The Rhode Island state legislature has amended the enabling act to the state’s legacy transfer program, R.I.G.L § 27-14.5-1 et seq. (“R.I. Restructuring Act”), to provide clarification to the marketplace. The enabling act, originally enacted in 2002, was designed to allow for “commutation plans” to provide for reorganization through a court-approved commutation among a reinsurer or insurer and all of its insurance or reinsurance creditors. In 2004, the Rhode Island Department of Business Regulation (“DBR”) promulgated Regulation 68 to provide the regulatory framework for commutations plans under the R.I. Restructuring Act.
In 2007, the state legislature amended the statutory definition of “Commercial Run-off Insurer” to include companies formed and existing under Rhode Island law for the purpose of accepting transferred business to be restructured under the R.I. Restructuring Act. In 2015, the DBR revised Regulation 68 to allow insurance business transfers (“IBT”), which permit insurers to novate, with court approval, commercial ‘legacy business’ (subject to certain limitations) to a Rhode Island domestic insurer.
While there has been optimism about the prospects of the Rhode Island procedure, a question arose as to whether the 2007 version of the R.I. Restructuring Act might be interpreted to require that an IBT be done for the sole purpose of effecting a commutation plan. Although the DBR believed that this was not the case, it decided to clarify any perceived ambiguity.
The 2018 amendments to the R.I. Restructuring Act make it clear that commutation plan is not an IBT requirement, and that a commutation can happen at a later date, if at all. The amendments also clarify that the transfer can be to a protected cell entity, which is also consistent with DBR’s view of the R.I. Restructuring Act. To the extent that previous concerns created any hesitancy, these amendments make it more likely that insurers will utilize the state’s legacy transfer program, thereby filling a gap in the US legal framework that many in the insurance market believe is desperately needed.
On June 19, 2019, the state legislature passed the amendments to the R.I. Restructuring Act and the governor signed the bill on July 3, 2018.
We can’t speak for Jack, but those (re)insurers seeking legacy solutions, can now, with a high degree of confidence hit the road….to Rhode Island.
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