1 UDS “D” Record Training History and Overview

2 Credits Project Manager – Julie Snyder UDS “D” Record Training Subcommittee James Hamilton (Home Ins. Co., in Liquidation) – co-chair Kathy Lavin (GFMS) Mark Might (Ohio & West Virginia IGA’s) – co-chair Darin Miller (Ohio & West Virginia IGA’s) Paul Radel (Reliance Ins. Co., in Liquidation) Dale Stephenson (DFS Consulting) NCIGF Support Staff Nick Crews Maureen Sciame Andrew Holladay

3 Mission Statement Simplify Reporting in a Standardized Format versus Multiple Formats Currently Utilized Standardize financial reporting Standardize financial reporting Reduce the number of report formats Reduce the number of report formats Simplify the reporting process Simplify the reporting process Move to an Electronic Filing (preferred) versus Hard Copy Ease of creating reports Ease of creating reports Speed in creating reports Speed in creating reports Reduction of calculation errors Reduction of calculation errors

4 “D” Record Overview History/Background The formation of property/casualty guaranty funds began in the early 70’s. The formation of property/casualty guaranty funds began in the early 70’s. By the mid 80’s, when guaranty funds were becoming a factor in the insolvency process, most still maintained books and records which were largely manual. As insolvencies became larger and encompassed multiple states, guaranty funds started to automate their systems. By the mid 80’s, when guaranty funds were becoming a factor in the insolvency process, most still maintained books and records which were largely manual. As insolvencies became larger and encompassed multiple states, guaranty funds started to automate their systems. After implementation of the UDS claim format (April 1, 1995), it was also recognized that the financial reporting by guaranty funds to receivers should be matched to the standardized claim reports, with the added elements of expense that were administrative in nature and therefore not included in the transaction based claim reports. After implementation of the UDS claim format (April 1, 1995), it was also recognized that the financial reporting by guaranty funds to receivers should be matched to the standardized claim reports, with the added elements of expense that were administrative in nature and therefore not included in the transaction based claim reports.

5 “D” Record Overview History/Background (cont’d) The “D” Record was designed to standardize the claims-related and administrative expense data requested, providing for efficiency, reconcilability and ease of use by both guaranty funds and receivers. The “D” Record was designed to standardize the claims-related and administrative expense data requested, providing for efficiency, reconcilability and ease of use by both guaranty funds and receivers. In December 2007, the new “D” Record for financial reporting was approved by the NAIC with reconciliation capabilities for historical, non-detailed segments and with new features for future reporting. In December 2007, the new “D” Record for financial reporting was approved by the NAIC with reconciliation capabilities for historical, non-detailed segments and with new features for future reporting.

6 “D” Record Overview Benefits Guaranty Funds Guaranty Funds Standardized reporting reduces the variety of formats required to be completed Increases the opportunity to automate the process Reduces manpower needs to compile the report Speeds up the preparation and issuance of the financial report Receiverships Receiverships Facilitates the compilation of financial data from multiple GFs. Speeds up reconciliation with the “C” Record and Revenue sections Allows for review and analysis of claim costs Allows for review and analysis of individual GF Proofs of Claims

7 “D” Record Overview Costs Review and changes to general ledger accounts Review and changes to general ledger accounts Initial costs for the change over and time to reconcile between prior reporting formats and the new “D” record Initial costs for the change over and time to reconcile between prior reporting formats and the new “D” record

8 “D” Record Overview Reconciliation Guaranty Funds Guaranty Funds Prior to submitting the “D” Record to the receiver: The guaranty fund should reconcile the “D” Record, Section 1 to the “C” Record. Any differences found during this reconciliation need to be corrected and an itemized report should be sent to the receiver. This will assist the receiver in expediting their reconciliation. The guaranty fund should reconcile the “D” Record, Section 1 to the “C” Record. Any differences found during this reconciliation need to be corrected and an itemized report should be sent to the receiver. This will assist the receiver in expediting their reconciliation. The guaranty fund should reconcile Year-to-Date and Inception-to-Date amounts in Section 2 and the Revenue Section to the prior quarter report. The guaranty fund should reconcile Year-to-Date and Inception-to-Date amounts in Section 2 and the Revenue Section to the prior quarter report.

9 “D” Record Overview Reconciliation Receiverships Receiverships The receiver should reconcile the “D” Record, Section 1 to the “C” Record. The receiver should reconcile Year-to-Date and Inception-to-Date amounts in Section 2 and the Revenue Section to prior quarter report. If any differences are found during this reconciliation, the receiver should contact the guaranty fund.

