Fill and Sign the Life and Heath Ins Guaranty Assoc Model Act Legislative History Form

Model Regulation Service—October 1999 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 1 . Tit le Amendments to the model proposed first in early 1996 included deletion of a comment that had bee\ n in the model since its adoption in 1970. The comment highlighted the difference between the property/casualty and life/health guaranty funds. The set of proposed amendments included\ both substantive and technical revisions and reflected changes in the life insurance industry and the products offered by insurers as well as lessons learned in connection wi\ th major life insurance insolvencies in recent years. 1 19 96 P ro c. 1 s t Q uarte r 5 70, 1 996 P ro c. 4 t h Q uarte r 9 59 . Those presenting suggestions on behalf of the life insurance industry suggested that large insurance insolvencies in the early 1990s demonstrated that some parts of the model act worked well and others did not. The intent of the drafters of the amendments was to mak\ e the act more workable and clarify the authority of the guaranty associations with respect to multi-state rehabilitation plans. Among the issues addressed in the 1996 amendments were (1) the\ need for a different method of covering guaranteed investment contracts and structured settlement annuities to avoid concentration of coverage in a few guaranty associations and the concomi\ tant capacity problems; (2) the need to change the assessment process to allow assessments to be called in one year and collected in another and to delete the current 1% spillover requirement; and (3) implementa\ tion of national rehabilitation and reinsurance plans. 1 19 96 P ro c. 2 n d Q uarte r 5 94 . S ectio n 2 . Purp ose After development of the guaranty association for property and casualty insurance, it was questioned whether there was need to develop legislation specifically to deal with \ insolvencies of life and health insurers. However, industry representatives cautioned that the approaches and solutions developed for property and casualty insurers were not only inadequate, but inappropriate for the life and health insurance business. 1 19 70 P ro c. I I 1 072 . Industry organizations maintained the position that the NAIC should be concentrating on legisla\ tion for solvency rather than insolvency . The primary purpose of state regulation is not fulfilled if a preventable insolvency occurs. They cited an NAIC study prepared when the property and casualty guaranty association model was adopted (1969 Proc. II 564-593) which s\ tated insolvencies of life insurance companies had been relatively insignificant. They also argued\ that policyholders of one company should not be protected at the expense of policyholders of other companies. They asserted the property and casualty guaranty association model had been adopted because of the imminence of federal legislation. The same urgency did not exist with respect to life and health insurance\ . 1 19 71 P ro c. I 1 74-1 77 . When the model was being considered, the insurance company representative expressed the opinion that the guaranty fund encouraged improvident management and the creation of marginally financed companies, which would hurt the industry. Potential policyholders would no longer need to be concerned with the financial condition of the company from which they would consider purchase of coverage. The public would be lulled into overlooking the need for dealing with so\ und companies. 1 971 P ro c. I 1 79 . © 1999 National Association of Insurance Commissioners 520-53 * Reprinted with permisssion. Further reprint or distribution strictly p\ rohibited without written persmission of NAIC. * Model Regulation Service—October 1999 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 . C ov era ge a n d L im it a tio n s A. The model as originally enacted had a Section 3 entitled “Scope.” As urged by the industry spokespersons, it extended to all policyholders, wherever located, of a domestic company i\ n the state of enactment. Also, they urged, in order for an insurance department to carry out its responsibil\ ity to residents of its state who hold policies of foreign and alien companies, a guaranty measure should apply to resident policyholders of such companies. 1 19 70 P ro c. II 1 073 . The model as originally adopted covered any policies or contracts issued by persons authorized to transact insurance in the state at any time. 1 19 71 P ro c. I 1 61 . A memo from an insurance industry organization included a proposal that the guaranty association be responsible for covering only residents of its own state. The major purpose for the sug\ gested change was to increase the assessment capacity of the system. Other important purposes were to encourage the states that did not have statutes providing for guaranty associations to enact them, to protect insureds who did not reside in the insolvent insurer’s state with an association in their own state, to avoid litigation over the issue of whether the protection provided by the association in the insolvent insurer’s state of domicile is “substantially similar” to that \ of non-domiciliary states’ associations, and to eliminate any justification for failing to provide a tax offset in the law. 1 19 84 P ro c. I I 4 61 . The system provided that the domestic guaranty association should assess its members on the basis of premiums they receive on business in each of the states where they and the insolvent insurer did business. However, because of the two percent limitation, situations arose in which the guaranty association was unable to assess a sufficient amount to cover all policyholders. The proposed system of providing coverage only to residents would remedy the assessment capa\ city problem in all but the largest cases of insolvency. 1 19 84 P ro c. I I 4 62 . The approach suggested in 1984 also minimized the need to have all the s\ tate laws virtually identical. Under the model originally adopted the guaranty association of a non-domiciliary state did not cover its own residents if the domiciliary state provided them “substantially similar” protection. 1 19 84 P ro c. I I 4 62 . A system of covering residents only would show a direct benefit from the tax offset to the residents of the state providing the offset, and not to residents of other states. 1 19 84 P ro c. I I 4 62 . The working group draft considered during 1985 contained a provision that each guara\ nty association would cover residents only, except in some limited instances. Nonresidents may be entitled to coverage by the guaranty association where the insurer was domiciled.\ This exception was aimed primarily to cover persons who move into a state where their i\ nsurer was not admitted, and therefore, not a member of that guaranty association. Individuals with group insurance will be covered in states where the individual certificate holder resides. The situs of the group will be irrelevant. 1 19 85 P ro c. I 2 05 . The focus of the amendments proposed in 1996 was to shift the situs of coverage of guaranteed investment contracts issued to pension plans and of structured settlemen\ t annuities. For structured 520-54 © 1999 National Association of Insurance Commissioners Model Regulation Service—April 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 A (cont.) settlement annuities, the situs of coverage was shifted to the state of residence of the beneficiary rather than the owner. For tax reasons, ownership of the contracts must be in one entity. If the situs of coverage is the state of residence of the owner, there is a potential for concentration of guaranty association liability in one or a few states. A similar situation exists with respect to unallocated contracts issued to pension plans. The amendments proposed to shift coverage to the state of residence of the plan sponsor rather than the owner. This would avoid an arbitrary concentration of liability in a few state guaranty associations and discourage forum shopping for the state offering the most generous coverage. 