2018 -- S 3008

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LC005967

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO INSURANCE -- VOLUNTARY RESTRUCTURING OF SOLVENT

INSURERS

     

     Introduced By: Senator Roger Picard

     Date Introduced: June 23, 2018

     Referred To: Placed on Senate Calendar

     It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 27-14.5-1, 27-14.5-3, 27-14.5-4 and 27-14.5-6 of the General

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Laws in Chapter 27-14.5 entitled "Voluntary Restructuring of Solvent Insurers" are hereby

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amended to read as follows:

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     27-14.5-1. Definitions.

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     As used in this chapter:

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     (1) "Applicant" means a commercial run-off insurer applying under § 27-14.5-4.

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     (2) "Assessment deficit" means the amount that the assessment for the previous year

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under § 27-14.5-5 is less than, and "assessment surplus" is the amount that the assessment for the

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previous year exceeds:

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     (i) The run-off insurer's proportionate share of regulatory expenditure for the previous

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year, if the run-off insurer was domiciled in Rhode Island on March 15 of the previous year; or

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     (ii) The redomestication expenditure for the previous year attributable to the run-off

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insurer, if the run-off insurer was not domiciled in Rhode Island on March 15 of the previous

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year.

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     (3) "Assumption policyholder" means a policyholder whose policy is reinsured under an

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assumption reinsurance agreement between the applicant and a reinsurer.

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     (4) "Assumption reinsurance agreement" has the meaning given in § 27-53.1-3(b),

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subject to the following:

 

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     (i) The agreement may be conditioned upon the court's entry of an implementation order.

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     (ii) If any policy subject to the agreement is protected through a guarantee association,

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then the assuming insurer must have been and be licensed, and must have been and be a member

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of the guarantee association, in all states known to the applicant in which either: (A) any property

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covered under the policy has a permanent situs; or (B) the policyholder resided while the policy

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was in force.

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     (5) "Class of creditors" means:

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     (i) All voting policyholders, including those without known claims;

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     (ii) Voting creditors, other than policyholders; or

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     (iii) Any separate class of creditors as the court may in its discretion determine should

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approve the commutation plan.

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     (6) "Commercial run-off insurer" means:

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     (i) A run-off insurer domiciled in Rhode Island, or the protected cell of such insurer,

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whose business, excluding all business subject to an assumption reinsurance agreement, includes

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only the reinsuring of any line(s) of business other than life and/or the insuring of any line(s) of

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business other than life, workers' compensation, and personal lines insurance; or

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     (ii) A Rhode Island domestic insurance company, or the protected cell of such insurer,

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meeting the requirements of subsection (i) hereof and formed or re-activated for the sole purpose

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of entering into a voluntary restructuring under this chapter and whose liabilities consist of

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commercial liabilities transferred to said company with the approval of the commissioners

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commissioner and pursuant to the regulations issued by the department under this chapter. The

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amount of the commercial liabilities transferred must be less than or equal to the amount of assets

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transferred to the newly formed or re-activated company.

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     (7) "Commissioner" means the director of the department.

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     (8) "Commutation plan" means a plan for extinguishing the outstanding liabilities of a

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commercial run-off insurer.

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     (9) "Creditor" means:

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     (i) Any person that has a claim against the applicant; or

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     (ii) A policyholder other than an assumption policyholder.

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     (10) "Department" means the department of business regulation.

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     (11) "Guarantee association" means a guarantee association or foreign guarantee

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association, as those terms are defined in § 27-14.3-3(10), that is potentially obligated with

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respect to the applicant's policies.

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     (12) "Implementation order" means an order under § 27-14.5-4(c).

 

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     (13) "Insurer" has the meaning given in § 27-14.3-3(12).

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     (14) "Person" means an individual, corporation, partnership, association, joint stock

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company, trust, unincorporated organization, or any similar entity or any combination of the

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foregoing acting in concert.

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     (15) "Personal lines insurance" means insurance issued for personal, family, or household

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purposes.

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     (16) "Policy" means a contract of insurance or a contract of reinsurance.

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     (17) "Policyholder" means an insured or a reinsured of the insurer.

