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Model Regulation Service—October 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC As far back as 1968 the value of a uniform law regarding rehabilitation, conservation and liquidation was recognized. The resolution adop ted by the subcommittee appointed to study the issue contained the recommendation that the NAIC provide a common ground by which all states could conduct their rehabilitation, conservation and liquidation of insurance companies. 1968 Proc. II 557 . When drafting began on a model, the drafters agreed that the appropriate starting point for preparation of a model act was the Wisconsin statute previously endorsed by the NAIC. 1976 Proc. II 363 . The consensus of the earliest drafting committee wa s that the model should include provisions for administrative supervisio n prior to insolvency. 1976 Proc. II 363. The draft adopted did contain such provisions. 1978 Proc. I 249 . They remained a part of the model until a separate model act for administrative supervision wa s adopted in December 1989. 1990 Proc. I 173. A year after adoption of the model only one state had adopted it. The NAIC unanimously adopted a resolution encouraging all states to adopt the model which was “deemed to be of critical importance in the general control of insolvencies.” 1979 Proc. I 218. Article I. General Provisions Section 1. Construction and Purpose D. In 1988 a working group was given the charge of identifying and prioritizing for further study issues within the model act. After six mont hs of intensive study the working group proposed a number of amendments to the model act. The first recommendation was to add a new Paragraph (7) to support state insurance regulator’s contentions th at delinquency proceedings are an integral part of the regulation of the business of insurance. 1989 Proc. I 448. The proposal was adopted without discussion. 1989 Proc. II 338, 379 . Section 2. Persons Covered G. A new subsection was added in 1989 to make it clear that prepaid health care delivery plans were subject to the model act. 1990 Proc. IA 407. Section 3. Definitions A. The working group drafting am endments in 1993 agreed to consider definitions of affiliate and control. 1993 Proc. 4 th Quarter 583. B. An amendment proposed in June of 1989 was desi gned to clarify the title given to the person in charge of the regulation of insurance, si nce that title varies from state to state. 1989 Proc. I 448- 449. The proposal was adopted without discussion. 1989 Proc. II 338, 379 . K. The definition of “general assets” was substantially revised in 1994. 1994 Proc. 4 th Quarter 599. © 1998 National Association of Insurance Commissioners 555-69 * * Reprinted with permission. Further reprint or distribution strictly pr\ ohibited without written permission of NAIC. Model Regulation Service—October 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 3 (cont.) Q. The first draft of the model revisions related to derivative instruments contained a definition of derivatives that referred to the Investments of Insurers Model Act. An interested party commented that this was not appropriate, since th e NAIC had not yet adopted that model. Later drafts defined “qualified financial contract” instead. 1995 Proc. 3 rd Quarter 604. A technical resource advisor suggested that the defi nition of derivative instrument be deleted and replaced with a definition of a qualified financia l contract because several products or instruments included in the definition are not derivatives. This change would also be consistent with definitions in federal law. He also suggested that a drafting no te be added to make it clear that the definition of a qualified financial contract is not intended to affect the scope of pe\ rmissible investments by insurers, the valuation of those investments, or th e regulatory framework applicable to investments. 1996 Proc. 4 th Quarter 945. T. The definition of “secured claim” was substantially revised in 1994. 1994 Proc. 4 th Quarter 600. Section 4. Jurisdiction and Venue C. The Other Model Act Issues Working Group recommended revisions to this subsection which were intended to broaden the scope of the subsec tion to cover as many aspects of an insolvent insurer’s affairs as possible. 1989 Proc. I 449. The proposal was adopted without comment. 1989 Proc. II 379 . E. This subsection was added in 1994. 1994 Proc. 4 th Quarter 601. Section 5. Injunctions and Orders This section provides a good list of those orders the trial court may wish to consider to prevent harm to the insurer’s estate pending final judgment. 1993 Proc. IB 745. In 1988 a working group report contained the recomme ndation to add a sentence to the end of the subsection to allow a longer period of time for the rehabilitator to file claims. The original 60-day grace period was insufficient. 1989 Proc. I 449 . The proposal was adopted without comment. 1989 Proc. II 339, 380 . In the complete model revisions adopted in De cember 1994, the provisions which had been a separate section entitled “Actions By and Against the Rehabilitator” were incorporated into Section 5 of the revised model and the whole section was substantially revised. 1994 Proc. 4 th Quarter 601- 603. D. In September of 1996 a working group began co nsideration of technical amendments to the model. One suggestion was to clarify the language regarding tolling of the statute of limitations. 1996 Proc. 3 rd Quarter 849 . 555-70 © 1998 National Association of Insurance Commissioners Model Regulation Service—October 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 5 (cont.) The technical amendments were adopted by the working group and subcommittee. 1996 Proc. 4 th Quarter 938 . E. A second set of technical amendments considered in September 1996 was to clarify the language on the defense of laches. 1996 Proc. 3 rd Quarter 849. The technical amendments were adopted by the working group and subcommittee. 1996 Proc. 4 th Quarter 938 . Section 6. Cooperation of Officers, Owners and Employees Section 7. Continuation of Delinquency Proceedings Section 8. Condition on Releas e from Delinquency Proceedings This section was not part of the original model, but was added in December 1986. It was drafted in response to a request by the chair of the task force to look for places amendments might be necessary as a result of changes made in the Li fe and Health Guaranty Association Model Act in December 1985. 1987 Proc. I 420, 423 . When amendments to the model were being cons idered in 1993, the original Subsection A was deleted. For a time the drafters considered addi ng language to what is now Subsection A which would allow the acceptance of new business if “a pproved by the court upon application of the rehabilitator.” That language was later deleted. 1993 Proc. 3 rd Quarter 358. Section 9. Immunity and Indemnification of the Receiver and Employees Work on the development of this section began in September of 1990 when the task force voted to prepare an amendment to the model act. It would provide that the rehabilitator or liquidator and all deputies and employees of them would be immune fr om liability for any type of alleged injury or loss arising out of their involvement in the rehabilitatio n or liquidation of an insolvent insurer. They would be indemnified by the estate against any expens e or cost to them of any type or nature related to any alleged injury or loss except where the injury or loss arises from gross negligence, bad faith or a wanton or malicious act. 1991 Proc. IA 494-495. The draft presented for exposure some months la ter contained the following sections: a section defining employees and restricting the definition to those employed as employees; an immunity provision applicable to any litigation brought by th ird parties; an indemnity provision applicable to all litigation instituted; a provision requiring a reserve and the segregation of funds from the insurer’s assets in order to comply with the inde mnification provisions providing also for alternate means of compliance such as with a surety bond; and a “statute of limitations” provision providing that certain causes of action may only be brough t if filed within the 12 months after the effective date of adoption of the section. 