1 19 96 P ro c. 2 n d Q uarte r 5 94 . In 1997 the NAIC began a discussion of whether it was appropriate to exc\ lude coverage of unallocated annuity contracts. The ultimate result of the discussion was amendments\ to the model, including the drafting note following Section 3A(3). 1 19 97 P ro c. 1 st Q uarte r 6 19, 1 998 P ro c 1 st Q uarte r 6 03. B. Revisions to the model were made necessary by the nature of new products now being sold by life insurance companies. The current practice of marketing products which are tied to external interest rates has increased their volatility. In drafting the original model, it does not appear that consideration was given to whether such products should be covered by the act, and if so, to what extent. The committee felt it was especially important to clarify the coverage of an\ nuities under the act. Group investment annuities and deposit administration accounts were more\ like deposit accounts than insurance risks so might be considered for exclusion from coverage, since they are purchased by sophisticated buyers who have the ability to investigate the seller. 1 19 85 P ro c. I 2 04- 2 05 . The NAIC struggled for several years with the role the guaranty association should play in recovery of losses under guaranteed investment contracts (GICs) and deposit administration accounts (DACs). A “fact sheet” prepared by an industry representative suggeste\ d that these unallocated annuities should be covered like life and health contracts. In 1984 half of all the annuity premiums received were on GICs. In addition to questions of fairness, the NAIC attempted to de\ termine if the capacity existed to place unallocated annuities in a separate account. 1 19 86 P ro c. I 3 40, 3 54 . The last sentence of B(1), added in 1987, made it explicitly clear that coverage is provided for all types of contracts issued by insurance companies which are used as a funding arrangement for retirement benefits or savings vehicles and the like for individuals. This amendment should result in easier administration of assessments in that there has been some experience in the past that individual companies have deemed some of these types of contracts not to be covered; therefore they have not included premiums on such contracts in their reports in regard \ to assessable premiums. 1 988 P ro c. I 3 55 . The list of exceptions in B(2) was expanded to include some aspects of\ variable life contracts in Subparagraph (a). The purpose of this exception was to exclude the po\ rtion of the contract where the risk was borne by the policyholder. However, the obligations of the insurer (e.g. mortality and expense guarantees) are covered. 1 19 76 P ro c. I 2 99 . © 2001 National Association of Insurance Commissioners 520-55 Model Regulation Service—April 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 B (cont.) It was suggested that the exception be expanded to clarify that certain types of contractual relationships are not covered by the Act. Clearly excluded would be self-funded and uninsured plans, multiple employer welfare arrangements, stop-loss plans, and administrative services only contracts. 1 19 84 P ro c. I I 4 62 . The exclusions list in B(2) was modified to add (g) and (h). The task force believed that the guaranty association should be viewed as an extraordinary and last resort mechanism to provide benefits only when insureds or beneficiaries may suffer an extreme financial hardship if benefits were not paid. 1 988 P ro c. I 3 56 . When considering amendments in 1996, the working group expressed concern\ about whether the exclusion in Paragraph (2)(g) was appropriate, considering the diffi\ culty an employee might have in obtaining benefits from the Pension Benefit Guaranty Corporation (PBGC). An interested party responded that the employer should be able to meet the obligation to the employee in most cases, and if not, the Pension Benefit Guaranty Corporation would become liable. He suggested that the guaranty association should not provide what amounts to a third safety n\ et for the employee. 1 19 96 P ro c. 2 n d Q uarte r 5 94 . While considering this amendment further at a subsequent meeting, one regulator expressed concern about the effect of the exclusion on smaller employers and their employees. He sa\ id the prerequisites for the triggering of PBGC coverage are onerous, and that,\ in his experience, the PBGC does not pay benefits to plan participants until three to eight years after t\ he plan becomes insolvent. Industry representatives who spoke in favor of the exclusion said the unallocated annuity contract issued by the insolvent insurer would be just one of many assets of the plan and o\ ver time the plan should be able to compensate for the loss with the earnings on other investments. It was also pointed out that smaller employers generally do not participate in the P\ BGC. 1 19 96 P ro c. 4 th Q uarte r 9 84 . An amendment to Paragraph (2)(h) was suggested by interested parties\ in 1996. It had the effect of excluding unallocated annuity contracts issued to a collective investment trust or similar poo\ led fund. The working group chair questioned whether the participants and trustees of these funds are sophisticated investors. One of the drafters explained that the exclusion was proposed because guaranty associations would otherwise be providing protections for fiduciaries. He pointed out that individuals participating in these funds could look to their plan fiduci\ ary, the trust or pooled fund fiduciary, and possibly the Pension Benefit Guaranty Corporation for protection. 1 19 96 P ro c. 3 rd Q uarte r 8 38 . At a public hearing on the proposed amendments, an interested party disputed the notion that participants in a collective investment trust or pooled fund are large, sophisticated investors. He argued that the majority of pension plans participating in pooled funds are smaller plans. He said the model act lacked a uniform standard for a sophisticated buyer and th\ e proposed amendment ignored the fact that losses due to the insolvency of the insurer that issued a guaranteed investment contract to a plan would ultimately be borne by the individual plan participants. Another interested party responded that pooled funds are not covered under then-existing model an\ d the proposed amendment was meant to clarify the issue and prevent litigation. Some regulators suggested that 520-56 © 2001 National Association of Insurance Commissioners Model Regulation Service—November 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 B (cont.) guaranty fund coverage for pooled funds might be appropriate. An interested party suggested the treatment of plan participants under the model act should be consistent for plan participants regardless of whether the plan sponsor purchases a contract directly or through a pooled fund. 1 19 96 P ro c. 3 r d Q uarte r 8 16-8 17 . A regulator reminded the working group that the model act is based on the principle that guaranty association protection is a limited resource and that some coverage excl\ usions are necessary and appropriate. 1 19 96 P ro c. 3 r d Q uarte r 8 17 . At the next working group meeting, discussion continued on the exclusion of pooled funds from guaranty fund coverage. Some interested parties spoke against the propo\ sal because it would create a disparity of coverage solely based on form. An insurer representative said the current model excludes such contracts from coverage because the contracts are not issued to a specific plan sp\ onsor or trustee. The working group raised the question of how insurers that sell guaranteed investment contracts to pooled funds report the consideration received for purposes of guaran\ ty association assessments. The insurance industry representatives were unable to answ\ er the question. 