PROVIDENCE, R.I.—Tapping a Rhode Island statute, an attempt by a solvent reinsurer to execute a U.K.-style commutation process in the United States has passed its first legal hurdle.  If successful, the plan would enable the reinsurer to wind up its business quickly and avoid a lengthy runoff or liquidation. It’s unclear, however, whether the commutation technique will gain widespread favor in the United States and be used by other reinsurers and insurers.At a hearing last week, GTE Reinsurance Co. Ltd., a reinsurer based in Providence, R.I., won court approval to convene a meeting of creditors and secured a voting date for Nov. 30 for creditors to vote on the commutation plan.Commutation plans for solvent insurers, such as the one proposed by GTE Re, are the U.S. equivalent to the U.K. regulatory mechanism known as a solvent scheme of arrangement. The schemes have gained popularity, particularly in the United Kingdom, as a tool to run off and restructure solvent and insolvent insurers. However, the approach often is controversial for solvent insurers, particularly among U.S.-based policyholders who argue the plans erase decades of valuable occurrence-based coverage.Borrowing language from the U.K. Companies Act, Rhode Island in 2002 passed legislation allowing “voluntary restructuring of solvent insurers,” enabling a solvent commercial lines insurer or reinsurer to settle quickly its outstanding liabilities for past and future claims and terminate its business. Solvent U.S. insurers seeking to terminate business have few options, experts say, and typically enter runoff, where they can spend decades trying to wind down business in an orderly fashion.

via Solvent insurer’s commutation plan gets initial go-ahead from R.I. court | Business Insurance.