1991 Proc. IIA 578. © 1998 National Association of Insurance Commissioners 555-71 Model Regulation Service—October 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 9 (cont.) When the task force considered adoption of this section, one state reported they had recently adopted a statute providing immunity for receivers. They did so because the attorney general’s opinion requested stated that the attorney general’ s office was not in a position to provide enough immunity and indemnity to special receivers. Erro rs and omissions insurance coverage required for receivers would be very expensive. 1991 Proc. IIA 561. One commissioner expressed concern that the definiti on of employee was so broad that it could be interpreted to include clerical employees of a specia l deputy. The draft was modified to address this concern. 1991 Proc. IIA 561 . An attendee at the task force meeting expressed public policy concerns about the proposed amendments. No state-by-state analysis had been conducted to determine how many states currently provide by common law and statute for i mmunity of receivers. The blanket immunity proposed to everyone associated with a receivership is broad and indemnification of receivers with funds from the assets of insolvent companies is against public policy. 1991 Proc. IIA 562. A commissioner who was a member of the task fo rce expressed the concern that professionally responsible receivers would be unwilling to handle re habilitations and liquidations if they were not provided immunity and indemnity. An attorney who had served as liquidation counsel supported the amendments as necessary to ensure that talent ed attorneys are available to administer estates of troubled insurance companies. He suggested they were also necessary to protect attorneys from harassment by outside sources. 1991 Proc. IIA 562. The Executive Committee decided not to adopt the pr oposed model section adopted by the task force and its parent subcommittee. One commissioner sa id he fully supported the concept of immunity but expressed several concerns about the proposal as drafted: (1) the proposal includes former deputies, is extremely broad and applies retroactivel y; (2) it also includes any claim for damage or loss of property which could result in liability to third parties; and (3) the proposal would allow for liability only in situations in which harm is caused solely by intentional conduct. He suggested that this may be overly restrictive. 1991 Proc. IIA 56-67. The working group drafted further refinements to th e section to address concerns expressed at the Executive Committee meeting. One commissioner expr essed the opinion that the draft appeared to be a special interest draft which favored receivers. He believed that public policy must also be balanced with the interests of the receivers. He expressed concern that the assets of the estate utilized to provide the proposed inde mnification may be too extensive. 1992 Proc. IA 771. Another attendee at the drafting group meeting stat ed that the basic idea of these amendments was to protect receivers and their employees from unint entional errors. He suggested that the working group should reduce potential exposure for simple negligence and errors, but the draft amendment is much broader. 1992 Proc. IA 771 . B. One drafter suggested that official immuni ty was unnecessary, but another countered that official immunity is necessary. 1992 Proc. IA 772 . 555-72 © 1998 National Association of Insurance Commissioners Model Regulation Service—January 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 9B (cont.) The word “solely” was removed from the last clause of Subsection B to be more specific. The draft had referred to “...liability caused solely by intentional...” 1992 Proc. IA 771 . C. One commissioner posed the question: “If imm unity is provided, then why is indemnification necessary?” A working group member responded that to assert immunity, indemnification is required. 1992 Proc. IA 771-772 . The group changed Subsection C(1) by changing “oth er expenses” to “related expenses.” The intent was to narrow the scope of indemnification provided. 1992 Proc. IA 772 . Earlier drafts provided indemnification for civil fines and penalties. That was deleted from Subsection C after the group agreed to the modification. 1992 Proc. IA 772. D. The word “solely” was deleted from Subsecti on D(2) and E(2) where the earlier drafts had provided for claims caused solely by intentional or willful misconduct. 1992 Proc. IA 772. F. Subsection F had referred to rights “heretofore” available. It was suggested that the word be changed to “otherwise” so that immunity and other benefits of law available previously, currently or in the future not be restricted by this amendment. 1992 Proc. IA 772. After the previously discussed amendments, the proposed new section was adopted at a special plenary session in September 1991. 1992 Proc. IA 77. Article II. Proceedings When initially adopted this article contained a section titled “Commissioners Summary Orders and Supervision Proceedings.” 1978 Proc. I 249 . When a working group was charged with development of further provisions, they deci ded to develop a separate model rather than amend the existing liquidation model. 1989 Proc. I 182. The working group considering administrative supe rvision concluded it was primarily a financial regulatory tool rather than a rehabilitation and liquidation tool. Segregation of administrative supervision into its own model act should provide the appropriate emphasis on the benefits of this tool. 1989 Proc. II 229 . Section 10. Court’s Seizure Order B. A penalty provision was added duri ng the 1994 revisions to the model. 1994 Proc. 4 th Quarter 605 . G. This subsection was added during the 1994 revisions. 1994 Proc. 4 th Quarter 605. H. This subsection was added during the 1994 revisions. 1994 Proc. 4 th Quarter 605. © 1998 National Association of Insurance Commissioners 555-73 Model Regulation Service—January 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 11. Commencement of Formal Delinquency Proceeding In late 1991 the Procedural Rules Working Group of the Rehabilitators and Liquidators Task Force began considering amendments to the model to provide detailed procedural rules regarding the commencement of a formal delinquency proceeding, the return of summons and summary hearing, trial proceedings, payment of court ex penses and appellate procedures. 1992 Proc. IA 743. The result of the discussion was adoption of four new sections in December 1992. 1993 Proc. IB 741, 746-748 . The working group presenting the amendments for adoption said that these four new sections provide a procedural framework governing a formal delinquency proceedings from the filing of the petition to the trial court’s final judgment. This procedural framework has the goal of producing a fair result as quickly as possible, consistent with due process requirements. A fast judicial determination is necessary for two re asons. First, it prevents or reduces undue harm to the business prospects of an insurer which has been unjustly a ccused of failing to meet the requirements of the insurance business. Second, and just as impo rtant, it preserves a greater opportunity for rehabilitation or a greater estate for liquidation in favor of policyholders and creditors when the insurance commissioner is co rrect in his petition. 