For corporate policyholders with Reliance Insurance Company insurance policies, recent developments have created opportunities to sell or reevaluate the financial value of claims against the policies. First, some background. Reliance Insurance Company was placed in liquidation on Oct. 3, 2001, by Order of the Commonwealth Court of Pennsylvania. The Reliance liquidation was, and still is, one of the largest insurance company liquidations in U.S. history. Reliance is paying its liabilities through a court-appointed Liquidator, namely, the Insurance Commissioner of Pennsylvania. Many insurance liquidations take decades to resolve (such as Ambassador, Midland, Home and others), and it is probable that Reliance will take at least 20 years to run-off all of its liabilities and pay the various classes of claimants until the assets are finally exhausted.
“Class (b) claims”–which are the policyholder claims and are the second highest priority claims that can be made against the Reliance estate–total approximately $7.4 billion. By far, these Class (b) claims make up the largest portion of Reliance’s known liabilities of $8.8 billion.
The Reliance estate has had several recent positive developments, which has spurred interest from numerous private equity and other funds who specialize in the purchase and sale of these types of contingent assets. Many of our clients are receiving offers to buy their Reliance claims from such funds, and interest in purchasing these Class (b) claims remains strong. However, companies with pending Reliance claims should carefully consider the pros and cons—and the timing—of any proposed sale of such insurance assets to one of these buyer entities. For example, many purport to offer “non-recourse” sales, but the purchase documents eventually provided often do not reflect a true non-recourse transaction. Also, it makes sense to obtain more than one “bid” from the various funds who are in the market currently, as most have negotiating room on final purchase price.