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STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE

IN RE: FORM A STATEMENT OF WHITE MOUNTAINS INSURANCE GROUP LTD., WHITE MOUNTAINS HOLDINGS (BARBADOS) SRL, TACK HOLDING CORP. AND TACK ACQUISITION CORP. PERTAINING TO THE ACQUISITION OF CONTROL OF COMMERCIAL UNION YORK INSURANCE COMPANY Docket No. INS 00-3031

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ORDER ON REQUEST FOR DETERMINATION OF NON-CONTROL OR, ALTERNATIVELY, EXEMPTION FROM FORM A FILING REQUIREMENTS WITH RESPECT TO CERTAIN PRE-CLOSING CORPORATE TRANSACTIONS

This Order is issued in the above-captioned proceeding by Eric A. Cioppa, Deputy Superintendent of the Maine Bureau of Insurance. All legal authority for the procedural processing and decision making with respect to this proceeding has been delegated by Superintendent Alessandro A. Iuppa to Deputy Superintendent Eric A. Cioppa pursuant to Order dated November 8, 2000.

I. BACKGROUND

White Mountains Insurance Group, Ltd. ("WTM"), a publicly traded insurance holding company whose shares are listed on the New York Stock Exchange, and certain of its subsidiaries submitted with the Maine Bureau of Insurance in the above-captioned proceeding a Form A Statement seeking approval of their proposed acquisition of control of Commercial Union York Insurance Company ("CU York") (the "Proposed Acquisition"). As set forth in the Form A, WTM and certain of its subsidiaries will acquire CU York and the other U.S. property and casualty insurance company subsidiaries of CGNU plc through the acquisition of common stock of CGU corporation ("CGUC"), the indirect parent company of CU York.

CGUC and certain of its subsidiaries propose to enter into several corporate transactions prior to the closing of the Proposed Acquisition, including certain transactions that will result in the reorganization of the subsidiaries within the CGNU plc group. As a result of such corporate restructuring, CU York will become an indirect wholly-owned subsidiary of CGU Insurance Company, a Pennsylvania domiciled insurance company ("CGU-Pennsylvania") that is, in turn, a direct wholly-owned subsidiary of CGUC (the "Proposed Transfer"). CU York is currently, and will remain upon completion of the Proposed Transfer, a wholly-owned direct subsidiary of Commercial Union Insurance Company, a Massachusetts domiciled property and casualty insurer ("CU-Massachusetts). The ultimate controlling person of CU York, CGNU plc, will not change as a result of the Proposed Transfer. The only change that will take place is the insertion of CGU-Pennsylvania as an intermediate parent company above CU-Massachusetts in the chain of ownership.

By letter dated November 21, 2000 (the "November 21^st Request"), it has been requested that the Superintendent:

1. determine that the Proposed Transfer will not result in an "acquisition of control" of CU York within the meaning of 24-A M.R.S.A. § 222 (2)(B) or, alternatively;
2. issue an order exempting CGU-Pennsylvania from any requirement to file a Form A in connection with the Proposed Transfer pursuant to the Superintendent’s authority under 24-A M.R.S.A. § 222 (4-A).

II. PREHEARING CONFERENCE

A Notice of Pending Proceeding and Prehearing Conference was issued by the Deputy Superintendent on November 8, 2000. The prehearing conference was held as scheduled on November 27, 2000. At that time the parties were provided an opportunity, among other matters, to provide further argument in support of their November 21^st Request. The Deputy Superintendent heard further argument and posed questions to the parties.

III. RELEVANT STATUTORY AUTHORITY

An analysis of the November 21^st Request is governed by the following provisions of the Maine insurance holding company laws:

1. 24-A M.R.S.A. § 222 (2)(B). Under § 222 (2)(B)(1), "control" exists where a person has the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of any other person, whether through the ownership of voting securities, by contract or otherwise. "Control" is presumed to exist if any person is the beneficial owner of 10% or more of the voting securities of any other person. Section 222 (2)(B)(2) provides that, notwithstanding the presumption of control contained in subsection (2)(B)(1), the Superintendent may determine that the insurer is not controlled by the person presumed to control it. Section 222 (2)(B)(2) further provides that, notwithstanding the absence of the presumption of control (i.e. if a person owns less than 10% of the voting securities of any other person), the Superintendent may determine that a person does control an insurer.
2. 24-A M.R.S.A. § 222 (4-A). Where "control" is found to exist, § 222 (4-A) provides in part that the Superintendent, after notice and an opportunity to be heard, may exempt from certain of the Form A approval requirements any transaction:

. . . on the grounds that the interests of the State in regulating the transaction are minimal relative to the interests of other jurisdictions or are minimal relative to the impact of the transaction as a whole, provided that it does not appear likely that exempting the transaction from the application of this section will be detrimental to the interests of Maine policyholders.

