Earlier this month Rhode Island Governor Gina Raimondo signed into law changes to the state’s runoff statute that are intended to make it a more attractive channel for insurers and reinsurers seeking to separate, transfer and resolve legacy commercial property/casualty liabilities.
The runoff statute, codified under the chapter heading, “Voluntary Restructuring of Solvent Insurers” (R.I.G.L. 27-14.5-1 et seq.), was originally enacted in 2002 and established a court-supervised proceeding for extinguishing liabilities from runoff portfolios of commercial property/casualty insurance business (other than workers’ compensation) and property/casualty reinsurance business. The law provided a method for the orderly transfer of such business to an insurance carrier specifically licensed in Rhode Island for such purpose and a winding up pursuant to a court-sanctioned “commutation plan.”
In 2015, the Rhode Island Superintendent of Insurance amended existing regulations to provide for the transfer of business pursuant to an “Insurance Business Transfer Plan,” as distinct from a winding up pursuant to a “Commutation Plan” (230-RICR-20-45-6.1 et seq., also referred to as “Regulation 68”). The newly enacted amendment to the runoff statute conforms the statute to the regulation to make it clear that transfers of runoff books can be done without a commutation plan, in effect creating a US analogue to Part VII transfers in the UK. The amendment does this by adding the term, “voluntary restructuring,” which it defines as:
the act of reorganizing the legal ownership, operational, governance, or other structures of a solvent insurer, for the purpose of enhancing organization and maximizing efficiencies, and shall include the transfer of assets and liabilities to or from an insurer, or the protected cell of an insurer pursuant to an insurance business transfer plan.
The definition goes on to say that a voluntary restructuring may be approved by the commissioner only if, in the commissioner’s opinion, it would have no material adverse impact on the insurer’s policyholders, reinsureds or claimants of policies subject to the restructuring.
The amendment also changes the definition of a “commercial run-off insurer” by eliminating the requirement that the company be formed or reactivated for the sole purpose of entering into a voluntary restructuring. It also specifically permits the use of a protected cell structure for voluntary restructuring activities. Finally, it allows notices to stakeholders that are required for the transfer or winding-up of books of business to be sent by means other than First-Class mail.
These amendments are intended to improve the chances of utilization of the Rhode Island statute by offering more options and flexibility than it previously allowed. The statute has been used only once since it was enacted, and it now competes with runoff laws in other states that offer different options for resolving legacy runoff books. Connecticut and Oklahoma each have enacted laws, and runoff legislation has been proposed in other states.
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