By Isha Marathe

May 28 - (The Insurer) – Risk Strategies-owned Oxford Risk Management Group (ORMG) will unwind the disputed transaction that transferred judgment preservation and financial guarantee-related risks to a recently formed Bermuda insurer after the onshore application to approve it was rejected by the North Carolina Department of Insurance (DOI).

Earlier this month, sources with knowledge of the situation said that the North Carolina regulator had decided not to approve the transaction, which had previously been given the green light by the Bermuda Monetary Authority.

Approached for comment, Kevin Myers, president and CEO of ORMG, said: “While we maintain our position that we were within our rights to assign the policies to the Bermuda structure, we respect the North Carolina DOI’s decision and will be unwinding the Bermuda structure in the near term.

"We believe that this will move us toward resolution of the matters involving all interested parties. We are actively working with the North Carolina DOI with respect to the necessary steps to unwind the structure."

Captive manager ORMG was seeking approval from insurance regulators in Tennessee and North Carolina for the transaction, which AM Best said contributed to it lifting a ratings review.

As previously reported, Risk Strategies' parent company Kelso-backed Accession had been in advanced talks for a sale to UK intermediary Howden Group before talks hit the buffers in late-March. Multiple M&A sources have said that talks are now ongoing between Accession and Brown & Brown over a potential sale to the US publicly-traded broker.

As previously reported, the Bermuda transaction, which was entered into as ORMG’s carrier affiliates faced a downgrade threat from AM Best, has been the subject of a $1.2 billion legal action brought by Dorset Peak Solutions (DPS) along with clients it had introduced to become captive members.

The plaintiffs were seeking a temporary restraining order to prevent ORMG from obtaining onshore approval from regulators in North Carolina for the transfer of judgment preservation and financial guarantee-related risks to Class 2 Bermuda insurer Structured Risk Mitigation Holdings.

The restructuring had already been approved by the Bermuda Monetary Authority and enabled ORMG to move a book of around 20 policies with approximately $1.3 billion of limits out of a unified pool of onshore captive carriers to the new vehicle while retaining only $170 million of limit as a reinsurance policy.

AM Best had placed the credit ratings of Oxford Insurance Companies’ members, including North Carolina and Tennessee subsidiaries, under review with negative implications in March 2024.

The agency highlighted a transition in business mix to become an insurer of “large, financial guarantee/judgment preservation policies” and warned of exposure to higher-than-expected loss outcomes and excess probable maximum loss estimates for the size of the aggregate risk pool in the captive insurers, which operate with a protected cell structure.

But following the transfer of the book of business to the new Bermuda insurer, AM Best removed from under review with negative implications the A financial strength and a credit ratings of the onshore captive subsidiaries highlighting actions taken including the restructuring transaction.

DPS CLAIMED BERMUDA VEHICLE “WOEFULLY UNDERCAPITALISED”

In its lawsuit, DPS claimed that the policyholders were moved from North Carolina and Tennessee captive cells backed by a pool of $1.6 billion to a Bermuda captive cell that is "woefully undercapitalised" with only $30 million in capital and $170 million of reinsurance, the complaint said.

DPS filed for a temporary restraining order in the Delaware Chancery Court on March 28, along with an amended complaint, suing ORMG and various other entities related to the transaction, seeking not less than $1.2 billion in damages, The Insurer reported.

On April 16, Vice Chancellor Bonnie David, presiding over the case in the Delaware Chancery Court, rejected the TRO in a telephone hearing, but granted DPS's motion for expedited trial and discovery.

"The transactions at issue here have already occurred. The agreements have been signed and assets have already been transferred," David said.

"If the regulators don't approve the transaction, much of the harm plaintiffs allege will be moot … and if the regulators do approve the transaction, plaintiffs have not sufficiently explained how they will be in a different position than they're in now."

Commenting on the transactions being challenged by the plaintiffs, David added: “If they are not unwound, (they) present the possibility of irreparable harm to plaintiffs.

“If the transaction is not unwound, members conceivably will be insured by an unrated Bermuda entity with only $30 million in assets and $170 million in reinsurance coverage. That presents significant potential harm.”

DPS attorney Elliot Kroll declined to comment. AM Best did not immediately respond to a request for comment.