We previously blogged that New York Supreme Court Justice Doris Ling-Cohan approved the New York State Department of Financial Services’ rehabilitation plan for Financial Guaranty Insurance Company (FGIC). Following up on that post, American Overseas Group Limited recently announced that its operating subsidiary, American Overseas Reinsurance Company Limited (AORE), has entered into a commutation agreement with FGIC, which, if approved by the Supreme Court, will commute the entire portfolio of the financial guaranty reinsurance business AORE had assumed from FGIC. Under the agreement, AORE will make a commutation payment to FGIC in the amount of $64.8 million. Although the Financial Services Department and FGIC continue to engage in loss-remediation strategies like the AORE agreement, as they attempt to rehabilitate FGIC, it still remains unclear as to whether, when, and to what extent policyholders can expect to receive payment for claims under FGIC insurance policies.
Tag Archive: FGIC
Permanent link to this article: http://www.financialinsurancelaw.com/2012/09/18/fgic-enters-into-potential-commutation-agreement-with-american-overseas-reinsurance-company/
On June 28th, New York State Supreme Court Justice Doris Ling-Cohan signed off on the New York Department of Financial Services’ (“DFS”) rehabilitation plan for Financial Guaranty Insurance Co. (“FGIC”). This brings some closure to the 2-year plus holding pattern established by the DFS’s Insurance Law Section 1310 Order, which has barred FGIC from paying claims and writing policies since November 24, 2009.
The Rehabilitator (Superintendent of Financial Services Benjamin M. Lawsky) is to develop a plan to determine payment of FGIC policyholders’ claims. While the FGIC rehabilitation website states that the treatment of policyholders will be “fair and equitable”, it adds that “[n]o assurance can be given as to whether, when, or to what extent any claims may be paid.” Notably, the rehabilitation order bars FGIC policyholders from filing legal actions against FGIC to pursue payment of claims.
Due to the uncertainty surrounding the payment of claims after an insurance company enters rehabilitation or liquidation, it is imperative that policyholders whose insurance companies may be in financial trouble consider all options for pursuing coverage, including whether any applicable reinsurance contract contains a “cut-through” provision allowing the policyholder to proceed directly against the reinsurance company for unpaid claims.
Finally, the distinction between rehabilitation and liquidation should be noted. As stated on FGIC’s rehabilitation website, while FGIC is not in liquidation, the possibility of liquidation remains should the rehabilitation process fail.
Permanent link to this article: http://www.financialinsurancelaw.com/2012/07/17/fgic-rehabilitation-plan-approved-lawsky-to-develop-plan-to-determine-payment-to-policyholders/