AAC encountered financial difficulties and devised a plan with the
Wisconsin Office of the Commissioner of Insurance (“OCI”) to divide
AAC’s business. AAC kept the “good” policies in its General Account,
while the “bad” policies (including the RMBS policies) were isolated in a
Segregated Account. The General Account holds all of AAC’s claimspaying
assets, while the Segregated Account has nothing but a promise that
the General Account will provide money to pay claims, and a reinsurance
policy issued by AAC.
The same day they adopted this plan, AAC and OCI initiated
rehabilitation proceedings for the Segregated Account. At the time, AAC
was negotiating with a group of banks to commute policies insuring credit
4
default swaps (the “CDS Settlement”). The settlement called for AAC to
use General Account assets that were to pay Segregated Account claims to
commute the CDS policies. OCI approved the CDS Settlement, apparently
without regard to its effect on the Segregated Account’s ability to pay
claims.
As soon as the RMBS Policyholders learned of AAC’s and OCI’s
actions, they sought to protect their interests by trying to obtain discovery
and challenge the legality of OCI’s and AAC’s actions in the Circuit Court.
However, rather than providing any discovery or meaningful review, the
Circuit Court denied the RMBS Policyholders’ motion to intervene and
adopted wholesale OCI’s findings of fact. Instead of reviewing the legality
of the Segregated Account and the fairness of OCI’s actions, the Circuit
Court has insulated all of OCI’s actions from meaningful review, thereby
ignoring OCI’s statutory requirements and the statutory mandate to the
Circuit Court to oversee rehabilitation proceedings.
The Circuit Court built a wall of functional immunity around OCI’s
decision to authorize AAC’s creation of an inadequately funded Segregated
Account. It extended that immunity to OCI’s decision to approve AAC’s
transfer of the RMBS Policyholders’ policies to the Segregated Account,
and to OCI’s approval of the CDS Settlement.
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