File No. 70-9813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
AGL RESOURCES INC.
Ten Peachtree Place, NE
Atlanta, Georgia 30309
GLOBAL ENERGY RESOURCE INSURANCE CORPORATION
Romasco Place
Wickhams Cay 1, P.O. Box 3140
Road Town, Tortola
British Virgin Islands
--------------------------------------------------------------
(Names of company or companies filing this statement
and addresses of principal executive offices)
Paul R. Shlanta, Senior Vice President and General Counsel
AGL RESOURCES INC.
Ten Peachtree Place, NE
Atlanta, Georgia 30309
--------------------------------------------------------------
(Name and address of agent for service)
The Commission is also requested to send copies
of any communication in connection with this matter to:
Markian M. W. Melnyk
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Ave., N.W.
Washington, D.C. 20009-5728
Telephone: (202) 986-8212
Facsimile: (202) 986-8102
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
AGL Resources Inc. ("AGLR"), a Georgia corporation and a holding
company registered under the Public Utility Holding Company Act of 1935 ("Act"),
and its wholly-owned subsidiary, Global Energy Resource Insurance Corporation
("GERIC"), file this post-effective amendment to seek an expansion of the
authorization granted to AGLR under a prior Commission order. By order dated
April 13, 2001, Holding Co. Act Release No. 27378, the Commission authorized
AGLR to organize a subsidiary to engage in activities associated with a captive
insurance company. In accordance with the order, AGLR formed GERIC which
commenced to provide insurance services to AGLR and its subsidiaries (the "AGLR
System") on May 1, 2001. This post-effective amendment seeks authorization for
GERIC to provide finite insurance program services to the AGLR System as
described in more detail below and authorization for GERIC to retain additional
risk associated with the AGLR System's self-insured retention.
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 $2 million and purchases insurance to cover risks over and above
that amount.
The April 13, 2001 Commission order ("Captive Order") authorized AGLR
to organize a captive insurance company that would underwrite a certain portion
of the insurance purchased by the AGLR System. In particular, GERIC, the captive
insurance company that AGLR formed, would underwrite coverage for the AGLR
System over the system's self-insured retention and then transfer the risks to
third-party reinsurance companies. GERIC also could retain a small amount of
risk under the AGLR System's self-insured retention not to exceed $1 million
(the "Self-Insurance Limit").
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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 may 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 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.
GERIC seeks to target 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 all automobile, general liability,
risk property, boiler and machinery, directors and officers, and fiduciary 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 criminal acts where it maintains
a $1 million AGLR System deductible. GERIC intends to begin providing
construction wrap-up insurance soon.
Applicants now propose that GERIC would offer the AGLR System a finite
insurance program that would provide coverage for the layer of risk currently
covered by traditional (i.e., retail) insurance carriers that resides between
the self-insured retention and the risk reinsured by GERIC with reinsurance
companies. This intermediate layer of insurance coverage extends generally from
the $1,000,000 self-insured retention level to the $10,000,000 level. Because
this lower level of coverage is more likely to be accessed by a claim than
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coverage positioned in higher layers, it is responsible for a significant
percentage of the AGLR System's current premium costs.
Under the finite insurance program the AGLR System companies would use
premium dollars that would ordinarily be used to acquire traditional insurance
coverage for the intermediate risk layer to fund a reserve that would instead
cover losses related to intermediate risks (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. The finite program would be
administered by GERIC. After collecting the AGLR System's finite premium
payments, GERIC would invest the payments in reserves consisting of U.S.
Treasury securities, other securities permitted by Section 9(c) of the Act and
Rule 40, and debt securities of unaffiliated entities that are rated investment
grade by at least one nationally recognized statistical rating organization. The
balance of the premium payments (less GERIC's at-cost administrative expenses)
not invested in reserves, would be used to purchase third-party provided
coverage for any loss that could not be covered by the reserve maintained by
GERIC. As the reserve accumulates 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 funded, subsequent contributions by the AGLR System
companies can be substantially
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reduced to a level adequate to maintain the reserves at a fully funded level and
to obtain 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. As stated 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.
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.
Accordingly, Applicants seek an order of this Commission, supplemental
to the Captive Order, authorizing Applicants to engage in the finite insurance
program, including the acquisition of third-party coverage, and authorizing an
increase in the Self-Insurance Limit to $5 million, all as described herein.
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ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses incurred or to be incurred in
connection with this Application are estimated not to exceed $__(*)__. AGL
Services Company is a wholly owned subsidiary of AGLR and has performed certain
services in connection with this application that were provided at cost.