1 19 96 P ro c. 4 t h Q uarte r 9 56 . The working group agreed to adopt the model without the exclusion of coverage for un\ allocated annuity contracts issued to collective investment trusts or pooled funds\ and then consider during 1997 whether coverage should be provided for any unallocated annuity contracts. 1 19 96 P ro c. 4 th Q uarte r 9 56 . In 1997 discussion again took place on whether the model should be amended to exclude coverage of unallocated annuity contracts. A trade association representative noted that changes in the marketplace and a trend toward investment products were reasons not to c\ over unallocated annuities. An insurer representative said purchasers of these products are generally sophisticated purchasers and often utilize the services of skilled financial advisors.\ 1 19 97 P ro c. 1 s t Q uarte r 6 19 . A representative from the life insurance guaranty association said that, when the issue was last discussed by the NAIC, the focus was on capacity concerns. Companies that sold individual annuities were concerned there would be insufficient capacity in the guaranty association system if unallocated annuities were not included in the assessment base. 1 19 97 P ro c. 1 s t Q uarte r 6 19 . At the Summer National Meeting regulators scheduled a hearing so they could hear reasons why they should consider excluding unallocated annuities from the models. O\ ne interested party listed six reasons to exclude unallocated annuities: (1) they are more in the nature of investments than insurance policies; (2) purchasers are sophisticated buyers capable of protecting their own interests; (3) the trustee of a qualified benefit plan has fiduciary duties under ERISA\ ; (4) similar protection is not provided for any other funding vehicle used by benefit plans; (5) \ the purpose of the model is to provide protection for individuals, not sophisticated fiduciaries; and (6) unallocated annuities have presented significant difficulties to receivers and guaranty associations in recent insolvencies. 1 19 97 P ro c. 2 n d Q uarte r 5 37-5 38 . © 2001 National Association of Insurance Commissioners 520-57 Model Regulation Service—November 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 B (cont.) Another interested party testified that those who favor exclusion are focusing on the form of the contracts over their substance. He said pension plan participants are not sophisticated investors and need the protection of guaranty association coverage. He said excluding unallocated products from coverage would shrink assessment capacity to a level at which capacity might be insufficient in the event of a large insolvency. 1 19 97 P ro c. 2 n d Q uarte r 5 38 . A consumer representative questioned whether the majority of persons who\ purchase unallocated annuities are sophisticated in their understanding of insurance products or the risk that the issuing insurer may become insolvent. He suggested consumers have an expectatio\ n that contracts purchased from insurers are more secure than other investments. 1 19 97 P ro c. 3 r d Q uarte r 1 126 . A regulator asked whether the issue might be addressed with a “net worth exclusion” similar to that contained in the property and casualty insurance guaranty fund model. An insurer representative opined that a net worth exclusion would complicate the assessment process. 1 19 97 P ro c. 3 r d Q uarte r 1 126 . A representative for the National Organization of Life and Health Insura\ nce Guaranty Associations reported that the prior year assessments for life insurance decreased by 50 perce\ nt and assessments for unallocated annuities increased by 100 percent. 1 19 97 P ro c. 3 r d Q uarte r 1 077 . At the next working group meeting a regulator submitted an extensive drafting note prepared by a trade association suggesting that coverage should be optional at the election of each state. He said the question of coverage of unallocated annuities is a difficult one and\ there are good arguments on each side of the issue. 1 19 97 P ro c. 4 t h Q uarte r 6 45 . A regulator took exception to the statement in the draft comment that purchasers of unallocated annuities are sophisticated and very capable of protecting their own interests. He cited examples to illustrate the opposite. 1 19 97 P ro c. 4 t h Q uarte r 6 45 . The working group discussed amending the model to present two options to states on the controversial issue of guaranty association coverage of unallocated annu\ ities. A working group member noted that 26 states currently provide guaranty association cover\ age for unallocated annuities, 19 states exclude coverage, and the rest are silent on the is\ sue. He said the proposal reflects the reality that each state makes its own decision on the matter. 1 19 98 P ro c. 1 s t Q uarte r 6 01- 6 02 . An additional exception was added in 1993 to exclude coverage for any policy or contract where assessments were preempted by federal or state law. 1 19 93 P ro c. 2 n d Q uarte r 6 02 . The proposal was adopted as Subparagraph (i) by the working group with\ out further discussion. 1 993 P ro c. 3 r d Q uarte r 3 50-3 52 . 520-58 © 2001 National Association of Insurance Commissioners Model Regulation Service—April 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 B (cont.) Paragraph (2)(j) was added with the 1996 amendments. The working group asked whether the guaranty association should provide coverage for the promises made by the insurer to policyho\ lders, even if the promise is contained in marketing materials or documents other than the policy. An interested party responded that the guaranty association should not be expected to \ provide coverage for an extra-contractual promise, especially if there was no regulatory approval of the side agreement. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . Paragraph (2)(k) was part of the 1996 amendments, added to provide a\ n exclusion for synthetic guaranteed investment contracts. An industry spokesperson justified this exemption by saying these contracts are purchased by ultra-sophisticated investors and the p\ lan sponsor was assured that the assets it invested in were fully insulated from the insolvency of th\ e issuing insurer. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . The draft provided to the working group also suggested an exclusion for \ a structured settlement annuity where the liability insurer or other person liable for the personal injury remains able to pay any remaining amounts due. The working group decided that would not be \ an appropriate exclusion because its effect was to put the injured person in the position of having to reinitiate litigation to protect his or her right to payment. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . At the beginning of 1998, a working group began to consider the issue of\ guaranty coverage for equity-indexed products. 1 19 98 P ro c. 1 s t Q uarte r 6 02 . The Life Insurance and Annuities Committee concluded that equity-indexed products are fixed products and therefore would be afforded guaranty association coverage. The problem was determining the extent of coverage, given the unique features of equity-\ indexed products. One regulator suggested the contract values are entirely fixed; however, the guaranteed account value may not be determinable until some time after the date of the insolvency. 1 19 98 P ro c. 2 n d Q uarte r I 5 78 . An industry committee concluded that equity-indexed products are covered to the extent that the account value is guaranteed by the issuing insurer, that any risk borne by the insured is excluded from coverage, and that the interest rate rollback provisions apply. The committee also co\ ncluded that coverage would be limited to the account value on the date of insol\ vency. 