[Federal Register Volume 68, Number 166 (Wednesday, August 27, 2003)]
[Notices]
[Pages 51606-51608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21939]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27715]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

August 20, 2003.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s)

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should submit their views in writing by September 12, 2003, to the 
Secretary, Securities and Exchange Commission, Washington, DC 20549-
0609, and serve a copy on the relevant applicant(s) and/or declarant(s) 
at the address(es) specified below. Proof of service (by affidavit or, 
in the case of an attorney at law, by certificate) should be filed with 
the request. Any request for hearing should identify specifically the 
issues of facts or law that are disputed. A person who so requests will 
be notified of any hearing, if ordered, and will receive a copy of any 
notice or order issued in the matter. After September 12, 2003, the 
application(s) and/or declaration(s), as filed or as amended, may be 
granted and/or permitted to become effective.

AGL Resources Inc. et al. (70-9813)

    AGL Resources Inc. (``AGLR''), located at Ten Peachtree Place, NE., 
Atlanta, Georgia 30309, a registered holding company under the Act, and 
its wholly-owned subsidiary, Global Energy Resource Insurance Corp. 
(``GERIC'') located at Romasco Place, Wickhams Cay 1, P.O. Box 3140, 
Road Town, Tortola, British Virgin Islands, (collectively, 
``Applicants'') have filed a post-effective amendment under sections 
9(a) and 10 of the Act to their application previously filed with the 
Commission under sections 6(a), 7, 9(a) and 10 and rule 43 of the Act.
    Applicants are seeking authorization for GERIC (1) to provide 
finite insurance program services to AGLR and its subsidiaries (``AGLR 
System'') as described in more detail below, and (2) to retain 
additional risk associated with the AGLR System's self-insured 
retention.
    By an order dated April 13, 2001 (HCAR No. 27378) (``Captive 
Order''), the Commission authorized AGLR to organize a subsidiary to 
underwrite a certain portion of the insurance purchased by the AGLR 
System companies, which risks it would then transfer to third-party 
reinsurance companies. In particular, the subsidiary would underwrite 
coverage for the AGLR System companies over their self-insured 
retention and above a layer of traditional insurance. The subsidiary 
was also authorized to retain a small amount of risk, not to exceed $1 
million, for each type of insurance coverage (``GERIC Retained Risk 
Limit''). In accordance with the Captive Order, AGLR formed GERIC, 
which began to provide insurance services to the AGLR System on May 1, 
2001.
    Applicants state that the AGLR System maintains insurance for 
automobile and general liability exposures, directors and officers 
liability, ``all risk'' property coverage, workers'' compensation 
liability and other risks. In addition, the AGLR System companies may 
provide wrap-up construction insurance coverage to nonaffiliated 
construction contractors working for the AGLR System. The AGLR System 
currently maintains a self-insured retention with respect to its 
insured risks of up to $1 million (except with respect to automobile 
liability and terrorism insurance, where the self-insured retentions 
are $2 million and $5 million, respectively) and purchases insurance to 
cover risks over and above that amount.
    The Captive Order noted that GERIC was authorized to operate as an 
insurance company in the British Virgin Islands. Initially, GERIC would 
focus on providing insurance coverage for automobile, general 
liability, risk property, boiler and machinery, directors and officers, 
crime, fiduciary and workers compensation. The Captive Order noted 
that, in the future, GERIC might seek to underwrite additional types of 
insurance and retain a small amount of risk that for each additional 
