Delivering Value

The first US Solvent Scheme of Arrangement

Andrew Rothseid, Principal of RunOff Re.Solve LLC, designed and implemented the first “solvent scheme of arrangement” in the United States.  The closure of GTE REinsurance Company Limited, through the Rhode Island process referred to as a “Commutation Plan”, resulted in the:

  • Satisfaction of all liabilities;
  • Elimination of prospective operating expense; and
  • Release of trapped surplus.

GTE RE was a former Bermuda domiciled captive insurer and reinsurer, originally owned by GTE Corp. It underwrote non-related third party assumed reinsurance and retrocessional coverage from 1978 to 1989, together with its owner-related risks. The third party assumed reinsurance was written to insurers and reinsurers throughout the world and covered, principally, property, catastrophe, and casualty risks including reinsurance of asbestos, pollution, health hazard and workers compensation risks.

GTE RE went into run off in 1990 and moved its domicile to Vermont in 1994. In June 2010, GTE RE transferred its owner-related risks to an affiliated captive reinsurer and moved its domicile, containing only the non-related assumed reinsurance risks, to Rhode Island.

The Brief

Closure options available to solvent US insurers and reinsurers in run off have been limited.  The task was to design, draft and negotiate an accelerated closure mechanism which would allow for termination of liabilities, elimination of ongoing expense and extraction of capital in a limited time. This closure mechanism, the Commutation Plan, had to be sanctioned by the Rhode Island Court following the approval of 50% or more of creditors by number, representing 75% or more by value of those voting in person or by proxy.

GTE RE filed the petition to implement the Commutation Plan in June 2010 and the Rhode Island Department of Business Regulation approved the Plan pursuant to Rhode Island Chapter 27-14.5 entitled “Voluntary Restructuring of Solvent Insurers.”

The timeline for the process was as follows:

Ascertainment date December 31, 2009
Claim and proxy forms due October 29. 2010
Meeting of creditors November 30, 2010
Hearing to approve commutation plan March 16, 2011
Commutation Plan effective date April 27, 2011
Final claims submission time August 1, 2011
Final date for payment of agreed claims September 30, 2011

Results

On March 23, 2012 the Court entered an Order indicating that GTE RE:

  • Complied with all aspects of the Court’s February 1, 2012 Amended Implementation Order;
  • Paid all claims that were properly and timely submitted;
  • Completed the Commutation Plan; and
  • Was discharged from all obligations to all creditors.

On April 17, 2012, the Court entered an Order terminating the GTE RE Commutation Plan.

With the support and guidance of RunOff Re.Solve, GTE RE has been able to honor its outstanding obligations and paid all creditors, who submitted proper and timely Claim Forms, one hundred percent of the agreed value for their claims. Through this process it has avoided the cost and distraction of a prolonged, perhaps twenty five year, continued run off operation.

This landmark court ruling has paved the way 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. The Commutation Plan has affirmed 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, providing the process is fair, transparent and addresses the issues raised by all the stakeholders.