1993 Proc. IB 744. The working group considered appointment of a “p rovisional liquidator” at the outset of the proceeding. This would afford po licyholders greater protection at the beginning of the receivership and would allow regulatory representatives to r un the company pending resolution of a contested delinquency proceeding. 1992 Proc. IIA 595. A. According to a report of the working group, th e purpose of Subsection A is to prevent anyone but the insurance commissioner from filing a formal delinquency proceeding. 1993 Proc. IB 745. B. Subsection B provides for a simple and stra ightforward pleading, rather than a lengthy and technical form; a formal delinquency proceedings peti tion need only inform the insurer of what the commissioner proposes to do and why. 1993 Proc. IB 745. C. The working group considered the appropriate notice requirement for this subsection. If there is no notice requirement, co nflicts with existing procedural and local rules may render the rule ineffective. However, there is often an overriding need of the regulator to take quick action and standard notice is not always appropriate. Th e working group considered a provision requiring “reasonable” notice dependent on the circumstances. 1992 Proc. IIA 594. One regulator asked if the working group had conducted any research on the constitutionality of holding corporate assets without notice and opportuni ty to be heard. The chair responded that much of the model draft for these four sections was based on the federal Rules of Civil Procedures regarding an ex parte temporary restraining order. 1992 Proc. IIA 576. Subsection C requires that a request for a tempor ary restraining order (TRO) be verified by the commissioner or his designee to impress upon the commissioner the seriousness of the matter and to assure the court that a state official is in fact re sponsible for bringing the action. Pleading and proof of irreparable harm is unnecessary because in almost every case the potential harm to the public 555-74 © 1998 National Association of Insurance Commissioners Model Regulation Service—January 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 11C (cont.) from insurance company officials who have unfettere d access to large sums of insurer’s funds during the pendancy of the lawsuit far outweighs the po tential harm to the company from placing it temporarily under the control of an insurance commi ssioner who is responsible on his official bond and who is backed by the full faith and credit of his st ate. In most cases prior notice of a request for a TRO should not be required because of the potential for looting of the insurer’s assets between the giving of notice and the court’s i ssuance of a TRO. The court is, ho wever, given discretion to require notice in the event the court is aware of particul ar circumstances which would eliminate the chance for depleting the insurer’s funds. 1993 Proc. IB 745 . D. Of note in this subsection are the provisions for return of summons in Paragraph (3) and confidentiality in Paragraph (5). The return of summons envisions an actual appearance of the parties before the judge at a summary hearing descri bed in Section 12, rather than a mere filing of an answer. The confidentiality of the proceedin gs is necessary to prevent insurance company personnel from discovering the existence of the lawsuit and absconding with the company’s funds prior to service. 1993 Proc. IB 745 . Good cause for publication of the petition and or der may be shown where the commissioner or other agent serving process chooses to serve financial institutions and others holding accounts of the insurer prior to serving the insurer itself. Servic e on these parties is another practical means of preventing depletion of the insurer’s fund s pending the outcome of the lawsuit. 1993 Proc. IB 745. E. This subsection contains the procedures for situations where no TRO has been requested. Even in this case, proceedings should be expedite d to prevent undue harm to the interests of the insurers. This subsection also envisions that th e return of the summons will involve an appearance of the parties before the judge at the summary hearing; therefore an ex parte appearance before the court may be necessary in order to secure a special summons specifying the time, date and place for the summary hearing. 1993 Proc. IB 745. Section 12. Return of Summons and Summary Hearing This section was part of the December 1992 amendments. 1993 Proc. IB 747. A. This subsection emphasizes that the return of summons involves an actual hearing before the judge, not merely the filing of an answer. 1993 Proc. IB 745. B. Subsections B and C govern the situatio ns where service has not been effected. 1993 Proc. IB 745 . D. This subsection provides for wh at is in practical effect a default judgment. The term “default judgment” is not used in these amendments because the working group did not want other provisions of state law regardin g default judgments to apply. 1993 Proc. IB 745. A judgment entered pursuant to this subsection sh ould not be set aside for any reason, except where the summons has in fact not been served. Even this exception should not apply where service is attested by the local sheriff. In short, public intere st requires that where there is service, there is no excuse for failing to appear. 1993 Proc. IB 745. © 1998 National Association of Insurance Commissioners 555-75 Model Regulation Service—January 1998 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 12 (cont.) E. This subsection directs the court to issues which must be resolved at the summary hearing: extension of the TRO and setting the trial date. This subsection also directs the court’s attention to an issue which it may not consider: continuance fo r the purpose of filing an answer. Requiring the trial to be set no less than ten days from the su mmary hearing and forbidding continuance for filing an answer are two means of expediting proceedings. 1993 Proc. IB 745. Section 13. Proceedings for Expedited Tria l: Continuance, Discovery, Evidence The first draft of this section, adopted in 1992, attempted to expedite the proceedings and reduce repetitiveness by limiting testimony to that provid ed by two witnesses. Some of the task force members felt that a third or fourth witness mi ght have probative testimony relevant to the proceedings. The group decided to change the dr aft to allow more if good cause was shown. 1992 Proc. IA 743 . When considering the adoption of this section; the drafters considered a provision allowing a referee or master to hear a delinquency proceeding. The purpose was to expedite procedures for the benefit of all parties. Some of those in attendance at the discussion did not feel a master would have the expertise necessary to properly oversee a receivership . Use of a master or referee would not expedite matters if the master was inexperienced. Followi ng additional discussion, those in attendance agreed to delete “referee or master” from the section, so that only a fully authorized court could hear the case. 1992 Proc. IA 743-744 . A. The first draft of the subsection afforded th ese proceedings precedence over others on the court’s docket. Some in attendance at the meetin g pointed out that any attempt to control a court’s docket could result in the law being ignored as an in trusion into the judicial prerogative. Delays in the delinquency proceedings could result. Criminal cases always take precedent. The subsection was revised to address these concerns. 