type of insurance would not exceed $1 million. GERIC may underwrite 
additional types of insurance only when: (1) A reinsurer is ceded 100% 
of the underwritten risk; (2) the insurance is related to an authorized 
or permitted AGLR System business activity; (3) direct placement of 
reinsurance by GERIC could be reasonably expected to save the AGLR 
System a portion of the risk premium it would otherwise have paid; and 
(4) normal deductible amounts are retained by the AGLR System companies 
and where GERIC can obtain, as appropriate, excess or stop-loss 
coverage.
    The Applicants state that GERIC targets its underwriting activity 
on the portions of the AGLR System's liability program where the 
greatest cost savings are possible. Presently, GERIC provides excess 
coverage for the types of insurance listed above that is placed above 
the AGLR System's self-insured retention and above a layer of 
traditional coverage that is maintained by AGLR for the benefit of the 
AGLR System. GERIC reinsures all of the risks that it underwrites with 
reinsurance companies, except with respect to coverage for property 
crime where it also covers a $500,000 AGLR System deductible. GERIC 
intends to begin providing construction wrap-up insurance in the near 
future.
    Applicants now propose that GERIC offer the AGLR System a finite 
insurance program that would provide coverage for the layer of risk, 
currently covered by traditional retail insurance carriers, that 
resides between the self-insured retention and the excess risk 
reinsured by GERIC with reinsurance companies. This intermediate layer 
of insurance coverage extends generally from the self-insured retention 
level to the $10,000,000 level. Because this intermediate level of 
coverage is more likely to be accessed by a claim than the higher layer 
of excess coverage, it is responsible for a significant percentage of 
the AGLR System's premium costs.
    Under the finite insurance program the AGLR System companies would 
use premium dollars presently used to acquire traditional insurance 
coverage for the intermediate risk layer to fund a reserve that would 
be used instead of traditional insurance coverage to cover losses 
related to the intermediate risk level (i.e., the risk above the self-
insured retention and below the reinsured risk). For example, the AGLR 
System's premiums for intermediate risk layer coverage are expected to 
be approximately $2.5 million per year, including the construction 
wrap-up program that GERIC intends to initiate in October, 2003. After 
collecting the AGLR System's finite premium payments, GERIC would 
invest the payments in reserves consisting of U.S. Treasury securities 
and other securities permitted by section 9(c) of the Act and rule 40. 
The balance of the premium payments (less GERIC's at-cost 
administrative expenses) not invested in reserves would be used to 
purchase third-party coverage for any loss that could not be covered by 
the reserve maintained by GERIC. As the reserves accumulate over 
several years, the third party coverage would be expected to become 
less expensive. In addition, when the reserve reaches an amount 
adequate to cover anticipated losses, the reserve funding commitment 
from the AGLR System companies can be reduced with commensurate premium 
savings.
    The finite program would not increase the risk of an uncovered loss 
since amounts held by GERIC in reserve would be invested in secure 
assets and available to fund claims. Uncovered losses also would be 
avoided because third party provided coverage would be in place to the 
extent GERIC's reserves were not fully funded at the time of a loss. 
Reinsurance would continue to be maintained to cover liabilities that 
would exceed the intermediate layer of liability coverage that would be 
provided by the combination of GERIC's reserves and the third party 
coverage. The finite program would provide the opportunity to further 
reduce the AGLR System's insurance costs because once GERIC's reserves 
have been fully