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     (18) "Proportionate share" means, for a particular run-off insurer as of December 31 of

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the previous year, the ratio of:

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     (i) The gross assets of that run-off insurer; to

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     (ii) The gross assets of all run-off insurers, other than those that were not domiciled in

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Rhode Island on March 15 of that calendar year.

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     (19) "Redomestication expenditure" means, for any calendar year:

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     (i) The amount that the department's expenditures attributable to the regulation of run-off

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insurers increases as a result of any run-off insurer redomiciling to Rhode Island on or after

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March 15 of that year; less

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     (ii) Filing fees, examination costs, and any other fees in relation to insurance regulation in

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this state paid to this state by run-off insurers that redomiciled to Rhode Island on or after March

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15 of that year, but excluding any premium taxes.

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     (20) "Regulatory expenditure" means, for any calendar year:

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     (i) The amount of the department's expenditures attributable to the regulation of run-off

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insurers domiciled in Rhode Island on March 15 of that year; less

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     (ii) Filing fees, examination costs, and any other fees in relation to insurance regulation in

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this state paid to this state by run-off insurers domiciled in Rhode Island on March 15 of that

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year, but excluding any premium taxes.

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     (21) "Run-off insurer" means an insurer that:

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     (i) Is domiciled in Rhode Island;

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     (ii) Has liabilities under policies for property and casualty lines of business;

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     (iii) Has ceased underwriting new business; and

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     (iv) Is only renewing ongoing business to the extent required by law or by contract.

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     (22) "Voluntary restructuring" means the act of reorganizing the legal ownership,

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operational, governance, or other structures of a solvent insurer, for the purpose of enhancing

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organization and maximizing efficiencies, and shall include the transfer of assets and liabilities to

 

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or from an insurer, or the protected cell of an insurer pursuant to an insurance business transfer

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plan. A voluntary restructuring under this chapter may be approved by the commissioner only if,

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in the commissioner's opinion, it would have no material adverse impact on the insurer's

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policyholders, reinsureds, or claimants of policies subject to the restructuring.

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     27-14.5-3. Notice.

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     (a) Wherever in this chapter notice is required, the applicant shall, within ten (10) days of

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the event triggering the requirement, cause transmittal of the notice:

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     (1) By first class mail and facsimile to To the insurance regulator in each jurisdiction in

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which the applicant is doing business;

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     (2) By first class mail to To the national conference of insurance guaranty funds and all

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guaranty associations for the states in which the applicant is doing business;

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     (3) Pursuant To all reinsurers of the applicant pursuant to the notice provisions of

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reinsurance agreements or, where an agreement has no provision for notice, by first class mail in

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a manner reasonably designed to provide actual notice to all reinsures reinsurers of the applicant;

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     (4) By first class mail to To all insurance agents or insurance producers of the applicant;

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     (5) By first class mail to To all persons known or reasonably expected to have claims

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against the applicant including all policyholders, at their last known address as indicated by the

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records of the applicant;

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     (6) By first class mail to To federal, state, and local government agencies and

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instrumentalities as their interests may arise; and

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     (7) By publication in a newspaper of general circulation in the state in which the

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applicant has its principal place of business and in any other locations that the court overseeing

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the proceeding deems appropriate.

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     (b) Notice under this section shall be given in a manner designed to provide actual notice

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to the intended recipient. Depending upon the circumstances, that notice may take the form of

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first class mail, facsimile and/or electronic notice.

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     (b)(c) If notice is given in accordance with this section, any orders under this chapter

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shall be conclusive with respect to all claimants and policyholders, whether or not they received

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notice.

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     (c)(d) Where this chapter requires that the applicant provide notice but the commissioner

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has been named receiver of the applicant, the commissioner shall provide the required notice.

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     27-14.5-4. Commutation plans.

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     (a) Application. Any commercial run-off insurer may apply to the court for an order

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implementing a commutation plan.

 

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     (b) Procedure.

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     (1) The applicant shall give notice of the application and proposed commutation plan.

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     (2) All creditors shall be given the opportunity to vote on the plan.

