Arkansas Life and Health Insurance Guaranty Association

Covered Contracts

§23-96-107(b) (1) This chapter shall provide coverage to the persons specified in subsection (a) of this section for policies or contracts of direct, nongroup life insurance, health insurance that, for the purposes of this chapter, includes health maintenance organization subscriber contracts and certificates, or annuities for certificates under direct group policies and contracts, and for supplemental contracts to any of these, and for unallocated annuity contracts, in each case issued by member insurers, except as limited by this chapter. (Amended effective 07/24/19)

Non-Covered Contracts

§23-96-106(a) This chapter shall not provide coverage for: (1) A portion of a policy or contract not guaranteed by the member insurer, or under which the risk is borne by the policy owner or contract owner; (2) A portion of a policy or contract of reinsurance, unless assumption certificates have been issued under the reinsurance policy or contract; (3) A policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: (A) Averaged over the period of four (4) years before the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four (4) years before the member insurer becomes an impaired insurer or insolvent insurer under this chapter, whichever is earlier; and (B) On and after the date on which the Arkansas Life and Health Insurance Guaranty Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody's Corporate Bond Yield Average as most recently available; (4) A portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others to the extent that the plan or program is self-funded or uninsured, including without limitation benefits payable by an employer, association, or other person under: (A) A multiple employer welfare arrangement as defined in section 514 of the Employee Retirement Income Security Act of 1974, as amended; (B) A minimum premium group insurance plan; (C) A stop-loss group insurance plan; or (D) An administrative services only contract; (5) A portion of a policy or contract to the extent that it provides for dividends or experience rating credits, voting rights, or payment of any fees or allowances to any person, including the policy owner or contract owner, in connection with the service to or administration of such policy or contract; (6) A policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue such policy or contract in this state; (7) An unallocated annuity contract issued to or in connection with a benefit plan protected under the Pension Benefit Guaranty Corporation regardless of whether the Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan; (8) A portion of an unallocated annuity contract that is not owned by a benefit plan, directly or in trust, or a government lottery or issued to a collective investment trust or similar pooled fund offered by a bank or other financial institution; (9) Any policy or contract written on the mutual assessment plan or stipulated premium plan prior to January 1, 1968, for which no statutory legal reserves are required; (10) A portion of a policy or contract to the extent that the assessments required by § 23-96-115 with respect to the policy or contract are preempted by federal or state law; (11) An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the contract owner, policy owner, certificate holder, or enrollee, including without limitation: (A) Claims based on marketing materials; (B) Claims based on side letters, riders, or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements; (C) Misrepresentations of or regarding policy or contract benefits; (D) Extra-contractual claims; or (E) A claim for penalties or consequential or incidental damages; (12) A contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustees, which in each case is not an affiliate of the member insurer; (13) (A) A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which has not been credited to the policy or contract, or as to which the policy owner's or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. (B) If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subdivision (a)(13), the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture; (14) A policy or contract providing any hospital, medical, prescription drug, or other healthcare benefits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7, Title 42 of the United States Code, 42 U.S.C. §§ 1395 — 1395kkk-1, commonly known as “Medicare Parts C and D”, or Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 — 1396w5, commonly referred to as Medicaid, or any regulations issued pursuant thereto; and (15) Structured settlement annuity benefits to which a payee, or beneficiary, has transferred his or her rights under a structured settlement factoring transaction as defined in 26 U.S.C. §? 5891(c)(3)(A), regardless of whether or not the structured settlement factoring transaction occurred before or after the section became effective. (Amended effective 07/24/2019)

Non-Resident Coverage

§23-96-107(a)(2)(B) Yes. Covers non-residents, but only under all of the following conditions: (i) The member insurer that issued the policies or contracts is domiciled in this state; (ii) The states in which the persons reside have associations similar to the Arkansas Life and Health Insurance Guaranty Association created by this chapter; and (iii) The persons are not eligible for coverage by an association in any other state because the insurer or the health maintenance organization was not licensed in the state at the time specified in the state's guaranty association law; (Amended effective 07/24/19)

