For the first time since the inception of the “AIRROC Person of the Year” Award, AIRROC has announced that this honor goes to a team of people — Reliance Insurance Company in Liquidation, arguably the largest Property & Casualty liquidation in history. Its distribution percentage to class (b) claimants has risen from 20% in December 2007 to 40%, with $381.6M distributed as of June 30, 2015 to 6,318 class (b) Notice of Determinations (NODs) approved by the Court; by the end of 2015, subject to Court approval, the percentage will increase to 65% with another $240M in distributions. Also by the end of 2015, subject to Court approval, the Guaranty Associations (GAs) will receive another $390M for a total of $2.6B inception to date in early access advances to fund the $3.1B in payments made by those GAs to class (b) Claimants under Reliance policies. (See http://www. reliancedocuments.com). Despite its billing as the largest and one of the most complex liquidations in history, Reliance is well on its way to winding down and may reach its goal of being completed in under 20 years. How long it will take depends on the ultimate bar date being established by the Commonwealth Court, but the application requesting a bar date was filed in July 2014 and, due to several objections, was argued just a few weeks ago. Given the size, the complexity of the issues, and the nature of the business written, the management team has achieved its goals in managing the liquidation effectively, maximizing distributions and accelerating the liquidation timeline.
Reliance was founded in 1817 as the Fire Association of Philadelphia. Much has been written about the company’s decline that resulted in it being declared “insolvent” by Court Order dated October 3, 2001; for a thorough review of the liquidation, please see Deborah Cohen’s article in the AIRROC Matters Special Edition on Insolvency, Summer 2011.
David Brietling, the Chief Liquidation Officer appointed by the Pennsylvania Insurance Department (PID) and Keith Kaplan, Executive Vice President of Reinsurance, were two key members of the senior management team at the helm of the liquidation. David had a decade of experience from being in charge of the Philadelphia Reinsurance run-off for the PID, and after being appointed to monitor the solvent run-off of Reliance in April 2001, and then to oversee the rehabilitation (which lasted all of 4 months), he became head of the liquidation team for the PID and responsible for dealing with Reliance’s $10B in liabilities and $7B in assets. Keith had been a long-time executive with Reliance and on the verge of taking another job when he was persuaded to stay. Since Reliance had been a prodigious buyer of reinsurance, managing reinsurance recoverables estimated to be approximately $5.5 Billion (including ceded case reserves and IBNR) was a critical component of a successful liquidation.
At the beginning, PID and RIC senior management agreed on four objectives in managing the complexities of the estate. They had heard the complaints of regulators, policyholders, creditors, reinsurers, and politicians when it came to insurance company insolvencies in general, and were determined that Reliance would: 1) keep all stakeholders – policyholders, claimants, brokers, GAs, and reinsurers – informed through meetings, documents and regular reporting, 2) have a consistent process in place to gather data on claims and issue timely NODs, 3) get distributions and early access advances going out as fast as possible so that claimants and GAs got at least some money early, and 4) shorten the life cycle of Reliance versus the 20+ years of other large P&C insolvencies. Joe Savage, Senior Vice President Claims, Betty Barrow, Senior VP and Chief Actuary, and other senior management who have been at Reliance since the ‘80s, brought continuity and in-depth knowledge of Reliance products and systems to the task of marshalling assets and managing claims and reserves. Reliance now has a liquid asset base of $5B and an estimated $7B of class (b) liabilities. The estate has processed over 99% of the 160k proofs of claim and has only about 7,200 claims remaining open (including 5,500 at the GAs).
For the full article, refer to page 30 in the Winter 2015 issue. https://www.airroc.org/assets/docs/matters/airroc_matters_winter_2015_vol_11_no_4%201.pdf