The imminent closures of the insolvent Westmoreland Casualty Company and Rockwood Insurance Company highlight how seemingly endless and intractable issues emanating from insurance and reinsurance policies that were written long ago (legacy issues), and which have been tying up capital for decades, can now be resolved once and for all. Could it be time to take another look at the ‘too difficult pile’ to see what’s possible?
It had never been done, but where there’s a will there’s a way. Following landmark rulings in 2016 and 2017, two insolvent Pennsylvania-domiciled insurance companies (Westmoreland Casualty and Rockwood Insurance) have crystallized their obligations to their remaining creditors (the relevant guaranty associations), paving the way for closure.
In cases like this, where the claims handled by guaranty associations on behalf of the insolvent insurer are for workers’ compensation injuries, it has proved difficult to close the insolvent insurer. Medical payments to the individual claimants carry on for many decades. The prolonged costs of running the insolvent insurer reduce the amount of much needed funds that are available to the guaranty associations. Could there be a way to ensure the medical fees are fully covered, but the continued administrative expenses are eliminated?
The regulatory options are limited. However, through the deployment of procedures similar to the provisions found within the Insurance Receivership Model Act (IRMA), the case reserve values of unliquidated claims can be established – as they were here – and settlements agreed 1. This is a win-win – compensation claimants have guaranteed support for life, while the insolvent insurer can avoid continued administrative expense and have more funds available for final distribution. It’s also a ground-breaking solution as this is believed to be the first time that these provisions have been used to accelerate the closure of an insolvent US insurer.
Having been engaged by the Pennsylvania Insurance Department as the Liquidator of Westmoreland and Rockwood, specialist closure firm, RunOff Re.Solve worked with the Department to conceive, design, negotiate, and execute the settlement strategy.
Exploring all the options
These landmark rulings represent an innovative solution to the problems faced by liquidators of insolvent insurers, as well as owners of solvent insurers with exposure to their own legacy liabilities. Traditional – and common – approaches to resolving legacy liabilities – either the purchase of third party reinsurance to protect against adverse development of known and unknown liabilities or continued administration of the legacy business – do not provide true finality to the issuing carrier. As a result, administrative costs continue to build up, reserves deteriorate, and capital supporting those reserves remains trapped. And with recent developments such as Connecticut’s Division Statute joining longer established options such as Rhode Island Commutation Plan [Maximizing value from run off: Have you explored all the unfolding options?], the possibilities are increasing all the time 2.
Who is RunOff Re.Solve?
Traditional solutions to legacy issues – such as sale or reinsurance – can leave huge amounts of value on the table. Today’s more innovative solutions can secure finality from the expense and distraction associated with legacy liabilities and release more funds to all affected stakeholders. However, they require specialized knowledge and experience in execution that is generally not available within brokers or reinsurers.
This is where RunOff Re.Solve comes in. We solve problems. As needed, we identify, assess, and resolve exposure, organizational, regulatory, and capital issues facing the insurance industry.
From the first, and to date, only successful Rhode Island commutation plan to the recent settlements of liabilities at Westmoreland and Rockwood, we have pioneered innovative approaches to accelerated closure. Alongside the specialist knowledge, we have the tenacity, legal, and relationship skills to deliver these capital releasing solutions for our clients. The more complex and seemingly intractable the problem, the more you should talk to us.
RunOff Re.Solve LLC
1. In separate applications, both insolvent insurers asked the Court to rule that Class A (administrative) and Class B (loss and loss adjustment expenses), agreed with the respective guaranty associations, represented each insolvent insurer’s full and final obligations to the respective guaranty associations. The Court granted both applications, setting the stage for closure.
2. Oklahoma has introduced legislation modeled on the UK Part VII (portfolio novation and transfer process), which we will review in a future blog.
Feel free to talk to us
We would be pleased to speak or meet with you to discuss the issues raised here or other aspects of run off and capital management.
Who We Are
Andrew Rothseid, Principal of RunOff Re.Solve, designs and executes solutions that provide insurers, reinsurers, cedents, policyholders, and regulators with legal and financial finality from run off captive and legacy liabilities. To find out more, please visit http://runoffresolve.com/