1992 Proc. IIA 594. Subsection A expedites the formal delinquency proceed ings by providing for a non-jury trial, moving the case to the head of the court’s docket, and assignment of the case to other judges if necessary. 1993 Proc. IB 745 . B. The subsection was revised from the earlier draft to provide for continuances only if the court makes an affirmative finding that the continua nce is in the best interests of the policyholders of the delinquent insurer. 1992 Proc. IIA 594. Subsection B provides a standard for continuances in lieu of the usual standard. Death or serious illness of the judge or counsel would justify a cont inuance as an extreme circumstance. Failure to complete discovery is not an extreme circumstance, particularly in light of the limited nature of discovery under these amendments. 1993 Proc. IB 745. C. Subsection C contains two rules of evidence which relax the general standards for qualification of documentary exhibits. Certific ation by the insurance commissioner should be sufficient verification of a financial statement and examination report. There is little to fear from admission since these two types of exhibits are subject to rebuttal by the insurer. 1993 Proc. IB 745- 746. 555-76 © 1998 National Association of Insurance Commissioners Model Regulation Service—October 2002 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 13 (cont.) D. The examination report admitted under Subsecti on C(2) is to be given effect for 270 days after its as-of date. This should expedite the tria l by potentially allowing the exam report to speak of the insurer’s condition not only as of the examination date, but also as of the petition date if the latter occurs not less than 270 days after the form er date. No unfair prejudice will occur to the insurer because the insurer will be familiar with its condition and affairs and may rebut any evidence contained in the exam report. 1993 Proc. IB 746 . E. The earliest drafts placed severe limitations on discovery. One of the regulators expressed concern that such a severe limit on discovery was too chilling and suggested that some prefatory language which helps the court limit and expedite discovery on the basis of timing and scope would be preferable. 1992 Proc. IIA 595 . A later draft was revised to simplify the provision so that discovery could be limited or expedited where the court finds it is in the best interests of the policyholders. 1992 Proc. IIA 594. The standard for discovery in this subsection is meant to replace the standard ordinarily applicable to civil action. This standard is narrower in that it is limited to those items alleged in the petition. Subsection E also provides that discovery should be concluded on an expedited basis. Coupled with Subsection B, it should not be grounds for a cont inuance that discovery has not been completed. Subsections B and E put the parties on notice that discovery shall be expedited and continuances granted only for an extreme circumstance. Given th e limited scope of discovery, completion in ten days or less should not pose an insurmountable obstacle. In the typical proceeding involving allegations concerning the insurer’s financial condit ion, the insurer’s legitimate discovery needs are limited to copies of examination reports, work pa pers related to the report, and depositions of the examiner in charge of preparing the report and of any other expert relied on, such as an actuary. 1993 Proc. IB 746 . Section 14. Decision and Appeals This was one of the new sections adop ted by the NAIC in December 1992. 1993 Proc. IB 747. A. The first subsection imposes a requirement upon the trial court to decide the case within 15 days after conclusion of the evidence. The purpose of this provision is to expedite the proceeding. Failure to render judgment within 15-day period wo uld not deprive the trial court of jurisdiction but would give either party the right to a writ of mandamus (or other comparable appellate judicial process) from an appellate court to compel a decision. 1993 Proc. IB 746. B. The working group considered the expedited a ppeals provision of Subsection B and agreed on the language as drafted. 1992 Proc. IIA 595. Subsection B expedites the process of appeal. In addition, a judgment in this case should not be stayed or dissolved pending appeal because of the administrative burdens associated with otherwise unstable judgments and the likelihood for appellate court error caused by a stay issued by an appellate court which has not yet th oroughly reviewed the record. 1993 Proc. IB 746. © 2002 National Association of Insurance Commissioners 555-77 Model Regulation Service—October 2002 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 15. Confidentiality of Hearings A. An amendment to the model in 1994 made clear th at all papers filed with the clerk should be held in a confidential file. 1994 Proc. 4 th Quarter 607. In March 1999 the NAIC president said there was a need to share information among state, federal and international regulators and to clarify existi ng law. He suggested charges for several NAIC committees to address freedom of information and subpoena efforts to obtain confidential information and documents and to achieve a coor dinated approach that protects regulatory information. A technical group drafted language , which was forwarded to each of the groups drafting amendments to models. The Insurers Re habilitation and Liquidation Model Act was one of the models identified for which regulators n eeded to consider the clarifying language. 1999 Proc. 1 st Quarter 6, 10 . The committee considering how to implement the charge relative to the insolvency models. Several of the participants expressed the sentiment that amendments to these models were not necessary. 1999 Proc. 3 rd Quarter 690 . B. New language was added in 1999 to address th e charge on confidentiality of information. Late in the process Subsection B was amended to clarify that the provisions applied only to documents, materials or informatio n in the possession or control of the Department of Insurance. Some industry commentators ex pressed concern that otherwise the provision might be misinterpreted to include information in the posse ssion of a private entity that happened to have been shared with the Department of Insurance. 1999 Proc. 4 th Quarter 16. The provisions of Subsection B received extensive discussion on several occasions, particularly the provisions concerning the sharing of information wi th the NAIC, and its affiliates or subsidiaries. Regulators expressed a strong need to retain specif ic language in this area to ensure the ability of the NAIC to maintain confidential data for suppo rt of solvency, antifraud and other regulatory areas. The language referring to affiliates or su bsidiaries was added to address the potential that one or more databases might be main tained by a related NAIC entity. 1999 Proc. 4 th Quarter 16. Language was added to Subsection B to clarif y that persons providing information to the commissioner do not waive any existing privilege or confidentiality protection by doing so. This provision was added in response to industry co mments. The paragraph was further amended to clarify that neither disclosing the information to the commissioner nor the transmission of the information by the commissioner to another regulator or law enforcement official would create a waiver. 