CastlePoint National Insurance Co. continues to move closer to a proposed liquidation expected to begin in March, having paid out $210.1 million in claims since entering conservation on July 28, 2016.
Attorneys for CastlePoint National conservator Dave Jones, according to materials dated Jan. 12 and disseminated to interested parties Jan. 17, said the dollar value of claims payments during the conservation process included a $44 million "backlog" that the company faced as of the conservation date.
"CastlePoint is now up-to-date on its claims payments and continues to timely administer and pay claims as they are received," they reported, noting that Jones has "broad discretion" regarding claims-handling on behalf of the CastlePoint National estate. The U.S. property and casualty subsidiaries of Tower Group International Ltd. were merged into the California-domiciled CastlePoint National to facilitate the conservation process.
S&P Global Market Intelligence previously estimated based on materials provided by the conservator that the U.S. P&C units of Tower Group generated statutory net losses of $567 million during the fourth quarter of 2015 and $9.7 million during the first half of 2016 on a pre-merger basis. They produced an estimated direct incurred loss for the fourth quarter of 2015 of $535.9 million. CastlePoint National maintained policyholder surplus on a post-merger basis of a negative $318.3 million as of June 30, 2016.
Through the process Jones established, the estate pays "accepted" claims up to the amount allowed by statute for the insurance guaranty association of the state in which the applicable policy had been issued. For submissions that exceed the allowable amount, of which there were four resolved claims as of Jan. 12, the claimants will receive a preapproved class 2 priority proof of claim for the difference between the cash payment received and the actual dollar value of the claim up to the applicable policy limits. The proof of claim will be administered during the liquidation process.
"The rationale for this two-part process is straightforward. California law requires that all similarly situated policyholder claimants be treated equally and expressly prohibits the payment of preferences," Jones' attorneys stated. "Because post-liquidation claims will receive cash payments from the [state insurance guaranty associations] up to the applicable cap amount, plus a proof of claim in the liquidation proceeding for any excess, pre-liquidation claimants must receive the same treatment."
According to the document, Jones expects it will be necessary to transition CastlePoint National into liquidation "sometime around the end of the first quarter" based on its current reserves, claims run-off rate and cash forecast. Once the San Francisco Superior Court issues a liquidation order, subject to a hearing Jones expects to occur on or around March 31, individual state insurance guaranty associations will take over the claims administration function. Jones said his staff has been laying the groundwork in anticipation of that eventual transfer.
Jones took action to retain 26 "key" CastlePoint National employees through Nov. 15, 2016, and 17 "key" employees through March 31 as he determined that it was important to his ability to conduct the conservatorship efficiently and effectively, according to the document.
A number of other developments have occurred since a judge approved the CastlePoint National conservation and liquidation plan in September 2016: $200 million was paid into the estate by the Michael Karfunkel family trust, the owner of former CastlePoint National parent ACP Re Holdings LLC; AmTrust Financial Services Inc. and National General Holdings Corp. executed administrative services agreements to facilitate continuity of claims servicing and payment processing at no cost to the estate; existing CastlePoint National stock was canceled; and a series of reinsurance, retrocessional and stop-loss agreements involving CastlePoint National, ACP Re and a former Bermuda affiliate were commuted to streamline the liquidation process.
The $200 million payment by the Karfunkel trust "was subject to offsets to reimburse other parties for certain claims-related advances made in the months prior to conservation, as well as debits and credits from reinsurance collections and administrative expense allocations," the document explained. It added that this post-closing "true up" had been materially completed.
Upon filing the conservation plan, Jones argued that the process he outlined was "notably superior" to an immediate liquidation, particularly in that his plan sought to preserve at least $500 million in tax attributes while avoiding "significant disruption and harm" to policyholders.