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Life Insurers May Have to Share LTCI Issuer Failure Bills

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A top-level arm of the National Association of Insurance Commissioners wants to let state guaranty associations pull cash from life insurers, not just from health insurers, when issuers of long-term care insurance (LTCI) fail.

Members of the NAIC’s Financial Condition Committee approved a proposed rewrite of the NAIC’s Life and Health Insurance Guaranty Association Model Act (Model Number 520) earlier this week, at the NAIC’s fall national meeting in Honolulu.

The proposed revision would add life insurers to the list of carriers that must chip in when an LTCI issuer fails.

The revision would also give a guaranty association that’s paying a failed LTCI issuer’s claims explicit authority to seek premium rate increases.

The committee working group that developed the revision says the NAIC should adopt it before the end of 2017, because some states want to change their LTCI receivership laws in 2018.

(Related: Long-Term Care Insurer Pain May Hit More Companies

The NAIC plenary, the body that includes all voting members of the NAIC, must approve the proposed revision before it can take effect.

The Financial Condition Committee put a copy of the proposed guaranty association model rewrite in its fall meeting document packet.


The NAIC is a group for state insurance commissioners. It has no direct ability to change states’ insurer insolvency laws and programs, but many states start with NAIC models when developing their own insurance laws and regulations.

Guaranty Associations

A state guaranty association is an insurance company organization that uses cash from member insurers to pay the claims when a member insurer fails.

Different states have different guaranty association rules, but, traditionally, many states have classified long-term care insurance as a health insurance line, even though the biggest LTCI issuers were known more for selling life insurance and annuities than for selling LTCI coverage.

In March, a state court judge in Pennsylvania ordered the liquidation of two issuers of LTCI coverage: Penn Treaty Network America and a sister company, American Network Insurance Company.

Guaranty associations began taking responsibility for the LTCI coverage issued.

Because of the way responsibility for LTCI issuer failures is allocated, many insurers organized as sellers of traditional indemnity health insurance have received large guaranty association assessments as a result of the Penn Treaty and American Network liquidations.

Many carriers that focus mainly on writing life insurance and annuities, and carriers organized health maintenance organizations, have received no Penn Treaty assessment bills, or assessment bills affecting only their small health insurance operations.

—Read Firm Proposes Long-Term Care Insurance Run-Off Program on ThinkAdvisor.

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