Summary by: Joseph C. Monahan, Saul Ewing LLP

AIRROC’s New Jersey Commutations and Networking Forum included a panel presentation entitled “Rhode Island Regulation 68 – A View Of It In Practice.”  Locke Lord LLP’s Al Bottalico moderated the panel, comprised of: Karen Boisvert, Swiss Re America’s Senior Vice President, Casualty Underwriting; Rhode Island Superintendent of Banking and Insurance Elizabeth Kelleher Dwyer; Christopher Brennan, Legal Specialist with the New Jersey Department of Banking and Insurance’s Office of Solvency Regulation; and Mory Katz, Managing Director of U.S., Pro Global Insurance Solutions, plc. 

            As amended in August 2015, Regulation 68 provides another option for the management of run-off liabilities in the form of “insurance business transfers” or “IBTs”, which require either re-domestication to Rhode Island or the formation of a new company domiciled in Rhode Island.  As Ms. Dwyer explained, in order to undertake an IBT, an insurer must be solvent and adequately reserved.  Moreover, the Regulation applies only to commercial property and casualty lines of business.  An application for approval of the IBT plan must be submitted to the Rhode Island regulators.  Assuming the proposed IBT receives that regulatory approval, the plan is then submitted for court approval.  Ms. Dwyer emphasized that a carrier considering an IBT under Regulation 68 should first discuss its plans with her office before applying, as such communication will help to move the process along more smoothly.  Ms. Dwyer’s goal is to complete the review and approval process within 90 days, and that, depending on the time of year and completeness of the application, the process could potentially be accomplished in as little as one month.  After that, she estimated that the requisite court approval could take approximately nine months to a year, but that it may go faster as the Rhode Island court gains more experience with the procedure. 

The focus of the approval process is the protection of policyholders and the regulators require confirmation that all policyholders have received proper notice of the plan.  As part of the application, the applicant must file an actuarial report, and Rhode Island will hire its own actuary to review and analyze that filing.  Ms. Dwyer’s office will provide the court with an opinion regarding the plan and will monitor the plan’s implementation in order to ensure policyholder protection, and she emphasized that the Insurance Department will oppose an IBT if it appears the new entity will be undercapitalized or have insufficient reserves.  

             Ms. Boisvert explained that Regulation 68 allows for legal finality with respect to run-off, and likened it to Part VII Transfers in the United Kingdom.  She further noted that the Regulation allows for a transfer of the balance sheet and provides for capital relief along with regulatory oversight to protect policyholders. She indicated the procedure can be used both for internal consolidation and to facilitate the acquisition or transfer of legacy books of business between parties. 

            Mr. Brennan expressed that this is uncharted territory, such that New Jersey does not have protocols in place to evaluate a proposed IBT.  He did note, however, that before New Jersey would give up oversight of anything that would impact policyholders, his office would take a very close look at the proposal.  That said, he expressed that New Jersey is in favor of anything that will help the market and free up capital so long as policyholders are protected in the process.  He stressed that New Jersey intends to work closely with Rhode Island as a second set of eyes.  Like Ms. Dwyer, he emphasized the importance of communication with the New Jersey regulators in advance of submitting an application for an IBT.  In so doing, the company should be ready to explain why the proposal is not harmful to its policyholders, and should focus on the adequacy of reserves. The panel agreed that a company considering an application under Regulation 68 should consult with the regulators in any state where there is a large block of policyholders.

Mr. Katz spoke on behalf of Pro Global, a U.K. based company with offices in the U.S. that was the first to apply under Regulation 68 to allow it to accept IBTs for purposes of managing legacy books.  He indicated that Pro Global has significant experience with Part VII Transfers in the U.K.  The name of its Rhode Island domestic will be ProTucket.    Mr. Katz stated that client demand was behind Pro Global’s decision to submit its application and opined that he believes the market for such transactions will prove to be substantial.