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Utah Insurance Receivers Office
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December 2007 J. RAY BARRIOS, JR. (A3915)
-----oooooOooooo----- IN THE THIRD JUDICIAL DISTRICT COURT IN AND FOR SALT LAKE COUNTY, STATE OF UTAH -----oooooOooooo-----
Utah Insurance Commissioner, D. Kent Michie, in
his capacity as Court appointed Liquidator of
National Annuity Company in Liquidation (“NAC” or
“Company”), by and through counsel of record,
A brief case background and report on current/ongoing estate matters in this Liquidation proceeding is set forth as follows:s: 1. NAC was a life insurer that was found insolvent and placed into liquidation by Order of this Court on March 23,, 2007. Although NAC was a Utah domestic insurer, it was physically located in Camarillo, California. NAC wrote only annuity contracts, virtually all of which were issued to Utah residents. NAC was only licensed in Utah. All liquidation administrative functions of the estate are located in Utah under the supervision of the Third Judicial District Court, Salt Lake County, State of Utah. 2. Utah Insurance Commissioner D. Kent Michie was appointed Liquidator of NAC pursuant to statute, Section 31A-27-310, Utah Code Annotated. Pursuant to the order of the Court, the Liquidator took possession of the NAC estate and took an inventory of the Company’s assets. Prior to the issuance of the Liquidation Order by this Court, on March 7, 2007 this Court issued an Order Authorizing Commissioner to Seize National Annuity Company. Pursuant to that Order, the Utah Insurance Commissioner seized NAC on March 13, 2007. In order to enforce that Order, being that NAC was located in California, on March 9, 2007 the Utah Insurance Commissioner obtained an Order for Immediate Issuance of Writ of Possession of Personal and Real Property and Directing Levying Officer to Serve and Levy Same Forthwith from the Superior Court of the State of California for the County of Ventura. 3. As provided by statute, the Liquidator appointed a Special Deputy Liquidator to handle the day-to-day operations of the liquidation estate. (Section 31A-27-314, , , Utah Code Annotated). 4. Statutory notices were sent to all creditors, policyholders, shareholders, and others reasonably expected to have claims against the estate. In excess of 600 notices were sent. Notice also included publication as required by statute. 5. The estate continued to process annuity transactions on behalf of the Utah Life and Disability Insurance Guaranty Association through the end of 2007. The Guaranty Association provided protection to those annuitants up to $200,000 of the present value of their annuity benefits and crediting rates on the annuities have been reduced to 3 percent or 4 percent as provided for in Section 31A-28-103, Utah Code Annotated. In December 2007 the Guaranty Association and Liquidator entered into an Assumption Reinsurance Agreement with American Underwriters Life Insurance Company (AUL), an Arizona domiciled insurer licensed in the State of Utah, to reinsure the NAC annuities pursuant to Section 31A-28-108, Utah Code Annotated. The effective date of the Assumption Reinsurance Agreement is January 1, 2008. Four hundred (400) NAC annuities will be reinsured with AUL pursuant to the Assumption Reinsurance Agreement of up to $200,000 of the present value of the annuity benefits as of March 23, 2007. Seventeen (17) annuitants whose annuities exceeded $200,000 of the present value of their annuities as of March 23, 2007 will have a claim in the NAC liquidation proceeding for the amount in excess of the amount reinsured by AUL. As of December 31, 2007 a request for approval of the Assumption Reinsurance Agreement was pending before this court. 6. The NAC estate will continue to be liquidated pursuant to statute. (See, 31A-27-101 et seq., Utah Code Annotated). The liquidation process includes, but is certainly not limited to, the following very basic steps: (1) marshaling and collection of all assets of the estate; (2) analysis of all Proofs of Claim (“POC”) as filed against the estate (Claimants have until March 14, 2008 in which to timely file their claims against the estate); (3) determination of the POC’s by the Liquidator and recommendation of such determinations to the Court for approval; (4) claims hearings pursuant to statute for claims upon which claimants dispute the Liquidator’s determination; (5) distribution of payments on claims pursuant to statutory priorities to the extent assets are available for such distribution; and (6) ultimate closure of the estate and discharge of the Liquidator. The statutory liquidation process typically takes several years to complete all assets of the estate; (2) analysis of all Proofs of Claim (“POC”) as filed against the estate (Claimants have until March 14, 2008 in which to timely file their claims against the estate); (3) determination of the POC’s by the Liquidator and recommendation of such determinations to the Court for approval; (4) claims hearings pursuant to statute for claims upon which claimants dispute the Liquidator’s determination; (5) distribution of payments on claims pursuant to statutory priorities to the extent assets are available for such distribution; and (6) ultimate closure of the estate and discharge of the Liquidator. The statutory liquidation process typically takes several years to complete. 7. The Special Deputy Liquidator is working with various parties to liquidate estate assets. Among the assets held by NAC were 35 mortgages that were not admissible as a result of the notes and deeds of trust securing those mortgages not naming NAC as beneficiary. The notes and deeds of trust that collateralize the mortgages have now, as a result of the actions of the Special Deputy Liquidator, been secured in the name of the NAC estate. Of the 35 mortgages that were on NAC’s books as of the date of liquidation, eight mortgages were sold as a package on March 30, 2007 for their book value of $2,225,000. Four additional mortgages were subsequently paid off for their book value of $990,500. As of December 31, 2007, of the 23 remaining mortgages, 17 mortgages remained on NAC’s books and six properties had been taken back through foreclosure proceedings. The value of the 17 mortgages was $4,876,300 and the six properties that became Real Estate Owned (REO) were valued at $1,540,000 for a total value of $6,416,300. One borrower whose mortgage is included among the 17 active mortgages sold his property at year end and $243,750 was being wired to the NAC bank account. Six notices of default had been filed on the 17 active mortgages, one mortgage was the subject of the borrower’s bankruptcy proceeding and one mortgage was in dispute where the borrower was attempting to rescind the loan. Five borrowers were delinquent but not yet in default and only three mortgages were current. The Liquidator retained the services of a mortgage broker to administer the mortgages and was working with various real estate brokers to market the properties taken back through foreclosure. 