquidation 5/98. Decrease in costs from prior year due to $36 million recovery from primary reinsurer.
Family Guaranty Life Insurance Company New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
Farmers and Ranchers Life Insurance Company New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
First National Life Insurance Company of America New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
Franklin American Life Insurance Company New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
Franklin Protective Life Insurance Company New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
International Financial Services Life Insurance Company New case in 1999, part of Thunor Trust companies. Costs reflect sale of business via assumption reinsurance.
Kentucky Central Life Insurance Company
Cost estimate reflects final accounting adjustments made in 2000 due to expiry of 5 year plan.
Mid-Continent Life Insurance Company Placed under supervision in 1998, costs reflect expenses incurred by NOLHGA. No Guaranty Association participation. National Affiliated Investors Life Insurance Company Total costs reflect sale of business via assumption reinsurance. Includes expenses incurred by NOLHGA.
CLOSED PRIOR TO 2000 INSOLVENCIES
This section lists those costs associated with assumption agreements which have been closed prior to 2000. Since Guaranty Associations may fund their participation in an assumption reinsurance agreement through the use of a note or borrowing the funds, it is possible that actual assessments may not have been levied against member insurance companies. Therefore, the enclosed data is being provided so that you can determine if assessments have been paid or whether an accrual needs to be established.
Alabama Life Insurance Company Affiliated with American Educators and Consolidated National. Business sold: Closed 10/21/94, all business transferred.
American Educators Life Insurance Company Affiliated with Alabama Life and Consolidated National. Business sold: Closed 9/30/94, all business transferred.
American Integrity Insurance Company Business sold: Closed 6/1/94, all business transferred.
The American Life Assurance Company
Sale of business closed 3/13/98, all business transferred.
American Standard Life & Accident Insurance Company
Sale of business closed 9/22/98, all business except uncovereds transferred. Increase from prior year includes Guaranty
Association expenses and claims paid directly not previously known.
American Western Life Insurance Company Placed into liquidation 8/97. Costs include claims paid directly by Guaranty Associations.
AMS Life Insurance Company Business sold: Closings: 9/3/92, 11/9/93.
Andrew Jackson Life Insurance Company Business sold: Closed 8/27/93, all business transferred.
Coastal States Life Insurance Company Business sold: Closing 11/8/96, all business transferred.
Confederation Life Insurance Company – U.S. Branch
Reduction in cost estimate from 1999 due to sale of blocks of business and better than expected results in disposal of estate
assets, thus allowing for reimbursement to guaranty associations for past funding and expenses. No further guaranty
association costs anticipated.
Confederation Life Insurance & Annuity Company No Guaranty Association funding required in assumption reinsurance transaction.
Consolidated National Life Insurance Company Affiliated with Alabama Life and American Educators. Business sold: Closing 9/30/94, all business transferred.
Consumers United Insurance Company Business sold: Closing 2/15/95
Corporate Life Insurance Company Business sold: Closing 1/31/96
Diamond Benefits Life Insurance Company/Life Assurance Company of Pennsylvania Business sold: Closing 11/30/92, all business transferred.
EBL Life Insurance Company Single state insolvency, domiciled in Pennsylvania. Subsidiary of Summit National Life Insurance Company, business sold in conjunction with Summit National assumption reinsurance transaction. Business sold: Closing 11/30/94, all business transferred.
First Capital Life Insurance Company
Costs reflect expenses incurred by NOLHGA net of estate asset recoveries. Policies assumed by Pacific Mutual Life Insurance Company through newly created company, Pacific Corinthian. No GA assumption funding involved.
First National Life Insurance Company
Costs reflect payment of outstanding claim benefits by Guaranty Associations. No assumption funding involved.
George Washington Life Insurance Company Business sold: 12/17/93 - Life and Allocated Annuity Business 1/1/96 - Accident & Health
Inter-American Insurance Company of Illinois Business sold: Closed 4/13/93, all but A&H business (amount not available) transferred.
Investment Life Insurance Company of America Business sold: Closed 9/6/94, all business transferred.
Investors Equity Life Insurance Company of Hawaii, LTD Single state insolvency domiciled in Hawaii. Business sold: 2/5/96.
Midwest Life Insurance Company Business sold: Closed 6/1/92, all business transferred.
Mutual Benefit Life Insurance Company Decrease from prior year costs result of better than expected results in estate asset performance allowing for repayment to Guaranty Associations for past funding and expenses. No further Guaranty Association costs anticipated.
Mutual Security Life Insurance Company Business sold: Closings: 5/26/92, 2/8/93, 5/7/93, 10/4/93, 11/30/94.
National American Life Insurance Company of PA Business sold: Closing 7/1/96, all business sold.
National Heritage Life Insurance Company Funding for assumption transaction generally accomplished through use of Guaranty Association promissory notes, anticipated to be paid off over 5-year term. Decrease from prior year reflects distributions received from the estate in 2000. Business sold: Closing 7/2/96.
New Jersey Life Insurance Company Business sold: Closing 9/9/93, all business sold.
Old Colony Life Insurance Company Business sold: Closing 10/20/94, all business transferred.