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     (3) All creditors, assumption policyholders, reinsurers, and guaranty associations shall be

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provided with access to the same information relating to the proposed plan and shall be given the

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opportunity to file comments or objections with the court.

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     (4) Approval of a commutation plan requires consent of: (i) fifty percent (50%) of each

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class of creditors; and (ii) the holders of seventy-five percent (75%) in value of the liabilities

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owed to each class of creditors.

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     (c) Implementation order.

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     (1) The court shall enter an implementation order if: (i) the plan is approved under

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subdivision (b)(4) of this section; and (ii) the court determines that implementation of the

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commutation plan would not materially adversely affect either the interests of objecting creditors

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or the interests of assumption policyholders.

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     (2) The implementation order shall:

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     (i) Order implementation of the commutation plan;

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     (ii) Subject to any limitations in the commutation plan, enjoin all litigation in all

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jurisdictions between the applicant and creditors other than with the leave of the court;

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     (iii) Require all creditors to submit information requested by the bar date specified in the

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plan;

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     (iv) Require that upon a noticed application, the applicant obtain court approval before

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making any payments to creditors other than, to the extent permitted under the commutation plan,

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payments in the ordinary course of business, this approval to be based upon a showing that the

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applicant's assets exceed the payments required under the terms of the commutation plan as

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determined based upon the information submitted by creditors under paragraph (iii) of this

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subdivision;

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     (v) Release the applicant of all obligations to its creditors upon payment of the amounts

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specified in the commutation plan;

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     (vi) Require quarterly reports from the applicant to the court and commissioner regarding

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progress in implementing the plan; and

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     (vii) Be binding upon the applicant and upon all creditors and owners of the applicant,

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whether or not a particular creditor or owner is affected by the commutation plan or has accepted

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it or has filed any information on or before the bar date, and whether or not a creditor or owner

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ultimately receives any payments under the plan.

 

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     (3) The applicant shall give notice of entry of the order.

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     (d) Applicable law and procedure with respect to dispute resolution procedures.

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     (1) Any dispute resolution procedure in any commutation plan brought by a ceding

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insurance creditor to challenge the value of its claim assessed in any commutation plan will be

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consistent with the provisions of title 9, United States code;

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     (2) The adjudicator and the court, if applicable, hearing any appeal from an adjudication

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proceeding where the ceding insurance creditor challenges the value of its claim assessed by the

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applicant in its commutation plan, shall:

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     (i) Not attempt to enforce a reinsurance contract on terms different than those set forth in

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the reinsurance contract;

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     (ii) Not apply the laws of Rhode Island to reinsurance agreements of ceding insurers not

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domiciled in Rhode Island unless the reinsurance contract provides that Rhode Island law shall

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apply;

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     (iii) Apply the law applicable to the underlying contract between the ceding insurer and

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the applicant or, if the underlying reinsurance contract has no choice of law provision, the law of

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the state of domicile of the ceding insurer shall apply.

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     (e) Order of dissolution or discharge.

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     (1) Upon completion of the commutation plan, the applicant shall advise the court.

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     (2) The court shall then enter an order that:

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     (i) Is effective upon filing with the court proof that the applicant has provided notice of

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entry of the order;

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     (ii) Transfers those liabilities subject to an assumption reinsurance agreement to the

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assumption reinsurer, thereby notating novating the original policy by substituting the assumption

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reinsurer for the applicant and releasing the applicant of any liability relating to the transferred

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liabilities;

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     (iii) Assigns each assumption reinsurer the benefit of reinsurance on transferred

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liabilities, except that the assignment shall only be effective upon the consent of the reinsurer if

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either:

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     (A) The reinsurance contract requires that consent; or

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     (B) The consent would otherwise be required under applicable law; and

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     (iv) Either:

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     (A) The applicant be discharged from the proceeding without any liabilities; or

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     (B) The applicant be dissolved.

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     (3) The applicant shall provide notice of entry of the order.

 

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     (f) Reinsurance. Nothing in this chapter shall be construed as authorizing the applicant, or

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any other entity, to compel payment from a reinsurer on the basis of estimated incurred but not

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reported losses or loss expenses, or case reserves for unpaid losses and loss expenses.