10 UDS “D” Record Training Guaranty Fund Financial/Liquidation Reporting Staff

11 UDS Financial Report

12 UDS Financial Report (cont’d)

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16 Cash Disbursements and Receipts Reporting to Receivers DISBURSEMENTS Reported in UDS “C” Record See Claim Disbursements Flow Chart ADMINISTRATIVE EXPENSE DISBURSEMENTS See Administrative Expense Disbursements Flow Chart CLAIM RECOVERIES See Claim Recoveries Flow Chart CASH RECEIPTS See Cash Receipts Flow Chart UDS “D” REPORT SECTION 2 UDS “D” REPORT SECTION 1 UDS “D” REPORT SECTION 2 UDS “D” REPORT SECTION 1 CLAIM RESERVES See Claim Reserves Flow Chart LUMP SUM RESERVES See Lump Sum Reserves Flowchart GUARANTY FUND Cash Disbursements, Reserves and Cash Receipts

17 Claim Disbursements Flow Chart Reported in UDS “C” Record Claim Loss and Expense Transaction Totals from UDS “C” Record reconcile to UDS “D” Record Section 1 Unearned Premium expense (Code 870) Unearned Premium Expense UDS “C” Transaction codes Line items on UDS “D” Record Form If a Guaranty Fund is moving transactions from Section 1 to Section 2, then the accounting entry is placed in the Reclassifications to Section 2 line. Loss Claim Payments (Code 310, 320) Unearned Premium payments (Code 820, 825) Defense & Cost Containment / DCC expense (Code 410, 420) Adjusting & Other/AO expense (Code 450, 470) Loss Claim Payments Unearned Premium Claim Payments Defense & Cost Containment (DCC) Expenses Adjusting & Other (AO) Expenses LAE Expense (Prior to the implementation of v2.1) Total LAE (Prior) – Inception-to-date Only

18 Claim Reserves Flow Chart Reported in UDS “C” Record Claim Loss and Expense Reserve Totals from UDS “C” Record reconcile to UDS “D” Record Section 1 UDS “C” Transaction codes Line items on UDS “D” Record Form Loss Claim Reserve Snapshots (Code 130) Defense & Cost Containment (DCC) Expense/ Adjusting & Other Expense (AO) Expense Reserve Snapshots (Code 230) Loss Claim Reserves Defense & Cost Containment (DCC) Reserves Adjusting & Other (AO) Reserves

19 Claim Recoveries Flow Chart Reported in UDS “C” Record Claim Recovery Transactions Totals from UDS “C” Record reconcile to UDS “D” Record Section 1 Adjusting & Other/AO recovery (Code 550) * AO Expense Recovery UDS “C” Transaction codes Line item on UDS “D” Record Form * Includes Liquidator Large Deductible Recoveries. # Use Recovery Code 9 for Liquidator Large Deductible Includes Pre-liquidation and excess recovery amounts that have not been reimbursed to the Receiver, Insured or other party. Loss Recoveries (Code Recovery Code) Defense & Cost Containment / DCC expense recovery (Code 540) * Loss Recoveries by Recovery Type Code (1 – 9) DCC Expense Recovery Loss Recoveries (Prior to the implementation of UDS v2.1) Total Loss Recoveries (Prior) - Inception-to-date Only

20 Administrative Expense Disbursements Flow Chart Reported in UDS “D” Record General Ledger Administrative Expense mapping to UDS “D” Record 1.Unallocated LAE (prior to the implementation of v2.1) 2.TPA Fees and Expense 3.Medical Bill Review 4.Salaries, Temp Help, Benefits, Payroll Taxes 5.Legal 6.Auditing, Consultants 7.Travel 8.Rent, Utilities 9.Telephone, Repairs/maintenance, Equip rentals, bank charges, printing, stationery, office supplies, computer supplies, postage/express mail, dues, subscriptions, taxes other than payroll, NCIGF Dues, insurance, depreciation, etc. 10.Interest on Borrowed Funds 11.Investment Manager Fees 12.Other Expenses (not defined above) 13.DCC & AO Expense Reserves (not in UDS “C”) 14.Administrative Exp Reserves (not in UDS “C”) 1.Total LAE (Prior) 2.Claims/adjusting expense paid for NON-Employee adjusting personnel, such as TPA fees. 3.Medical Bill Review 4.Employee/Contractor Expenses 5.Legal 6.Professional Expenses (other than legal) 7.Travel & Meetings Expenses 8.Office Rent & Utilities 9.General Office Expense 10.Interest on Borrowed Funds 11.Investment Manager Fees 12.Other Expenses (not defined above) 13.Lump Sum DCC & AO Expense Reserves (not in UDS “C”) 14.Lump Sum Administrative Expense Reserve (not in UDS “C”) General Ledger Accounts Line item on UDS “D” Record Form In SECTION 2 If a Guaranty Fund is moving transactions from Section 1 to Section 2, then the accounting entry is placed in the Reclassifications to Section 2 line.

