Both Rhode Island and Oklahoma have enacted insurance business transfer acts, which allow insurers to transfer and novate books or portfolios of business to insurers domiciled in the respective States. Rhode Island’s Voluntary Restructuring of Solvent Insurers Act became effective on June 30, 2007, and is codified by the Rhode Island Department of Business (“DBR”) Regulation 68. Oklahoma’s Insurance Business Transfer Act (“IBTA”) became effective on November 1, 2018.
Although the Acts are similar in many respects, the Rhode Island Act is more limiting in the classes of business permitted to be transferred (property and casualty), and applies only to non-active run-offs books, while the Oklahoma Act, on its face, has virtually no limitations, applying to both active and run-off books of business.
On September 30, 2018, Enstar completed its acquisition of Yosemite Insurance Company (“Yosemite”), which has been re-domiciled in Oklahoma. It is anticipated that Enstar will shortly follow up this acquisition with an insurance business transfer to Yosemite. In March of 2018, ProTucket Insurance Company became the first Rhode Island domestic insurer to be formed specifically for providing run-off portfolio transfer solutions under Rhode Island’s Regulation 68. In September 2018, ProTucket’s parent provided the minimum capital requirement needed for ProTucket to accept insurance portfolios from other states, meaning that ProTucket is now ready to accept insurance business transfers in Rhode Island.
Although the procedural steps under the Rhode Island and Oklahoma transfer acts are similar, there are important differences. As noted above, Rhode Island’s Regulation 68 is limited to transfers of run-off books of business for property and casualty; the Oklahoma Act applies to active and run-off books, and covers potentially any line of business. Moreover, under Rhode Island’s Regulation 68, once the RI DBR is satisfied that a transfer plan is in a format that would allow it to proceed with the requisite filing with the Rhode Island Superior Court, the RI DBR must first send electronic notice to all interested persons who have requested notice of insurance issues to indicate that the proposed plan has been filed and is available for review upon request. Any person wishing to comment at this stage shall file comments with RI DBR within 30 days, and the RI DBR will consider the comments before it determines whether to allow the assuming insurer to petition the court for plan approval.
Under the Oklahoma IBTA, once an applicant submits a transfer plan to the Oklahoma Insurance Commissioner, the Commissioner has 60 days to review it. Unlike Rhode Island’s Regulation 68, the Oklahoma IBTA does not require notice to policyholders at the regulatory approval stage, and the Insurance Commissioner must approve the IBT Plan unless it is determined that the IBT Plan would have a material adverse impact on policyholders or claimants.
Once the Oklahoma Commissioner approves the plan, the transferring insurer may petition the District Court for Oklahoma County for an implementation order. Before any hearing at the District Court, notice must be provided to affected policyholders that they may comment on the plan but that they may not opt out of the transfer and novation. If the District Court finds there would be no material adverse impact to the interests of policyholders or claimants, then the Court will enter an implementation order, after which the assuming insurer becomes directly liable to the policyholders, and the transferring insurer’s transferred obligations are extinguished.
Similar transfers have been permitted for many years in the UK and other jurisdictions effecting so-called “Part VII transfer.” These transfers have been very successful means to transfer and segregate books of legacy business to dedicated run-off insurers. The US market has been searching for equivalent mechanisms to accomplish these same objectives for US insurers, as Pennsylvania, Connecticut and Vermont have also adopted laws to facilitate business transfers. Many in the market are hoping that this legislation will act as a ‘trigger’ to accomplishing the same type of transfer mechanism in the USA.
* With acknowledgment to Robert Romano for his assistance.