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flaancial reporting and changes in reinsuranco; couse and dasist orders; and laplementation of special reporting requirements. Action is administrative without judicial action, unless judiciai rollef is sought by the insurer. Actions taken la this phase may be taken through a consent order agreed to by tho Insurer in these jurisdictions where other legislatively established renodles may not be available to the regulator: Pouso Three · Pormal action taken administratively or judicially permitting the department to oversee the daily activities of the insurer. The action may be confidential or public and the oversight may be done directly by the departaent or appolatoes. Phase Four - The commissioner may take possession and control of all or a part of the property, books, accounts, documents and other records of an insurer and the premises occupied by it for the transaction of its business if the Interests of the policyholders, creditors or public will be endangered. This seizure may accomplished adainistratively

judicially. If accomplished administratively, the insurer may be seized after a hearing or prior to hearing if the commissioner believes irreparable han may be done unless immediate action is taken. Adalnistrative orders may be subject to judicial review and relief. Selgure actions and related documents are generally confidential unless made public at the request of the Insurer or when vacated by a court order under a formal delinquency proceeding. Under a judicial order a specific duration for the order may be set by the court. these five Through forul judicial delinquency proceedings, generally pursuant to specific grounds for the action, the commissioner takes control of the Insurer with the Intont of staming any erosion to the assets of the insurer, ollainating problems in its operation and returning the insurer to the position of becoming an on-going viable entity. This court ordered action generally takes place under the direction of an individual appointed by the commissioner and ney include specific direction by court, a court approved operating plan or the general direction of the Individual appointed under the supervision of the court. This phase either terminates with the court ordered return of the Insurer to normal operation or by court ordered liquidation of the insuror. Meso $43 · Through forwal judicial delinquency proceedings, generally pursuant to specific grounds for the action, the commissioner takes control with the Intent of liquidating the Insuror and ultimately requesting its dissolution. Liquidation follows the statutorially defined procedures for liquidation. This is « court ordered action which may take place with or without a prior formal delinquency proceeding.

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Dissolution of the insurer after the completion of liquidation.

You also may wish to consider combining Parts I and II into one survey in this restructuring. In addition, you should consider giving the states more time to msver the survey. In some departments it may take considerable effort to pull this laftruation together. We would be happy to discuss these comments with you further and reviev revized draft. You may contact Jean Olson at 816/842-3600 or Jin Schacht at 217/785-5516 for a more specific explanation of our concerns. Beyond that, we are willing to do whatever we reasonably can to help you structure a survey which will yield meaningful information in terms of the objectives of your study.

Sincerely,

Bob Klein :

Robert Klein
Director of Research

cc:

Sandra Gilfillan, Executive Vice President

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Honorable John Dingell
House of Representatives
Washington, D.C. 20515
Dear Representative Dingell:
During the General Accounting Office's testimony on May 22 they
made an assertion that the National Association of Insurance
Commissioners' (NAIC) Accreditation Review Team was not allowed
full and complete access to the Department's records and files.
In particular, they referenced some confidential records which
the review team was denied access.
Please be advised that I have discussed this matter with all of
our staff who had contact with the NAIC Review Team, the NAIC
staff person present during the review and the NAIC Review Team
leader and they all confirmed that they were shown everything
they requested to examine. Nothing was withheld for
confidentiality reasons. Obviously, for whatever reason, the
GAO's testimony before your Committee was incorrect in this
regard.
I request that you include this letter in the record of your
Committee's hearings so that it reflects what occurred with
respect to Illinois' Accreditation Review and corrects the
misstatement on the record by the GAO.

Very truly

Aran

gener Schlucht

James W. Schacht
Acting Director

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On behalf of GAO, I must decline the request made in your
May 17, 1991, letter seeking our assistance in implementing a
formal program for certifying state insurance departments.
It is quite probable that congress will ask us to do further
evaluation of NAIC's accreditation program. Our active
irvolvement in developing and implementing the program could
result in a perception by some that we would not be objective
in doing subsequent analysis.
Nevertheless, we encourage you to continue your efforts to
improve the accreditation process. Despite our fundamental
concerns with the long-term effectiveness of the program to
achieve the consistent quality of regulation necessary for a
national insurance regulatory system, there are clearly
important benefits to be derived from stronger and more
active insurance regulation by the states.
While we are unable to assist you formally, my staff is
willing to provide an elaboration of their observations from
the work that they have completed in their evaluation of the
program. In addition, now that you have some experience with
doing an accreditation review, further discussions with the
Conference of State Bank Supervisors about the audit and
documentation requirements of their accreditation program for
state bank regulators may be helpful.
I appreciate the compliment to the expertise and profes-
sionalism of my staff that is implicit in your request for
assistance. We, too, have enjoyed the relationship that has
existed between your organization and ours. It is clear that
we will continue to need to work together in the future, and
I hope that our relationship will continue to be productive
ard cooperative. I am sure that we both share the same goal
of achieving a stronger, more consistently effective system
of insurance regulation.

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The Honorable John D. Dingell
Chairman, Subcommittee on Oversight

and Investigations
Committee on Energy and Commerce
House of Representatives
Dear Mr. Chairman:
In a May 22nd hearing about the National Association of
Insurance Commissioners (NAIC) before your Subcommittee, GAO
testified that NAIC's accreditation team did not have full
access to records of the Illinois Department of Insurance.
Specifically, we testified that the team did not have access
to corrective orders issued by the insurance department
against potentially troubled insurers because such orders are
confidential under Illinois insurance laws. Our workpapers
also indicate that NAIC's accreditation team did not have
access to holding company registration reports for the same
reason.

for the hearing record, we are submitting a copy of Article
XI11/2 of the illinois insurance laws pertaining to corrective
orders. Section 186.1(6) provides that all records of the
department under this article "shall be and remain
confidential, unless the company requests otherwise." We also
are submitting a copy of Article VII11/2 of the Illinois
insurance laws pertaining to insurance holding company
systems. Section 131.22 provides that a holding company
registration report filed under section 131.13 "must be given
confidential treatment and is not subject to subpoena and may
not be made public...without the prior written consent of the
company...."

We understand that, in its letter of May 31, 1991, the Acting Director of the Illinois Department has asserted that the accreditation team was shown everything they requested to examine and that nothing was withheld for confidentiality reasons.

Based our observations of NAIC's accreditation review of the
Illinois Department of Insurance, we agree that the team did
not pursue access to documents which they learned to be held
confidential under Illinois insurance laws. To the extent
that the team did not pursue access to confidential documents,
the Illinois Department did not have to withhold documents for

confidentiality reasons. However, the fact remains that the team did not have access to confidential corrective orders and holding company registration reports which would be necessary to fully assess illinois' compliance with NAIC's accreditation standards.

You may include this letter in the Subcommittee's hearing record to further support our previous testimony. If you have any questions, please call me on (202) 275-8678 or Lawrence D. Cluff on (202) 275-5194.

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cc:

James Long, NAIC President
William McCartney, NAIC Vice President
James W. Schacht, Illinois Acting Director

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