§23-96-114 A. The benefits that the Association may become obligated to cover shall in no event exceed the lesser of: (1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or (2)(a) With respect to any one (1) life, regardless of the number of policies or contracts: (i) Three hundred thousand dollars ($300,000) in life insurance death benefits or net cash surrender and net cash withdrawal values for life insurance; (ii) Five hundred thousand dollars ($500,000) in accident and health insurance benefits, including any net cash surrender and net cash withdrawal values, provided coverage for disability insurance benefits and long term care insurance benefits shall not exceed three hundred thousand dollars ($300,000); (iii) Three hundred thousand dollars ($300,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; (b) With respect to each individual participating in a governmental retirement benefit plan established under section 401(k), section 403(b), or section 457, of the United States Internal Revenue Code covered by an unallocated annuity contract or the beneficiaries of each such individual if deceased, in the aggregate three hundred thousand dollars ($300,000) in present value annuity benefits, including net cash surrender and net cash withdrawal values; (c) With respect to each payee of a structured settlement annuity, or beneficiary or beneficiaries of the payee if deceased, three hundred thousand dollars ($300,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any. B. (1) Provided, however, that in no event shall the Association be obligated to cover more than (i) three hundred thousand dollars ($300,000) in benefits in the aggregate with respect to any one life under §§ 23–96–106, 23–96–107, and this section except with respect to benefits for basic hospital, medical and surgical insurance and major medical insurance under paragraph (A)(2)(a)(ii) of this section, in which case the aggregate liability of the Association shall not exceed five hundred thousand dollars ($500,000) with respect to any one individual, or (ii) with respect to one owner of multiple non-group policies of life insurance, whether the policy owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, more than one million dollars ($1,000,000) in benefits, regardless of the number of policies and contracts held by the owner; (2) With respect to either (i) one (1) contract owner provided coverage under § 23–96–107 (A)(3)(b); or (ii) one (1) plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in paragraph (A)(2)(b) of this section, one million dollars ($1,000,000) in benefits, irrespective of the number of contracts with respect to the contract owner or plan sponsor. However, in the case where one or more unallocated annuity contracts are covered contracts under this chapter and are owned by a trust or other entity for the benefit of two (2) or more plan sponsors, coverage shall be afforded by the Association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state and in no event shall the Association be obligated to cover more than one million dollars ($1,000,000) in benefits with respect to all of these unallocated contracts. (Amended effective 5/7/2013).

Discretionary Triggers

§23-96-111. If a member insurer is an impaired insurer.

Mandatory Triggers

§23-96-112(a). If a member insurer is an insolvent insurer. (Amended effective 8/1/97).

Foreign Triggers

No separate provision under Act.

"Impaired Insurer"

§23-96-104(11). A member insurer which, after March 9, 1989, is not insolvent and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. (Amended effective 07/24/19)

"Insolvent Insurer"

§23-96-104(12). A member insurer which, after March 9, 1989, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency. (Amended effective 07/24/19)

"Member Insurer"

§23-96-104(13). any insurer or health maintenance organization licensed or which holds a certificate of authority to transact in this state any kind of insurance or health maintenance organization business for which coverage is provided under § 23-96-107, and includes any insurer or health maintenance organization whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, but does not include: (A) A hospital or medical service organization, whether profit or nonprofit; (B) A fraternal benefit society; (C) A mandatory state pooling plan; (D) A burial association; (E) An insurance exchange; (F) Prepaid funeral trusts; (G) An organization that has a certificate or license limited to the issuance of charitable gift annuities; or (H) Any entity similar to any of those listed in subdivisions (13)(A)-(G) of this section; (Amended effective 07/24/19)