1999 Proc. 4 th Quarter 16 . Section 16. Grounds for Rehabilitation or Liquidation The model was drafted to include a three-tiered approach to insurers with financial problems. The first tier is supervision, which contemplates limited insurance department actions and the appointment of a supervision when the department be lieves the troubles are easily correctable. (The supervision portion of the model was deleted when a separate supervision model was adopted in 1989). The second tier is rehabilitation, avail able in several situations, including financial impairment of the insurer. Court action is requir ed for rehabilitation. Finally there is liquidation, particularly aimed at insolvent insurers . Again, court action is required. 1977 Proc. II 365. 555-78 © 2002 National Association of Insurance Commissioners Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 16 (cont.) One of the fundamental precepts of the model act wa s that, once a company has been declared by the courts to be insolvent, it should not be in rehabilitation. This is necessary to prevent a guaranty association law from being triggered and havi ng companies assessed for the purposes of rehabilitating an insolvent insurer. Rehabilitation in such circumstances would benefit mainly the management and owners of the insolvent company. 1978 Proc. I 276. The provisions of a separate section entitled “Gro unds for Liquidation” were incorporated into this section covering both reh abilitation and liquidation. 1994 Proc. 4 th Quarter 607-608. At a hearing on the revised draft in the fall of 1993, a representative from a trade association commented that the proposed amendments to this section had the effect of giving commissioners too much discretion regarding applyi ng for a receivership order. 1993 Proc. 3 rd Quarter 357. Section 17. Rehabilitation Orders A comment to the first draft of the 1994 amendments said that it was true that a regulator might unknowingly trigger a guaranty fund by alleging and proving insolvency when seeking a rehabilitation order, but the drafters felt it was more desirable to educate regulators and perhaps change the guaranty association model, rather than preclude a regulator from openly using insolvency as a ground for rehabilitation. 1993 Proc. 2 nd Quarter 648. B. In 1989 the NAIC added a sentence to this subsection to make sure the rehabilitator evaluates the insurer’s affairs as quickly as possibl e because (a) policyholders generally do not have access to state guaranty funds during rehabilit ation, (b) administrative expenses during rehabilitation should be minimized if liquidati on is likely, and (c) the longer rehabilitation continues, the more difficult it becomes for the re habilitator to remove the causes of the insurer’s problems. The working group believed rehabilitation was most appropriate for those cases where a company has a clearly temporary embarrassment which can be identified as due to a single or limited number of clearly removable causes. 1990 Proc. IA 407. C. The last half of the sentence was added in 1989 to prevent reinsurers and other persons contracting with the insurer from using the entry of the order of rehabilitation as an after-the-fact excuse to cancel contracts retroactively. 1990 Proc. IA 407. D. This subsection was added in 1994. 1994 Proc. 4 th Quarter 608. Section 18. Powers and Duties of the Rehabilitator The original model contained a section allowing a court to require a bond from the commissioner and pay for it out of the assets of the insurer as a cost of administration. The working group recommended the removal of that section because it did not benefit the estate. Sections 17 and 24 grant sufficient power to obtain bonds should the reh abilitator or liquidator deem it appropriate. In some cases the section was used as a weapon. A party resisting impaired status might demand a bond equal in size to the assets seized. 1990 Proc. IA 407. © 2000 National Association of Insurance Commissioners 555-79 Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 18 (cont.) A. Subsection A was revised in 1989 to add a provision for a creditors advisory committee to the end of the subsection. The suggestion was develo ped when the working group reached a consensus that creditors committees in rehabilitations and liquidations are generally undesirable and tend to complicate the proceeding and ther eby increase overhead. The members of a creditors committee usually represent a small minority of the credito rs who are seeking to gain a higher priority distribution for those represented than for those no t represented. In a limited number of situations a creditors committee might be useful to promote compromise among a limited number or type of creditors. The task force chair pointed out that the proposal might be controversial. The suggestion for amendment was an accommodation of several in terests that were debated during the working group meetings and the members believed the proposal took into account all the various concerns. 1990 Proc. IA 398, 407-408 . E. The drafters of the 1994 amendm ents agreed to amend this subsection to limit moratoriums to six months. They agreed also to include the additional provision that the moratorium can be extended for good cause. 1993 Proc. 4 th Quarter 583 . F. The first draft of the 1994 amendments contained only a partial sentence as an amendment. A comment said proposals had been made to expand or more expressly define the rehabilitator’s powers in such areas as affirming and disaffirming or restructuring contracts. The drafters thought they needed further research before they were able to propose language and be confident of its constitutionality. 1993 Proc. 2 nd Quarter 649. Shortly before final adoption of the model, the Insolvency Subcommittee considered whether Subsection F was overly broad. One subcommittee member suggested adding a phrase limiting the ability to modify or restructure a contract to dire ct life and health policies, guaranteed investment contracts and annuities. The subcommittee discu ssed whether the need to modify policies would ever occur in the receivership of a property and casu alty insurer. It was decided that there might be a need to increase premiums as part of a plan to rehabilitate a property and casualty insurer, so the subcommittee decided not to limit the power to modify or restructure policies to policies or contracts issued by life insurers. 1994 Proc. 4 th Quarter 594. The Insolvency Subcommittee met one final time to consider a suggestion for additional language to Subsection F before moving the draft up to the Executive Committee. The purpose of the sentence was to provide for the payment of expenses related to obtaining an expert evaluation of the effect upon policyholders of any modification or restructuring of policies included in a plan of rehabilitation. The chair of the subcommittee suggested that consideration be given to an even broader proposal that would allow for the expenses of any experts retained by an NAIC working group appointed to monitor a specific receivership proceeding to be paid from an estate. Several members said they could not support broadening the provision to allow for the payment of the expenses of other parties. Their concern included the additional demands placed upon the assets of the estate and the propriety of the estate funding the costs of the development of a plan other than the plan proposed by the receiver. One regulator asked if the proposed sentence would allow experts to offer alternatives to the proposed plan of rehabilitation and the drafter agreed the development of alternatives was included in the meaning of the pr ovision. After a lengthy discussion, the proposal was adopted. 