On February 19, Vermont Governor Peter Shumlin signed the Legacy Insurance Management Act (LIMA). The law enables a non-admitted insurer in the U.S. or abroad to transfer closed blocks of commercial insurance/reinsurance business with outstanding liabilities, together with the reserves relating to those liabilities, to Vermont-admitted insurers or other investors. These Vermont entities would then assume all financial and legal liabilities associated with these insurance policies/reinsurance agreements. This law, the first of its kind in the U.S., creates a legal, regulatory, and structural framework for these transfers.
Some key components of the new legislation include:
- Only regulatory approval is required for the transfer of liabilities. (This is in contrast to Part VII transfers in the U.K., which require regulatory and judicial approval.) This has the effect of saving all parties considerable time and money in carrying out these transfers.
- Transferring companies do not need to be admitted or domesticated in Vermont or in the U.S.
- In order to take advantage of this law, investors will need to domicile in Vermont but will not need to be licensed as insurance companies because they are not selling or dealing with active policies.
- LIMA contains several provisions for protecting policyholders, including:
- LIMA only applies to commercial policies. Personal policies, such as life, home, or auto, cannot be transferred.
- The Vermont Department of Financial Regulation (DFR) will supervise both the transfer and the claims handling. In fact, investors are required to submit to the regulatory authority of the DFR. Prior to any transfer, many of these books of business will not have been regulated in the U.S. at all.
- Investors will need to satisfy solvency and other requirements demonstrating a capability to assume these liabilities.
- The effect of the transfer is that of a statutory novation. All legal liability changes hands.
One of the target audiences of this law is overseas insurance and reinsurance companies with U.S. long-tail liabilities — e.g., asbestos, health hazard, and pollution — that wish to crystalize those liabilities and pass the claims management of those liabilities into the hands of U.S. claims professionals.