Gov. Peter Shumlin signed a new "legacy insurance" industry bill Wednesday that could pump millions of dollars into state coffers.

Shumlin called the Legacy Insurance Management Act, or LIMA, an "innovative insurance product that is needed in America." H.198, three years in the making, allows insurance companies to unload blocks of policies they're no longer selling, but which still hold liabilities.

Policymakers say Vermont's LIMA is the first of its kind in the U.S., though it's modeled after similar products in Europe. The option to unload legacy policies is not available for retail insurance lines such as auto or life insurance.

Only commercial insurance lines that are not otherwise regulated by the state can be transferred to a legacy firm. For example, policies covering logging operations or an asbestos mine such as the now-closed operation on Belvidere Mountain in Eden, which typically carry too much risk to be absorbed into the domestic insurance market, could be transferred to a legacy company.

The legacy insurance company buys the block of policies, along with a good portion of the financial reserves the insurance company had set aside to cover those policies' risks. Then the legacy firm manages any claims that might come through, and invests the reserves - within regulatory limits - to turn a profit.

"A lot of them will be investment companies, not insurance companies," says Anna Petropoulos, who's started the firm Apetrop USA in Brattleboro to service the legacy insurance companies she expects will establish themselves in Vermont.


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She says the legacy firm can be more efficient than an active insurance company because the legacy firm specializes in high-risk pools.

Many insurance industry professionals resisted the legislation, but Susan Donegan, commissioner of the Department of Financial Regulation, said she was confident from seeing legacy insurance take shape in Europe that a similar mechanism would be possible here.

Technically, legacy transfers can already take place, she said, but the process can drag on for up to two years. The new mechanism created by the state's LIMA will streamline that to a matter of three or four months.

Donegan said at the bill-signing that one of her goals is to establish Vermont as "a destination for financial services." The state's strategy with LIMA is to mirror Vermont's success with the "captive" insurance industry, another highly specialized insurance product.

In the captive arena, companies essentially form subsidiaries to insure their own lines of business. Vermont leads the global captive market, having issued almost as many captive licenses as Bermuda and the Cayman Islands.