Credit Agreements in the Insurance Industry

Posted on 09-27-2017

By: Daniel A. Rabinowitz and David S. Berg KRAMER LEVIN NAFTALIS & FRANKEL LLP

Credit Agreements in the Insurance Industry

This article explains how to modify a standard credit agreement to account for a borrower that is an insurance company or an insurance holding company. Examples illustrate the specific types of provisions that may be appropriate for such a borrower. The guidance includes drafting and negotiation points for both borrower’s and lender’s counsel.

IN STRUCTURING THESE TRANSACTIONS, LENDER’S COUNSEL should be aware that, as a general matter, unsecured loans made to an insurance company or an insurance holding company will be subordinated by law to insurance policy claims. In all U.S. jurisdictions insurance policy claims rank senior to unsecured bank debt and other general, unsecured creditor claims in a liquidation proceeding. Where the borrower is an insurance holding company that relies on its operating subsidiary for liquidity, bank debt would be structurally subordinated to policy claims at the subsidiary level. We would note also that when you are lending to such an insurance holding company, you should be mindful of regulatory restrictions on the subsidiaries’ ability to distribute profits up to the borrower as a dividend.

Representations and Warranties

An insurance company or, to a lesser extent, an insurance holding company, is subject to a regime of state law rules and regulations not applicable to other borrowers. For this reason, a standard set of representations and warranties may be insufficient or inappropriate for this kind of borrower. Below are suggestions on how to revise or supplement these provisions in a manner appropriate to insurance borrowers.

To read the full practice note in Lexis Practice Advisor, follow this link.

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