OSD Overview

1. OSD Overview Association of Insurance Compliance Professionals June 25, 2019

2. Agenda • OSD Overview • Statutory Authority • Organizational Structure • Corporate Governance • Functional Roles & Responsibilities • Mission • Recent Results • Types of Assignments • How Mission is Accomplished • NAIC Responsibilities

3. OSD OverviewStatutory Authority Under Article XIII of the Illinois Insurance Code, the Illinois Director of Insurance (“Director”) serves as the statutory conservator, rehabilitator or liquidator of financially impaired and insolvent Illinois domestic insurers, of unauthorized insurers, and as ancillary receiver of certain foreign or alien insurers doing business in the state. Illinois’ Office of the Special Deputy Receiver (“OSD”) assists the Director in performing her duties under Article XIII, as well as the employer for the personnel that assist the Director in these capacities

4. OSD OverviewOrganizational Structure • Director is the Statutory Conservator, Rehabilitator, Liquidator of Illinois domestic companies • Section 202 of the Code authorizes Director to appoint a Special Deputy and hire personnel to assist in fulfilling her receivership duties • Office of the Special Deputy Receiver first formed by Director in 1981 and incorporated as not-for-profit in 1991 serves as employment vehicle for personnel that assist Director in discharging these duties • Not-for-profit corporate form insulates Director, personally, and State of Illinois from employment liability, and facilitates banking, leasing, insurance, and other business operations

5. OSD OverviewCorporate Governance • Direct report to Director as statutory Conservator, Rehabilitator or Liquidator • Board of Directors approved by Director approves annual operating budget and reviews annual audit reports • Report to IDOI Chief Deputy Director at bi-weekly IDOI executive meetings • Work closely with IDOI GC on significant pleadings and Deputy Director of Financial & Corporate Regulatory and staff on developing resolution plans for troubled cos. • Of counsel to Attorney General’s office at receivership case inception; counsel of record once judgment of receivership is entered • Supervising Court oversees receivership estate pursuant to statutory scheme • Annual independent statutory audit requirement • Kerber Eck & Braeckel current auditor • Copies of audits by statute provided to Governor, Auditor General & Legislative Leaders • Annual Auditor General review of auditor’s work papers

6. OSD OverviewSince the creation of the office, OSD has developed resolution plans for the Director on 179 insurer receivership estates and company supervisions, and completed and closed 160 estates. OSD assignments have included receiverships and supervisions of the following types of insurance entities: • Property & Casualty Insurers • Life Insurers • Accident & Health Insurers • Health Insurers • Health Maintenance Organizations • Fraternal Benefit Societies • Burial Societies • Group Workers’ Compensation Pools • Religious & Charitable Risk Pooling Trusts • Mortgage Guaranty Insurers • Insurance Exchange Syndicates • Farm Mutual Insurers • Unauthorized Insurers

7. Functional Roles & Responsibilities of OSD Officers • Legal (GC) • Claims (GC) • Policyholder, UNderwriting and Corporate Services (GC) • Human Resources (GC) • Accounting & Financial Reporting(CFO) • Treasury (CFO) • Financial Examination (CFO) • Tax & Compliance (CFO & GC) • Reinsurance (CRTO) • Information Technology (CRTO)

8. OSD OverviewMission Our mission is to achieve consumer protection through receivership resolution expertise and the execution of a resolution strategy appropriate to the unique circumstances of each troubled company estate, including maximization of asset recovery, fair disposition of claims, and timely delivery of assets to creditors

9. OSDRecent Results • Receivership estate distributions and associated expenses are single most important measure of success for the consumers • 2018 distributions to consumers and other creditors totaled $262.7 M ($180 M direct, plus $82.7 M by GAs) • $2.5 B distributed to consumers and other creditors over past 10 years • OSD’s 2018 annual budget $9.7 M • 2018 distribution to expense ratio was 3.8% • OSD’s “all-in” average hourly services rate about $100 per hour, including salary, benefits, taxes, rent, insurance, information technology

10. OSD Recent Results • In 2018 staff directly handled 26,000 consumer telephone calls • Recorded 21,000 proof of claim forms • Distributed 26,000 consumer notices • Administered or settled 860 policyholder claims • Processed and collected $34.2 of reinsurance collections • Drafted pleadings and covered court calls for 19 receivership cases • Prepared state and federal income tax returns for all 19 receivership estates and their subsidiaries

11. OSD OverviewHow Mission Is Accomplished • No Taxpayer expense • Not-for-profit • Minimize administrative expense • Maximize policyholder and creditor payouts • Economies of scale through employee utilization and time allocation between multiple estates • Development and retention of staff expertise • Leverage capacity through retention of legacy staff

12. How OSD Mission Accomplished • OSD staff count at 53 FTEs • 19 pending receivership estates and 1 supervision • Office located in Chicago, IL • Supervising Court is Circuit Court of Cook County, IL • OSD professionals: Accounting & Finance, Claims, Legal, HR, IT, Policy Administration, Reinsurance and Tax • Retain employees of receivership estate as needed, particularly IT, (provides nice transition/attrition runway for company employees) • OSD IT outsourced to NTT Data • Investment of Estate Assets outsourced to Mesirow Financial

13. OSD & NAIC • OSD has participated as Illinois representative on the following NAIC task forces and working groups in recent years: • Receivership & Insolvency Task Force (RITF) (NAIC E-Committee) • Receivership Model Law Working Group (RMLWG) • Receivership Financial Analysis Working Group (RFAWG) • Receivership Large Deductible Workers Compensation Working Group