1994 Proc. 4 th Quarter 592-593 . 555-80 © 2000 National Association of Insurance Commissioners Model Regulation Service—April 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 18F (cont.) While the Executive Committee was considering ad option of the 1994 amendments, one regulator asked the committee to consider an amendment to Se ction 18F. He said the current draft might be interpreted to expand the authority of the rehabilitator to modify or restructure “policies or contracts” to include contracts for ceded reinsurance. He said he understood the intent of the provision was to include only direct policies of insurance, and suggested a modification of the subsection. The Executive Committee decided that technical issues such as this one should be considered by the working group and returned to the Executive Committee with a recommendation at a later date. 1994 Proc. 4 th Quarter 18-19. Section 19. Termination of Rehabilitation B. This subsection was added in 1989 because the working group believed it was unfair to permit the suspension of claim payments during rehabilitation for any extended period of time while the guaranty funds remain untriggered. Th e petition for liquidation resulting from the suspension of claims for a period of six months is consistent with the definition of insolvency in Section 3K. Insolvency is a ground for liqui dation under Section 20 of the model act. 1990 Proc. IA 408. Before this provision was adopted by the pare nt subcommittee one of that committee’s members spoke in favor of removal of this provision from the draft. He stated that the subsection in essence gives the rehabilitator six months to file a re habilitation plan or the company will go into liquidation. He felt it was inappropriate to set a fixed amount of time for a rehabilitation plan to be filed. He also questioned the meaning of payments suspended “in substantial part.” The task force chair responded that the working group had hotly debated this issue for two years and ha\ d adopted the suggested language by a narrow margin. The motion to strike the amendment failed. 1990 Proc. IA 172. C. When considering amendments to the model (w hich became Sections 11 to 14) the drafting group also considered a provision on attorneys’ fees . It was not adopted by the task force because of the concern of a possible overlap with the provision fo r award of attorneys’ fees in this subsection. That section was instead referred back to th e drafters for further consideration. 1993 Proc. IB 739. Section 20. Liquidation Orders C. In 1997 a working group was charged to cons ider changes to the model in regard to liquidations. One change that was made was to delete several words from this subsection. A reference to an alien insurer domiciled in this state was changed and a phrase at the end of the sentence was deleted. It limited the assets and th e business that could be liquidated to that in the United States. A regulator suggested that, as curre ntly drafted, the provision might operate to limit the authority of a U.S. liquidator regarding assets of an alien insurer. The working group agreed to the deletion to address this concern. 1997 Proc. 3 rd Quarter 1123-1125. © 2000 National Association of Insurance Commissioners 555-81 Model Regulation Service—April 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 20 (cont.) E. The subsection was amended in 1989 becaus e the working group believed the original model’s financial reporting requirements were not strong enough. The amendment assures the courts and creditors will be provided with sufficien t information on a timely basis to enable them to assess the financial position of the insolvent insurer. The original model only required accounting at such intervals as the court specified. 1990 Proc. IA 408. F. This subsection was added in 1989 because prob lems had arisen when an insurer appealed a liquidation order. Some guaranty associations were triggered, but some we re not triggered because there was no final order. The changes were based on an Illinois statute, with modifications to ensure that all triggered associations are treated eq ually in the end and to ensure that the guaranty associations are repaid for any payments they make in instances where the insurer wins the appeal. 1990 Proc. IA 408 . A comment included with the first draft of the 1994 amendments said the drafters did not think it was appropriate to require that liquidation orders include a finding of insolvency. To do so would eliminate all of the other grounds presently stated in the model act. They could conceive of situations in which a regulator would properly decide to liquidate a solvent company. Consent of the insurer’s owners was an example. Under those circumstances, there was no need to trigger guaranty funds. 1993 Proc. 2 nd Quarter 648. The working group assigned to review the section on liquidation orders considered the addition of a comment concerning the proper drafting of orders of liquidation. One suggestion received was to clarify that certain specific suggestions contained in the comment are not applicable to life, health and annuity insurer insolvencies. The working grou p agreed to the modification before the model was amended. 1997 Proc. 3 rd Quarter 1124. Section 21. Records This section was added in December 1994 wh en the model was extensively revised. 1994 Proc. 4 th Quarter 611 . D. While this provision was being considered, the working group received a letter from an association of legislators. That group found the amendment an inappropriate suspension of the freedom of information laws. The comment said it would be contrary to public interest and increase anxiety on the part of defunct insurer’s policyholders, claimants and former employees. The group believed that a person owed money by defunct in surers was entitled to know what progress was being made to effectuate payment. The group also found fault with the provision that entitled the receiver to reimbursement of costs from an individual who succeeded wi th a records request in court. It was suggested that the costs rightfully belonged as a charge against the insurer’s assets, rather than being thrust upon the wronged party who was already financially burdened by the insur\ er’s inability to pay. 1994 Proc. 2 nd Quarter 505-506 . The working group discussed the association’s comme nts. One member suggested that perhaps the association did not understand that the exception wo uld only apply to insolvent insurers and would otherwise have no effect on state freedom of inform ation laws. Another pointed out that one of the 555-82 © 2000 National Association of Insurance Commissioners Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 21D (cont.) purposes of the amendment was to protect the assets of the estate for the benefit of all creditors. The working group decided to communicate to the association the purpose of the proposed amendment and the fact that its concerns were a ddressed in other sections of the model act. 1994 Proc. 2 nd Quarter 504 . Section 22. Continuation of Coverage A. A phrase was added to Subsection A in 1989 to make clear that surety bonds and other “non- cancelable” business could be canceled. 1990 Proc. IA 408-409. The subsection was revised in 1994. 