On July 29, 2015, the Rhode Island Department of Business Regulation, Division of Insurance Regulation (the “Department”) adopted amendments to its existing insurance regulation governing commutations of closed blocks of business by certain Rhode Island-domiciled insurers (“Regulation 68”) to permit any commercial insurer (whether or not domiciled in Rhode Island) to transfer its legacy closed blocks of business to an assuming Rhode Island insurer. The amendments, which will become effective on August 18, 2015, make Rhode Island the second US state to adopt such statutory portfolio transfer mechanism, joining Vermont (see Vermont’s New Legacy Insurance Management Act in our Q1 2014 Bulletin located here).
By way of background, in 2002, Rhode Island enacted R.I. Gen. Laws §§ 27-14.5 et seq., permitting solvent commutations (patterned on the United Kingdom’s solvent schemes of arrangement). The statute applies only to Rhode Island-domiciled insurers transacting commercial business, and not any life and health, workers’ compensation or personal lines. In 2004, the Department promulgated Regulation 68 to outline the procedural requirements for insurers applying for the implementation of a commutation plan pursuant to the statute. The fact that the statute’s commutation process was only available to Rhode Island-domiciled insurers limited its usefulness, however. Accordingly, in 2007, Rhode Island amended the statute to allow a Rhode Island-domiciled insurer to assume blocks of business from other insurers (including non-Rhode Island insurers) that could then become the subject of a solvent commutation.
The newly adopted amendments to Regulation 68 are designed to implement the procedures for transfers and assumptions contemplated by the 2007 amended statute. The amendments add provisions and procedures for Insurance Business Transfer Plans (“Transfer Plans”) and allow any commercial insurer in runoff to transfer a block of business into a newly formed or existing Rhode Island insurer, or a protected cell created pursuant to R.I. Gen. Laws §§ 27-64-1 et seq. The law permits the novation of the transferred block of insurance/reinsurance contracts from the transferor insurer to the transferee insurer, thus releasing the transferor insurer from the liabilities. The law applies to commercial runoff insurance and reinsurance, specifically “the reinsuring of any line(s) of business other than life and/or the insuring of any line(s) of business other than life, workers' compensation, and personal lines insurance.”
The amendments provide that an assuming insurer seeking to assume a legacy block of business will need to file a Transfer Plan with the Department for review. The policies that are the subject of a Transfer Plan must have a natural expiration that occurred more than 60 months prior to the filing of the Transfer Plan with the Department, and must be in a closed book of business or a reasonably specified group of policies. Additionally, the amount of liabilities transferred must be less than or equal to the amount of assets transferred to the assuming insurer.
The Transfer Plan will need to include, among other items:
- details regarding the business to be assumed;
- an actuarial report and opinion;
- an expert opinion on the proposed transaction;
- a plan of operation required by R.I. Gen. Laws § 27-64-4, if transfer is to a protected cell;
- pro-forma financial statements demonstrating the projected solvency of the assuming insurer;
- most recent audited financial statements and annual reports of the transferring insurer filed with its domiciliary regulator; and
- an approval of the Transfer Plan from the transferring insurer’s domiciliary regulator.
The Department will have 60 days (which may be extended for an additional 30 days) from the date of receipt to review the Transfer Plan. If the Department determines that additional information or modification to the Transfer Plan is required, the assuming insurer will have 60 days from the date it receives notification from the Department to file an amended Transfer Plan. The Transfer Plan is also subject to a 30-day public comment period before a determination can be made by the Department to allow the assuming insurer to proceed with filing the Transfer Plan with the Superior Court for the County of Providence, Rhode Island. Once the assuming insurer receives notification from the Department to proceed, it will have 90 days to make a filing with the Court for approval of the Transfer Plan and implementation of a statutory novation.
According to the Department, since the 2002 enactment, only one insurer has taken advantage of the commutation statute. It may be that the newly adopted amendments will encourage more insurers to take advantage of the benefits provided by the statute and implementing regulation.