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State of Rhode Island Reviews First-Ever Proposed Discharge and Liquidation of Obligations of a Solvent Insurer in U.S.

On July 21, 2010, GTE REinsurance Company Limited (“GTE RE”), a solvent reinsurer based in Providence, R.I., appeared before the Providence County Superior Court at a hearing to obtain approval to put an unprecedented Commutation Plan before the reinsurer’s creditors so they may vote for its passage. The Superior Court issued an Order allowing the Commutation Plan to move forward and setting a date for a Meeting of the Creditors. The Court also approved the single class of creditors proposed by GTE RE. The Insurance Division of Rhode Island’s Department of Business Regulation is overseeing the Commutation Plan and the proposed discharge of GTE’s liabilities and financial obligations.

The proposed Commutation Plan of a solvent insurer is a legal procedure that has never before been attempted in the United States. While the United Kingdom recognizes such plans under its laws, Rhode Island is the only U.S. state that allows such a process.

“The proposed Commutation Plan would be a first in this country,” said Joseph Torti III, Deputy Director and Superintendent of Insurance for the R.I. Department of Business Regulation. “If the Plan is approved by creditors, it would mark the first time a solvent insurance company has entered into an arrangement to bring finality to its obligations with creditors. Following exhaustive review and analysis the Insurance Division approved the Plan as proposed by GTE RE for submission to the Court and the Company’s creditors.” “GTE RE is an ideal candidate to implement a Commutation Plan,” according to Mr. Torti. “It is a well developed reinsurance portfolio in run-off for over twenty years. It has proposed a straightforward and transparent plan to honorably discharge all of its reinsurance liabilities.”

Rhode Island’s Insurance Statutes and Regulations (Title 27 Chapter 14.5 and Insurance Regulation 68) set forth the procedure by which commercial insurers and reinsurers in run-off, or no longer writing new business, may honor creditors’ claims, liquidate future exposure to those claims and terminate operations. Although enacted in 2002 the statute has never been applied until now, in the matter of In Re GTE REinsurance Company Limited. The Department’s responsibility is to review and comment on the proposed commutation plan of the reinsurer so it may be presented to the Superior Court, and to determine that it is consistent with the state statute governing Voluntary Restructuring of Solvent Insurers and its enabling regulations.

“Rhode Island is the only state in the U.S. that allows a solvent insurer to liquidate its obligations in run-off,” said Gary S. Lee, co-chair of the Bankruptcy & Restructuring practice of Morrison & Foerster in New York, who is advising the Insurance Division of the R.I. Department of Business Regulation. “Since the meeting of creditors is several months away, the matter is in its formative stages. This is ‘stage one’ — getting court sanction to put the plan to creditors so they can vote on it. Morrison & Foerster is proud to counsel the Insurance Division of the Department of Business Regulation as it helps guide interested parties through this new legal frontier.”

About the State of Rhode Island Department of Business Regulation

The Department’s primary function is the implementation of state laws mandating the regulation and licensing of designated businesses, professions, occupations and other specified activities. The industries regulated include insurance, banking, securities, liquor, real estate, racing and athletics, among others. For more information please visit: http://www.dbr.state.ri.us

Related links

Department or agency: RI Department of Business Regulation

Online: http://www.dbr.state.ri.us

Release date: 07-27-2010

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