UNCLAIMED PROPERTY: ARE YOU READY FOR THE FILING DEADLINES?

1. UNCLAIMED PROPERTY:ARE YOU READY FOR THE FILING DEADLINES? AICP MID-ATLANTIC CHAPTER FEBRUARY 28, 2013 WEBINAR KATHLEEN H. MOYER, MANAGING PARTNER – COMPLIANCE SERVICES, MOYER & OSIBODU KATHLEEN M. DONOVAN, SENIOR COMPLIANCE COUNSEL, WOLTERS KLUWER FINANCIAL SERVICES

2. CONTENTS Unclaimed Property Myths vs. Reality History and Background of Unclaimed Property Appropriate Jurisdiction for Reporting Examples of Reportable Property Holder Responsibilities What Should I Report? When Should I Report? What Due Diligence is Required? When should due diligence be Performed? Document Retention State Enforcement on the Rise Regulatory Developments Impact on Life Insurers Market Conduct Activity

3. UNCLAIMED PROPERTY MYTHS VS. REALITY

4. HISTORY AND BACKGROUND • Origins in British Common Law • Lands reverted to the King • Escheat • Traditional • Custodial • Uniform Unclaimed Property Acts • 1954 Uniform Act • 1966 Uniform Act • 1981 Uniform Act • 1995 Uniform Act

5. APPROPRIATE JURISDICTION FOR REPORTING • 54 jurisdictions have unclaimed property laws • 50 states plus the District of Columbia, Puerto Rico, Guam and US Virgin Island • Some states have adopted versions of the Uniform Unclaimed Property Acts while others have not; laws are constantly changing.

6. APPROPRIATE JURISDICTION FOR REPORTING (CONT’D) Supreme Court Case Law – priority rules for reporting • Texas v. New Jersey (1965) • Pennsylvania v. New York (1972) • Delaware v. New York (1993) • State of owner’s last known address • State of holder’s incorporation or domicile if address is not known • State of holder’s incorporation or domicile if address of apparent owner is in a foreign country and the holder is incorporated or domiciled in the U.S.* • Provision language added in the 1981 Uniform Act

7. EXAMPLES OF REPORTABLE PROPERTY • Uncashed checks (payroll, accounts payable, commissions, rebates, etc.) • Accounts receivable credit balances and refunds • Accounts payable credit balances • Insurance proceeds (including due and unpaid) • Securities and related property

8. HOLDER RESPONSIBILITIES • Duty to perform due diligence • Duty to file a report • Duty to remit the property • Duty to maintain copies of the reports and supporting documentation • Duty to protect the funds until reported and transferred to the state

9. WHAT SHOULD I REPORT? • Property due and payable after due diligence has been performed • Internal due diligence • State required due diligence • Identify potential exemptions and exclusions • Get your legal department involved with the determination of applicable exemptions • Report all property types generated by the Holder’s operations

10. WHEN SHOULD I REPORT? • Corporations – Oct 31, Nov 1 filing deadline • Life Insurance – Non-Life may not have the same filing deadline within a state • EX: DE Life Insurance due Dec 20, Non-Life due March 1

11. WHEN SHOULD I REPORT?(CONT’D) • March 1 • Non-Life = DE • March 10 • Life & Non-Life = NY • March 28 • Life & Non-Life = CT • April 15, • Life & Non-Life = PA • April 30, • Life = AR and WV • Life and Non-Life = FL and MD • Life Preliminary = CA • May 1, • Life = AZ, CO, DC, IL, IN, KS, MA, ME, MO, MT, NC, ND, NE, NJ, NM, OH, OK, and SD • Life & Non-Life = GA, NH, NV, TN, VA, and VT,

12. WHAT DUE DILIGENCE IS REQUIRED? States have increased interest in performance of due diligence. Many have modified the requirements and processes: • Previously encouraged, Texas now requires due diligence for records of $250 or more • California due diligence efforts require payees to contact the holder for reimbursement before the state takes custody of the property • Indemnification for securities related property is not provided by the states unless due diligence is performed

13. WHEN SHOULD DUE DILIGENCE BE PERFORMED? • Typically a first class letter must be sent to the last known address on company record no more than 120 days or less than 60 days prior to escheat • Pennsylvania and Delaware does not require due diligence letters but encourages it • Due diligence letters must be specific • Include amount, date, property type, check number or other identifier • Include contact information for the claimant • Some states require a self-addressed return envelope be included

14. WHEN SHOULD DUE DILIGENCE BE PERFORMED? (CONT’D) • Some states require a second mailing by certified letters for amounts over a certain threshold, if the first mailing was not returned as ‘undeliverable’ by the post office • NY requires insurance companies to ‘publish a notice’ • Retain proof of certified mailings and publication • A signature is required to remove an item from the unclaimed records (fax copy is sufficient) • Document removals resulting from the due diligence process