1 19 98 P ro c. 2 n d Q uarte r I 5 78 . The chair asked about the value or potential earnings that had not yet veste\ d at the date of insolvency and whether there was guaranty association coverage for these amounts. \ If not, he wondered if the policyholder would have a claim for these amounts against the receivership estate. The industry committee was of the opinion that it would not be practical to wait until the end of the term of the contract to determine the contract value. That was why the committee recommended that the value of the contract be determined at the date of insolvency for purposes of guaranty association coverage. 1 19 98 P ro c. 3 r d Q uarte r 4 75 . © 2002 National Association of Insurance Commissioners 520-59 Model Regulation Service—April 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 B (cont.) Another regulator said that equity-indexed products with “ratchet” provisions did not present significant problems regarding guaranty association coverage, but that “point to point” contracts did present problems. Such contracts could not be valued as provided in the contract because the end of the term could be several years in the future. An interested party opined that litigation over guaranty association coverage might be prevented if the model and provisions were clarified. 1 19 98 P ro c. 3 r d Q uarte r 4 75 . The working group discussed what disclosures should be made to consumers concerning what would occur in the event of an insolvency of an insurer that issued equity-indexed products. 1 19 98 P ro c. 4 t h Q uarte r I 5 33 . When the working group reviewed a draft of suggested amendments to address issues related to equity-indexed products, one regulator suggested the amendments did not provide adequat\ e protection to holders of point-to-point contracts in that the potential existed for them to lose all gains in the reference index if the insolvency occurs before the end of the contract term. He noted that an actuarial group suggested that the value of the reference index should be fixed at the date of insolvency for purposes of determining account value. This value would also be rolled \ into any replacement contract issued by a guaranty association. The regulator su\ ggested that unless the value of the index and, consequently, the account value were fixed at the date of insolvency, the contract holder was subjected to investment risk. 1 19 99 P ro c. 1 s t Q uarte r 4 45 . The revised draft addressed the concerns raised about the treatment of point-to-point contracts. The value would be determined on the date the insurer became an impaired or insolvent insurer. Any earnings or losses determined by use of an index or other external reference as of the date of impairment or insolvency would be credited to the policy or contract. 1 19 99 P ro c. 2 n d Q uarte r 4 35 . C. An industry draft prepared in 1984 suggested this section be changed by adding limitations to terminate the guaranty associations obligation by the next renewal date or 180 days, whichever is earlier. The committee did not look favorably upon this suggestion, indicating that it put life and health company insolvencies in the same mode as property and casualty insolvencies. 1 19 84 P ro c. I I 4 45 . The original model contained the limits of the guaranty association liabilities in Section 8, but it was moved to Section 3 when that section was amended in 1985. 1 19 76 P ro c. I 3 02, 1 986 P ro c. I 3 07 . The original language simply limited the aggregate liability of the associat\ ion to $100,000 in cash values or $300,000 for all benefits on one life. The industry draft submitted in 1984 suggested a different approach with percentages to be paid on a sliding scale. 1 19 84 P ro c. II 4 65-4 66 . A regulator commenting on the industry proposal found it to be unreasonable and unfair. He found a 75% limitation on health insurance recoveries, regardless of the size of the claim, to be particularly offensive. 1 19 84 P ro c. I I 4 76 . 520-60 © 2002 National Association of Insurance Commissioners Model Regulation Service—January 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 C (cont.) The revised model adopted in 1985 contained limitations on liability quite different from the industry suggestion. The $100,000/$300,000 of the original model had been retained, with clarifications and expanded provisions. The adopted version now limited health insurance benefits to $100,000 and present value of annuity benefits to $100,000. During t\ he task force meeting the coverage maximum for unallocated annuities was raised to $5 million from\ the $2 million in the draft. 1 19 86 P ro c. I 2 94-2 95 . In 1993 a discussion was held on whether to increase the $100,000 limit for health insurance coverage, or to eliminate the cap completely. The working group acknowledged that national health care reform and the effect of long-term disability coverage should be considered further before a recommendation was made. 1 19 93 P ro c. 4 t h Q uarte r 5 69 . In the fall of 1994 a working group considered a proposal to increase to\ the coverage for medical expense and disability benefits. The draft contained a $300,000 limit for disability benefits and paid medical expense payments up to the limit of the policy. 1 19 94 P ro c. 3 r d Q uarte r 4 18, 4 31. An insurance trade association submitted comments on the proposal. It said that the inclusion of a cap on medical expense benefits would make the association subject to en\ ormous anti-selective pressures. It also noted that the inclusion of a dollar cap would not have a significant effect on those currently under care. 1 19 94 P ro c. 4 t h Q uarte r 5 90 . Another trade association also expressed concern about the unlimited coverage and suggested a cap of $300,000. The association pointed out that $100,000 of benefits had been considere\ d quite broad when the model was first adopted in 1970, but medical cost have increase\ d considerably since then. A recent study showed, however, that only .06 percent of the reviewed claims exceeded $\ 100,000. 1 994 P ro c. 4 t h Q uarte r 5 90. The trade association noted that the terminology used in the amendment was not clear. It suggested clarifying the meaning of “health insurance,” “medical insurance” and “disability insurance.” The recommendation was to make the me anings consistent with the terminology used in the NAIC Health Insurance Shoppers’ Guide. 1 19 94 P ro c. 4 t h Q uarte r 5 90 . A regulator explained the intent of the removal of the cap on health insurance benefits was to benefit insureds suffering from catastrophic illnesses. An insurer responded that a cap served to protect the guaranty associations from irresponsible insurers that sold \ policies without contractual limits. Another regulator suggested the limit on coverage should be the contractual limits of the policy or $1,000,000, whichever was less. 1 19 94 P ro c. 4 t h Q uarte r 5 75-5 76 . In December 1994 the working group recommended to the subcommittee that \ a proposed amendment be adopted that would provide for $100,000 net cash surrender \ value, $300,000 for disability income insurance, and $1,000,000 on benefits for medical expenses. The subcomm\ ittee adopted that provision. 1 19 94 P ro c. 4 t h Q uarte r 5 65-5 66. © 2001 National Association of Insurance Commissioners 520-61 Model Regulation Service—January 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 C (cont.) When the Executive Committee was to consider this amendment for final adoption, the chair of the Insolvency Committee asked that the proposal be returned to the drafters\ for further work. He noted that, in making the recommendation, the subcommittee had not consi\ dered the effect of these increases on the aggregate limits. 