The new amendments to Insurance Regulation 68 create the first court-sanctioned transfer of commercial insurance and reinsurance business in the United States, creating for the first time a judicial and regulatory framework and marketplace for such transfers.
For insurers and reinsurers, the Insurance Business Transfer provisions of Insurance Regulation 68 create a new, efficient means to transfer commercial P&C run-off insurance and reinsurance through a court sanctioned transfer.
The IBT applies to reinsurance of all lines of business, other than life, and insurance of all lines of business, other than life, worker’s compensation and personal lines insurance. The policies or contracts that are the subject of an IBT must have a natural expiration which occurred more than sixty (60) months prior to the filing of the IBT Plan and be in a closed book of business or a reasonably specified group of policies.
The IBT enables an insurer or reinsurer to transfer commercial run-off portfolios to a RI Commercial Run-off Insurer, which then assumes the obligations to policyholders. The IBT provides a way for insurance companies to divest themselves of U.S. portfolios and to continue writing new business with no further obligations under the transferred insurance policies. The transfer is effected by obtaining a court order and policyholder’s rights are safeguarded via the court process.
All Insurance Business Transfers are subject to regulatory and judicial approval of the Insurance Business Transfer Plan. Any transfer that is approved by the RI Insurance Department and the Court results in a court sanctioned transfer, meaning that the legal responsibility for each transferred insurance policy or reinsurance contract is taken over by the Assuming Company resulting in economic and legal finality.
All IBT’s are subject to the review and approval of the RI Insurance Department and also require approval of the Providence County Superior Court. The RI Insurance Department also oversees the Assuming Company’s continuing claims management and other compliance obligations.
IBT’s require the approval of the domiciliary state of transfer.
An Insurance Business Transfer to an entity either within or outside of a group can re-shape a business to be best prepared for the future. While the specific motivations for each transfer will differ, there are a number of common themes which apply for both the transferring and receiving parties, including capital efficiency, lightening the regulatory/reporting burden, corporate simplification, separating old and new business and entry or exit from the market. The decision to proceed with a transfer can be a catalyst and form the cornerstone for achieving operational and financial improvements for both the Transferring and the Assuming Companies.
Transferring Companies that may have exited a particular market or ceased to write a certain kind of policy can divest themselves of those portions of their portfolio, freeing them from having to maintain specialists in the management of such policies or in the maintenance of policy data. Additionally, the financials of transferring companies may benefit from the finality of the court sanctioned transfer under the IBT.
The Assuming Company receives value relative to its long-term interests. The policyholders and/or reinsureds in the transferred policies or contracts benefit from the focused management of the specialist Assuming Company.
Transferring Companies are able to achieve an exit (i.e. finality) from either part or the whole of their business through an Insurance Business Transfer to a third party. True finality for all parties, including policyholders, can only be achieved through a Commutation Plan pursuant to the RI Voluntary Restructuring of Solvent Insurers Act. A Commutation Plan is a Court driven process which provides for the settlement of all current and future liabilities and, once effective, concludes the business that is subject to the Commutation Plan. When used in conjunction with a Commutation Plan, an Insurance Business Transfer can be a key part of the strategy for achieving complete finality, which might not have otherwise been available.