The Commissioner was appointed as conservator of respondent HIH America by this Court on March 30, 2001 and was thereafter appointed as liquidator of HIH America by this Court on May 8, 2001, pursuant to Insurance Code sections 1011 and 1016, respectively. As liquidator, the Commissioner has been directed to liquidate and wind up the business affairs of HIH America in accordance with the applicable provisions of the Insurance Code.

As part of the Commissioner's responsibilities as liquidator, Insurance Code section 1035.5, subdivision (a) provides:

Within 120 days of the issuance of an order directing the winding up and liquidation of the business of an insolvent insurer under Section 1016, the commissioner shall make application to the court for approval of a proposal to, disburse the insurer's assets, from time to time as such assets become available, to the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, and to any entity or person performing a similar function in another state.

On October 22, 2001, this Court approved the Commissioner's request, pursuant to Insurance Code section 1035.5, to make an initial distribution of $45,000,000 to the California Insurance Guarantee Association from a workers' compensation special deposit that the Commissioner held as trustee for payment of the Company's obligations on workers' compensation insurance transacted in this state. At the time that the Commissioner secured the approval of the Court, the Company had insufficient assets to make any additional distributions of assets to other state guaranty funds pursuant to Insurance Code section 1035.5. The Commissioner advised the Court, however, that should it become economically feasible to make additional distributions, the Commissioner would return to this Court for authorization.

Subsequently, having received substantial additional funds by virtue of a cancellation agreement with a reinsurer, the Commissioner sought approval from this Court to make an early access distribution to the California Insurance Guarantee Association and other state insurance guaranty associations or funds. On June 28, 2004, this Court approved the Commissioner's request, pursuant to Insurance Code section 1035.5, to make such a distribution in the amount of $25,000,000.

As a result of several reinsurance commutations, the Commissioner has received substantial additional assets and now requests approval to make a second early access distribution to the California Insurance Guarantee Association and other state insurance guaranty associations or funds. Specifically, as of September 30, 2005, net available assets of the estate of HIH America total $169,818,453, from which the Commissioner now proposes to make a second early access distribution in the approximate amount of $85,000,000. (See attached Exhibit A ("HIH Insurance, 3rd Quarter 2005 Early Access Distribution").)

As of June 30, 2005, a total of 17 guaranty funds have paid a total of $318,555,983 in losses on behalf of HIH America. Specifically, the Special Fund of the Industrial Commission of Arizona has paid $656,542, the California Insurance Guarantee Association has paid $290,158,072, the Colorado Insurance Guaranty Association has paid $1,074,494, the Florida Workers Compensation Insurance Guaranty Association has paid $195,599, the Hawaii Insurance Guaranty Association has paid $1,905,090, the Illinois Insurance Guaranty Fund has paid $16,266,620, the Indiana Insurance Guaranty Association has paid $452,029, the Iowa Insurance Guaranty Association has paid $7,301, the Kentucky Insurance Guaranty Association has paid $69,151, the Michigan Property and Casualty Guaranty Association has paid $4,757,262, the Missouri Property and Casualty Insurance Guaranty Association has paid $730, the Nebraska Property and Liability Insurance Guaranty Association has paid $114,815, the Nevada Insurance Guaranty Association has paid $902,073, the Oregon Insurance Guaranty Association has paid $7,517, the Texas Property and Casualty Insurance Guaranty Association has paid $115,082, the Utah Property and Casualty Insurance Guaranty Associations has paid $40,227, and the Wisconsin Insurance Security Fund has paid $1,833,381. (See attached Exhibit B ("HIH Insurance 3rd quarter 2005 Early Access Distribution Detail of individual IGA distribution amounts.").)

The Commissioner's proposal with respect to HIH America is to distribute and pay 71.3704 percent of the paid losses through June 30, 2005 of each of the above-referenced guaranty funds, for a total payment to all funds of $85,000,001. Subtracting the total proposed distribution of $85,000,001 from HIH America's total net available assets of $169,818,453 would leave HIH America with remaining net assets in the amount of approximately $85 million. (See attached Exhibit A ("HIH Insurance 3rd quarter 2005 Early Access Distribution Analysis of assets available for distribution.").)

In calculating the amount of payment to each guaranty fund, the Commissioner has offset from the proposed distribution the amount of any statutory deposit held by HIH America in that particular state, pursuant to Insurance Code section 1035.5, subdivision (d), and has also deducted the amount of any first early access distribution. The Commissioner proposes to distribute and pay each guaranty fund the following amount:

(See attached Exhibit B ("3rd quarter 2005 Early Access Distribution Detail of individual IGA distribution amounts.").)

In distributing $79,699,579 to the California Insurance Guarantee Association, the Commissioner has offset statutory deposits of $110,794,046 and has deducted a previous early access distribution of $16,593,367 for a total credit of $127,387,413.

In distributing $44,005 to the Colorado Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $722,866 (the State of Colorado has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $23,996 to the Florida Workers' Compensation Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $115,604 (the State of Florida has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $209,342 to the Hawaii Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $1,150,329 (the State of Hawaii has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $3,004,541 to the Illinois Insurance Guaranty Fund, the Commissioner has credited a previous early access distribution of $2,881,408 and has offset statutory deposits of HIH America on deposit with the State of Illinois in the total amount of $5,723,604, for a total credit of $8,605,012.