§23-96-109(a)(5). Two accounts: (A) The life insurance and annuity account, which includes the following subaccounts: (i) Life insurance account; (ii) Annuity account, which shall include annuity contracts owned by a governmental retirement plan, or its trustee, established under section 401(k), section 403(b), or section 457 of the Internal Revenue Code, but shall otherwise exclude unallocated annuities; and (iii) Unallocated annuity account, which shall exclude contracts owned by a governmental retirement benefit plan, or its trustee, established under section 401(k), section 403(b), or section 457 of the Internal Revenue Code; and (B) The health account. (Amended effective 07/24/19)

Assessment Limits

§23-96-115(f)(1)(A). Total of all assessments authorized by the association with respect to a member insurer for each sub account of the life insurance and annuity account and for the health account shall not in any one calendar year exceed 2% of that member insurers average annual premiums received in this state on the policies and contracts covered by the sub account or account during the 3 calendar years preceding the year in which the insurer became an impaired or insolvent insurer. §23-96-115(F)(1)(B). If two or more assessments are authorized in one calendar year with respect to insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation referenced in subparagraph (a) shall be equal and limited to the higher of the three-year average annual premiums for the applicable sub account or account as calculated pursuant to this section. (Amended effective 8/1/97)

Assessment Classes

§23-96-115(b). Two classes of assessments: (1) (A) Class A assessments shall be authorized and called for the purpose of meeting administrative and legal costs and other expenses. (B) Class A assessments may be authorized and called whether or not related to a particular impaired insurer or insolvent insurer; and (2) Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the association under § 23-96-106(b), §§ 23-96-110 — 23-96-114, and 23-96-120 with regard to an impaired insurer or an insolvent insurer.

§23-96-106(a)(3). Guaranty Association excludes from coverage: A policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: (A) Averaged over the period of four (4) years before the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four (4) years before the member insurer becomes an impaired insurer or insolvent insurer under this chapter, whichever is earlier; and (B) On and after the date on which the Arkansas Life and Health Insurance Guaranty Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody's Corporate Bond Yield Average as most recently available;

§23-96-115(j)(1)(A). Yes. Up to 20% of assessment amount may be offset for 5 years after payment; covers all assessments but administrative expenses.

§ 23-96-104(18) (A) “Premiums” means amounts or considerations, by whatever name called, received on covered policies or contracts less returned premiums, considerations, and deposits and less dividends and experience credits. (B) (i) “Premiums” does not include amounts or considerations received for any policies or contracts or for the portions of policies or contracts for which coverage is not provided under § 23-96-106, except that assessable premiums shall not be reduced on account of § 23-96-106(a)(3), relating to interest limitations and § 23-96-114(a)(2), relating to limitations with respect to one (1) individual, one (1) participant, and one (1) policy or contract owner. (ii) However, “premiums” does not include: (a) Any premiums in excess of one million dollars ($1,000,000) on an unallocated annuity contract not issued under a governmental retirement benefit plan, or its trustee, established under section 401(k), section 403(b), or section 457 of the Internal Revenue Code; or (b) With respect to multiple nongroup policies of life insurance owned by one (1) owner, whether the policy or contract owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, premiums in excess of one million dollars ($1,000,000) with respect to these policies or contracts, regardless of the number of policies or contracts held by the owner;

§ 23-96-105 “Advertisement of association act in insurance sales -- Notice to policy owners” (A) No person, including an insurer, agent, or affiliate of an insurer shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement, written or oral, which uses the existence of the Arkansas Life and Health Insurance Guaranty Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by this chapter, except in conformity with the rules and regulations of the commissioner. In adopting such rules and regulations, the commissioner, in consultation with the board of directors of the Association, shall take into consideration the following factors: the need of the public to have confidence in the financial soundness of insurance products offered for sale in this state, the financial integrity of member insurers doing business in this state, and the role of the Association in serving as a safety net for policyowners, contract owners, insureds and beneficiaries of impaired or insolvent insurers in this state. Provided, however, that this § shall not apply to the Arkansas Life and Health Insurance Guaranty Association or any other entity which does not sell or solicit insurance.