UDS D Record Training History and Overview 1

UDS “D” Record Training History and Overview 1

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 2

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

“D” Record Overview History/Background n n n 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. 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. 4

“D” Record Overview History/Background (cont’d) n n 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. 5

“D” Record Overview Benefits n 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 n 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 6

“D” Record Overview Costs n n 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 7

“D” Record Overview Reconciliation n 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 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. 8

“D” Record Overview Reconciliation n 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. 9

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

UDS Financial Report 11

UDS Financial Report (cont’d) 12

UDS Financial Report (cont’d) 13

UDS Financial Report (cont’d) 14

UDS Financial Report (cont’d) 15

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

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 UDS “C” Transaction codes Line items on UDS “D” Record Form LAE Expense (Prior to the implementation of v 2. 1) Total LAE (Prior) – Inception-to-date Only Loss Claim Payments (Code 310, 320) Loss Claim Payments Unearned Premium payments (Code 820, 825) Unearned Premium Claim Payments Defense & Cost Containment / DCC expense (Code 410, 420) Defense & Cost Containment (DCC) Expenses Adjusting & Other/AO expense (Code 450, 470) Adjusting & Other (AO) Expenses Unearned Premium expense (Code 870) Unearned Premium Expense 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. 17

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 Loss Claim Reserve Snapshots (Code 130) Defense & Cost Containment (DCC) Expense/ Adjusting & Other Expense (AO) Expense Reserve Snapshots (Code 230) Line items on UDS “D” Record Form Loss Claim Reserves Defense & Cost Containment (DCC) Reserves Adjusting & Other (AO) Reserves 18

Claim Recoveries Flow Chart Reported in UDS “C” Record Claim Recovery Transactions Totals from UDS “C” Record reconcile to UDS “D” Record Section 1 UDS “C” Transaction codes Line item on UDS “D” Record Form Loss Recoveries (Prior to the implementation of UDS v 2. 1) Total Loss Recoveries (Prior) Inception-to-date Only Loss Recoveries (Code 530 + Recovery Code) * @ Loss Recoveries by Recovery Type Code (1 – 9) Defense & Cost Containment / DCC expense recovery (Code 540) * # @ DCC Expense Recovery Adjusting & Other/AO recovery (Code 550) * # @ AO Expense Recovery * Includes Liquidator Large Deductible Recoveries. # Use Recovery Code 9 for Liquidator Large Deductible Recoveries. @ Includes Pre-liquidation and excess recovery amounts that have not been reimbursed to the Receiver, Insured or other party. 19

Administrative Expense Disbursements Flow Chart Reported in UDS “D” Record General Ledger Administrative Expense mapping to UDS “D” Record General Ledger Accounts 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Unallocated LAE (prior to the implementation of v 2. 1) TPA Fees and Expense Medical Bill Review Salaries, Temp Help, Benefits, Payroll Taxes Legal Auditing, Consultants Travel Rent, Utilities 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. Interest on Borrowed Funds Investment Manager Fees Other Expenses (not defined above) DCC & AO Expense Reserves (not in UDS “C”) Administrative Exp Reserves (not in UDS “C”) Line item on UDS “D” Record Form In SECTION 2 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”) 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. 20

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 DCC & AO Expense Reserve Lump Sum Administrative Expense Reserve 21

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

Mapping, Balancing and Reconciling UDS “C” RECORDS (Guaranty fund’s claim system) Match: Loss, ALAE, DCC, AO UDS “D” RECORD SECTION 1 DATA ELEMENTS BALANCE AND RECONCILE 1. GUARANTY FUND’S GENERAL LEDGER (G/L) UDS “D” RECORD SECTION 2 DATA ELEMENTS 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. UDS “D” RECORD REVENUE SECTION DATA ELEMENTS 23

New Report Line Items Other Considerations Cut-off Dates n n 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). 24

New Report Line Items Other Considerations (cont’d) Cut-off Date Problem Scenarios n n n “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. 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. 25

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

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

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

Map the Guaranty Fund Information UDS “D” REPORT SECTION 1 DATA ELEMENTS UDS “D” REPORT SECTION 2 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 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 29

Mapping, Balancing and Reconciling UDS “D” REPORT SECTION 1 DATA ELEMENTS BALANCE AND RECONCILE • Match Section 1 tox. UDS “C” Report. • Contact GF if there are variances. • Correct item or request new report. UDS “D” REPORT SECTION 2 DATA ELEMENTS UDS “D” REPORT REVENUE SECTION DATA ELEMENTS 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. UDS “C” REPORT (Receivership’s claim system) Match: Loss, ALAE, DCC, AO RECEIVERSHIP’S ADMINISTRATION DATABASE Review and Analyze Analysis : Trend Analysis Ratio Analysis Reclassified exp. Classification Non-Allowed 30

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 31

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. 32

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 n n Data is reviewed analyzed for classification and reasonableness. 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. The Receivership makes determination of classification and the amount. 33

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 n n n 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. Once any dispute has been resolved or the determination accepted the amount is held pending the Receivership’s process for issuing distribution. 34

Questions? udshelp@udstsg. com 35