2007 -- H 5740 SUBSTITUTE A
A N A C T
RELATING TO INSURANCE - VOLUNTARY RESTRUCTURING OF SOLVENT INSURERS
Introduced By: Representative Robert A. Watson
Date Introduced: February 28, 2007
It is enacted by the General Assembly as follows:
SECTION 1. Section 27-14.5-1 and 27-14.5-4 of the General Laws in Chapter 27-14.5
entitled "Voluntary Restructuring of Solvent Insurers" are hereby amended to read as follows:
27-14.5-1. Definitions. -- As used in this chapter:
(1) "Applicant" means a commercial run-off insurer applying under section 27-14.5-4.
(2) "Assessment deficit" means the amount that the assessment for the previous year
under section 27-14.5-5 is less than, and "assessment surplus" is the amount that the assessment
for the previous year exceeds:
(i) The run-off insurer's proportionate share of regulatory expenditure for the previous
year, if the run-off insurer was domiciled in Rhode Island on March 15 of the previous year; or
(ii) The redomestication expenditure for the previous year attributable to the run-off
insurer, if the run-off insurer was not domiciled in Rhode Island on March 15 of the previous
(3) "Assumption policyholder" means a policyholder whose policy is reinsured under an
assumption reinsurance agreement between the applicant and a reinsurer.
(4) "Assumption reinsurance agreement" has the meaning given in section 27-53.1-3(b),
subject to the following:
(i) The agreement may be conditioned upon the court's entry of an implementation order.
(ii) If any policy subject to the agreement is protected through a guarantee association,
then the assuming insurer must have been and be licensed, and must have been and be a member
of the guarantee association, in all states known to the applicant in which either: (A) any property
covered under the policy has a permanent situs; or (B) the policyholder resided while the policy
was in force.
(5) "Class of creditors" means:
(i) All voting policyholders, including those without known claims;
(ii) Voting creditors, other than policyholders; or
(iii) Any separate class of creditors as the court may in its discretion determine should
approve the commutation plan.
(6) "Commercial run-off insurer" means:
(i) a run-off insurer domiciled in Rhode Island whose business, excluding all business
subject to an assumption reinsurance agreement, includes only the reinsuring of any line(s) of
business other than life and/or the insuring of any line(s) of business other than life, workers'
compensation, and personal lines insurance
(ii) A Rhode Island domestic insurance company meeting the requirements of subsection
(i) hereof and formed or re-activated for the sole purpose of entering into a voluntary
restructuring under this chapter and whose liabilities consist of commercial liabilities transferred
to said company with the approval of the commissioners and pursuant to the regulations issued by
the department under this chapter. The amount of the commercial liabilities transferred must be
less than or equal to the amount of assets transferred to the newly formed or re-activated
(7) "Commissioner" means the director of the department.
(8) "Commutation plan" means a plan for extinguishing the outstanding liabilities of a
commercial run-off insurer.
(9) "Creditor" means:
(i) Any person that has a claim against the applicant; or
(ii) A policyholder other than an assumption policyholder.
(10) "Department" means the department of business regulation.
(11) "Guarantee association" means a guarantee association or foreign guarantee
association, as those terms are defined in section 27-14.3-3(10), that is potentially obligated with
respect to the applicant's policies.
(12) "Implementation order" means an order under section 27-14.5-4(c).
(13) "Insurer" has the meaning given in section 27-14.3-3(12).
(14) "Person" means an individual, corporation, partnership, association, joint stock
company, trust, unincorporated organization, or any similar entity or any combination of the
foregoing acting in concert.
(15) "Personal lines insurance" means insurance issued for personal, family, or
(16) "Policy" means a contract of insurance or a contract of reinsurance.
(17) "Policyholder" means an insured or a reinsured of the insurer.
(18) "Proportionate share" means, for a particular run-off insurer as of December 31 of
the previous year, the ratio of:
(i) The gross assets of that run-off insurer; to
(ii) The gross assets of all run-off insurers, other than those that were not domiciled in
Rhode Island on March 15 of that calendar year.
(19) "Redomestication expenditure" means, for any calendar year:
(i) The amount that the department's expenditures attributable to the regulation of run-off
insurers increases as a result of any run-off insurer redomiciling to Rhode Island on or after
March 15 of that year; less
(ii) Filing fees, examination costs, and any other fees in relation to insurance regulation
in this state paid to this state by run-off insurers that redomiciled to Rhode Island on or after
March 15 of that year, but excluding any premium taxes.
(20) "Regulatory expenditure" means, for any calendar year:
(i) The amount of the department's expenditures attributable to the regulation of run-off
insurers domiciled in Rhode Island on March 15 of that year; less
(ii) Filing fees, examination costs, and any other fees in relation to insurance regulation
in this state paid to this state by run-off insurers domiciled in Rhode Island on March 15 of that
year, but excluding any premium taxes.
(21) "Run-off insurer" means an insurer that:
(i) Is domiciled in Rhode Island;
(ii) Has liabilities under policies for property and casualty lines of business;
(iii) Has ceased underwriting new business; and
(iv) Is only renewing ongoing business to the extent required by law or by contract.