21 Lump Sum Reserves Flow Chart Not Reported in UDS “C” Record General Ledger Accounts Line items on UDS “D” Record Form Unearned Premium Reserve Lump Sum Defense & Cost Containment (DCC)/Adjusting & Other (AO) Reserves Lump Sum Administrative Expense Reserve Unearned Premium Reserve Lump Sum DCC & AO Expense Reserve Lump Sum Administrative Expense Reserve

22 Cash Receipts Flow Chart Reported in UDS “D” Record General Ledger mapping to UDS “D” Record General Ledger Accounts Line item on UDS “D” Record Form Distribution from Receiver Liquidator Large Deductible Recovery (prior to 01/01/05) Other recoveries (not reported as Claims recoveries in UDS “C”). Include Liquidator Large Deductible Recoveries (after 01/01/05) not charged to the claim file. Special Deposit / Funds Held Special Deposits received from Department of Insurance/, Ancillary or Receiver. Receiver Distributions Large Deductible Reimbursements (prior to 01/01/05) not charged to the claim file. Other Receipts (Description)

23 Mapping, Balancing and Reconciling UDS “C” RECORDS (Guaranty fund’s claim system) Match: Loss, ALAE, DCC, AO GUARANTY FUND’S GENERAL LEDGER (G/L) UDS “D” RECORD SECTION 1 DATA ELEMENTS UDS “D” RECORD SECTION 2 DATA ELEMENTS UDS “D” RECORD REVENUE SECTION DATA ELEMENTS BALANCE AND RECONCILE 1.Match Section 1 to UDS “C” Records. 2.Confirm data is in correct fields and not duplicated. 3.Reconciliation with prior quarter report. 4.Correct item or create variance report.

24 New Report Line Items Other Considerations Cut-off Dates Selection of cut off dates for Section 1 of the Report should agree to the cut off dates for the “C” Record. Selection of cut off dates for Section 1 of the Report should agree to the cut off dates for the “C” Record. Totals of Section 1, before reclassifications to Section 2, should reconcile to the “C” Record for the corresponding period(s). Totals of Section 1, before reclassifications to Section 2, should reconcile to the “C” Record for the corresponding period(s).

25 New Report Line Items Other Considerations (cont’d) Cut-off Date Problem Scenarios “C” Record extract date is last day of month but prior to completion of entry of all transaction activity for the particular month. Solution – submit a revised “C” Record extract to the receiver. “C” Record extract date is last day of month but prior to completion of entry of all transaction activity for the particular month. Solution – submit a revised “C” Record extract to the receiver. “C” Record extract date is prior to last day of month and quarter-end G/L closing date does not match extract date. Solution – submit a revised “C” Record extract to the receiver. “C” Record extract date is prior to last day of month and quarter-end G/L closing date does not match extract date. Solution – submit a revised “C” Record extract to the receiver. Quarter-end G/L closing date is prior to last day of quarter and “C” Record extract date does not match G/L closing date. Solution - a reconciliation of the quarter end closing date to the last day of the quarter must be done. Adjustments must be made to the “D” Record reporting system to properly reflect the additional transactions. When the next quarter is prepared, the prior quarter’s transactions must be reversed out. Quarter-end G/L closing date is prior to last day of quarter and “C” Record extract date does not match G/L closing date. Solution - a reconciliation of the quarter end closing date to the last day of the quarter must be done. Adjustments must be made to the “D” Record reporting system to properly reflect the additional transactions. When the next quarter is prepared, the prior quarter’s transactions must be reversed out.

26 UDS “D” Record Training Receivership Financial/Liquidation Reporting Staff

27 Current Reporting to Receiverships by Guaranty Funds Guaranty Fund POC filed Format 1 Guaranty Fund POC filed Format 2 Guaranty Fund POC filed Format 3 Guaranty Fund POC filed Format 6 Guaranty Fund POC filed Format 5 Guaranty Fund POC filed Format 8 Guaranty Fund POC filed Format 4 RECEIVERSHIP ???????? Guaranty Fund POC filed Format 7

28 UDS “D” Record Reporting to Receiverships by Guaranty Funds Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) Guaranty Fund POC filed with the Estate (“C” and “D” Records) RECEIVERSHIP

