The Association was established by US Virgin Islands law in 1984 to:
• Provide a mechanism to pay claims arising under certain insurance policies issued by insurers who become insolvent.
• Avoid excessive delays in paying claims.
• Avoid financial loss to claimants or policyholders because of such insolvencies.
The Association also assists in the detection and prevention of insurer insolvencies, and assesses the cost of such protection.
The Association maintains the Fund, which derives its money primarily from a 5%
gross premiums tax on all types of insurance (except annuities) transacted in the
USVI or covering risks resident, located or to be performed in the USVI. Once the
balance in the Fund reaches $50m, excess amounts are deposited in the
Government’s General Fund. Lloyd’s, like all admitted insurers in the USVI, is
automatically a member of the Association and presently provides the Board Chair.
During 2007, USVI Senator Carlton Dowe proposed legislation that would allow the
Government to replace the entire balance of the Fund with a Letter of Credit (LoC).
This would enable the Government to pay a portion of about $398m in retroactive
wages owed to its employees and retirees.
The Board of the Association objected in principle to use of the Fund for any
purpose other than paying valid claims. However, it agreed to assist in drafting
amendments to the proposed Bill, which would enable the Government to achieve
its objectives, but without undermining the integrity of the Fund. It was particularly
important:
a To clarify arrangements around the payment of any claims that may arise once a LoC is issued.
b To avoid member insurers being assessed in the event of insufficient monies being in the Fund as a result of the withdrawal of monies for the LoC.
On 22 December 2007, Bill No. 27-0131 was signed into law as Act No. 6984 by
Governor John de Jongh. The Act authorises the Government to substitute a
secured LoC for $45m of the $50m in the Fund. It requires that the LoC must be
provided by a federally insured lending institution rated investment grade or higher.
The LoC will be used to provide financial liquidity for payments by the Association,
which may draw upon the LoC when required. Funds drawn under the LoC will be
a debt of and must be repaid by the Government of the USVI.
Once the LoC is issued and there is a transfer of the $45m, no further monies
deposited in the Fund may be transferred or used, except to pay claims and
Association expenses, until the balance is restored to $50m. The LoC must remain in place until the Fund balance is restored to $50m, and no member insurer may
be assessed until a total of $50m has been paid from the Fund or funds advances
under the LoC.
The Fund will continue to be replenished in the normal way (ie from gross premium
taxes), and once the Fund has been restored to $50m, the LoC will be cancelled. It should be noted, however, that before a LoC can be issued, there is a need for
further legislation to identify a funding source for repayment by the Government of
the $45m to the financial institution that will issue the LoC.