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     (g) Modifications to plan. After provision of notice and an opportunity to object, and

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upon a showing that some material factor in approving the plan has changed, the court may

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modify or change a commutation plan, except that upon entry of an order under subdivision (e)(2)

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of this section, there shall be no recourse against the applicant's owners absent a showing of

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fraud.

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     (h) Role of commissioner and guaranty funds; relationship to rehabilitation/liquidation

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statutes.

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     (1) The commissioner and guaranty funds shall have the right to intervene in any and all

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proceedings under this section; provided, that notwithstanding any provision of title 27, any

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action taken by a commercial run-off insurer to restructure pursuant to chapter 14.5, including the

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formation or re-activation of an insurance company for the sole purpose of entering into a

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voluntary restructuring shall not affect the guaranty fund coverage existing on the business of

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such commercial run-off insurer prior to the taking of such action.

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     (2) If, at any time, the conditions for placing an insurer in rehabilitation or liquidation

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specified in chapter 14.3 of this title exist, the commissioner may request and, upon a proper

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showing, the court shall order that the commissioner be named statutory receiver of the applicant.

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     (3) If no implementation order has been entered, then upon being named receiver, the

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commissioner may request, and if requested, the court shall order, that the proceeding under this

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chapter be converted to a rehabilitation or liquidation pursuant to chapter 14.3 of this title. If an

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implementation order has already been entered, then the court may order a conversion upon a

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showing that some material factor in approving the original order has changed.

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     (4) The commissioner, any creditor, or the court on its own motion may move to have the

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commissioner named as receiver. The court may enter such an order only upon finding either that

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one or more grounds for rehabilitation or liquidation specified in chapter 14.3 of this title exist or

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that the applicant has materially failed to follow the commutation plan or any other court

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instructions.

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     (5) Unless and until the commissioner is named receiver, the board of directors or other

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controlling body of the applicant shall remain in control of the applicant.

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     27-14.5-6. Rules and regulations.

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     The commissioner shall promulgate rules and regulations that may be necessary to

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effectuate the purposes of this chapter no later than January 1, 2003. The department shall not

 

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accept applications under § 27-14.5-4 until the time that these regulations have been promulgated

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including, but not limited to, procedures for transferring commercial liabilities to a new or

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existing domestic insurer and standards for commutation plans.

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     SECTION 2. Chapter 27-14.5 of the General Laws entitled "Voluntary Restructuring of

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Solvent Insurers" is hereby amended by adding thereto the following section:

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     27-14.5-4.1. Insurance business transfer plans.

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     The commissioner shall promulgate rules and regulations establishing standards by which

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liabilities may be novated to a new or existing domestic insurer pursuant to an Insurance Business

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Transfer Plan.

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     SECTION 3. Section 27-64-2 of the General Laws in Chapter 27-64 entitled "The

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Protected Cell Companies Act" is hereby amended to read as follows:

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     27-64-2. Purpose.

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     This act is adopted to provide a basis for the creation of protected cells by a domestic

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insurer as one means of accessing alternative sources of capital and achieving the benefits of

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insurance securitization or voluntary restructuring as contemplated under chapter 14.5 of this title,

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including through effectuating insurance business transfers in accordance with the procedures

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promulgated by the commissioner under § 27-14.5-6. Investors in fully funded insurance

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securitization transactions provide funds that are available to pay the insurer's insurance

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obligations or to repay the investors or both. The creation of protected cells is intended to be a

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means to achieve more efficiencies in conducting insurance securitizations or voluntary

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restructurings.

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     SECTION 4. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO INSURANCE -- VOLUNTARY RESTRUCTURING OF SOLVENT

INSURERS

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     This act would allow domestic insurance company to enter into a voluntary restructuring,

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including the use of a protected cell, with the approval of the commissioner. It would also allow

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various notices to be given electronically, and for the insurance commissioner to promulgate rules

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and regulations to effectuate the purposes of the act.

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     This act would take effect upon passage.

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