1 19 94 P ro c. 4 t h Q uarte r 2 6 . When the document was referred back to the subcommittee, an association representative asked the subcommittee to reconsider whether increasing the limit of guaranty asso\ ciation coverage from $100,000 to $1,000,000 was appropriate. The working group was instructe\ d to reconsider the coverage limits. 1 19 95 P ro c. 1 s t Q uarte r 4 61 . As a compromise, the working group decided to recommend the coverage for medi\ cal expense be set at $500,000. 1 19 95 P ro c. 3 r d Q uarte r 5 85 . Subsection C(2)(c) was added in December of 1993. When the draft was first exposed, it was explained that this amendment was needed to clarify that, for purposes o\ f structured settlement annuity benefits, the limitations in guaranty fund benefits applied per payee or\ beneficiary with an aggregate limitation. 1 19 93 P ro c. 2 n d Q uarte r 6 02 . The amendment was adopted by the working group in September without further discussion. 1 19 93 P ro c. 3 r d Q uarte r 3 50-3 51 . When regulators were considering technical amendments to Paragraph (2)(c), an interested party suggested adding the phrase, “if any” after the reference to cash \ surrender and net cash withdrawal values. She said her organization was not aware of structured settlement annuity\ contracts being issued that contained these features, but the language would address the\ products if developed in the future. 1 19 97 P ro c. 4 t h Q uarte r 6 45 . When considering amendments to the model in 1996, changes to Paragraph (2)(d) were considered. One regulator pointed out that the current policy of limiting coverage o\ f unallocated products to $5 million per policy owner may prove to be inadequate in the case of a lar\ ge employer with multiple union contracts. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . The amendments to Subparagraph (e) of Subsection C(2) were made when the NAIC clarified its position on coverage of unallocated annuities. The task force believed that the \ nature of most unallocated annuity contracts required a different approach due to the problems that could result. The task force adopted a “per participant” approach for government plans and a “\ contract holders” approach for non-governmental plans. Even though the P oceedings indicate governmental plans under Section 401(k) are included, the original document indicates the (k) was deleted and the section includes all plans authorized under I.R.C. Section 401. 1 19 88 P ro c. I 3 56 . r Further amendments to Paragraph (2)(e) were made in 1996. Subparagraph (f) was added. 1 1996 P ro c. 4 t h Q uarte r 9 63 . 520-62 © 2001 National Association of Insurance Commissioners Model Regulation Service—July 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 3 (cont.) D. When considering amendments to the model in 1996, Subsection D was added. An industry spokesperson explained that large companies that assume business from smaller insolve\ nt insurers object to incurring the costs associated with modifying their systems to accommodate the forms of small insurers. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . In conjunction with the development of the 1996 amendments, several new paragraphs were added to the comments following Subsection D. Some language was deleted also. 1 19 96 P ro c. 4 t h Q uarte r 9 63 . S ectio n 4 . Con str u ctio n When the model was amended in 1996 this provision was modified so that i\ t no longer said the act “shall be liberally construed . . . .” The working group chair opined that deleting the word “liberally” would restrict interpretation of the act by the courts. An interested p\ arty disagreed, saying the purpose of the proposal was to discourage the courts from finding covera\ ge where it was not intended. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . S ectio n 5 . Defin it io n s C. Subsection C was added with the 1996 revisions. It was proposed to allow guaranty associations to fully utilize available capacity. An interested party noted that insurers are already in the practice of establishing reserves for assessments. It was also noted that some state guaranty associations have taken the position that the association may not authorize an assessment but defer calling the assessment under existing law. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . D. Subsections D and E were added with the amendments considered in 1996. 1 19 96 P ro c. 4 t h Q uarte r 9 64 . I. Subsection I was an addition included with the 1996 amendments. 1 19 96 P ro c. 4 t h Q uarte r 9 64 . J. When the model was revised in 1975 the definition of impaired insurer was modified and a definition of insolvent insurer added. At that time “insolvent insur\ er” was defined to include an insurer under an order of liquidation and an “impaired insurer” was defined as o\ ne unable or potentially unable to fulfill its contractual obligations. The changes \ in definition were accompanied by changes in Section 8 allowing the association to get involved prior to an actual\ court order. 1 19 76 P ro c. I 3 00 . In 1996 amendments were proposed that eliminated the discretionary triggering of a guaranty association absent entry of an order of conservation or rehabilitation. \ The suggestion was made because the drafters felt the previous language was ambiguous and that a more objective standard was needed to determine whether guaranty associations are triggered. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . © 2001 National Association of Insurance Commissioners 520-63 Model Regulation Service—July 2001 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 5 ( cont.) L. A suggestion was made in 1984 to expand the definition of member insurer to include entities whose license may have been suspended or revoked. Insureds should not lose guaranty association coverage because of enforcement actions against an insurer. \ The suggestion included a list of who is NOT a member insurer. The entities suggested were those not required to adhere to the same laws and regulations designed to assure solvency, proper market conduct and competitive equality. 1 19 84 P ro c I I 4 62 . Changes to the model were made during the extensive revisions adopted in December, 1985. 1 19 86 P ro c. I 3 09 . While considering amendments to the model in 1996, the working group discussed insolvency protection for all health care consumers, including those utilizing health maintenance organizations. One commissioner suggested three objections should be considered: (1) correlation with\ other efforts of regulators in the health care area, specifically the effort to include all risk-bearing entities in the regulatory process, including risk-based capital standards for health or\ ganizations; (2) the creation of a consistent regulatory framework for health organizations, regardless of the type of entity from which the consumer purchased health care; and (3) a consistent sharing of the costs of consumer protection among the various types of health organizations. 1 19 96 P ro c. 3 r d Q uarte r 8 16 . An insurer representative took issue with the commissioner’s suggestion that all health organizations should be included under one insolvency protection mechani\ sm. He said each type of entity presents different problems and calls for different solutions. The commissioner predicted that the differences between health organizations would become less distinct \ in the future. He challenged the working group to develop a single model to address insolv\ ency protection for health care consumers. 