Andrew Rothseid designed the run off plan for Y-Mutual and, as Principal of RunOff Re.Solve LLC, was responsible for executing and concluding the run off.

According to Mr. Rothseid, “This is the best result possible for all involved. Y-Mutual has satisfied all of its obligations to the front carriers it reinsured so that the individual YMCA’s and their claimants will continue to be protected.”

Y-Mutual was incorporated in Bermuda in 1986 as a captive reinsurer “owned” by member YMCA’s throughout the United States. At its height, over four hundred fifty (450) separate YMCA organizations were members of Y-Mutual.

From 1986 through 2007, Y-Mutual provided reinsurance protection to five “fronting companies” that insured the individual YMCA’s. The individual member YMCA’s and, by extension, the front carriers and Y-Mutual, were subject to numerous auto and property liability, general liability and workers compensation claims. Y-Mutual discontinued active underwriting and went into “run off” in February 2007, at which time there were over one thousand pending claims subject to its reinsurance protection.

Y-Mutual was a non-assessable mutual. It could not ask its members for further capital contributions and had to manage the run off with limited financial resources. Its challenge in run off was to maintain solvency as it honored its reinsurance obligations to the front carriers for the many potentially dangerous general liability claims. At the outset of the run off, it was anticipated that, if an orderly wind down of the company was possible on a solvent basis, it would take at least nine years to eliminate all of Y-Mutual’s reinsurance obligations.

Y-Mutual honored all claims to the front companies in less than half the anticipated time. After it had concluded all of its reinsurance obligations to each of the fronting companies, Y-Mutual was deregistered as a licensed Bermudian reinsurer and closed through a solvent members’ liquidation process.

AIRROC is a worldwide legacy management association providing education, commutation events and a venue for the meeting of members. AIRROC’s award  acknowledges this event that has impacted the runoff industry and two of the key individuals that shaped that event.

GTE REinsurance Company Ltd. is the first accelerated closure of a solvent US property and casualty insurer or reinsurer under the Rhode Island statute enacted in 2002 entitled “Voluntary Restructuring of Solvent Insurers.”

First US Accelerated Closure Mechanism is “Sanctioned” by Rhode Island Court, Announces RunOff Re.Solve

On April 27, 2011, the Rhode Island Superior Court entered an order approving the first accelerated closure of a solvent US insurance company and set an August 1, 2011 bar date for the submission of claims.

The decision paves the way for GTE REinsurance Company Limited (“GTE RE”) to:

• Pay all of its creditors, who submit timely and valid claims, the full agreed amount of their claims, reduced only to account for present value; and
• Extinguish, forever, the company’s exposure to liabilities for reinsurance policies issued over twenty years ago.
The April 27 order follows a decision issued by the same Court on April 25, 2011, granting GTE RE’s Motion to Implement the Commutation Plan and overruling the objections of two creditors who had raised a constitutional challenge to the Commutation Plan and the statute under which the Commutation Plan was brought. In its April 25 decision, the Court ruled that the Rhode Island statute was constitutional and that the implementation of GTE RE’s Commutation Plan would not have an adverse material effect on any creditor. On April 27 the Court entered an Implementation Order and set a Final Claims Submission date or “bar date” of August 1, 2011 for the submission of claims.

In addition to permitting the GTE RE Commutation Plan to proceed, the April 25 decision and April 27 order also provide the basis for other, similarly situated commercial insurers and reinsurers in “run off” to consider accelerated closure through a Rhode Island Commutation Plan as an effective exit from decades’ old long tail exposures.

Andrew Rothseid of RunOff Re.Solve LLC, Bala Cynwyd, Pennsylvania designed, drafted and negotiated the Commutation Plan and oversees its implementation as the Commutation Plan Advisor.

According to Mr. Rothseid, “GTE RE will pay its customer’s claims in full and terminate its exposure to this twenty year run off. The Commutation Plan affirms the perception that it is possible to accelerate the closure and, in fact, close solvent insurance and reinsurance companies in run off in the United States, provided the process is fair, transparent and addresses the issues raised by all stakeholders.”

The Commutation Plan process is set forth in a Rhode Island statute entitled ‘Voluntary Restructuring of Solvent Insurers.’ The statute, which is modeled on a similar process available to companies in the UK and Bermuda where it is known as a “solvent scheme of arrangement”, sets forth the process whereby a solvent Rhode Island domiciled commercial lines insurer or reinsurer can extinguish its outstanding liabilities for past and future claims and terminate its business. Although the Rhode Island statute was enacted in 2002 and became effective in 2004, GTE RE is the first Rhode Island company to utilize the statute and the first solvent U.S. licensed commercial insurer or reinsurer to be allowed to satisfy and extinguish its liabilities pursuant to any form of accelerated closure mechanism.

GTE RE began the formal process to honor its obligations and close its business when it moved its domicile from Vermont to Rhode Island in late June 2010. In July, 2010 the Rhode Island Superior Court granted GTE RE permission to convene a Meeting of Creditors to determine if sufficient creditor support existed to implement its proposed Commutation Plan. The Rhode Island Statute requires approval by creditors representing 50% by number and 75% by value of those creditors who vote, in person or by proxy. At a November 30, 2010 Meeting of Creditors GTE RE’s Commutation Plan was approved by more than 87% by number and 97% by value of those reinsurance creditors who voted, either in person or by proxy. On January 13, 2011 the Court affirmed the vote from the Meeting of Creditors.

Mr. Rothseid added: “This is an excellent result for all involved. The reinsurance creditors of GTE RE will be paid in full for the agreed value of their submitted claims. The fact that the Commutation Plan was approved by such a large margin evidences the fact that it has overwhelming support from GTE RE’s reinsurance cedents. The Court’s well reasoned and thorough decision granting GTE RE’s Motion to Implement the Commutation Plan evidences the transparency and fairness of the statute and GTE RE’s Commutation Plan.”