Chapter 9: legal considerations III. Claims G. Assets that are not General Assets, Special Deposits and Letters of Credit


Assumption Reinsurance Transaction with Solvent Insurer



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Assumption Reinsurance Transaction with Solvent Insurer

The existence of the guaranty association safety net and regulatory reforms since the 1990s generally has lessened risks for many policyholders in life insolvencies, including those with an interest in a separate account registered under the 1940 Act. The receiver and the guaranty associations (with respect to the covered policies) will most likely look for a buyer for the book of business. This would be structured as a sale of the book of business to a solvent insurer through an assumption reinsurance transaction funded by the insurer’s estate and/or the guaranty associations. No-action letter relief would likely be sought from the SEC staff in connection with a transfer of the Variable Products backed by separate accounts registered under the 1940


Act, and also in connection with change in control issues arising from the liquidation.
In some of these transactions, contracts are restructured. Historically, separate accounts registered under the 1940 Act have not presented unique issues in these transactions, either because there were no such accounts or because the products relating to the separate account did not contain substantial general account guarantees, which helped facilitate selling the book of business (including the separate account) to a solvent insurer. This may not be the case in future insolvencies.
Where the insolvency is not entirely resolved through a transaction with a solvent insurer, the guaranty associations (with respect to covered contracts) and the insolvent insurer’s estate will fund coverage and/or payments to policyholders through enhancement plans or through the traditional liquidation claims process.


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