27-14.5-4. Commutation plans. -- (a) Application. - Any commercial run-off insurer
may apply to the court for an order implementing a commutation plan.
(1) The applicant shall give notice of the application and proposed commutation plan.
(2) All creditors shall be given the opportunity to vote on the plan.
(3) All creditors, assumption policyholders, reinsurers, and guaranty associations shall be
provided with access to the same information relating to the proposed plan and shall be given the
opportunity to file comments or objections with the court.
(4) Approval of a commutation plan requires consent of: (i) fifty percent (50%) of each
class of creditors; and (ii) the holders of seventy-five percent (75%) in value of the liabilities
owed to each class of creditors.
(c) Implementation order.
(1) The court shall enter an implementation order if: (i) the plan is approved under
subdivision (b)(4) of this section; and (ii) the court determines that implementation of the
commutation plan would not materially adversely affect either the interests of objecting creditors
or the interests of assumption policyholders.
(2) The implementation order shall:
(i) Order implementation of the commutation plan;
(ii) Subject to any limitations in the commutation plan, enjoin all litigation in all
jurisdictions between the applicant and creditors other than with the leave of the court;
(iii) Require all creditors to submit information requested by the bar date specified in the
(iv) Require that upon a noticed application, the applicant obtain court approval before
making any payments to creditors other than, to the extent permitted under the commutation plan,
payments in the ordinary course of business, this approval to be based upon a showing that the
applicant's assets exceed the payments required under the terms of the commutation plan as
determined based upon the information submitted by creditors under paragraph (iii) of this
(v) Release the applicant of all obligations to its creditors upon payment of the amounts
specified in the commutation plan;
(vi) Require quarterly reports from the applicant to the court and commissioner
regarding progress in implementing the plan; and
(vii) Be binding upon the applicant and upon all creditors and owners of the applicant,
whether or not a particular creditor or owner is affected by the commutation plan or has accepted
it or has filed any information on or before the bar date, and whether or not a creditor or owner
ultimately receives any payments under the plan.
(3) The applicant shall give notice of entry of the order.
(d) Order of dissolution or discharge.
(1) Upon completion of the commutation plan, the applicant shall advise the court.
(2) The court shall then enter an order that:
(i) Is effective upon filing with the court proof that the applicant has provided notice of
entry of the order;
(ii) Transfers those liabilities subject to an assumption reinsurance agreement to the
assumption reinsurer, thereby notating the original policy by substituting the assumption reinsurer
for the applicant and releasing the applicant of any liability relating to the transferred liabilities;
(iii) Assigns each assumption reinsurer the benefit of reinsurance on transferred
liabilities, except that the assignment shall only be effective upon the consent of the reinsurer if
(A) The reinsurance contract requires that consent; or
(B) The consent would otherwise be required under applicable law; and
(A) The applicant be discharged from the proceeding without any liabilities; or
(B) The applicant be dissolved.
(3) The applicant shall provide notice of entry of the order.
(e) Reinsurance. - Nothing in this chapter shall be construed as authorizing the applicant,
or any other entity, to compel payment from a reinsurer on the basis of estimated incurred but not
reported losses or loss expenses, or case reserves for unpaid losses and loss expenses.
(f) Modifications to plan. - After provision of notice and an opportunity to object, and
upon a showing that some material factor in approving the plan has changed, the court may
modify or change a commutation plan, except that upon entry of an order under subdivision (d)(2)
of this section, there shall be no recourse against the applicant's owners absent a showing of
(g) Role of commissioner and guaranty funds; relationship to rehabilitation/liquidation
(1) The commissioner and guaranty funds shall have the right to intervene in any and all
proceedings under this section
provided, that notwithstanding any provision of title 27, any
action taken by a commercial run-off insurer to restructure pursuant to chapter 14.5, including the
formation or re-activation of an insurance company for the sole purpose of entering into a
voluntary restructuring shall not affect the guaranty fund coverage existing on the business of
such commercial run-off insurer prior to the taking of such action.
(2) If, at any time, the conditions for placing an insurer in rehabilitation or liquidation
specified in chapter 14.3 of this title exist, the commissioner may request and, upon a proper
showing, the court shall order that the commissioner be named statutory receiver of the applicant.
(3) If no implementation order has been entered, then upon being named receiver, the
commissioner may request, and if requested, the court shall order, that the proceeding under this
chapter be converted to a rehabilitation or liquidation pursuant to chapter 14.3 of this title. If an
implementation order has already been entered, then the court may order a conversion upon a
showing that some material factor in approving the original order has changed.
(4) The commissioner, any creditor, or the court on its own motion may move to have
the commissioner named as receiver. The court may enter such an order only upon finding either
that one or more grounds for rehabilitation or liquidation specified in chapter 14.3 of this title
exist or that the applicant has materially failed to follow the commutation plan or any other court
(5) Unless and until the commissioner is named receiver, the board of directors or other
controlling body of the applicant shall remain in control of the applicant.
SECTION 2. This act shall take effect upon passage.