Rival Insurers Try To Halt Sale Of ACE Units
AIG, Allstate, Chubb and St. Paul Travelers appeal to Pennsylvania commissioner
An ACE Ltd. plan to shed its asbestos claims exposures by selling off three runoff reinsurance units is under fire from four major insurers that are urging the Pennsylvania insurance commissioner to halt the transaction.
A letter on behalf of American International Group, Allstate Corp., Chubb Corp. and The St. Paul Travelers Companies was sent to Pennsylvania Insurance Commissioner Diane Koken. The companies are represented by attorney Mark Aronchick with the Philadelphia law firm of Hangley Aronchick Segal & Pudlin.
The letterwhich runs 18 pages and is accompanied by more than 500 pages of supplementary materialwas received as part of the public comment regarding the ACE transaction, according to a Pennsylvania insurance department representative, Melissa Fox.
Insurers opposing ACEs move sent the letter to Ms. Koken because one of the units to be soldACE American Reinsurance Companyis based in Philadelphia, and the transaction needs regulatory approval from the states regulator.
The letter was also sent to the British regulatory bodythe Financial Services Authoritybecause the proposed buyers of the ACE reinsurance units are private-equity investors based in the United KingdomRandall & Quilter Investment Holdings.
Bermuda-based ACEs deal, announced on Jan. 6, involves a plan to sell three runoff reinsurance unitsACE American Reinsurance Company, Brandywine Reinsurance Company (UK) Ltd. and Brandywine Reinsurance Companyto 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," contending 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" convened by the insurance department concerning ACEs proposed deal.
Commenting on the letter, William Wilt, insurance analyst at New York-based Morgan Stanley, said in a research note that it shows the proposed sale "won't be easy," predicting that this challenge could be "one of many ACE faces" as it tries to gain approval for the transaction.
Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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