29 Map the Guaranty Fund Information UDS “D” REPORT SECTION 1 DATA ELEMENTS 1. Loss claim 2. Unearned Premium 3. Defense & Cost Containment expense 4. Adjusting & Other Expenses 5. Unearned Premium Expenses 6. Loss Recoveries by Recovery type (Codes 1 – 9). 7. DCC Expense Recovery 8. AO Expense Recovery UDS “D” REPORT SECTION 2 DATA ELEMENTS 1. Claims/adjusting expense paid for non-employee such as TPA. 2. Medical Bill Review 3. Employee/Contractor Expense 4. Legal 5. Professional exp (other than legal) 6. Travel & Meetings Expenses 7. Office Rent & Utilities 8. General Office Expense 9. Interest on Borrowed Funds 10. Investment Manager Fees 11. Other Expenses (not defined above) 12. Lump Sum DCC & AO Expense Reserve 13. Lump Sum Administrative Expense Reserve UDS “D” REPORT REVENUE SECTION DATA ELEMENTS 1. Special Deposits received from Department, Ancillary or Receiver. 2. Receiver Distributions 3. Large Deductible Reimbursement (prior to 1/1/05) 4. Other Receipts 5. Interest on Special Deposit

30 Mapping, Balancing and Reconciling UDS “C” REPORT (Receivership’s claim system) Match: Loss, ALAE, DCC, AO RECEIVERSHIP’S ADMINISTRATION DATABASE Analysis : Trend Analysis Ratio Analysis Reclassified exp. Classification Non-Allowed UDS “D” REPORT SECTION 1 DATA ELEMENTS UDS “D” REPORT SECTION 2 DATA ELEMENTS UDS “D” REPORT REVENUE SECTION DATA ELEMENTS Review and Analyze MAPPING AND RECONCILIATION Map to Receivership’s Account Categories. Confirm data is in correct fields and not duplicated. Reconciliation with prior reports and periods reported. Contact GF if there are variances or need for further information. Correct item or request new report. BALANCE AND RECONCILE Match Section 1 toxUDS “C” Report. Contact GF if there are variances. Correct item or request new report.

31 Review and Analysis The Receivership will define their own General Ledger Accounts and their own requirement for review and classification of the reported expenses. The data reported is part of the Guaranty Fund’s POC filed with the Receivership.  Data is captured in Receivership’s Administration database  Data is Reviewed and Analyzed

32 Review and Analysis (cont’d) Trend Analysis: Monitoring of expenses within a category of expenses from quarter to quarter for the purpose of identifying spikes or unusual conditions that might warrant follow up with the fund or for comparison of an expense category from one fund to the average for the entire GF Community. Ratio Analysis: Calculation and monitoring of key ratios such as UDS D total SECTION 2 expenses compared to paid losses and alae or percentage of salary & benefit expenses to total section 2 expenses. Identification of Expenses to be Reclassified: Identification and quantification of a specific type of expense that may be reported within SECTION 1 which the receiver does not permit as a claim loss or claim expense or within section 2 that the receiver does not permit as an administrative expense or an expense that is non allowed for reimbursement purposes by the receiver. Classification : The classification refers to the eventual order of distribution on claims from the Receivership. The order of distribution is defined by statute in the receivership’s domiciliary state. Identification of Non-Allowed Transactions: Identification and quantification of a specific type of expense that may be reported, that the receiver does not permit as an administrative expense or an expense that is non allowed for reimbursement purposes by the receiver.

33 Receivership’s Use of the Data Support the Proof of Claim (POC) filed with the Receivership The Guaranty Fund claim against the Receivership is normally comprised of the claim loss and expense payments plus the administrative expenses incurred to handle the Receivership’s claims. Supporting detail for the claim loss and expense portion of the POC is contained in the UDS “C” Records. The remainder of the POC is supported by information contained in the UDS “D” Records Data is reviewed and analyzed for classification and reasonableness. Data is reviewed and analyzed for classification and reasonableness. Further material may be requested or reviewed. Further material may be requested or reviewed. Communication should be ongoing between the GF and the Receivership, and while there can be disagreements there should not be any surprises. Communication should be ongoing between the GF and the Receivership, and while there can be disagreements there should not be any surprises. The Receivership makes determination of classification and the amount. The Receivership makes determination of classification and the amount.

34 Receivership’s Use of the Data (cont’d) Support the Receivership’s Notice of Determination to the Guaranty Fund and eventual distribution from the Receivership The Notice of Determination is issued. The Notice of Determination is issued. A Receivership may have specific process and time frames established to dispute a determination. Each Notice of Determination should be reviewed carefully. A Receivership may have specific process and time frames established to dispute a determination. Each Notice of Determination should be reviewed carefully. Once any dispute has been resolved or the determination accepted the amount is held pending the Receivership’s process for issuing distribution. Once any dispute has been resolved or the determination accepted the amount is held pending the Receivership’s process for issuing distribution.