1 19 96 P ro c. 3 r d Q uarte r 8 16 . In March 1998 a working group briefly discussed guaranty coverage of charitable gift annuities. Staff reported that the Life Insurance and Annuities (A) Committee was discussing the issue and asked the Insolvency Subcommittee to determine whether there was guaranty association coverage for charitable gift annuities. 1 19 98 P ro c. 1 s t Q uarte r 6 02 . The working group questioned whether licensed insurance companies could, in some instances, issue contracts that might be considered charitable gift annuities. A charita\ ble organization might, in effect, reinsure its obligation to the donor by purchasing an annuity from an insurance company. 1 998 P ro c. 2 n d Q uarte r I 5 78 . The chair of the life group drafting the Charitable Gift Annuities Model Act [#240] said the purpose of that model law was to allow charitable gift annuities to be regulated without requiring that the contracts be issued by insurance companies. 1 19 98 P ro c. 2 n d Q uarte r I 5 78 . An NAIC staff memo noted that one important aspect of a charitable gift \ annuity is that it is an unsecured promise of the charitable organization to pay the annuitant the agreed upon amount. If the promise to pay is secured, the annuitant may lose the tax advantage of the transaction. Consequently, many states have begun to concern themselves with charitable gift annuities and the issue of default by the charitable organization. 1 19 98 P ro c. 2 n d Q uarte r I 5 78 . 520-64 © 2001 National Association of Insurance Commissioners Model Regulation Service—January 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 5 L (cont.) The working group decided to consider an amendment to Subsection L to add a new Paragraph (7) to exclude charitable gift annuities. 1 19 98 P ro c. 3 r d Q uarte r 4 75 . The group adopted the model law amendment. 1 19 99 P ro c. 1 s t Q uarte r 4 45 . N. The working group agreed to add a definition of “owner” when discussing the 1996 proposed amendments. The group decided the definition was sensible. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . P. The definition of “plan sponsor” was included in the amendments di\ scussed in 1996. The working group agreed it was sensible to add the definition. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . Q. The subsection was modified to eliminate premiums from the assessment base f\ or unallocated annuities when coverage is not provided. Even though the P oceedings indicate governmental plans under Section 401(k) are included, the original document indicates the (k) was deleted and the section includes all plans authorized under I.R.C. Secti\ on 401. 1 19 88 P ro c. I 3 57 . r When the definition was amended in 1996, it was amplified to be as broad as possible. The revised definition also limits assessments to conform with the extent of coverage provided for unalloca\ ted products and corporate-owned and bank-owned life insurance contracts. This was accom\ plished by adding Paragraph (2) to Subsection Q. 1 1996 P ro c. 2 n d Q uarte r 5 95 . R. The definition of “principal place of business” was added to the m\ odel in the amendments discussed in 1996. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . S. Subsection S was also added in 1996. 1 19 96 P ro c. 2 n d Q uarte r 6 03 . T. When considering amendments in 1996, the working group agreed that Subse\ ction T should be amended to provide coverage for U.S. citizens residing in foreign cou\ ntries and residents of U.S. possessions, territories and protectorates by the guaranty association in the state of domicile of the insolvent insurer. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . U. This subsection was added as part of the 1996 amendments. 1 19 96 P ro c. 2 n d Q uarte r 6 03 . V. This definition was added as part of the 1996 amendments. It was designed to complement Subsection T. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . S ectio n 6 . Cre a tio n o f t h e A sso cia tio n A. The model originally adopted in 1970 provided for three accounts: the healt\ h insurance account, the life insurance account, and the annuity account. Earlier d\ rafts had lumped life insurance and annuities into one account, but the drafters heard evidence on the volume of annuity considerations in each state and were urged by the industry to make the \ two types of coverage separate. 1 19 71 P ro c. I 1 84 . © 2002 National Association of Insurance Commissioners 520-65 Model Regulation Service—January 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 6 A (cont.) In 1985 the drafting committee wrestled with the problem of the new annu\ ity products being developed. For a time they considered excluding these products ( (1 985 P ro c. I 2 04-2 05) , but by the June 1985 meeting distributed an exposure draft which established four accounts, dividing the annuity products into two accounts: (1) individual annuities and group\ products where benefits are guaranteed to specific individuals, and (2) guaranteed investment contracts. The chair said there was a clear consensus on the task force about what products should be included under the model bill, but the details of how that should be accomplished were uncertain. The \ task force felt it needed more information to determine how to treat guaranteed investment type products. The task force needed more information on company reporting, premium taxes and market share by state of those guaranteed interest products so they could make an informed decision. 1 19 85 P ro c. I I 4 72 . The draft adopted in December 1985 contained provision for four accounts, but requested a state-by- state study of the adequacy of coverage and assessment capacity of the allocated and\ unallocated annuity contracts be completed so that reconsideration of the merits of the current stated preference could be addressed at the December 1986 meeting of the NAIC. 1 19 86 P ro c. I 1 48, 3 09 . By June 1987 an extensive annuity survey had been completed and the results reported to the task force. 1 19 87 P ro c. I I 3 20-3 96 . After receipt of the report the task force agreed that a note should \ be added to the model that the four-account approach is no longer the preferred methodology. They were not ready at that time to make a decision on what type of account s\ tructure would be preferable. 1 19 87 P ro c. I I 3 19-3 20 . A compromise plan was agreed upon in December 1987. The amendment created two accoun\ ts a life and annuity account and a health account, with subaccounts created under\ the life account for allocated annuities, unallocated annuities, and for life insurance. The amendments offered the commissioners a balanced approach from which to pattern their individual state acts. 1 19 88 P ro c. I 3 37 . When the original model life and health guaranty fund model was adopted \ it provided for three accounts—life, accident and health, and annuities. The volume and ty\ pe of life insurance and annuity contracts being issued then were remarkably different from those prevale\ nt in the marketplace today. The distinction between products not only within the life insurance and annuity industry is becoming blurred, but also with products offered by other fi\ nancial institutions. Today both life and annuity products have a predominant accumulation feature. In the co\ nsumer’s eyes there is very little difference between a single-premium deferred annuity and \ a single-premium whole life insurance policy. Therefore, retaining the current distinction between life and annuity products in the guaranty association model act seems unnecessary and inappropriate. \ Also, from a capacity standpoint, combining the life and annuity accounts will result in optimum capacity. 1 19 88 P ro c. I 3 55 . The executive committee amended the model to clarify that Section 403(b) plans were unallocated annuities. 1 19 88 P ro c. I 1 8 . 