[[Page 51608]]

funded, subsequent contributions by the AGLR System companies can be 
substantially reduced to a level adequate to maintain the reserves at a 
fully funded level and to provide reinstatement coverage that would 
step in to provide protection if the reserves were exhausted.
    The third-party coverage would be provided by a reinsurance company 
or through the acquisition of a capital markets product that is entered 
into on an exchange or with an investment-grade counterparty. 
Applicants request that the Commission reserve jurisdiction with 
respect to the use of capital markets products to provide third-party 
coverage until the record has been supplemented with additional detail 
about the nature of the product. GERIC will establish reserves 
consistent with the insurance regulations of the British Virgin Islands 
and sound actuarial practices.\1\ As provided in the Captive Order, 
GERIC will not be operated to generate profits beyond what is necessary 
to maintain adequate reserves. To the extent that premiums and interest 
earned on the reserves exceed current claims and expenses, GERIC will 
accumulate reserves that will allow it to cover claims in years when 
claims and expenses exceed premiums. To the extent that losses are 
lower than projected, GERIC will correspondingly lower premiums and 
thus return excess capital to AGLR System companies.
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    \1\ Applicants expect that premium payments would be sufficient 
to establish and maintain the necessary reserves. If, however, 
additional capital is required, AGLR may provide capital to GERIC 
through equity and or debt purchases exempt under Rule 52, or 
guarantees, letters of credit or other forms of credit support 
authorized by Commission order. AGL Resources Inc., Holding Co. Act 
Release No. 27243 (October 5, 2000).
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    Applicants assert that GERIC's current insurance program has been 
effective in managing the AGLR System's insurance costs. As shown in 
the certificate of notification under rule 24, filed on April 1, 2003, 
GERIC's operations for the period May 1, 2001, to May 31, 2002, 
resulted in first year premium savings for the AGLR System of $386,751. 
For the period June 1, 2002, through May 31, 2003, GERIC contributed 
benefits to the AGLR System by making possible the avoidance of a 
portion of the increase in insurance premiums that followed the 
terrorist attack of September 11, 2001, and other events. Applicants 
assert that this experience demonstrates that by providing the AGLR 
System with the flexibility to access the insurance markets independent 
of traditional insurers, GERIC serves a valuable function that, 
although not readily quantifiable, can be a significant factor in 
managing insurance costs.
    Similarly, Applicants project that the proposed finite program 
would produce savings for the AGLR System companies. GERIC has compared 
the AGLR System premium costs for the intermediate risk layer (losses 
of $1 million to $10 million) over four years with the costs associated 
with funding the captive insurance program. Projected losses over this 
same period also were analyzed. GERIC's analysis concludes that the 
finite insurance program could provide savings of several million 
dollars.
    A British Virgin Islands management company has been retained to 
provide administrative services to GERIC. AGL Services Company 
(``AGSC'') employees are directors and principal officers of GERIC and 
they oversee the performance of the administrative activities by the 
management company. The administrative functions directed by AGSC 
through the management company include: (1) Accounting and reporting 
activities; (2) legal, actuarial, banking and audit services; (3) 
negotiating reinsurance contracts, policy terms and conditions; (4) 
invoicing and making payments, and; (5) managing regulatory affairs. 
The existing AGSC claim staff performs the claims adjusting function. 
It is not anticipated that managing the finite program would require 
additional staff or materially increase the administrative costs 
associated with GERIC's operations. All goods and services provided by 
AGSC to GERIC would be provided in accordance with section 13 of the 
Act and any applicable rules under that section, and costs incurred by 
GERIC would be recovered in premiums charged to the AGLR System 
companies.
    Applicants propose that in addition to the authorization requested 
for the finite program, that the Commission increase the Self-Insurance 
Limit from $1 million to $5 million. In some lines of insurance the 
AGLR System has increased, or expects that it may increase, its self-
insured retention. For example, in the automobile liability line of 
coverage the AGLR System's self-insured retention is now $2 million. 
Increasing the self-insured retention helps the AGLR System to manage 
its insurance costs and to adjust limits in response to inflation. An 
increase in the Self-Insurance Limit would allow GERIC to retain the 
risk associated with the self-insured retention of the AGLR System 
beyond the current $1 million limit. GERIC will maintain appropriate 
reserves to cover any risk of loss that it retains under an increased 
Self-Insurance Limit.
    GERIC will continue to be bound by the condition in the Captive 
Order that it may underwrite additional types of insurance only when: 
(1) A reinsurer is ceded 100% of the underwritten risk; (2) the 
insurance is related to an authorized or permitted AGLR System business 
activity; (3) direct placement of reinsurance by GERIC would be 
reasonably expected to save the AGLR System a portion of the risk 
premium it would otherwise have paid; and (4) normal deductible amounts 
are retained by the AGLR System companies and where GERIC can obtain, 
as appropriate, excess or stop-loss coverage.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-21939 Filed 8-26-03; 8:45 am]
BILLING CODE 8010-01-P