Restructuring Mechanisms for Troubled Companies (E) Subgroup
March 28, 2008

The Restructuring Mechanisms for Troubled Companies Subgroup met March 28, 2008. During the meeting the Subgroup:

• Heard initial comments from Subgroup members regarding the Subgroup’s study of restructuring mechanisms for troubled companies.

• Received and discussed comment letters from interested parties, regarding the Subgroup’s study of restructuring mechanisms for troubled companies, as well as heard verbal comments from interested parties who did not submit comment letters. A few of the responses include the following perspectives:
• “Insolvent schemes of arrangements generally do not adhere to statutory priority of distribution rules.”
• “Solvent schemes are being abused by profitable carriers to extinguish coverage while paying little or no compensation to American policyholders.”
• “…the primary public policy purpose of any insolvency scheme, whether it takes the form of liquidation or some other mechanism, should remain protection of the public from excessive financial loss due to the insolvency of insurance companies.”
• “Core principles should be present in any restructuring or run-off mechanism.” For example, honoring contractual obligations to policyholders, providing meaningful notice and information sharing, allowing guaranty association participation in planning and discussion, and procedural safeguards.
• “As to reinsurance, not only can restructuring affect the value of a future reinsurance claim, but also offset rights, arbitration rights, and reinsurance collateral; thus, consideration should be given in any restructuring system as to the potential consequences to other areas of regulation.”
• “The design of any restructuring process cannot allow a company that has competed and taken business as an ongoing concern company to then evade its contractual responsibilities on that business and then reenter the market.”
• “…expanding the range of responsible transfer and liquidation mechanisms that permit greater financial flexibility, allow for an orderly resolution of liabilities and promote more efficient use of capital is both appropriate and overdue in the US marketplace.”

• Identified and discussed key issues and categories for future meetings. For example, clarifying the Subgroup’s definition of solvent, insolvent and troubled.

• Directed NAIC Staff to begin drafting an outline for a white paper based on the issues and topics identified by regulators and interested parties, so the Subgroup can systematically study and address the pros and cons of one section/issue/topic at a time.

Action Items:

None