Frequently-asked questions about LIMA
- What is the Legacy Insurance Management Act?
- How does LIMA work?
- Which regulatory authority will oversee legacy insurance business transfers under LIMA?
- What are the benefits of LIMA for insureds? For transferring companies? For assuming companies?
- Must a transferring company establish a branch or another affiliate in Vermont or otherwise submit to Vermont’s jurisdiction? Must an assuming company establish an affiliate in Vermont?
- How does LIMA compare to other methods of transferring insurance and reinsurance business?
- What is Apetrop USA, Inc.? What services does it offer?
The new Vermont Legacy Insurance Management Act (LIMA) creates the first legacy insurance transfer and management option in the United States and extends Vermont’s progressive insurance environment. LIMA was the brainchild of Anna Petropoulos, an expert in the global insurance/reinsurance industry and president of Apetrop USA, Inc.
LIMA is the first U.S. legislation to enable the transfer of closed blocks of commercial insurance and reinsurance, creating for the first time a legal and regulatory framework and marketplace for such transfers. The act augments an already progressive insurance environment in Vermont, which has long been known as the pioneer and leader in facilitating the creation of captive insurance companies, with more that 1000 such entities currently registered in the state.
For insurers and reinsurers, LIMA creates a new, efficient means to transfer closed blocks into a U.S. jurisdiction with the comprehensive review and approval of a sophisticated and globally-respected insurance regulator.
In addition to fulfilling this need in the global insurance market, LIMA creates new opportunities for investors. Because the blocks of insurance and reinsurance to be transferred are closed, the acquiring entity need not be active or regulated as an insurance company. Investors may include those with long investment horizons such as foundations, institutional endowments and family trusts.
LIMA enables a non-admitted insurer from any jurisdiction to transfer closed blocks of business to a special-purpose corporate entity domiciled in Vermont, which assumes the obligations to policyholders. LIMA provides a way for global insurance companies to divest themselves of U.S. portfolios that is more expedient and cost effective than the current Part VII transfers commonly used in the United Kingdom and Europe.
LIMA transfers are limited to commercial insurance policies and/or reinsurance agreements protecting underlying American liabilities that have continued exposure to claims. No personal insurance, such as life, health, auto or homeowners, or workers’ compensation, is involved.
All LIMA transfers are subject to regulatory oversight and approval of the transaction, the transfer plan, the solvency of the transferring company and the assuming company and the proposed claims management, investment and other post-transfer policies and procedures of the assuming company. LIMA requires the transferring company and the assuming company to provide a complete description of the business, the policies to be transferred and the associated reserves. All reserves are transferred with the policies. LIMA accomplishes this goal by specifying that any transfer that is approved by the Commissioner has the effect of a statutory novation, meaning that the legal responsibility for each transferred insurance policy or reinsurance contract is taken over by the assuming company.
A German insurer has an old book of policies covering U.S. asbestos liabilities: the policies may be decades old and no longer receiving premium payments, but there may still exist long-tail or legacy claims relating to the insured risks. The German insurer does not want to continue to employ specialists to deal with U.S. liability claims and, moreover, wants to close its books on that business. Before LIMA, there was no way for the German insurer to transfer that business out of Europe.
Under LIMA, however, any investor that is interested in acquiring those claims may establish a new entity in Vermont and apply to the Vermont regulator to proceed with the transfer.
For the new assuming company and its investor parent, the end result will be the assumption of legal, financial and practical responsibilities for the transferred block of business, including the maintenance, investment administration of the capital reserves and the management of claims.
For the transferring company (and, likely, its affiliated group) the benefits include the termination of the liability for the transferred block of business and relief from the corresponding capital reserve requirements.
Under LIMA, all transfers are subject to the review and approval of the Vermont Department of Financial Regulation (DFR), which will also oversee the assuming company’s continuing claims management and other compliance obligations.
The Vermont DFR is well-known in the insurance and financial regulation sectors, largely due to the scope and sophistication of Vermont’s long-established captive insurance sector.
Following a LIMA transfer, instead of having to venture abroad to collect under ancient policies, policyholders can recover from a U.S.-based and -regulated entity and will have their claims handled by proficient U.S. claims adjusters, pursuant to claims management and related procedures approved and overseen by the DFR.
Transferring companies that may have exited a particular market or ceased to write a certain kind of policy can divest themselves of the respective portions of their portfolio, freeing them from having to maintain specialists in the management of such policies or in the maintenance of policy data. Additionally, the financials of transferring companies will benefit from the finality of the statutory novation under LIMA.
For prospective investors, in addition to fulfilling a need in the global insurance market, LIMA creates new investment opportunities. Because the blocks of policies involved are closed, the investor need not be active as an insurance company. Investors may include those with long investment horizons such as foundations, institutional endowments and family trusts. Transferring companies may be willing to pay premiums for the finality of a LIMA transfer. In addition, efficient claims handling by Vermont-based experts can bring additional savings.
The transferring company is not required to establish a new entity in Vermont or elsewhere. LIMA does not provide for the taxation or continuing regulation or oversight by the Vermont DFR of transferring companies after the consummation of a transfer under the Act.
LIMA requires the assuming company to establish a new entity domiciled in Vermont, which will be subject to the continuing authority of the Vermont DFR regarding, inter alia, claims management and solvency.
LIMA offers significant advantages over other insurance business transfer methods, depending on the objectives of the parties:
- The LIMA process requires only regulatory approval, rather than a judicial applicating, proceeding and decree.
- The transferred block of business may come from any jurisdiction.
- The transferring company does not need to redomicile or establish a branch or affiliate in Vermont or elsewhere in the U.S.
- The statutory novation effected through the LIMA process provides finality for the transferring company while preserving the policyholders’ coverage.
- The LIMA process is swift: transfers are expected to be effected in four to five months.
- The transfer brings the transferred business under the supervision of an experienced and sophisticated financial services regulator in the U.S. with an approved claims management regime conducted by domestic adjusters.
Apetrop USA, Inc. is a Vermont corporation that was founded in 2010 by Anna Petropoulos. Her background includes more than 30 years’ experience in the London and international markets gained with risk carriers and brokers.
Apetrop USA provides consulting and advisory services to insurers, reinsurers and other investors in the insurance/reinsurance sectors in connection with the acquisition or sale of blocks of insurance business under LIMA. Apetrop USA assists clients in all aspects of the LIMA transfer process, including special-purpose entity organization, regulatory compliance, transfer plan negotiation and documentation, identification and notification of affected parties and post-transfer claims management.
In addition transfer process advisory and consulting services, Apetrop USA offers claims and portfolio management services and reinsurance collections services and other professional services to clients in the insurance and reinsurance sectors, including run-off, trapped cash recovery and technical audit services.