520-66 © 2002 National Association of Insurance Commissioners Model Regulation Service—October 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 6 A (cont.) Suggestions to revise the model were first presented in June 1994. The proposal was made because regulators saw the treatment of governmental plans as inconsistent. 1 994 P ro c. 2 n d Q uarte r 5 35. Subsection A(1) was revised in 1995 to move Section 403(b) plans and\ other governmental retirement plans from the unallocated annuity account to the annuity acc\ ount. The reason for the amendment was because coverage provided by the model act for participants in the plan was the same as that for allocated annuities. 1 19 95 P ro c. 1 s t Q uarte r 4 61 . B. Subsection B was added to the model in 1985. 1 19 86 P ro c. I 3 10 . S ectio n 7 . Boa rd o f D ir e cto rs A. An advisory group was asked to consider the issue of public representation on guaranty association boards in 1992. The committee report recommended against it, but one member proposed that a drafting note be added to include a provision for public representation \ on the board where the state had a premium tax offset. 1 19 93 P ro c. I B 7 03 . One member of the advisory group submitted a minority report explaining \ her reasons for recommending public representation on guaranty association boards. The main reasons given by the consumer representative were because the public ultimately bears the cost of guaranty fund assessments, because a different perspective is needed, and because accountability is needed. 1 19 93 P ro c. I 7 07 . As a follow-up from that minority report, the working group decided to draft amendments to both the Life and Health Insurance Guaranty Association Model Act and the Post-Assessment Property and Liability Insurance Guaranty Association Model Act, which were designed to add two public representatives as members of the board of directors of the guaranty associations without increasing the overall number of members on the boards. The amendments also addressed potential conflicts of interest by requiring that the public representatives not be employed or\ contracted by any entity regulated by the state insurance department or required to register as a lobbyist in the state, or related to either. 1 19 93 P ro c. 2 n d Q uarte r 6 19 . A representative from an association of guaranty funds said an earlier suggestion for public representatives failed to gain support because of a perception that the \ commissioner was the representative of the public. Another association representative said his organization’s position was that it was a public policy question for the legislatures to determine. The underlying question related to the individual members themselves: their expertise, accountability a\ nd responsibility. 1 993 P ro c. 2 n d Q uarte r 6 19 . The consumer representative who authored the minority report restated her position. She believed that because the public ultimately bears the burden of insolvencies either through increased taxes or policy surcharges, the public was entitled to representation on the boards. Any problem experienced with incentive to attend meetings or structure of the board should be addressed separately from the overall issue of representation and should not result in a denial of representation of the public. 1 19 93 P ro c. 2 n d Q uarte r 6 19 . © 2002 National Association of Insurance Commissioners 520-67 Model Regulation Service—October 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 7 A (cont.) In a letter of comment on the exposure draft providing for public representation, one association said it had developed a position opposed to public representation when the mo\ del was originally drafted. The association’s position was that there were substantial conflicts of i\ nterest in having consumers and other public representatives on the board. The state guaranty funds stand in the shoes of the insolvent insurer and must pay claims and decide coverage issues as the insolvent \ insurer would have done. Had the insolvent insurer remained solvent, it would not have had consumers involved in its internal claims process. 1 19 93 P ro c. 2 n d Q uarte r 6 05 . The consumer representative said insurers also faced a conflict of inter\ est because their interests were not aligned with those of policyholders either, but rather with the\ solvent insurers who paid the assessment. 1 19 93 P ro c. 2 n d Q uarte r 6 19 . Another insurer association gave conditional support for the amendment. Its experience had been that qualified public representatives can make a positive contribution to board deliberations. The association expressed some concern about selecting qualified individuals\ who should be knowledgeable about the insurance industry. It recommended the draft be\ revised to require only one public member, who should not be eligible to serve as the chair of g\ uaranty fund boards. 1 19 93 P ro c. 2 n d Q uarte r 6 04 . Before the Executive Committee voted on adoption of the amendment regarding public representatives, further discussion took place. The chair of the Financial Condition Subcommittee said the purpose of the amendment was to improve communication among regulators, the insurance industry and consumers on guaranty fund and insurer insolvency issues. The addition of public representatives to the governing boards would provide consumers with acc\ ess to the guaranty fund process and a direct means to express concerns. The addition of public representatives also recognizes the impact of insurer insolvencies on the general revenues of states and taxpayers. 1 19 93 P ro c. 2 n d Q uarte r 3 2 . Another commissioner stated that he occupied a position on the guaranty association boards and acted as a public representative since it was his function to protect th\ e public interest. 1 19 93 P ro c. 2 n d Q uarte r 3 2 . A third commissioner said that public input into the guaranty fund process would\ be valuable, and that even though the commissioner’s function was protection of the consumers, the issue was one of direct public access. He did not favor inclusion of this provision in the financial regulation standards for accreditation. The chair of the subcommittee responded that this was not being recommended. 1 19 93 2 n d Q uarte r 3 2 . Before final adoption the NAIC plenary body considered the matter again. Concern was expressed that the amendment regarding public representatives would be required for a s\ tate to be accredited. After assurance that the amendments were not being considered, indeed were not even related to financial solvency, the model amendment was adopted. 1 19 93 P ro c. 2 n d Q uarte r 1 2 . When amendments to the model were considered in 1996, the working group recommended that the definition of “public representative” be simplified. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . 520-68 © 2002 National Association of Insurance Commissioners Model Regulation Service—October 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 8 . Pow ers a n d D utie s o f t h e A sso cia tio n A. Industry spokespersons urged adoption of provisions giving more authority to the insurance companies. They made a series of suggestions for change to this section to accomplish that. Some of them were incorporated into the model adopted in 1970, but the commissio\ ner still retained much control over the association. 1 19 71 P ro c. I 1 84-1 86 . As originally adopted, the model contained language specifically allowing the associat\ ion to act prior to an order of liquidation or rehabilitation. This language was modified in December 1975 to allow the association to act subject to any conditions imposed by the association and approved by the commissioner. 1 19 76 P ro c. I 301 . The language was modified again to except court-ordered conservation or rehabilitation. 1 19 86 P ro c. I 3 10 . Subsection A’s opening paragraph was modified when the 1985 amendments were adopted. 