A determination under § 222 (4-A) only exempts persons from the approval requirements of subsections (4-A)(B) and (C), but does not exempt persons form the filing requirements of subsection (4-A)(A).

IV. ANALYSIS & FINDINGS

According to the Form A and the November 21^st Request, as well as other information provided by the Applicants in this proceeding, the Proposed Transfer is part of a series of transactions whereby three insurers that are subsidiaries of CGUC will transfer their respective ownership interests in Pilot Insurance Company, an Ontario domiciled insurance company ("Pilot"), to CGUC in exchange for the shares of certain direct wholly-owned subsidiaries of CGUC, including CU-Massachusetts. The Proposed Transfer specifically involves a transfer by CGU-Pennsylvania of its ownership interest in Pilot, plus $140 million in cash, to CGUC for all of the outstanding common stock of CU-Massachusetts. As a result of the Proposed Transfer, CU York will become an indirect wholly-owned subsidiary of CGU-Pennsylvania.

Based on the foregoing, the Deputy Superintendent hereby finds, pursuant to 24-A M.R.S.A. § 222 (2)(B)(2), that the Proposed Transfer will result in an "acquisition of control" by CGU-Pennsylvania of CU York within the meaning of 24-A M.R.S.A. § 222 (2)(B). The Deputy Superintendent hereby exercises discretionary authority, pursuant to 24-A M.R.S.A. § 222 (4-A), to grant the November 21^st Request thereby providing CGU-Pennsylvania an exemption to the § 222 (4-A)(B) and (C) approval requirements. The Deputy Superintendent grants this exemption on the grounds that the interests of the State in regulating the Proposed Transfer are minimal relative to the impact of the Proposed Acquisition as a whole, and that it does not appear likely that exempting the Proposed Transfer from the application of § 222 (4-A)(B) and (C) will be detrimental to the interests of Maine policyholders.

With respect to § 222 (4-A)(A), which is a cross-reference to § 222 (4-B), while some of the required information already has been provided by the parties, the Deputy Superintendent requires that additional responsive information be filed in this proceeding on behalf of CGU-Pennsylvania, identified as follows:

1. § 222 (4-B)(A). Please provide a copy of any agreements between CGU-Pennsylvania and CGUC related to the stock swap of Pilot and certain consideration in exchange for the Massachusetts subsidiaries of CGUC (including CU-Massachusetts), described as Transaction 3 in Annex A to the Form A.
2. § 222 (4-B)(B). Please identify the source and amount of the funds used by CGU-Pennsylvania to purchase the shares of CU-Massachusetts. Confirm whether any of these funds are being borrowed. If the funds are being borrowed, please identify the source and the terms on which the funds are being borrowed. Please submit any written agreement related to the obtainment of funds to purchase the shares of CU-Massachusetts.
3. § 222 (4-B)(C). Please confirm whether CGU-Pennsylvania has any plans or proposals to liquidate CU York, or a controlling person of CU York, or to sell its assets or merge it with any person or make any other change in its business or corporate structure or management.
4. § 222 (4-B)(E). With respect to CGU-Pennsylvania and to the extent not already provided, please provide information as to all contracts, arrangements or understandings with any person with respect to any securities of CU York or a controlling person of CU York, including, but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies, naming the persons with whom these contracts, arrangements or understandings have been entered into, and giving the details thereof.
5. § 222 (4-B)(F). The Deputy Superintendent may seek additional information at a later time.
6. § 222 (4-B)(G). The Deputy Superintendent may seek additional information at a later time.

V. RESERVATION OF RIGHTS

Should the ultimate transactions at issue in the Form A Statement in the above-captioned proceeding not occur or be disapproved or otherwise, the Superintendent reserves all rights to examine any matters related to the Proposed Transfer which are the subject of the November 21^st Request.

VI. RESPONSIVE INFORMATION

The parties are required to provide the responsive information requested no later than the deadline for providing responses to the First Discovery Request of the Deputy Superintendent.

PER ORDER OF THE DEPUTY SUPERINTENDENT OF INSURANCE

DATED: December 8, 2000

________________________________ ERIC A. CIOPPA Deputy Superintendent of Insurance

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