Question
(redacted)
October 24, 2000
VIA OVERNIGHT COURIER
Mr. Thomas Hancock
Premerger Notification Office
Federal Trade Commission
6th & Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: Indemnity Reinsurance Transaction; Section 7A(c)(1) of Clayton Act
Dear Mr. Hancock:
I am writing this letter to confirm oral advice you provide to the undersigned in a telephone conversation on October 19, 2000 regarding the applicability to the following transaction of the notification requirements under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the Federal Trade Commission's implementing regulations (collectively, the "Act").
An insurance company (the "Reinsuring Company"), will reinsure on an indemnity basis, all insurance liabilities arising from a group of existing life and health insurance policies (the "Policies") issued by a second insurance company (the "Ceding Company").
The Reinsuring Company and the Ceding Company each have total assets in excess of $100 million. The Ceding Company will transfer to the Reinsuring Company a reinsurance premium consisting of a lump sum payment of approximately $46 million in return for reinsuring the existing. Polices, subject to adjustments based upon actual cash flow prior to the closing. The Ceding Company will be responsible for appointing a third-party administrator, subject to approval and other controls exercised by the Reinsurer, to administer the Polices, providing all premium collection, claims and other policyholder services.
The present transaction is purely an indemnity reinsurance transaction between tow insurance carriers. The Polices will remain in the name of the Ceding Company and the Ceding Company will retain primarily responsible for all losses, although the Reinsuring Company will be obligated to reimburse the Ceding Company for all contractual losses incurred and, as a practical matter, will pay all such contractual losses directly to the third-party administrator hired by the Ceding Company. Responsibility for any extra-contractual liabilities incurred prior to the effective date of the transaction, such as any claims for discriminatory practices, will be retained by the Ceding Company.
Based upon our conversation, it is our understanding that the present indemnity reinsurance transaction dose not amount to an acquisition of assets or qualifies as a transaction occurring in the ordinary course of business exemption under Section 7(a)c)(1) of the Act because "none of the polices change hands". As I mentioned, prior informal advice rendered by the Federal Trade Commission Staff support this position. Although we understand that such informal advice is not binding on the Federal Trade Commission, we direct your attention to the Letter to Thomas Hancock dated July 25, 1997 re: indemnity reinsurance transactions and the Letter to Victor Cohen dated November 23, 1992, copies of which have been obtain d by Morgan, Lewis 7 Bockins LLP through Freedom of Information Act request and are available on the internet at http://hsrcan.westlaw.com.
Please confirm to that the analysis set forth herein accurately reflects the advice you provided in our earlier telephone conversation. I understand that you will write you comment on this letter and that it will subsequently be publicly available through requests under the Freedom of Information Act. Should you have any question or require any information, please call me at (redacted). Thank you for your assistance with this matter.
Very truly yours,
(Redacted)