[Federal Register Volume 70, Number 170 (Friday, September 2, 2005)]
[Notices]
[Pages 52454-52455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4807]



[[Page 52454]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28020]


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

August 26, 2005.
    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) should submit their views in 
writing by September 27, 2005, to the Secretary, Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303, 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 27, 2005, the 
application(s) and/or declaration(s), as filed or as amended, may be 
granted and/or permitted to become effective.

KeySpan Corporation, et al. (70-09957)

    KeySpan Corporation (``KeySpan'') and its wholly owned captive 
insurance company subsidiary, KeySpan Insurance Company (``KIC''), One 
MetroTech Center Brooklyn, New York 11201 have filed a post-effective 
amendment (``Application'') with the Commission under sections 6(a), 7, 
12(b) and 13(b) of the Act and rules 45, 54, 90 and 91 under the Act.
    By order dated April 24, 2003, HCAR No. 27669 (``First Captive 
Order''), the Commission authorized KeySpan to organize a subsidiary to 
engage in activities associated with a captive insurance company. In 
accordance with the First Captive Order, KeySpan formed KIC, which is 
authorized to provide certain insurance services to KeySpan and its 
subsidiaries (``KeySpan System'' and/or ``System Companies''). By order 
dated February 3, 2004, HCAR No. 27795 (``Second Captive Order''), the 
Commission authorized KeySpan to expand the authority granted to the 
Applicants under the First Captive Order in order to allow KIC to 
provide additional insurance services covering property, boiler and 
machinery ``all-risk'' insurance services. KeySpan and KIC now seek an 
expansion of the authorization granted to KeySpan under the First 
Captive Order and the Second Captive Order (collectively referred to 
herein as the ``Captive Orders'').
    Under the Captive Orders, KIC is authorized to provide several 
major types of coverage to the KeySpan System, including automobile 
liability, workers' compensation, general liability, property, and 
boiler and machinery ``all-risk'' insurance. In addition, KIC is 
authorized to provide general liability and workers' compensation 
insurance to its principal contractors under an Owner's Controlled 
Insurance Program (``OCIP''). The contractors provide scheduled gas 
main construction and maintenance to the KeySpan System. Except for the 
general liability and workers' compensation insurance provided to the 
principal contractor under OCIP, KIC will not extend or provide to any 
non-affiliated company any insurance services, unless otherwise 
expressly authorized by the Commission.
    KIC assumes the risk of the more predictable loss layer from the 
commercial insurers for automobile and general liability losses, 
workers' compensation, property, boiler and machinery ``all-risk'' 
insurance. Commercial insurance will continue to be purchased for 
``unpredictable'' losses above the predictable loss layers from various 
commercial insurance companies, as was done under the program prior to 
the formation of KIC. To the extent that KIC procures insurance at a 
lower cost than that which could be obtained through traditional 
insurers, the savings in the premiums flow through ratably to the 
KeySpan System companies through the operation of the allocation 
methodology used to establish premiums.
    Applicants now propose that KIC would offer the following 
additional insurance services to the KeySpan System:
     Excess Liability--A reduction of costs could be realized 
by all system companies, in an amount equal to the percentage of 
coverage taken on by KIC, if KIC were to take a position in the upper 
layers of the Excess General Liability insurance purchased from the 
commercial market. Specifically, the KIC would take a specific 
percentage of the Company's $265 million excess of $35 million excess 
liability program, not to exceed 25 percent. Applicants assert that 
this limitation of 25 percent would serve to mitigate any potentially 
adverse event while saving the System Companies a potential 20 percent 
when compared to current market pricing.
     Service/Maintenance Contracts Insurance--KIC could be used 
to underwrite the risks posed to the service companies through warranty 
contracts. Currently the home energy service companies are being asked 
by State regulatory agencies to evidence financial backing of these 
contracts which does not exist at this time. Applicants assert that a 
savings of approximately 20 percent could be realized by using KIC 
versus utilizing the commercial insurance market.
     Subsidiary Deductible Buy-Down Options--KIC can be used to 
offer separate deductibles to operating entities according to their 
individual appetite for risk. Applicants assert that this would assist 
the operating entities, especially the smaller ones, in maintaining 
fiscal responsibility and would place their deductibles more in-line 
with their business operational risk.
     Weather Insurance--KeySpan currently uses the commercial 
market to hedge against adverse weather fluctuations in New England. 
Savings on the profit and administration paid to insurance companies 
would benefit the System Companies. Applicants state that System 
Companies would save approximately 15% by using KIC.
     Certified Terrorism Coverage--If the Terrorism Risk 
Insurance Act of 2002 (``TRIA'') is extended beyond December 31, 2005, 
KIC can offer this line of coverage because of its status as a licensed 
insurance company in the State of Vermont. This would save 
approximately 10-15% in current costs paid to the commercial market. In 
the event of a certified terrorism loss, KIC would have access to TRIA 
and would be able to recoup the loss associated with the event, subject 
to applicable deductible and co-insurance provisions.
     Joint Venture Opportunities--KIC can be a vehicle for 
insuring predictable risks associated with joint ventures, partnerships 
or other business combinations.
    KeySpan currently insures excess liability, weather insurance, and 
certified terrorism coverage through the traditional commercial 
insurance market. It has various deductibles ranging from $1 million to 
$3 million. It purchases limits up to $2.5 billion from the commercial 
insurance market. KeySpan does not presently purchase service/
maintenance contracts

[[Page 52455]]

insurance, subsidiary deductible buy-down options, or joint venture 
opportunities insurance from the commercial insurance market but 
intends to provide coverage in these areas ranging from $5 million to 
$15 million through KIC.
    Applicants state that KIC can be used as a vehicle to lower costs 
to the KeySpan System companies by acting as a buffer layer between 
current commercial market deductibles and planned increases in such 
deductibles. KeySpan could engage the commercial market at higher 
deductibles than currently possible because KIC would insure the 
increased risk associated with higher deductibles. Increasing the 
commercial market deductibles would allow the KeySpan System to reduce 
commercial market premiums. The premium charged by KIC for this buffer 
layer would be calculated based on expected losses, utilizing the same 
method as used by commercial insurance companies. Applicants state 
that, the premium charged by KIC would not include an additional charge 
for profit or administration and would therefore provide further 
savings to the KeySpan System companies.
    Applicants state that, to the extent that KIC can provide insurance 
at a lower cost than that which could be obtained through traditional 
insurers, the savings would continue to flow through ratably to the 
KeySpan System companies through the allocation methodology used to 
establish premiums, as described above. Moreover, there would be no 
additional staffing requirements for KeySpan System companies. KIC 
would not be operated to generate profits beyond what is necessary to 
maintain adequate reserves.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4807 Filed 9-1-05; 8:45 am]
BILLING CODE 8010-01-P