South Dakota's state insurance regulator is seeking to liquidate a company that provides default insurance for private student loans offered by financial institutions, including credit unions.
Specifically, the South Dakota Division of Insurance petitioned the Hughes County Circuit Court to place ReliaMax Surety Company into liquidation due to insolvency. Based in Sioux Falls, S.D., ReliaMax writes surety bonds covering student loan repayment to financial institutions.
ReliaMax is believed to be the only vendor in the market providing default insurance for private student loans.
If the liquidation order is approved, a liquidator and receiver of the company’s estate will be appointed by the judge overseeing the proceedings. The petition requested the appointment of Larry Deiter, director of the Division of Insurance, as liquidator. The order would allow the division to “provide protection to affected policy holders by preserving company assets for claims payment,” Deiter said in a statement.
In addition, a liquidation order would direct the liquidator to “take possession of and safeguard the property of the insurer, conduct the insurer’s business in the interim and take the steps needed to bring the affairs of the business of the insurer” to an end.
“If the petition is granted, the next steps include notifying policy holders, claimants and other interested parties of the liquidation status and providing established procedures to file claims,” said Deiter.
Private student loans have been a significant growth engine for credit unions in recent years, with CU Student Choice and others assisting in that process. About two-thirds of CUSC’s clients use ReliaMax, according to CUSO representatives, though ReliaMax and Student Choice have never had any contractual relationship.
CU Student Choice President and CEO Scott Patterson said the group was “surprised and disappointed” to learn of the liquidation.
“While the full ramifications of this action are not yet known, we are communicating with and supporting our credit union partners who are impacted or concerned by this sudden development,” he said.
Patterson emphasized that “only a portion” of ReliaMax’s business consisted of loans originated by Student Choice partner credit unions, and the action taken against ReliaMax is “in no way a reflection of the quality of this loan portfolio.”
Patterson asserted that “thorough, independent analysis and ten years of repayment history indicate future performance of these loans will remain strong.”
As a result of a “disciplined, transparent and conservative” approach, he added, the loan portfolio originated by Student Choice partner credit unions is “stable and performing well, completely in line with projections.”
Patterson further said that for this reason, “many of our partner credit unions today are building strong and stable student loan portfolios and reserving for loan losses, forgoing any type of third-party insurance.”
Student Choice is also providing support for CUs impacted by the ReliaMax liquidation on “how to effectively manage their program moving forward.”
“This action has no impact on our ability to serve our partners” said Patterson. “We remain steadfast in our belief that credit unions play an important role in overcoming the challenge of higher education affordability.”