Captive Insight Vol I | Page 39

credit the liquidator probably won’t do partial drawdowns, so in the case of a complete drawdown then try and get the assets placed into Trust. If the collateral arrangement is under a “funds withheld” then the collateral will be taken by the liquidator and not segregated for the captive’s liabilities. That means it will be used to pay all claims and expenses and the insured will lose the benefit. Q) How about ongoing cash flow and regulatory issues? A) These can be issues. Luckily most of our captives had sufficient solvent assets to pay for the run off. However, if the collateral is tied up then the captive or insured may end up paying claims directly to speed up the process. It’s very important to try and maintain control of claims because the priority of the liquidator is to settle claims, not to settle claims for the lowest amount, and as such they don’t necessarily have your best interest as their priority. We are still dealing with the same staff at one company in liquidation that we dealt with at the time of liquidation although obviously they are now employed by the liquidator. RELIANCE INSURANCE COMPANY 1998-2001 “THE COLLAPSE” (FROM WIKIPEDIA) Although it was hushed at the time, Saul Steinberg suffered a stroke in 1995. Active control of his financial empire was assumed by his brother, Robert Steinberg. Changes were instituted ostensibly toward making Reliance more focused on insurance, and for a while, it looked as if the company was prospering. Many investors who had long ago grown weary of Saul Steinberg were endorsing the company. RGH stock reached a record high. Q) And CIMA? A) Well their concern is that the captive continues to meet the minimum solvency under the Insurance Act. If the run off is protracted then this can be an issue as the operational costs and claims will eat into capital. Q) Any liability issues for either directors or insurance managers? A) I haven’t seen any D&O claims to captive managers or directors from the failure of a fronting company. When these companies fail it happens fairly quickly and the rating agencies are well behind the curve on this. As such it is hard to find fault with the directors or managers. A) Always use a 114 Trust account ……… and thank goodness the US Government bailed out AIG. T: [phone] E: [email protected] W: www.atlascaptives.com image © Aleksandr Bedrin - Fotolia.com Q) Final thoughts? The company reported in its 1998 annual financial statement, filed in March 1999, a $1.7 billion statutory surplus, its largest in history, and a profit for that year of $585 million. [4] Within less than three years, however, the Commonwealth Court of Pennsylvania would issue a court order placing Reliance into liquidation. The company lost $177 million in net income in 1999 and another $198 million in 2000. In early 2000 Reliance agreed to be acquired