(*) To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Sections 9(a) and 10 of the Act are applicable to the participation of
Applicants in the captive insurance business.
The Commission has previously authorized registered holding companies
to organize and fund captive insurance companies and to engage in the insurance
business for the benefit of associate companies. In the matter of Columbia
Insurance Corporation, Ltd., Holding Co. Act Release No. 27051 (July 23, 1999),
the Commission authorized the Columbia Energy Group to expand the reinsurance
activities of its existing captive insurer and to provide additional financial
support to the captive in an aggregate amount of up to $50 million. In that
matter, Columbia's captive insurer was authorized to assume predictable risks
related to the businesses of the Columbia group of companies in lines of
insurance similar to the types of insurance proposed to be underwritten by
AGLR's proposed captive insurance company. Specifically, Columbia's captive
insurance company was permitted to engage in reinsurance activities where: (1) a
primary insurer underwrites the risk; (2) the insurance relates to a permitted
business activity engaged in by a member of the Columbia group; (3) where
captive reinsurance would reasonably be expected to save the Columbia group a
portion of the risk premium it would otherwise have paid; and (4) where the
captive can obtain, as appropriate, excess or stop-loss coverage. Under the
authorization granted by the Commission, Columbia's captive insurance company
assumed various risks itself in addition to reinsuring those risks with
third-party reinsurers.
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By order dated October 31, 2002, Holding Co. Act Release No. 27589,
the Commission gave Columbia Insurance Corporation, Ltd. ("CICL") additional
authorization to (1) underwrite the risks of affiliated companies directly
(i.e., fronting), (2) underwrite directly corporate deductible or self-insured
reimbursement risk, and (3) provide controlled unrelated third-party business
risk coverage in situations where providing this coverage would directly or
indirectly benefit associated companies. GERIC's captive insurance activities as
currently conducted, and as proposed to be conducted pursuant to the finite
insurance program, are fully within the Columbia precedent. The finite insurance
program would not subject the AGLR System companies to increased risks and it
offers the potential for significant savings that would accrue to the benefit of
AGLR's investors and the customers of the AGLR public utility subsidiary
companies. Consequently, the proposed expansion of GERIC's activities are
consistent with the interests of consumers, investors and the public interest
generally. For these reasons, the Commission should authorize the proposed
transaction.
AGLR does not own or operate, nor is it an equity participant in any
Exempt Wholesale Generator or Foreign Utility Company and will not be a company
that owns, operates or has an equity participation in an Exempt Wholesale
Generator or Foreign Utility Company as a result of the approvals requested
herein. AGLR does not have any rights, nor will it have any rights or
obligations under a service, sales or construction contract with an Exempt
Wholesale Generator or Foreign Utility Company as a result of the proposed
transactions.
ITEM 4. REGULATORY APPROVAL.
No state or federal approval other than the authorization of this
Commission is required to enter into the proposed transactions.
ITEM 5. PROCEDURE.
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application as soon as practicable. Applicants
request that the Commission's order approving this Application be issued as soon
as the rules allow, and that there should not be a 30-day waiting period between
issuance of the Commission's order and the date on which the order
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is to become effective. Applicants hereby waive a recommended decision by a
hearing officer or any other responsible officer of the Commission and consent
that the Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
EXHIBITS
A-1 Opinion of Counsel. (Filed herewith).
A-2 Past Tense Opinion of Counsel. (To be filed pursuant to Rule 24).
B Proposed Form of Notice. (Filed herewith).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transaction will not involve major federal action significantly
affecting the quality of the human environment as those terms are used in
Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Section
4321 et seq. ("NEPA"). First, no major federal action within the meaning of NEPA
is involved. Second, consummation of the transaction will not result in changes
in the operations of Energy East or its subsidiaries that would have any
significant impact on the environment. To the Applicants' knowledge, no federal
agency is preparing an environmental impact statement with respect to this
matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Application to be
signed on their behalf by the undersigned thereunto duly authorized.
AGL RESOURCES INC.
GLOBAL ENERGY RESOURCE
Date: March 25, 2003 INSURANCE CORPORATION
By:/s/ Paul R. Shlanta
------------------------------
Paul R. Shlanta
Senior Vice President
&
General Counsel
AGL Resources Inc.,
President
Global Energy Resource Insurance
Corporation
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Exhibit Index
A-1 Opinion of Counsel.
B Proposed Form of Notice.
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