When the Louisiana Insurance Guaranty Association (LIGA) board of directors met on Dec. 3, the board approved LIGA’s budget for 2021, discussed new liquidations and received an update on claims.
The meeting was held at the Louisiana District Attorneys Association’s offices because the larger board room allowed for better social distancing between attendees.
At the meeting, LIGA Executive Director John Wells updated the board on the ACCC Insurance rehabilitation. ACCC Insurance, a Texas domiciled writer of non-standard auto, was place in rehabilitation on Oct. 21, 2020. Although licensed in Louisiana, it appears the company had withdrawn from writing in Louisiana in recent years, Wells told board members. Wells does not expect many claims, if any, from the ACCC Insurance insolvency.
In his report, Wells related that Highlands Insurance Company has been in run-off for 17 years. The Texas court overseeing the rehabilitation recently allowed the transfer of the remaining workers’ compensation claims to another carrier leaving only the liability claims in the estate. Wells thinks that this signals the courts intent to move to liquidation in the not too distant future. Although there are only a few claims remaining, Wells expects, with Highland’s mix of coverages and policyholders, that there will be some environmental exposures and possibly some net worth exclusions.
Although Gateway Insurance Company and American Service Insurance Company were liquidated at different times, the companies were deemed to be a single business enterprise by the Illinois court’s order to consolidate the liquidations. LIGA was struggling with the Illinois Office of the Special Deputy to get good, timely data and documents on the estate, and the consolidations and the sale of the companies’ charters and NAIC numbers will make accounting and reporting a bit more involved.
Wells reported to the board that the guaranty fund community has been discussing the increasing cyber risks and the various layers of cybersecurity to mitigate those risks. The National Conference of Insurance Guaranty Funds (NCIGF) has coined the phrase “Web of Trust” to articulate how the guaranty fund community is an interwoven network with shared platforms and routine communications. This “Web of Trust,” according to Wells, is a strength in that LIGA trusts that the other members of the NCIGF are all increasing their awareness and defenses against cyber-attack. This can also be a weakness, Wells added, if a hacker is able to use this regularity and comfortability against them, especially if someone obtains the credentials of an employee of another member of the association.
Recently, another guaranty fund did have a compromised email account that was the opening point for a spoofing/phishing attack on other guaranty funds and their common vendors. LIGA was not compromised, and as far as Wells knows the NCIGF and the other guaranty associations were also not compromised. LIGA employs many hardware and software tools to prevent hackers from gaining access. Equally important, according to Wells, is the training and reminders provided to staff. LIGA tests these actions with penetration tests and targeted phishing campaigns.
Wells reported that as of Oct. 31, LIGA’s investment account at Wells Fargo Advisors had a value of $146,367,044 on a cost basis, with a market value of $152,807,421. LIGA’s holdings, according to Wells, consist of 16.62 percent corporate bonds and 83.38 percent U.S. Treasuries/Agencies. The current annual yield of the portfolio is two percent, and the average maturity is 2.7 years.
According to LIGA Claims Manager Deidre Arceneaux, LIGA claim activity picked up slightly in the fall as Louisiana moved into a modified Phase III COVID-19 mitigation plan, and there was a partial reopening of the courts. She added, overall LIGA still is experiencing trends of fewer new environmental claims being reported and will end the year well below the budget projections for claims in all lines of business for 2020.
She also told the board that LIGA approved additional defense attorneys to continue handling the claims of the recent insolvencies of Gateway Insurance Company and American Service Insurance Company.
There was a virtual meeting for newly-qualified defense counsel who will be handling cases arising from the Gateway and American Service insolvencies because these are the first significant insolvencies since the recent changes to the credit portion of the LIGA Law. These changes, according to LIGA General Counsel Stephanie K. Laborde, Benson Woodward LLP, will require a complicated understanding, explanation and likely litigation before the interpretation of these changes is finally resolved. Those changes and the interpretations of those changes were reviewed with counsel who will be charged with applying the new versions of LIGA Law for the first time to these cases.
Arceneaux reported that the six-month statutory stay ends on Dec. 10 for Gateway Insurance Company. There are 34 Gateway insureds with net worth investigations still pending. LIGA is also working closely with the receiver to obtain all claim documents and corrected financial data to properly set reserves and defend these claims.
During the last board meeting, Arceneaux advised the board that LIGA’s comprehensive claims audit that was scheduled for March 2020 was canceled and that LIGA would be in search of an alternate auditor. LIGA is in the process of obtaining the services of James W. Greer with AE21 Incorporated to conduct a virtual audit. She hopes to schedule the audit for the early part of the first quarter of 2021. According to Arceneaux, Greer has conducted claims audits for other guaranty funds including the Florida Insurance Guaranty Association and Western Guaranty Fund Services. He is familiar with the guaranty fund system, she added.
She reported to the board that there are seven employees in the Claims Department, consisting of one manager, five full-time examiners and one claims assistant.
According to Arceneaux, there are two workers’ comp examiners, two auto examiners and one environmental examiner.
She also updated the board on the Gateway Insurance Company and American Service Insurance Company liquidations. She reported that LIGA received 120 claims from the Gateway liquidation and 177 claims from the American Service Insurance Company liquidation, the majority of these claims involve litigation. Both companies sold policies in Louisiana that mainly covered taxi cabs, Uber/Lyft and non-emergency para-transit vehicles. While they are separate estates that have not been consolidated to date, both insurers were owned by the same holding company, claims were handled by the same staff and they utilized the same claim systems. She informed the board that current LIGA staffing has the capacity to handle these files.
Arceneaux told the board about the Capson Physicians Insurance Company, a Texas-domiciled carrier in liquidation. Capson, that wrote medical malpractice insurance, was declared insolvent on June 28, 2019. LIGA currently has 53 open claims, and since the policies were claims-made policies and the liquidation order canceled all policies, including tail/extended reporting policies, effective July 28, 2019, Arceneaux does not expect to receive additional claims.
In Arceneaux’s report to the board, from Feb. 28, 2020, to Oct. 31, 2020, open claims increased from 1,062 to 1,244.
Of the Claims Department’s 1,244 pending files, 709 are environmental, 146 are workers’ comp, and 389 are auto and others.
LIGA’s current reserves, according to Arceneaux’s report, amount to $121,558,548.
She reported that LIGA’s current filings with the Second Injury Fund are $167,376.17. There were $502,984.94 in recoveries in 2017, $420,844.81 in 2018, $384,515.48 in 2019 and $368,024.49 through the end of October 2020. LIGA currently has 17 Second Injury Fund cases open.