Insurance runoff act signed into law in Vermont

Vermont Gov. Peter Shumlin has signed a measure into law allowing the formation of new companies in the state that would assume blocks of nonadmitted commercial reinsurance and insurance business from firms looking to get the business off their books and free up reserves.

Likened to so-called Part VII transfers in the United Kingdom, the mechanism created under Vermont’s Legacy Insurance Management Act, signed into law Wednesday, is seen as streamlining the process of transferring those blocks of business for runoff while potentially creating a new niche financial-services industry for the state.

Business transferred through the LIMA mechanism would be closed blocks of business with no policies having been sold for at least five years and no premium collected for five years.

“Patterned after Vermont’s captive insurance companies, I believe LIMA will bring new revenues to the state through transaction tax revenues and fees, and will create a wide variety of high-value, skilled, well-paying financial sector job opportunities,” Gov. Shumlin said in a statement.

“We’re open for business now,” Susan Donegan, commissioner of the Vermont Department of Financial Regulation, said in an interview after the signing. “We’ve been ready for a while. We ramped up our examination team a little bit last year hoping that this bill would pass.”

U.S. insurance industry trade groups initially opposed the measure but worked with Vermont officials to make changes in the legislation, adding a provision allowing policyholders to opt out of transfers, for example.

“The original bill was not the bill that was signed today because the industry side thought there were some flaws in it,” Ms. Donegan said. “The bill that was signed today was a very focused bill.”

The commissioner cautioned against expecting rapid growth in the state’s new industry niche.

“We have to be very careful,” she said. “This isn’t going to just develop overnight. Captives didn’t develop overnight.”