At the NAIC Fall meeting in Austin, Texas, the Restructuring Mechanisms Working Group (“Restructuring Working Group”) held its meeting on insurance business transfers (“IBTs”) and corporate division statutes. The Restructuring Working Group (and its Subgroup which is working on accounting and related subjects) continues to gather information on this issue.
A year ago when the subject of IBT’s (and division statutes) was first introduced at the Restructuring Working Group, the reaction was clearly less than positive, with a number of states first learning of the initiative, and not at all receptive, with a significant number of objections articulated. The subject met with a decidedly different response among the states at the meeting this week, with virtually no state voicing objections (not that every state is yet on board, but at least all appear receptive to considering the mechanism).
Also, in the meantime, the first filings for a restructuring were submitted to a court in Oklahoma to commence the process of approving what may become the first such transaction under an IBT statute.
At the meeting, the Restructuring Working Group reiterated its plans for drafting a white paper, which is one of its 2020 charges. The white paper will (1) address the perceived need for restructuring statutes and the issues those statutes are designed to remedy, (2) summarize the existing state restructuring statutes, (3) address the legal issues posed by an Order of a Court (or approval by an Insurance Department) in one state affecting the policyholders of other states, and (4) consider the impact that a restructuring might have on Guaranty Associations and policyholders that had Guaranty Fund protection prior to the restructuring.
The meeting included a discussion of segregated accounts, protected cells and guaranty fund protection issues related to IBTs and divisions, presentations from the American Council of Life Insurers (ACLI), the American Property Casualty Insurance Association (APCIA), the National Conference of Insurance Guaranty Funds (NCIGF) and the Center for Economic Justice (CEJ) on some of the issues before the Working Groups. In general, the comments were constructive and did not display hostility to the fundamental concept of these restructuring proposals. The ACLI did not oppose the general concept of IBTs or division statutes, but expressed their continuing opposition to the use of these options for life, annuity and long term care business. The NCIGF expressed no opposition to the restructuring options under review but indicated that guaranty laws throughout the country would need to be amended to assure that no such restructuring would result in changing guaranty fund coverage by removing or adding coverage by such reason. The NCIGF Indicated that it would soon submit proposed draft amendments to existing law to assure this result. The CEJ expressed the view that restructuring laws should require that a consumer advocate be given full access to the entire submission in any restructuring and a formal role to advocate for the consumer in each of these regulatory and judicial proceedings. Other that these comments, there were no major objections introduced by any regulator or interested party.
The Restructuring Working Group also adopted its October 1 minutes, which included discussions with Enstar Group and Aon Service Corporation on the various restructuring mechanisms, and the minutes from its Summer National Meeting in New York.
As we noted in prior client alerts, U.S. reinsurers and insurers are looking for new solutions to provide economic and legal finality to transfers of legacy and in some cases ongoing portions of current insurance risks as a means to improve the efficient allocation of capital and management resources to both legacy and on-going insurance operations. As of this date, Rhode Island, Oklahoma, Arizona, Connecticut, Illinois, Iowa, Michigan, Pennsylvania and Vermont have adopted IBT or corporate division statutes with varying requirements and procedures to segregate insurers’ books of business.
Locke Lord will continue to monitor and report on the progress of the Restructuring Working Group and Subgroup and any new developments with respect to the use of IBTs in the U.S, but a year from now the discussion will also include the IBTs that have been successfully completed, because what a difference a year makes!
