Other Asset Collection Activities
The Deputy Receiver has also pursued a number of other efforts to marshall additional assets for the Companies' operations and for the benefit of creditors. These efforts have included the continuation of litigation commenced initially by the Companies prior to receivership in order to collect debts owed to them; the commencement of new litigation for the collection of debts where that was deemed appropriate; the establishment of an "asset recovery department" which seeks to collect sums due to the Companies without litigation and at reasonable costs; and pursuit of reinsurance and other contractual recoverables. An area of particular emphasis has been the availability of third party insurance and contributions from Member Builders toward the payment of covered claims.
EFFECTS OF RECEIVERSHIP
Change in Management
The affairs of the Companies are being managed by the Commissioner of Insurance in his separate and distinct legal capacity as Deputy Receiver and by experts and consulting firms he has retained for this purpose. The Deputy Receiver has dismissed all senior management from the employ of the Companies. During receivership, diligent efforts have been made to stabilize the Companies' affairs, to identify operating problems, to devise a plan that would improve the operations of the Companies, and to enhance the benefits paid to claimants. We are confident that receivership actions taken to date are an important component of a plan of corrective action reasonably calculated to maximize benefits for all claimants.
In short, the Companies are effectively under new management whose mission it is to protect fully the interests of Home Owners, Member Builders, and creditors.
Authority of Deputy Receiver
The Receivership Order authorizes the Deputy Receiver to act on behalf of the Commission for the period the Commission is the Receiver of the Companies, to take possession of their assets, to control their affairs, to take all actions necessary or appropriate for their management, and to conserve and marshall their assets. The Receivership Order also authorizes the Deputy Receiver to institute or defend, in the name of the Companies or in his own name, any and all lawsuits and other legal proceedings on behalf of the Companies. By virtue of this Order, the Deputy Receiver is legally in control of the Companies' records and other property, and is overseeing the payment of claims, recovery of assets, and proper performance of all other administrative functions.
Stay of Litigation
Under the terms of the Receivership Order, neither the Companies nor the Deputy Receiver may be sued without the Deputy Receiver's consent. Action on pending litigation against the Companies has been stayed by the Receivership Order. All claims against the Companies, including any claims in litigation, must be submitted to the Deputy Receiver in accordance with the administrative claims process established by the Receivership Order. The Deputy Receiver is to determine the validity and the amount of each such claim. This administrative process is the sole method of asserting claims against the Companies or their assets. The administrative claims process and availability of appeals are described more fully in Part 3 of this Report.
The rehabilitation of an insurance company like HOWIC is a complex and intricate undertaking. First, at the time of receivership only two companies competed directly with HOWIC on a nationwide basis. Second, the insurance company that underwrote the HOW Program before the formation of HOWIC, INA Underwriters Insurance Company, sustained losses leading it eventually to cease underwriting this business. Third, HOWIC itself sustained heavy losses in underwriting the HOW Program, which led ultimately to its receivership. These factors, among others, made the rehabilitation of the Companies a daunting challenge.
Frequently, rehabilitation efforts focus on the possibility of finding new owners or investors willing and able to infuse additional capital. This new capital can then be devoted to assuring that the company's financial structure does not present unacceptable risks to those parties interested in the insurer's affairs. As explained below, the Deputy Receiver has tried to sell the Companies. However, the depth of the Companies' insolvency and poor operating history, combined with the peculiarities of their products, appear to have made it virtually impossible to obtain any purchase offers that would sufficiently restore the benefits owed to all current and future claimants.
The Deputy Receiver has also focused on whether the sale of certain portions of the Companies' business would assist and enhance the benefits payable to all current and future claimants. Despite the challenges imposed by the Companies' financial condition and operating history, the Deputy Receiver also took active steps to sell portions of HOWIC's insurance business. To assist in the rehabilitation effort, the Deputy Receiver retained a group of consultants to solicit and evaluate purchase proposals for all or certain portions of HOWIC's business.
Beginning in May 1995, the Deputy Receiver solicited confidential bid proposals from more than 100 potential purchasers who might be interested in acquiring all or parts of HOWIC's business. Extensive due diligence was conducted by some of these bidders, who submitted purchase proposals to the Deputy Receiver before December 1995.
REPORT TO HOME OWNERS - Page 4