Source: https://www.dlapiper.com/en/us/insights/publications/2018/11/illinois-enacts-business-division-law/
Timestamp: 2019-04-19 16:20:42+00:00

Document:
Since 2000, reinsurance counterparties in the EU have been able to transfer direct and assumed insurance portfolios with continued coverage for re/insureds and a full release for the transferor without completion of either a novation process or concomitant opt-in/out rights for re/insureds. The US insurance market has been pining for an American counterpart, and a few states have been experimenting. On November 27, 2018, Illinois adopted a promising new mechanism in the form of a "business division" amendment to the state's Insurance Code.
Unlike an alternative mechanism known as business transfer, business division offers companies the ability to divide business operations into two or more entities upon the approval of the regulator; business transfer is effected via novation (see, eg, transfer initiatives in Rhode Island, Vermont and Oklahoma); both mechanisms have regulatory and judicial components.
In 2017, Connecticut passed Public Act 17-2, which permits domestic insurers underwriting any line(s) of insurance to divide pursuant to a proposed plan, creating new entities and allocating assets and insurance obligations among the resulting entities.1 The new entities are successors and assume the assets and obligations upon the Commissioner's approval.
Except as provided for in the plan and approved by the Commissioner, "an allocation of a policy or liability does not: (1) affect the rights under the law of a policyholder or creditor owed payment on the policy, or payment of any other type of liability or performance of the obligation that creates the liability, except that those rights are available only against a resulting insurer responsible for the policy, liability or obligation under this section; or (2) release or reduce the obligation of a reinsurer, surety or guarantor of the policy, liability or obligation."2 The Commissioner determines whether a hearing is required in the public interest, and there is no judicial review.
The utility of the Connecticut Act is yet to be determined. While it is not limited to certain lines of insurance,3 the Act is limited to Connecticut companies within the same corporate family.
Many insurers operating in the US support insurance business divisions or transfers. At the same time, some lines of legacy business will challenge regulators for decades, and would benefit from the broad flexibility that division and transfer are intended to provide. Long-term care may be one of the lines which could benefit from business division. Pricing and reserving practices have evolved to match the underlying liabilities, and it may take some greater understanding, study and data to reach a broad accord.
Our sense is that consumer protection groups, regulators and courts would support the development of such efforts. We are experienced in all such matters, and would be happy to assist.
1 Public Act No. 17-2, § 2(b).
4 See 215 ILCS § 5/4 (defining classes of insurance in Illinois).
5 215 ILCS § 35B-15(4).
6 215 ILCS § 35B-15(6); see also 215 ILCS § 35B-35 (describing effects of division); 215 ILCS § 35B-40 (resulting company liabilities).
7 215 ILCS § 35B-25(b).
8 215 ILCS § 35B-25(j).

References: § 2
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