8. NAC made an unsecured loan to an affiliate, O’Moore Capital, LLC, totaling $1,133,975 that were used to acquire eight mortgage loans. Of those, a $79,000 mortgage was paid off and the funds returned to NAC subsequent to the liquidation date. O’Moore Capital, LLC, advised the Liquidator that it was unable to make the regularly scheduled interest payment for the third quarter of 2007. Interest payments were current as of the second quarter of 2007. O’Moore Capital, LLC advised the Liquidator that it was attempting to sell the seven remaining properties that secured the mortgage loans but has been unable to do so. The Liquidator was in discussions with O’Moore Capital, LLC to have the NAC estate take title to the properties that secured the seven remaining O’Moore mortgage loans. After considering the condition of the properties and the current state of affairs in the real estate market nationwide, the decision was made not to have the NAC estate take title to the O’Moore properties. 9. NAC invested $2 million in a litigation note factoring program operated by a Florida-based organization, Sovereign Litigation Investment Trust III and Palm Beach Capital Advisors. That balance has been reduced to $1,732,000 by way of payments to NAC and the NAC liquidation estate. The contract NAC had with the organization that operated the litigation trust in which the investment was made called for the return of all NAC funds at the end of the contract period. The contract period ended on May 12, 2007. Demand was made by the Liquidator for the return of all NAC funds. Discussions have been held with representatives of the litigation trust regarding the return of the funds. The NAC estate has not received any funds pursuant to the demand. In addition, the Liquidator discovered that NAC did not receive the regularly scheduled interest payment for the fourth quarter of 2006 due in January 2007 and the NAC estate has not received the regularly scheduled interest payments for the first, second and third quarters of 2007. For the four quarters on which no interest was paid, the Liquidator has calculated that interest due and owing to the NAC estate exceeds $211,000. The Liquidator also discovered that Sovereign Litigation Investment Trust III may have made investments using NAC’s funds that were not permissible under the terms of its Confidential Private Placement Memorandum. The investment was highly speculative and was classified as a non-admitted asset as were the mortgages. 10. NAC owned 21 railroad tank cars which are being liquidated. All but two railroad tank cars have been sold. The railroad tank cars sold to date were sold collectively in excess of book value. NAC also had in excess of $1,800,000 invested in three real estate investment trusts that are not publicly traded. The liquidation value of these non-admitted speculative securities is unknown at this time. All three real estate investment trusts appear to be well invested and all dividend payments are current. 11. For investment purposes, the Special Deputy Liquidator evaluates the amount of funds held in the estate which inure to the benefit of estate policyholders and claimants. In that regard the Special Deputy Liquidator reviews the investment of estate funds on an ongoing and regular basis. An investment committee has been established to review the investment vehicles utilized by the estate to assure a balance between adequate return on investment and safety of estate funds. Investment guidelines of the estate have been adopted and will be followed in the investment of the estate assets. The NAC estate has in excess of $12 million invested in publicly traded securities that falls under the purview of the investment committee. The Assumption Reinsurance Agreement referred to in Paragraph 5 above calls for the transfer of approximately $9 million in market value of securities held by the Liquidator to AUL to partially fund the reinsurance of NAC’s annuities with AUL. 12. NAC occupied office space for its administrative offices in Camarillo, California on a month to month tenancy. In December 2007 the Liquidator was given notice to vacate the office by January 1, 2008. The Liquidator located new office space for a short term lease of two months with a month to month tenancy thereafter. It is anticipated that the Liquidator will require a California location for an additional three or four months in 2008 in order to complete the transfer of the NAC annuities to AUL, process 1099s, respond to questions from annuitants and others and complete the on-site administration of the California office issues of the NAC estate. Thereafter it is planned that the NAC books and records will be transferred to the Utah Insurance Receivers Office in Salt Lake City. 13. The Liquidator will continue to report to the Court on the status of the NAC liquidation, including a financial report, on a quarterly basis consistent with calendar quarters. All such quarterly reports will be filed within forty-five (45) days after the end of the calendar quarter. Unless the Court orders otherwise, future quarterly reports and financial reports (Exhibit “A” as attached hereto) will continue to follow the National Association of Insurance Commissioner (“NAIC”) guidelines and reporting format for insolvent insurers in liquidation proceedings. 14. The Liquidator will schedule “status conferences” with the Court when there are matters the Liquidator believes need to be brought to the Court’s attention, or if the Court, sua sponte, desires to schedule a “status conference”.Dated this ____ day of February, 2008.
NATIONAL ANNUITY COMPANY IN LIQUIDATION
_______________________________
J. Ray Barrios
CERTIFICATE OF MAILING I hereby certify that I mailed a true and correct copy of the foregoing QUARTERLY REPORT TO COURT ON THE STATUS OF THE ESTATE OF NATIONAL ANNUITY COMPANY IN LIQUIDATION ESTATE FOR THE PERIOD ENDING DECEMBER 31, 2007, postage prepaid, to the following this ____ day of February, 2008
Commissioner D. Kent
Michie, Liquidator
Ronald G. Rosen, Special
Deputy Liquidator
Arthur O. Dummer,
Administrator
Randall Smart
Ofer Grossman _________________________________ |