1994 Proc. 4 th Quarter 611. Section 23. Dissolution of Insurer Section 24. Powers of Liquidator A. Paragraph (3) was added to make limited provision for creditors committees. The same amendment was made to Section 16 where further di scussion may be found. The task force chair proposed a last-minute amendment to make clear th at the committee serves at the pleasure of the commissioner and without compensation. 1990 Proc. IA 398, 409. The subcommittee considering amen dments to the model in 1994 discussed Paragraph (3) again. One regulator suggested that the current draft be amended to allow the supervising court rather than the liquidator to appoint advisory committees. She also suggested that the court should have discretion to order the payment of the expenses of advisory committees from the funds of the estate. The chair observed that past experience with advisory committees had been negative. The subcommittee voted to adopt the draft with a provis ion making the decision to appoint an advisory committee at the sole discretion of the commission er. Reference to any payment for expenses was deleted. 1994 Proc. 4 th Quarter 594 . The working group amendments proposed in December 1988 suggested the addition of a new Paragraph (7). The power is probably inherent in the general powers of the liquidator, but it was suggested that it be expressly stated for clarification purposes. 1989 Proc. I 449. The suggested was adopted six months later. 1989 Proc. II 339, 380. The working group also suggested an amendment to Paragraph (12) to give the liquidator clear statutory authority to incur a super-priority loan. 1989 Proc. I 449. The proposal was adopted without comment. 1989 Proc. II 339, 380 . At the same time it was considering whether to add language about reforming life insurance contracts to Section 18F, the Subcommittee decided to delete similar language from Paragraph (13). The language adopted in 1994 simply referred to the power to disaffirm any contract. 1994 Proc. 4 th Quarter 613 . © 2000 National Association of Insurance Commissioners 555-83 Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 24 (cont.) B. Changes were made to the guaranty fund laws regarding tail coverage for a claims-made policy. This necessitated a change in the liquidation law to give the liquidator authority to sell a limited optional reporting period to insureds of an insolvent company that would provide coverage for the time period for filing claims with the liqui dator and with the guaranty fund. The advisory committee recommended that the amendment not be ma de. They felt it would create administrative difficulties and might lull insureds into a sense of se curity that would result in a failure to go out and seek the insurance they need in the voluntary market. 1986 Proc. II 410. The amendments were adopted without comment by the task force, even while the advisory committee repeated its contention that the changes were not appropriate. 1987 Proc. I 421. C. This subsection was added in 1989 to make clear that the liquidator had no obligation to defend claims subsequent to the entry of a liquidation order. 1990 Proc. IA 409. Section 25. Notice to Creditors and Others B. This subsection was added in the 1994 revisions. 1994 Proc. 4 th Quarter 614. C. When the guaranty fund model was changed with regard to tail coverage for claims-made policies, it became advisable to change the liquida tion model also. to prevent inconsistencies the time for filing all claims was set at 18 months from the order of liquidation. 1986 Proc. II 410-411 . The amendments were adopted without comments by the task force members. 1987 Proc. I 421. In 1988 it was suggested that the first phrase be added to give the liquidator and the court more flexibility in establishing notice proc edures and claim filing procedures. 1988 Proc. I 449 . The amendment was adopted at the next national meeting. 1989 Proc. II 339, 380. D. Subsection D was created with the amendmen ts of 1989 to coordinate the activities of liquidators and guaranty associations relative to notices to policyholders and insureds, and to decrease the likelihood of confusion of insureds who may not grasp the distinction between the liquidation and guaranty fund processes. 1990 Proc. IA 409. E. This subsection was added in 1994. 1994 Proc. 4 th Quarter 615. F. This subsection was added in the revisions of 1994. 1994 Proc. 4 th Quarter 615. Section 26. Duties of Agents Substantial revisions to this section in 1989 were designed to address the duplication of efforts between liquidators and agents in notifying insure ds of liquidations orders. The original model language required the agent to give notice to any policyholder insured by the insurer subject to liquidation and whose policy was obtained through th e agent. The amendments would also decrease the chance for confusion of insureds who received different notices from agents and liquidators regarding the liquidation. The change s also ensured that the liquidator was provided with the most current information available relati ve to the insureds of the insolvent insurer. 1990 Proc. IA 409-410 . 555-84 © 2000 National Association of Insurance Commissioners Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 27. Actions By and Against the Liquidator A. The second sentence was added near the en d of the drafting process to reinforce the reciprocal nature of the act. 1978 Proc. I 280. In 1988 it was suggested that a phrase be added to ma ke it clear that arbitrations are subject to the liquidation injunction. 1989 Proc. I 450 . The amendment was adopted without comment. 1989 Proc. II 339, 380 . Section 28. Collection and List of Assets C. This provision was added late in the drafting process of the original model. To meet the requirements of Section 37, those of the Sectio n 27A are also met. The amendment relieved the necessity of filing under both sections. 1978 Proc. I 280. Section 29. Fraudulent Transfers Prior to Petition Section 30. Recoupment from Affiliates This new section was added in December 1994. 1994 Proc. 4 th Quarter 617. Section 31. Fraudulent Transfer After Petition C. This section was proposed as an addition to the model in 1988. The purpose for the change was to insure that sanctions for fraudulent tr ansfers were as strong as those for voidable preferences. 1989 Proc. I 450 . The proposal was adopted without further discussion. 1989 Proc. II 339, 380 . Section 32. Voidable Preference and Liens A. The “or” at the end of each subparagraph under Paragraph (2) was added to clarify the understanding that any of the conditions could operate to avoid a preference. 1989 Proc. I 450 . The proposal was adopted six months later as part of an amendment package. 1989 Proc. II 339, 381. Section 33. Claims of Holders of Void or Voidable Rights Section 34. Setoffs As the task force began consideration of amendmen ts to the model law section on offsets, they received a statement from an association which favored retention of the model provisions as they existed in the model adopted in 1977. They said most state laws contained language substantially similar to the existing section, which permitted offset in all cases of mutual debts and credits in connection with any insurer liquidation proceeding. They said the model codified rights that had been recognized for at least three centur ies in British and American common law. 1986 Proc. II 499- 500. © 2000 National Association of Insurance Commissioners 555-85 Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 34 (cont.) A special subgroup of the advisory committee was ch arged with studying the issue of offsets. The reason for the charge was two-fold. First there appeared to be disagreement regarding the meaning of the language of Section 34 with regard to its app lication to specific fact situations. Second, there was renewed interest in whether a revised Section 34 would better satisfy commercial and regulatory interests. 