MMSEA 111: Are You a Responsible Reporting Entity (RRE)?

Because this is a policyholder blog, you might think this is an odd question since RREs are usually insurers or TPAs; but the fact is that most large corporate policyholders probably are RREs ― not just for worker’s comp claims, but for tort claims as well. 

MMSEA-111 [Medicare Secondary Payer Mandatory Reporting Provisions in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (See 42 U.S.C. 1395y(b)(7) & (b)(8))] is designed to give the government the information it needs to collect on Medicare liens against, among other things, tort settlements and awards. For those of you who have no idea of what I’m talking about, the excruciating backstory of these rules can be found Here and Here. The government’s pathway into an abyss of Orwellian proportions can be found Here and download links Here . And, just so your attention doesn’t wander, the fines for non-compliance are $1,000 per day per claimant. 

The key passage to determining who is an RRE in the 180-page MMSEA-111 guide is found on page 56:

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What Obama's Proposed Financial Regulatory Reforms Mean for Insurance -- The New Office of National Insurance

This post was written by Paul Walker-Bright.

On June 17, 2009, the Department of the Treasury released its “white paper” detailing proposals for comprehensive reform of financial industry regulation, entitled “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” The entire report can be found here. Among the reforms advocated by the Treasury Department is the creation of an Office of National Insurance within the Department. Treasury, which would “gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.”

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Who Was Minding the Store?

For those of you interested in the role of regulators in the implosion of AIG [see prior posts Here and Here,] Planet Money (an award-winning joint project of NPR News and This American Life) had a fascinating program this past weekend: “The Watchmen”. Although it has already aired, it is available to listen to on-line or for download Here. The NPR News story is available Here.

The Office of Thrift Supervision comes in for the brunt of the criticism. Although I think they got it mostly right, IMHO they let the state insurance regulators off too easy. They were responsible for securities lending and didn’t stop it.  

My favorite part is the tape of Supt. Dinallo and a bunch of assistants trying to figure out what proportion of AIG’s assets were regulated by the New York Insurance Department. The answer? 7 percent (ish).

The Equitas-Speyford Deal: The Train (Destination Solvent Scheme) is Leaving the Station

This post was written by Ann Kramer and Paul Walker-Bright.

By now most of us have received notices of the Equitas-Speyford Part VII transfer. A court hearing to approve the transaction will take place in London on June 24th and the transaction is to take effect on the 30th of June. The letter asks policyholders to set forth any objections by June 9th: “If you intend to make written representations and/or appear at the Court hearing, either in person or by Counsel, you are requested to provide the written representations or written notice of your intention to appear at Court and details of your concerns as soon as possible, and preferably by no later than 9 June 2009.”

The Names seemingly are the big winners from this deal, although policyholders will get the benefit of an additional $1.3 billion in reinsurance limits from Berkshire Hathaway’s National Indemnity Company. 

Hugh Stevenson, Equitas chairman, said: “This transfer and reinsurance will … mean that the Names will finally be able to walk away under English law.

“We would like to say to the Names that as best we can judge you no longer have to worry.”

According to Equitas’ letter to the Names advocating the transaction:

In the very unlikely event that Equitas subsequently becomes insolvent, no policyholder with an unsatisfied claim will be able to recover it from any Name anywhere in the European Economic Area – that is all of the European Union, together with Iceland,Norway and Liechtenstein.

We are still considering the extent to which it is practicable to seek recognition of the Part VII transfer in other major overseas jurisdictions, in particular the United States of America.

The independent actuary’s report ― of course, with none of the underlying data available for review ― says that policyholders will be better off with the additional reinsurance than with access to the Names. However, policyholders have (a) no way to verify that the reserve level for pending and future claims is adequate and (b) no valuation of the assets of the Names that they are being asked to give up their rights to. 

So if we assume, as the independent actuary asks us to, that the impact of this on policyholders is more theoretical than real [Which policyholders have the appetite to go after the Names individually?], what is the harm? 

Think about the next step for Speyford. Under UK law, the Names, and hence Equitas, could not implement a Solvent Scheme of Arrangement (a unique process to shut down solvent insurance companies permitted only by the UK). Speyford, on the other hand, can. The pull to do a Solvent Scheme will likely become irresistible, and indeed there appears to be no reason for the proposed transfer other than to clear the way for an eventual Solvent Scheme. Equitas claims that it has no present plans to do a Scheme but will not promise not to do one.

The advent of a solvent scheme for Speyford is when policyholders with large IBNR {incurred but not reported) claims will be really devastated. The valuations of IBNR under both solvent and insolvent schemes of arrangements ― with no realistic appeal rights ― often pitifully undervalue the risks that policyholders assume when these schemes wipe out policyholder rights under policies purchased decades earlier. Coverage that cannot be replaced. This process was bad enough when it happened with individual London Market companies, but think about it writ large, across the millions of Lloyd’s policies sold prior to 1993. 

Eric Dinallo Resigns

On May 28, Eric Dinallo, New York’s high-profile Superintendent of Insurance, resigned effective July 3.

Dinallo presided over the Department’s response to the AIG catastrophe and advocated far more regulation of the industry than previously seen. Dinallo was also instrumental in the rescue of the municipal bond business in New York, approving segregating it from mortgage insurers, now being attacked in court. 

Felix Salmon has an interesting take on what this means for the future of insurance regulation:

More interestingly, Dinallo’s resignation temporarily leaves the country without a strong insurance regulator — and that, in turn, should make it much easier for Tim Geithner to push through plans to rationalize the nightmare that is insurance regulation, and bring America’s insurers under one federal regulatory umbrella.

Many expect Dinallo to run for NY Attorney General, the post held by his former boss Elliot Spitzer, and now held by Andrew Cuomo. Per the Wall Street Journal:

"He'd like to run for attorney general," New York Democrat political strategist George Arzt said of Mr. Dinallo. "I think he's been taking soundings." Leaving the insurance-commissioner post, Mr. Arzt said, would give Mr. Dinallo more latitude to "speak out about the issues."

For the moment, though, he’ll be at NYU.

State Insurance Regulation: The Lessons of History (AIG Edition)

On May 20th, the NY Times ran an editorial titled “Regulatory Shopping”. The very valid point of the editorial is that if you give the regulated the option to choose their regulator, no good can come of it: 

And yet, legislation recently introduced in the House would allow insurance companies, currently regulated by the states, to opt for federal regulation instead — and, in general, if they don’t like that, to switch back after a spell. If the bill were enacted, the race to the regulatory depths would continue, and the nation would be headed in exactly the wrong regulatory direction.

Agreed, no argument. I take issue, however, with the assumption of the NYT that state insurance regulators have covered themselves in glory. Robust defenders of the rights of policyholders? Not exactly. In the pocket of the insurance industry? Sometimes. Opaque?  Always. And that’s without addressing the quagmire/insanity that is insurance insolvency regulation and the guaranty fund system.

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