In distributing $97,418 to the Indiana Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $157,642 and has offset statutory deposits of HIH America on deposit with the State of Indiana in the total amount of $67,555, for a total credit of $225,197.

In distributing $342 to the Iowa Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $4,869 (the State of Iowa has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $1,328,425 to the Michigan Property and Casualty Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $2,040,991 and has statutory deposits of HIH America on deposit with the State of Michigan in the total amount of $25,861, for a total credit in the amount of $2,066,852.

In distributing $43,448 to the Nebraska Property and Liability Insurance Guaranty Association, the Commissioner has deductedoffset a previous early access distribution of $38,496 (the State of Nebraska has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $190,993 to the Nevada Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $252,820 and has offset statutory deposits of HIH America on deposit with the State of Nevada in the total amount of $200,000, for a total credit of $452,820.

In distributing $9,536 to the Utah Property and Casualty Insurance Guaranty Association, the Commissioner has credited a previous early access distribution of $19,174 (the State of Utah has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)).

In distributing $348,376 to the Wisconsin Insurance Guaranty Fund, the Commissioner has credited a previous early access distribution of $960,115 (the State of Wisconsin has no special deposits to offset pursuant to Insurance Code section 1035.5, subdivision (d)). (See attached Exhibit C ("HIH Insurance 3rd quarter 2005 Early Access Distribution Detail of prior distributions, stat deposit offsets, and other credits").)

No distribution will be made to the Special Fund of the Industrial Commission of Arizona, which has paid $656,542 in losses, because Arizona still has a balance of $1,529,728 remaining in its special deposit of $1,997,854.

No distribution will be made to the Kentucky Insurance Guaranty Association, which has paid $69,151 in losses, because after crediting its last distribution of $62,319, its participation in the current early access distribution would result in payment of its claims in excess of the gross cumulative distribution percentage of 71.3704 percent.

No distribution will be made to the Missouri Insurance Guaranty Association, which has paid $730 in losses on behalf of HIH America, because the State of Missouri still has $121,759 remaining on its special deposit of $122,280.

No distribution will be made to the Oregon Insurance Guaranty Association, which has paid $7,517 in losses on behalf of HIH America, because the State of Oregon still has a balance of $960,244 remaining in its special deposit of $965,609.

No distribution will be made to the Texas Property and Casualty Guaranty Insurance Association, which has paid $115,082 in losses on behalf of HIH America, because its statutory deposit credit of $105,000 currently exceeds the cumulative distribution percentage of 71.3704 percent of losses. (See attached Exhibit B ("HIH Insurance 3rd quarter 2005 Early Access Distribution Detail of individual IGA distribution amounts.").)

In accordance with Insurance Code section 1035.5, subdivision (b)(l), the Commissioner has reserved certain amounts of the estate's assets for the payment of expenses of administration and the payment of claims of secured creditors and claims falling within the priorities established in Insurance Code section 1033, subdivisions (a)(l) and (a)(2). Subtracting the total proposed distribution of $85,000,001 from available net assets of $169,818,453 leaves remaining net assets in the amount of $84,818,453 for the payment of expenses of administration, and all other unrecorded liabilities and contingencies. The Commissioner will seek approval of an additional early access distribution when such liabilities and contingencies become known and are quantified.

In accordance with Insurance Code section 1035.5, subdivision (b)(4), the Commissioner will secure from the 12 guaranty funds receiving a distribution an agreement to return the distributed assets, as required, to pay claims of secured creditors and claims falling within the priorities established in Insurance Code section 1033, subdivisions (a)(l) and (a)(2). (A true and correct copy of the draft agreement is attached as Exhibit D.)

As detailed above, the Commissioner has complied with the requirements of Insurance Code section 1035.5 for disbursement of assets to insurance guaranty associations and, accordingly, this Court should approve the instant application.

WHEREFORE, the Commissioner respectfully requests, based on this Application, that this Court issue an Order:

1. Approving the Commissioner's proposal to disburse a total of $85,000,001 of the net assets of the estate of HIH America to the 12 state guaranty associations and funds set forth above and in the amounts set forth above, made subject to the execution of an agreement with each guaranty association or fund to return the distributed assets, as required, to pay claims of secured creditors and claims falling within the priorities established in Insurance Code section 103 3, subdivisions (a)( 1) and (a)(2).
2. Authorizing the Commissioner to transfer a total of $85,000,001 of the net assets of the estate of HIH America to the 12 state guaranty associations and funds set forth above and in the amounts set forth above, made subject to the execution of an agreement with each guaranty association or fund to return the distributed assets, as required, to pay claims of secured creditors and claims falling within the priorities established in Insurance Code section 1033, subdivisions (a)(l)and(a)(2).
3. Authorizing the Commissioner to take any and all action necessary to accomplish the purposes of the Order requested herein.

VERIFICATION

I, Mohsen Sultan, state that I am an Estate Trust Officer for the California Insurance Commissioner's Conservation & Liquidation Office and have been managing the affairs of HIH America Compensation & Liability Insurance Company since April 2005. I have read the VERIFIED APPLICATION FOR ORDER AUTHORIZING SECOND DISTRIBUTION OF ASSETS TO STATE INSURANCE GUARANTY ASSOCIATIONS OR FUNDS and know the contents thereof; that the same is true of my knowledge, except as to the matters which are therein stated upon information and belief and as to those matters, I believe them to be true.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on Nov 22^nd, 2005 in San Francisco. California.