3 April 2018Analysis

Insurance separation bill passes Georgia senate

The Georgia state senate has passed a new bill that would amend the state's insurance law to allow the division of a domestic insurer into one or more parts, allowing them to separate themselves from unwanted exposures.

House Bill 754 was passed on March 15, 2018, and amends Title 33 of the Official Code of Georgia Annotated, which relates to insurance.

Andrew Rothseid, principal at RunOff Re.Solve, believes that this bill signals increasing regulatory flexibility in this area, although he warns of ambiguities in the language of the bill and its resulting impact, which can be compared to similar legislation in Connecticut in 2017.

He commended the separation process provided in HB 754 as appearing quite user-friendly, with the only significant hurdle being regulatory approval.

"The commissioner must approve a plan of division unless (a) the interest of any policyholder or shareholder will not be adequately protected; or (b) the proposed division constitutes a fraudulent transfer," said Rothseid.

He noted that obligations may revert with the new legislation, and that the prospective liability of the dividing insurer and resulting insurers is similar to that provided by Section 7 to the Connecticut Division Statute.

"Dividing insurers can separate exposures onto distinct balance sheets. However, they might have to reassume their original obligation should a resulting insurer be found to be in breach of that original obligation," Rothseid explained.

One of the limitations Rothseid sees in HB 754 is that it does not include a commutation plan process allowing a carrier to crystallise and accelerate the closure of its commercial insurance obligations as provided in Rhode Island’s Voluntary Restructuring of Solvent Insurers. However, he said the division process would seem to make it possible for a current or prospective Georgia-domiciled company to place unwanted liabilities into a newly formed entity for either sale, separating balance sheet management or for third party reinsurance.