A commutation agreement between subsidiaries of Mutual Risk Management is binding and should go ahead, according to a recent ruling by a Pennsylvania Court.

The agreement, which the court said was in the best interest of all parties, would see Mutual's rent-a-captive group - the IPC companies - transfer reinsurance contracts and the money to support them to MRM's US insurer - Legion. Legion and sister company Villanova are currently under state-regulated rehabilitation after Pennsylvania insurance regulators took over control of the companies for financial reasons in March.

The court, which handed down its verdict on November 26, was ruling on whether or not the commutation - which had been agreed by letter of intent - should go ahead after state regulators balked at signing off on the deal.

The verdict that the commutation should happen was good news for financially troubled MRM. And the company had undergone long negotiations to get the commutation agreement put in place but CEO David Ezekiel said the ruling would likely be appealed by the Pennsylvania Department of Insurance.

The commutation agreement had first been proposed in April but negotiations with insurance regulators meant the letter of intent was not agreed until July. But just ahead of its being signed into effect, insurance commissioner Diane Koken backed down on signing the agreement. As a separate matter the insurance commissioner has been seeking to liquidate Legion. The commutation would put the Legion group into a solvent position however and could keep it from wind-up.

The agreement would see the IPC Companies commute 120 reinsurance contracts and the money to support them to Legion. And those contracts, according to the agreement, would be commuted along with a payment of $130 million in support of the contracts and another $100 million to be held in trust.

Mr. Ezekiel concluded that the commutation would be a win for both the IPC Companies and the Legion group: "If the commutation is successfully completed it will do two things: It will make the evaluation of the IPC companies in Bermuda a lot more certain as we would have got a number of liabilities off our books and paid.

"And it will provide Legion with the liquidity to meet claims payments and keep the company going. We think it is important for both companies and it would put Legion in a positive cash flow position. When it went into rehabilitation it had a surplus in excess of $400 million but a severe cash flow problem brought about by its inability to collect from its reinsurers. "