Question
From:
(redacted)
Sent:
Monday, September 22, 2008 3:33 PM
To:
Verne, B. Michael
Subject: HSR Inquiry
Dear Mike:
Company A("Buyer") is a reinsurance company and company B("Seller"') is an intermediate holding company for the insurance andreinsurance subsidiaries of a financial services company. The parties meet thesize-of-the parties test.
Buyer and Sellerare contemplating a transaction whereby Buyer will acquire Seller'sreinsurances brokerage business including 100% of Seller's reinsurancebrokerage company ("Company") and from Seller's affiliates certainsystems, equipment, fixtures, licenses, software, and furniture required tosupport the reinsurance business. The affiliate assets to be acquired and thetangible assets of the Company (the "Purchased Assets") haveaggregate fair market values well under the $63.1 M size-of-the-transactionthreshold.
Simultaneous withthe acquisition of the Company, Buyer and Seller will also enter into a RenewalRights Agreement pursuant to which two insurance company subsidiaries of Sellerwill agree that Buyer will have the exclusive right to offer new and/or renewalpolicies and reinsurance coverages to the insurers' policyholders andreinsuring cedents upon expiration of their policies or reinsurance agreements(the "Renewal Rights"). The Company also has an interest in thesesame Renewal Rights as it was responsible for placing this business with theinsurers.
We note that thereis no assurance that the policyholders or reinsuring cedents will renew their-policies or reinsurance arrangements with the Buyer.
Finally, in orderto transfer to the Buyer the future economic risks and benefits associated withthe Seller subsidiary insurers' in-force business that was produced by thereinsurance brokerage, the Buyer and the insurers will enter into indemnityreinsurance agreements pursuant to which Buyer will reinsure the in-forcepolicies and reinsurance agreements written by the reinsurance brokerage onbehalf of the insurers and the insurers will transfer to Buyer assets equal tothe corresponding loss reserves and the unearned premium reserves relating tothe business.
If theconsideration paid for the Renewal Rights is aggregated with the purchase pricefor the Purchased Assets, then the total will exceed $63.1 M. It is ourunderstanding, however, that "renewal rights" are generally notconsidered "assets" for purposes of the HSR Act because there is noguarantee that the policyholders or reinsuring cedents would in fact renew thepolicies. We note that there are two informal opinions on the issue -0802002and 051000717 --which prompt us to seek your confirmation that "renewalrights" would not be considered an asset in the context of the transactiondescribed herein.
If, on the otherhand, "renewal rights" are considered "assets" for purposesof the HSR Act, please confirm our understanding that the acquisition ofrenewal rights are exempt under the ordinary course of business exemptionpursuant to 15 U.S.C. 18a(c)(1) and 16 C.F.R. 802.1. As the size of thetransaction is below $63.1 million with the exclusion of the value attributableto renewal rights. please also confirm our understanding that the overalltransaction is not reportable under the HSR Act.
Please alsoconfirm our understanding that indemnification reinsurance agreements are notsubject to the Act even if 100% of the premiums and reserves are ceded to theBuyer.
Thanks very muchfor your help.