15. DOCUMENT RETENTION • Maintain copies and supporting documentation of unclaimed property reports • Maintain proof of payment • Maintain copies of documentation supporting the removal of items from the unclaimed property process • Maintain copies of all unclaimed property audit reports and settlement agreements • Recommend that the records be maintained for at least 10 years after submitting the report

16. STATE ENFORCEMENT ON THE RISE • Unclaimed Property is viewed as a means to generate revenue by many states • Although held in a custodial capacity for the true owner, less than 10% is ever claimed • States engage third-party contract auditors to perform audits on their behalf • Contract auditors are usually compensated based on “percentage of findings”

17. Unclaimed Property: The Regulatory Impacts

18. Regulatory Impacts • Increase in legislative and regulatory activity • Life insurance company audits • Increased scrutiny by DOI’s

19. Discussion Areas • Legislative & regulatory developments – the TRAIN has left the station • What do the life insurance company settlements tell us?

20. Keeping on Track…

21. Legislative Update - 2012 • Alabama • Delaware • Kentucky • Maryland • New York

22. Alabama’s Legislative Update • Within 90 days of a death master file match: • Complete a commercially reasonable effort to confirm the death of the insured, annuitant or retained asset account holder • Determine whether a policy or contract insuring the insured or annuitant is in force or a retained asset account exists • Determine whether benefits are due • Document steps/results HB 126 (2012) - Effective January 1, 2014

23. Alabama’s “Search Service” • Access the “Life/Annuity Policy Search Service” link on the DOI’s website to establish an account • Designate the insurer’s Policy Search Coordinator • Create the Coordinator’s user ID • Participate in monthly process

24. Kentucky’s Legislative Update • Requires insurers to compare in-force life insurance policies against the Death Master File to determine potential matches of their insureds • Requires escheat of policy proceeds after the expiration of the fee statutory time period only if no claim for the policy's proceeds has been made and if good faith efforts to contact the retained asset holder and any beneficiary are unsuccessful HB 135 (2012) - Effective January 1, 2013

25. Maryland’s Legislative Update • Requires an insurer that issues or delivers a policy of life insurance or an annuity contract to: • Perform a cross-check of the insurer's in-force life insurance policies, annuity contracts, and retained asset accounts against a specified death master file to identify any death benefit payments that may be due SB 77 (2012) - Effective October 1, 2013

26. New York’s Regulation 200 • Cross check their policies at least every 3 months with recent deaths using SSA’s Master File of deaths or another database • Search for multiple policies on the same person in the files of all insurers owned by a holding company • Cross-check policies with consumer requests received through the State’s new “Lost Policy Finder” • Annually submit data on the number of policies for which a death occurred but for which the insurers were unable to find the beneficiary to the Office of the State Comptroller Regulation 200 – Effective June 14, 2012

27. New York’s Underwriting Impact New York Regulation 200 • Insurers must request more detailed beneficiary information when a policy is sold (i.e. SSN and address) • Facilitates locating and making payments to beneficiaries when a death occurs • Revision of applications • Possible “adoption” by other states • Possible best practices option

28. New York’s Legislative Update A 9845 • Effective date of June 15, 2013 • Insurers to perform a comparison of life insurance policies against the federal Death Master File to identify potential matches of its insureds or account holders and to complete a good faith effort to confirm the death of the insured and locate beneficiaries • Codifies many of the requirements established in Regulation 200, which became effective on June 14, 2012

29. Delaware’s VDA • Regulations assist in the implementation of SB 258 • Criteria set for unclaimed property holders eligible to resolve claims before the SOS • Limits the look-back period to 1996 or 1993, depending on whether the holder has indicated in writing its intent to enter into a VDA before June 30, 2013, or after June 30, 2013 but before June 30, 2014 • VDA program www.DelawareVDA.com

30. Legislative Update – Introduced in 2013 • Alabama HB 192 • Delaware HB 2 • Massachusetts HB 20 • Mississippi HB 249 • Montana SB 34 • New Mexico SB 312 • North Dakota HB 1171 • Vermont HB 95

31. Impact on Life Insurers • New claims requirements • New underwriting requirements • Reporting • Audits

32. State Market Regulation General Examination Process • Check on insurer’s processes • Does insurer make reasonable attempts to locate beneficiaries, policyholders and recipients of unclaimed properties

33. Multistate Settlements: Life Insurers • Overhaul of computer system • Revision of business practices to better utilize the Death Master File to identify life insurance beneficiaries • Return of monies promptly to beneficiaries when located through revised search efforts • Reporting to the appropriate state agencies • Retained asset account procedures • Increased regulatory oversight • Re-exams

34. Questions & Thank youKathy Moyer Phone: (609) 412-0866 cell; (813) 986-7192 officeEmail: kathy@moyerosibodu.comWebsite: www.moyerosibodu.comKathy DonovanPhone: (781) 907-6689Email: kathy.donovan@wolterskluwer.comwww.InsuranceComplianceCorner.com