By Isha Marathe, David Bull

April 3 - (The Insurer) - CAC Group-owned Dorset Peak Solutions (DPS) is seeking a temporary restraining order to prevent Risk Strategies-owned captive manager Oxford Risk Management Group from obtaining onshore regulatory approval for a transfer of judgment preservation and financial guarantee-related risks to a newly formed Bermuda insurer, court documents show.

ORMG is seeking approval from insurance regulators in Tennessee and North Carolina for the transaction, which was given the green light by the Bermuda Monetary Authority and which AM Best said contributed to it lifting a ratings review. Captive subsidiaries affected are domiciled in Tennessee and North Carolina.

"Oxford strongly disagrees with the allegations in the lawsuit and has acted appropriately at all times," Ed Marshall, director of communications at ORMG, told The Insurer when contacted for comment on the litigation.

DPS filed the TRO in the Delaware Chancery Court on March 28, along with an amended complaint, more than a month after its original suit against ORMG. In the amended verified derivative complaint, DPS said it was suing ORMG and various other entities related to the transaction, adding that it is seeking not less than $1.2 billion in damages.

DPS declined to comment on the litigation.

ORMG is a captive insurance and reinsurance pool manager that was acquired in 2018 by U.S. retail broker Risk Strategies, whose parent, Kelso-backed Accession, has been in advanced talks for a deal to sell to UK intermediary Howden Group. Talks between Howden and Accession hit the buffers in late March.

DPS is part of CAC Group and a sister company to retail brokers CAC Specialty and CAC Agency (formerly Cobbs Allen) as well as CAC Capital, which creates solutions related to private finance and structured offerings.

The TRO aims to halt attempts by ORMG to get regulatory approval for restructuring transactions involving the new Bermuda vehicle, Structured Risk Mitigation Solutions (SRMS).

“In order to maintain the status quo, Plaintiff seeks a temporary restraining order prohibiting Defendants from taking any further action to obtain approval from the North Carolina and Tennessee regulators pending a hearing on a motion for preliminary injunction or a final hearing on the merits in this matter,” DPS said in the court filing.

If the requests are approved, “it will be virtually impossible to unwind all of the Defendants’ transactions even if Plaintiff prevails in this action, particularly if SRMS becomes insolvent”, it added.

ORMG is due to reply to the TRO on April 7, with DPS given the date of April 14 for a subsequent response ahead of a scheduled court hearing by telephone on April 16, sources with knowledge of the situation said.

Two members of the Oxford-managed captive, VLSI Technology and Hazel Partners Holdings, also filed suit against ORMG on March 25 and March 14, respectively, individually and on behalf of DPS.

VLSI and Hazel did not immediately respond to requests for comment.

“Unbeknownst to AM Best, ORMG had not even told VLSI about any alleged transaction, let alone obtained VLSI’s approval and consent for a novation or assignment of its policies,” VLSI said in its complaint.

VLSI and Hazel were both introduced to ORMG by DPS.

After being advised that the A ratings of Oxford Insurance Companies’ (OIC) members were “in jeopardy”, ORMG set about formulating and implementing “an egregious scheme”, the DPS complaint said in reference to the restructure and transfer of policies to the new Bermuda vehicle.

It said ORMG took the actions to maintain its A rating.

“Oxford made the changes in blatant disregard of its numerous representations and contractual promises and without regulatory permission or even the knowledge or consent of the affected insureds,” Hazel said.

In an opening brief dated March 4 in support of their motion to dismiss the DPS complaint, ORMG denied allegations it engaged in bad faith behaviour, and asked a Delaware Chancery Court to dismiss the lawsuit for failure to state a claim as it cited insufficient evidence and a partial time-bar violation.

RATINGS REVIEW

AM Best placed the credit ratings of OIC members, including Tennessee and North Carolina subsidiaries, under review with negative implications in March 2024. The agency highlighted a transition in business mix to become an insurer of “large, financial guarantee/judgment preservation policies”.

Sources close to the situation said that policies insured by the captive vehicles include coverage for litigation finance insurance, judgment preservation insurance and litigation finance wrappers for DPS clients.

AM Best warned of exposure to higher-than-expected loss outcomes and probable maximum loss estimates that could be viewed as “excessive” based on the tail risk of the coverage and the size of the aggregate risk pool in the captive insurers, which operate with a protected cell structure.

According to an AM Best statement in January this year, ORMG went on to effectively exit all business directly related to judgment preservation/financial guarantee activities and established a new Class 2 insurer in Bermuda called Structured Risk Mitigation Holdings (SRMH) to facilitate the transfer of existing business.

AM Best declined to comment.

The newly established Bermuda cell platform was licensed in November 2024, with the policies novated as of year-end 2024, enabling ORMG to move 20 policies with around $1.3 billion of limits out of the unified pool.

It retained $170 million of limit as a reinsurance policy in the new vehicle, as required by the Bermuda Monetary Authority. AM Best said in its January statement that at that time there had been no losses in the transferred book, with collateral maintained at 4-8x policy limits.

At that point the agency removed OIC from under review with negative implications and affirmed its A financial strength and “a” long-term issuer credit ratings.

CONTRACTUAL RIGHTS

In its initial complaint, DPS said that its clients as members of the previous captive structures paid in excess of $77 million for insurance, with policyholders feeling secure with the A rating and liabilities backed by the entire pool with more than 500 participants and more than $1 billion in assets.

It said that the restructure violated the legal and contractual rights of DPS and the captive insureds, and that a novation would require consent and had not been agreed to by the plaintiff.

“DPS and the Class B members had bargained for an A rated carrier (Oxford) and coverage in excess of $900 million.

“If the scheme is allowed to proceed, the policies would no longer be backed by an A rated insurer with over $1 billion in assets but instead a thinly capitalized, unrated, new offshore insurer, swapping out $1 billion in reinsurance for reinsurance now with a finite limit of only $170 million,” said the verified complaint.

DPS also alleged ORMG has effectively and illicitly “merged” the liabilities of its clients with members of Teton, another entity on the platform.

If the Teton policies are included, the potential liabilities on the new Bermuda vehicle top $1.2 billion, according to the complaint.

The plaintiff sued ORMG on 17 counts, including breach of contract, waste, violation of the Delaware Securities Act, the Tennessee Consumer Protection Act, the North Carolina Deceptive Practices Act and unjust enrichment.

OXFORD SAYS LAWSUIT ‘MISGUIDED’

In a motion to dismiss filed on March 4, ORMG called the suit a "misguided effort by (DPS) to advance conclusory assertions and adjective-laden accusations in the hopes that such allegations will distract the Court from the terms of the operative agreements and the facts alleged in the complaint".

ORMG said that the transactions it undertook were permitted under the relevant governing agreements as well as applicable state laws, with the structure also approved by the Bermuda regulator.

DPS said that ORMG concealed all of these activities from it and various regulators and thereby breached its contract.

ORMG, in its motion to dismiss, said that because the insurance and reinsurance captive series was created and managed by the defendant, it had no obligation to gain DPS consent and that DPS did not show factual evidence to prove that its restructuring was in any way insufficient or inadequate.

Since, in its view, the policy transactions did not constitute a "merger" or "amalgamation", which contractually would have bound Oxford from securing DPS consent, the allegations are moot, ORMG said.