1 19 86 P ro c. I 3 10 . In 1996 a proposal was made to broaden the application of the model by deletion of a word, so that Subsection A would no longer begin, “If a member insured is an impaired domestic insurer . . . .” 1 996 P ro c. 2 n d Q uarte r 5 95 . In 1996 a provision that had been included in the model since its incept\ ion was deleted. An interested party said the provision allowing a guaranty association to lend money t\ o an impaired insurer placed the non-profit status of the guaranty association in jeopardy. 1 19 96 P ro c. 2 n d Q uarte r 5 95 . B. A policyholder with a life or health insurance contract in an impaired company is concerned with preserving the full benefit of his contract. Any plan which is designed to provide only for the payment of outstanding claims falls far short of meeting this concern. \ If the policyholder is in impaired health or at an advanced age, he would not be able to obtain equivalent insurance through a new policy issued by another company. This contrasts with the typical situation under property and casualty insurance coverages which are short term and under which a \ policyholder can ordinarily substitute a new policy. The drafters were urged to take these considerations into account when drafting the model statute. 1 19 70 P ro c. I I 1 072 . Significant changes to Section 8 were included in the redraft adopted in\ late 1985. 1 19 86 Pro c. I 3 10- 3 15 . In conjunction with the amendments of 1996, what had been Subsection D was incorporated in the subsection above it, which became Subsection B when the previous Subsection B was d\ eleted. A drafter indicated the changes were being recommended because the prior arrangement did not lend itself to effectuating a multistate rehabilitation plan. The working gr\ oup chair said some insurance regulators might object to authorizing the receivership court to approve substitute policies. He suggested a revision to provide for approval of substitute policies by t\ he domiciliary insurance commissioner and the receivership court. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . © 2002 National Association of Insurance Commissioners 520-69 Model Regulation Service—October 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 8 (cont.) F. The working group suggested that Subsection F be amended to grant the lo\ cal court jurisdiction over the imposition of moratoria or policy liens by the guaranty association in that jurisdiction. Paragraph (2) was extensively amended to make it clear that policyholders cannot expect payment from a guaranty association when a moratorium has been pu\ t in place by the receivership court. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . G. As originally written in 1996, the subsection conflicted with Section 56\ of the Insurers Rehabilitation and Liquidation Model Act, which requires that all deposits be returned to the domiciliary receiver. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . At its next meeting the working group discussed Subsection G at length. Th\ e chair opined that guaranty associations should not receive a larger share of a deposit than other creditors of the same class. Another working group member suggested that deposits could be paid over to the guaranty association, but that the guaranty association should not be allowed to \ retain more than its appropriate share. Any funds in excess of the guaranty association’s share would be delivered to the receiver of the insolvent insurer. The working group decided to include language in Subsection G to this effect. 1 19 96 P ro c. 3 r d Q uarte r 8 38-8 39 . H. The working group suggested a nonsubstantive revision to Subsection H to make it clear that the commissioner’s authority to act for the guaranty association is limited to the insolvent insurer in question. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . J. The working group discussed at length a proposal made in 1996 to allow the National Organization of Life and Health Guaranty Associations (NOLHGA) to inte\ rvene in receivership proceedings. The proponents of the amendment argued that the amendment was necessary because guaranty associations organized as unincorporated associations may not be allowed to intervene in some jurisdictions. It was also argued that the participation of guaranty associations is c\ ritical to the development and effectuation of a plan of rehabilitation. Those opposing the amendment said that the current provision granting guaranty associations standing to appeal in receivership proceedings is consistent with the provision of the Insurers Rehabilitat\ ion and Liquidation Model Act and is sufficient. Concern was also expressed about the potential cost to t\ he estate of intervention by NOLHGA. The extent to which NOLHGA, if allowed to intervene, could bind its member associations to obey any judgment issued by the court was discuss\ ed. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . After further discussion the working group agreed that, if NOLGHA is allowed t\ o intervene, it should do so as a representative of the affected guaranty associations. \ The amendments were revised to include standing for individual guaranty associations. 1 19 96 P ro c. 3 r d Q uarte r 8 39 . K. The working group considered an amendment to Subsection 3B to exclude a structured settlement annuity where the liability insurer or other person remains able to pay any remaining amount due The working group decided this placed an inappropriate burden on the injured person but did address the issue by adding a subrogation right to Subsection K(\ 3). 1 19 96 P ro c. 3 rd Q uarte r 8 38 . 520-70 © 2002 National Association of Insurance Commissioners Model Regulation Service—October 2002 LIF E A N D H EALTH I N SU RAN CE G U ARAN TY A SSO CIA TIO N M ODEL A CT L eg is la tiv e H is to ry Cited to the Proceedings of the NAIC S ectio n 8 (cont.) A trade association representing structured settlement providers suggested\ technical amendments to Subsection K. 1 19 97 P ro c. 3 r d Q uarte r 1 126, 1 128 . L. Paragraph (7) was added to address recent litigation in which a trial court ruled that a discovery request served upon a guaranty association as an unincorporated association should be passed through to each member company of the association. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . N. The Subsection N added with the 1996 amendments was proposed to make it clear that a guaranty association may elect to succeed to the rights of the insolvent insurer regarding any reinsurance agreements. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . At the working group’s suggestion, the proposal was amended to provide for payment to the beneficiary by the guaranty association of an amount specified in Paragraph (1), to preclude termination by the reinsurer of the reinsurance agreement or any setoff \ against the amounts due to the guaranty association if the guaranty association pays premium within\ a specified time, and to provide for the transfer of rights and obligations of the guaranty association to another insurer. The revised section also provided for the receiver to remain entitled to any amounts payable by the reinsurer with respect to losses or events occurring prior to the coverage date and to remain liable for premiums prior to the coverage date. 1 19 96 P ro c. 3 r d Q uarte r 8 39 . O. An interested party opined that the new Subsection O proposed in 1996 afforded the board of directors of a guaranty association the benefit of the “reasonable business judgment” rule, and made it clear that those who opt out of rehabilitation plans are not entitled to benefits f\ rom the guaranty association. 1 19 96 P ro c. 2 n d Q uarte r 5 96 . P. Subsections P and Q were added in 1996 without comment. 1 19 96 P ro c. 4 t h Q uarte r 9 72 .