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10.09.2010 19:00 AMBAC Segregated Account Structure Challenged in Wisconsin Court Wisconsin Regulator Criticized for Abuse of Discretion, Lack of Transparency and "Enron Accounting" Lack of Due Process and Avenue for Redress Described by Policyholders As Being in "Never Never Land" Structure Seen As Impairing Wisconsin Insurance Industry: "Why would any person in their right mind ever buy a policy from a Wisconsin-domiciled insurance company?" The RMBS Policyholders Group today stated that the arguments challenging the legality of the Ambac Assurance Corporation ("AAC") segregated account (the "Segregated Account") presented yesterday by, among others, Deutsche Bank, U.S. Bank, Depfa Bank, Wells Fargo, Bank of America and Lloyds TSB Bank, in their capacity as trustees for securities insured by AAC, in the Circuit Court of Dane County, Wisconsin, underscore the inequitable treatment of policyholders and the lack of transparency in the Wisconsin insurance regulator's rehabilitation case of the Segregated Account. In separate reply briefs and oral arguments, these banks have challenged the legality of the Segregated Account, which includes over $57 billion of policies insured by AAC that were involuntarily transferred into that account. The challenges, arguments, and concerns presented in Court, in conjunction with briefs filed by the parties last week, raise fundamental fairness issues in the rehabilitation proceedings including: The unequal treatment afforded to policyholders whose policies have been allocated to the inadequately capitalized Segregated Account in violation of Wisconsin law. Depfa Bank, in its statements before the Court, criticized "the lack of any rational basis for making any distinction between the policies in the General and Segregated accounts" and said that this segregation "amounts to an abuse of discretion on the part of the [Insurance] Commissioner." Regarding assurances that the Segregated Account structure has resulted in capital adequacy, Depfa explained that splitting AAC's liabilities between a segregated account and a general account cannot, without more, transform a defunct insurer such as AAC into two healthy ones. In other words, moving liabilities from one account to a new account does not suddenly make the new account adequately capitalized and it "smacks of Enron accounting." Depfa also noted that the Segregated Account structure would be impermissible in any bankruptcy court in America. Lloyds Bank argued before the Court that the assets that supposedly serve to capitalize the Segregated Account are merely "a house of cards upon which the Segregated Account and the Court order are built." Lloyds called the Commissioner's statement that policyholders would be treated equally a "sham." Lloyds asked that if such treatment were really the case, then why would the Commissioner create the Segregated Account in the first place? Instead, Lloyds alleged that the more favorable treatment given to general account creditors amounted to a "preference" that violated fundamental insurance principles. In its brief, Depfa Bank asserted that, "the Commissioner's actions fail to protect 'policyholders as a whole' and instead place the entire financial burden of Ambac's failure on the Segregated Account policyholders…Depfa will call a pig a pig…Prejudicing a minority of Ambac's policyholders (those with claims) in order to protect the majority of policyholders (those without claims) is a patent violation of his acknowledged fiduciary duty to protect 'policyholders as a whole.'" Moreover, Deutsche Bank and U.S. Bank stated in their brief that "Notwithstanding the fact that, by law, [the Commissioner] as rehabilitator must represent the best interests of the policyholders in the Segregated Account…[The Commissioner] persists in treating Ambac General [Account] policyholders as its primary constituency…[C]onsistently when faced with conflicting interests of the General versus Segregated Account policyholders, OCI has chosen to side with the interests of the Ambac General policyholders, often at the expense of the Segregated Account policyholders….Given this behavior, [the Commissioner]'s failure to represent the best interests of the Segregated Account policyholders cannot seriously be disputed." A fundamental lack of transparency, disclosure and due process In its oral arguments before the Court, Deutsche Bank and U.S. Bank discussed the predicament of policyholders in the Segregated Account to seek redress: "We as policyholders are in a bit of a Never Never Land." The Rehabilitation proceedings require policyholders in the Segregated Account to continue paying premiums to Ambac even though the company suspended benefit payments to policyholders. At the same time, the Court has issued a Temporary Restraining Order that prevents legal action against AAC and that prohibits exercising the right of setoff. Moreover, policyholders have been deprived of the legal right to obtain basic information about the rehabilitation. ALL Student Loan and Lloyds TSB Bank in their brief argued: "The Rehabilitator asserts that the Segregated Account has 'access to all of the assets of Ambac'…yet the limited documents made available…either belie this contention or do not clearly provide for such… Further, the Rehabilitator refuses to permit either formal discovery or even informational requests…" The brief also stated that: "Although Movants have attempted to obtain financial and other information to verify the assertions of the Rehabilitator… [he] has failed to provide any such information…This failure to provide documentation amounts to a violation of Movants' right to due process." The danger to Wisconsin insurance In its oral arguments, Depfa Bank raised the potential deleterious effect of the Wisconsin Insurance Commissioner's plan on the Wisconsin insurance industry and posed the question, "Why would any person in their right mind ever buy a policy from a Wisconsin-domiciled insurance company? … [This] effectively makes Wisconsin insurance policies unmarketable." In its brief, Depfa Bank further commented that: "[P]olicyholders of a Wisconsin insurer can have no assurance that their policies have any value or that their legal rights under their policies will be enforceable… t is difficult to see why a rational purchaser would ever buy an insurance policy from a Wisconsin domiciled insurer." Depfa also alleged that the Commissioner's action amounted to "regulatory extortion" and an abuse of discretion because it threatened to relegate policyholders in the Segregated Account unless parties agreed to the regulator's settlement terms. The RMBS Policyholders Group said: "Much of the Ambac rehabilitation plan process to date has been inhibited by regulatory capture, that is, the OCI's favoring the company it is charged with regulating to the detriment of policyholders in the Segregated Account. Ambac appears to have been successful to date in ensuring that the regulator's plan is more supportive of Ambac and its equityholders than in exercising the OCI's statutory and fiduciary duty to ensure adequate capitalization for the benefit of all policyholders. We would hope that the Court will recognize the violations of due process that this process entails, as well as the enormous damage it may do to Wisconsin as a business center." The judge said he would issue a written decision on the motions and made no decision at the hearing. Another hearing on related issues will be held on September 13, 2010. Last week, the RMBS Policyholders Group, with over $1 billion of securities and other indebtedness insured by AAC and placed in a segregated account, filed a motion to enable litigation that would seek to enjoin AAC's parent, Ambac Financial Group, from receiving dividend payments from AAC and utilizing AAC's net operating losses without fair consideration being paid to AAC. AFG has publicly stated that it is likely to file its own bankruptcy proceedings in the near future. Contacts: Media: Kekst and Company Jeremy Fielding/Lin-Hua Wu 212-521-4800/415-391-4665 http://www.finanznachrichten.de/nachrichten-2010-09/1793109… |
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| aus der Diskussion: | AMBAC der Phönix aus der Asche? |
| Autor (Datum des Eintrages): | Hunter20nov (10.09.10 19:06:10) |
| Beitrag: | 30,501 von 35,982 (ID:40134391) |
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