1988 Proc. I 366-377. A report prepared by an advisory committee stated that regulators and liquidators of insolvent insurers have displayed renewed interest in whethe r reinsurers of an insolvent insurer or reinsurer may set off balances due from the estate of an in solvent cedent or retrocedent against reinsurance proceeds payable to the liquidator. In researching the Wisconsin statute (which served as a basis for the model), the advisory group found legislative hist ory to support the contention that the Wisconsin law overruled the common law with respect to policyholders’ setoff but preserved the common law entitlement of reinsurers to premium setoff. 1988 Proc. I 369-370. The advisory committee report went on to analyze the NAIC deliberations on offsets. Two years after recommending the Wisconsin law as the basis for insurer insolvency regulation, the NAIC considered the issue of offsets. The ensuing debate continued for two years. A subcommittee consisting of four states was appointed to draft recommendations to consid er a compromise between an NAIC proposal for total elimination of reinsu rer setoffs and the objections of the reinsurance industry. It appears the arguments of the reinsu rers prevailed because the special committee voted to deal with the narrower issue of abusive surplus aid reinsurance contracts. The Blanks Committee incorporated a ceded reinsurance report into Sc hedule S of the annual statement filing to enable regulators to detect abusive reinsurance contracts. 1988 Proc. I 370-371 . A special Offset Issues Working Group was appoin ted to address and review the many aspects of offset, including not only reinsurers’ offset ma tters, but encompass policyholders, intermediaries, insurers and agents’ offset issues, including internat ional aspects of offset problems. The thrust of the working group was to determine if there was an overall consensus of regulators and industry as to the desired future interpretations an d administration of setoff situations. 1988 Proc. II 353. The Offset Issues Working Group reported that the insurance commissioners found the issue of offsets to be both important and controversial. A report by the group suggested clarifying the language of Section 34 in line with the group’s find ings as to the historical intent and equitable public policy of the offset. A dissenting report enumerating major points of disagreement. 1989 Proc. I 378-415, 476-523 . After more than a year of study and evaluation, th e Offset Issues Working Group prepared a report and several proposals. They were forwarded to the parent committee for consideration. 1989 Proc. II 338 . When the NAIC was asked to vote on final adop tion of the report and model amendments, one commissioner suggested postponing the vote for six months. Anothe r responded that the matter had been fully debated for three years and that action sh ould be taken now in order to take care of the policyholders. One insurance department staff su ggested there were some obvious errors in the work product and states would find it difficult to enact. A roll call vote was taken and the report was adopted by the necessary two-thirds majority. 1990 Proc. II 15. 555-86 © 2000 National Association of Insurance Commissioners Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 34 (cont.) B. After the lengthy debates on how and whether to limit offsets, the debate came down to two proposals termed the “McCartney Proposal” and th e “Maisel Proposal.” Much of the discussion focused on Paragraph (6). The chair of the subcommittee suggested adding the words “in liquidation” after the word “insurer” to make clear that the restrictions on setoffs would only apply in liquidations. It would not rest rict setoffs for companies in rehab ilitation. Subsections B(1) to (5) would still be prohibited in rehabilitation, but the setoffs for ceding and assumed would not be prohibited unless the company was in liquidation. After discussion the group agreed to add the optional authority of the commissioner at the end of the paragraph instead of the words “in liquidation.” 1990 Proc. II 203-204, 222 . F. The Maisel Proposal contained an effective date of January 1, 1992, but the author of the proposal was agreeable to a date of six months af ter the date of enactment. Subsection F of the Maisel Proposal, with that change agreed upon, was incorporated into the McCartney Proposal. 1990 Proc. II 203, 224 . The commissioners voted to accept the revisions limit ing the right of setoff despite a report by an insurance association which predicted the move wo uld make insurance more expensive and reduce competition. 1990 Proc. II 251-253 . Section 35. Assessments Section 36. Reinsurer’s Liability This section was extensively revised in the vers ion adopted in December 1994. A comment to an earlier draft said the revised section was intend ed to make the insolvency clause enforceable, irrespective of whether the parties intentionally or negligently fail to include the insolvency claims in the reinsurance agreement. The drafters also considered the public policy issue of whether “cut- through” endorsements should be allowed in an insolvency proceeding. One viewpoint was that they would cause substantial inequities between the po licyholders in the event of an insolvency, and would most likely protect more sophis ticated purchasers of insurance. 1993 Proc. 2 nd Quarter 662. The drafters forwarded a copy of the section to the Credit for Reinsurance Working Group for their comment. That group summarized the proposed revisions as follows: Generally, the proposed revision to Section 36 provides that amounts recove rable by liquidators from reinsurers shall not be reduced as a result of delinquency proceedings, regardless of any provision of the reinsurance contract or other agreement. The proposed revision further states that all reinsurance contracts to which a domestic insurer is a party must contain or be construed to contain certain provisions. Among these are a provision that reinsurance oblig ations be payable to the receiver immediately upon demand. Another provision would require the re ceiver to give written notice to reinsurers of the pendency of claims against the ceding insurer. Another portion of the proposed revision states that payments by reinsurer must be made directly to the ceding insurer or its receiver, except where the contract of insurance or reinsurance specifica lly provides for another payee and this provision was approved in writing by the commissioner of the domiciliary state of the ceding insurer. The receiver is entitled to recover from any person unsuccessfully making a claim directly against the reinsurer attorney’s fees and expenses. 1994 Proc. 3 rd Quarter 439 . © 2000 National Association of Insurance Commissioners 555-87 Model Regulation Service—January 2000 INSURERS REHABILITATION AND LIQUIDATION MODEL ACT Legislative History Cited to the Proceedings of the NAIC Section 36 (cont.) The reinsurance working group questioned whether it was appropriate for a liquidation statute to regulate the provisions of reinsurance contracts. The group opined that issues such as the insolvency clause in reinsurance contracts shou ld be addressed through credit for reinsurance provisions. The group was also concerned that the proposed revisions would require states to make many changes in existing laws. In addition, the section as drafted applied to reinsurance contracts in force on the effective date of the Act. Th e reinsuran