Rival Insurers Try To Halt ACE's Sale Of Runoff Units

The companies are represented by attorney Mark Aronchick with the Philadelphia law firm of Hangley Aronchick Segal & Pudlin.

Pennsylvania Insurance Department spokesperson Melissa Fox said the letter, which runs 18 pages long and is accompanied by more than 500 pages of supplementary material, was received as part of the public comment regarding the ACE transaction.

Insurers opposing ACE's move sent the letter to Ms. Koken because one of the units to be sold, ACE American Reinsurance Company, is based in Philadelphia and the transaction needs regulatory approval from the Pennsylvania regulator.

The letter was also sent to the British regulatory body, the Financial Services Authority, because the buyers of ACE reinsurance units are private-equity investors based in the U.K, Randall & Quilter Investment Holdings.

Bermuda-based ACE's deal, announced Jan. 6, involves a plan to sell three runoff reinsurance units?ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company?to Randall & Quilter Investment Holdings for an undisclosed amount. Both parties have already signed a definitive agreement and the deal is expected to close in the first half of this year.

A sale of the reinsurance units would help shed substantial liabilities for asbestos that ACE assumed in 1999 when it bought Cigna Corp.'s global property-casualty insurance business for $3.45 billion.

The planned sale of these three units to Randall & Quilter is an "important step in the company's strategy to resolve asbestos exposures responsibly and to achieve exposure certainty," ACE Chief Executive Evan Greenberg said earlier this year.

But the four insurers argue in their letter that ACE is trying to skirt its responsibility in paying claims and that by selling these units to a U.K. company, "under the proposed transaction, the moral or legal pressure on ACE that is now available to U.S. regulatory authorities will not necessarily be applicable to the new entity."

The opponents of the transaction, in addition to being competitors of ACE, also had financial interactions with the reinsurance units to be sold, and all have policies issued by these units, one industry analyst told National Underwriter.

In their letter the four insurers also argue that the Pennsylvania Insurance Department "should disapprove the proposed sale" and that "through this proposed transaction, ACE is wrongfully attempting to shed its legal obligations to its policyholders and diminish the legal leverage that this department has to force ACE to stand behind them."

The insurers also requested in their letter "a full and meaningful opportunity to participate in a public hearing" before the insurance department concerning ACE's proposed deal.

Commenting on the letter, William Wilt, insurance analyst at New York-based Morgan Stanley, said in his research note today that it shows the proposed sale "won't be easy" and that this challenge could be "one of many ACE faces" as it tries to gain approval for the transaction.