Vermont’s Legacy Insurance Management Act: How Will it Work?

Panel Summary authored by Michael Goldstein, Mound Cotton Wollan & Greengrass 

Michael Goldstein of Mound Cotton Wollan & Greengrass moderated this panel of regulators and industry professionals who provided an insightful view of the innovative legislation recently passed in Vermont – its Legacy Insurance Management Act (“LIMA” or the “Act”). This constituted the second time this panel was presented – the first time was in June – as it was brought back by popular demand as a “Special Education Feature” on the second full day of AIRROC’s commutation and networking event.

Anna Petropoulos (President, Apetrop USA), who was instrumental in getting LIMA passed into law, provided an overview of the Act and described what types of companies and categories of insurance can take advantage of this legislation. She also described how a transfer plan would work under LIMA and concluded with her insights into the benefits of the Act.

Jeffrey Kingsley of Goldberg Segalla – substituting for the Commissioner of Vermont’s Department of Financial Regulation, Susan Donegan, who participated in the first iteration of the event -- proceeded to walk the audience through a historical perspective on issues involving long-tail liabilities and the impact of Solvency II regarding investment of reserves related thereto. Mr. Kingsley discussed the differences between in-house solutions (commutations) and those solutions involving third-parties (loss portfolio transfers) and the relationship between statutory portfolio transfers in the UK as a basis for LIMA. He also examined the scope of LIMA, the possibilities it provides for U.S. long-tail liabilities issues, and how it contrasts with the UK model. Mr. Kingsley concluded with a brief discussion of how LIMA may alter the regulatory landscape and an examination of its potential expansion.

Daniel Maher (Executive Director, Excess Line Association of New York), then provided his view of LIMA from an excess and specialty lines (“E&S”) perspective and indicated that the Act brings some additional protections to E&S transfers, currently a $30 billion a year business in the U.S. From an E&S standpoint, LIMA has the potential of being the new and improved mechanism needed by the industry. However, Mr. Maher added that the reinsurance side of things would be more complex and have additional potential barriers.

Steve McElhiney (CEO, EWI Re), wrapped up with his thoughts on the commercial opportunities created by LIMA, particularly in the realms of run-off related businesses and capital markets firms, as well as, the opportunities created by the Act for the State of Vermont and the synergies associated with this being Vermont legislation. The panel then concluded with a brief discussion regarding LIMA’s implications as to (a) how a transferring company will get cedants to follow the portfolio to Vermont given that there is an opt out clause in the Act; and (b) how strong Vermont’s case would be if cedants challenge the “statutory novation” portion of the statute.