A new Connecticut law could be transformative for insurance companies domiciled in the state, according to a Lexology report. The law allows an insurance company to divide into two or more companies “pursuant to a plan of division.”
Writing for Lexology, Drinker Biddle partners Dan Krane and Bill Clark – who helped draft the new law – called the division allowed in the law “conceptually the reverse of a merger.”
“In a merger of two insurers, one insurer merges into another and the assets and liabilities, including policy liabilities, of the non-surviving insurer become the assets and liabilities of the surviving insurer by operation of law,” they wrote.
In the division allowed under the law, insurers domiciled in Connecticut will be able to divide into two or more separate companies, with the assets and liabilities of the original insurer allocated to the resulting companies.
“Connecticut insurers will now be able to restructure legacy lines of business and operations into separate insurers, either for operational efficiencies or for sale to a third party,” Krane and Clark wrote. “Prior to the (new law), such restructurings could only be accomplished through reinsurance transactions that, in many cases, would have left residual credit and operational risks with the ceding insurer.”
In order to divide, an insurer must file a plan with the Connecticut Insurance Commissioner including all relevant details about the proposed division, proposed organizational documents, and how assets and liabilities will be divided among the resulting insurers. The state insurance commission must approve the division unless the interests of policyholders or interest-holders would be inadequately protected or the proposed division would constitute a fraudulent transfer, according to Krane and Clark.
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