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Choosing the Right Advisors to Facilitate a Successful Receivership

When an insurer enters into receivership, the regulator’s mandate is to stabilize operations and the company’s financial condition to protect policyholders and other interested parties. Typically, the first call a regulator will make is to a law firm with the appropriate expertise and staff to effectively manage the receivership. Once counsel is retained, business advisors are brought in to immediately assess the insurer’s financial condition, understand the operational structure, and help stabilize the company.

Counsel will often act as the quarterback of the receivership team, aligning regulators, courts and advisors toward a common goal. While specialist advisors can provide essential expertise, the law firm usually maintains the broadest perspective and coordinates the development and execution of legal, financial and operational strategies.

Counsel that understands the best way to leverage the specialized expertise of external advisors will gain an advantage in successfully guiding their regulator clients through what may be their greatest professional challenge.

External Advisors Can Contribute to Multiple Workstreams

Large, complex receiverships pose challenges to insurance regulators and their external counsel on multiple levels. Chief among them is preserving value for policyholders and other interested parties while managing and executing multiple interdependent workstreams across critical business operations.

Regulators understand that effective receiverships require an enterprise-wide transformation approach that realigns financial and operational strategies and commitments and strong governance protocols to enable a potential return to operations. Harmonizing multiple workstreams and stakeholders’ demands requires thoughtful orchestration.

The following table highlights key focus areas in a receivership, the strategic challenges and risks associated with each, and the ways external counsel and their advisory teams can support rehabilitators in improving outcomes.

Domain	Strategic Challenge	Enterprise Risk	External Roles
Actuarial and Reinsurance	Assurance of the validity of underlying actuarial assumptions and understanding and proactive management of reinsurance contracts and relationships	Misstatement of reserves impacting the insurer’s financial condition and loss or misalignment of reinsurance protection	Validate reserve adequacy and evaluate reinsurance contracts to help regulators understand their impact on the insurer’s financial condition, both historically and prospectively
Claims	Proactive claims management to minimize potential fraud and design and implementation of appropriate risk mitigation strategies	Payment of improper claims, increased financial instability, loss of operational integrity, customer trust and loyalty	Implement strong claims processes and procedures, develop claims metrics to track performance, provide clear understanding of varying coverage requirements
Financial Stability & Liquidity	Effective management of capital flows and liquidity monitoring, and identification and proper tracking of balance sheet risks	“Run on the bank” cash outflows and looming threat of liquidation	Provide liquidity modeling, capital stress testing, and scenario planning to stabilize key balance sheet risks
Governance & Decision-Making	Fragmented decision-making leading to inefficient and ineffective bottlenecks	Delays in critical operational decisions; increased costs	Facilitate clear decision frameworks, escalation protocols, and purposeful prioritization
Investments	Understanding the impacts that current investment strategies and structures have on the financial condition of the enterprise, and the ability to accurately perform asset-liability modeling (ALM)	Excessive investment risk and ALM mismatch that undermine the ability to meet financial obligations in a timely and complete manner while concurrently maintaining overall financial stability	Potentially drive the restructuring of the investment portfolio to help reduce risks and stabilize financial returns and assure the integrity of ALM models
Regulatory & Compliance	Consumer dissatisfaction and challenges, legal scrutiny and restrictions, negative media exposure	Excessive legal and administrative costs, loss of focus on needed operational improvements	Deliver end-to-end assessments and effective compliance solutions; manage interactions with other state regulators, court oversight, consumers and other interested parties
Stakeholder Communications	Ineffective and untimely messaging to consumers, regulator community, courts and other interested parties	Fragmented and inconsistent messaging, litigation risks, increased consumer complaints	Develop and implement multi-channel communication strategy, including call center support and noticing facilities
Technology & Data Management	Inconsistent, uncertain and inaccessible data; multiple disparate databases	Inaccurate data leading to improper financial and operational reporting, excessive costs to remediate errors, reputational risk and lack of trust from interested third parties	Enhance data quality and accessibility, strengthen analytic insights and integrity of communications; enable effective decision-making

Driving Success in Complex Insurance Receiverships

Possessing specialized knowledge across critical domains and the experience to scale resources quickly are key ingredients for a successful receivership outcome. Receiverships present execution challenges due to the sheer number of required focus areas and their interdependencies. An experienced external counsel advisor with deep cross-functional, insurance-centric knowledge and experience can help reduce the administrative and operational burdens on the regulator.

The most effective advisors can provide expertise in key required disciplines under one roof, enabling strong coordination and quality of execution across the insurance value chain. While individual specialist firms may bring needed capabilities to the table, they often lack the coordination required across critical domains and workstreams, creating complications for the regulator in high-stress situations.

A Strategic Reset for Long-Term Value

When a major receivership event occurs, regulators and their counsel have limited time and resources to effectively turn failing insurers into a stable situation. While the causes of insurer insolvency vary, successful receiverships share one thing in common – the disciplined orchestration of people, processes and decisions under pressure.

Preserving assets and protecting policyholders are fundamental objectives of any receivership, but the challenge extends far beyond these goals. Restoring stability and creating a path toward long-term viability, or in the alternative, ensuring the systematic liquidation of a company for which rehabilitation cannot be achieved, requires thoughtful execution of an enterprise-wide effort across financial, actuarial, operational, regulatory, stakeholder communications and other strategic domains.

In today’s environment, a successful result is not defined by technical expertise alone, but rather by the ability to transform complexity into coordinated action. In the end, it’s about appropriately connecting the disparate expertise and experience needed to reach a successful outcome.

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.