Vermont is embracing run-off business with a new proposed law but California is challenging risk retention group reinsurance with a new renewal form, according to captive management firm JLT Towner.
The Green Mountain State recently introduced a bill, the Legacy Insurance Management Act (LIMA), that could drive millions of dollars into its economy.
The bill proposes allowing specialised Vermont-based insurance companies to acquire or unload closed blocks of non-admitted commercial insurance policies and reinsurance agreements—subject to fees and transfer taxes.
The purchaser, or legacy insurance company, does so if it is able to manage the legacy liabilities more efficiently than the original insurance company.
In buying the block of policies, along with a proportion of the financial reserves the insurance company had set aside to cover risks, the legacy firm manages any claims that might come through, and invests the reserves in order to turn a profit.
As LIMA covers only commercial insurance, no life, health, auto, homeowners' or workers' compensation, is included. The legacy companies must be based in Vermont and hold at least one meeting there every year.
“This law is good for Vermont,” commented Len Crouse, partner at JLT Towner and a former Vermont captive regulator. “[The state] has demonstrated it has the ability, insurance talent and infrastructure to do this. LIMA is another way Vermont leads the way in providing sound, alternative risk financing mechanisms.”
“This landmark legislation allows Vermont to respond to a unique insurance market objective,” added Susan Donegan, Vermont’s commissioner of the Department of Financial Regulation. “And is a golden opportunity for the state to expand its innovative financial services regulatory niche.”
In contrast, the State of California opted late last year to potentially make life difficult for alternative risk financing structures with a new registration renewal form that asks whether the applicants serve as reinsurers in other jurisdictions.
The development was discussed at a meeting of the National Risk Retention Association’s Government Affairs Committee (GAC). Litigation subcommittee chair Jon Harkavy indicated the GAC would monitor developments.
“California doesn’t believe in RRGs reinsuring risk,” commented Crouse, who is also a member of the GAC. “This can affect risk retention groups and domiciles across the country. I expect both to challenge any attempt made to limit their federal rights.”
