Earlier his month I attended the American Bar Association Insurance Coverage Litigation Committee CLE Seminar in Tucson with other members of our team: Nancy Gutzler, Elizabeth Hanke, and Nick Sochurek.
Each of us spoke about an area of our expertise, mine being a subject that I have tackled here on “Risky Business” many times before in posts detailing the reasons behind my entrenched opposition to a certain type of insurance company financial reorganization.
My co-leader for a lunch roundtable at ABA in Tucson was William F. Greaney, Covington & Burling LLP, Washington, D.C. Our “Everybody Hurts: Insurance Company Run-Off Divestitures” discussion took place on Friday, March 4. We were joined at the table by attorneys from both the policyholder and insurance company camps, indicating the great relevance of the subject matter.
Bill and I provided an overview of the failure of most changes in control and the negative consequences they have caused for policyholders and the insurance industry.
We started with a look at significant examples of change of control and the clear, resulting difference if the acquisition was by an insurer versus a non-insurer:
|Home Insurance Company||1995||Insolvent|
|Royal and SunAlliance USA||2007||Life Support|
|OneBeacon Insurance Company||2014||Insolvent|
We discussed who gets hurt in these transactions …
… and who benefits:
Next, we provided an overview of the statutory authority regulating actions by state insurance commissioners: NAIC Model Law “Insurance Holding Company System Regulatory Act” Section 3, “Acquisition of Control…”. We also stepped through the list of “tests” that commissioners must consider to approve a reorganization.
Finally, we shared our thoughts of what can be done to avoid such disastrous restructurings in the future.
Among them, policyholders and/or solvent insurers should:
The incentives outlined above make it inevitable that insurance company executives will continue to look for ways to escape their obligations to policyholders. And regulators will continue to waive such reorganizations through, especially in the worst jurisdictions like Pennsylvania.
The only way forward is for policyholders and insurers to organize and resist as never before. I hope that the roadmap outlined will gain some traction.
For more reading on this subject, see these past posts:
If This Isn’t Wrong, Nothing is Wrong
OneBeacon Five Years On: We Told You So!
OneBeacon 2019 Financials – It’s Not Pretty
Arrowood: Updated Analysis and Opinion
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Jonathan Terrell is the Founder and President of KCIC. He has more than 30 years of international financial services experience with a multi-disciplinary background in accounting, finance and insurance. Prior to founding KCIC in 2002, he worked at Zurich Financial Services, JP Morgan, and PriceWaterhouseCoopers.Learn More About Jonathan