New reinsurance-related and arbitration developments from Carlton Fields
In this Special Focus piece, entitled “The Benefits of Cat Bonds for Ceding Insurers and the Potential for Life and Annuity Risk Bonds,” Rollie Goss compares the relative advantages of catastrophe bonds over traditional reinsurance, as well as the developing market for transfer of life and annuity risks.
This post written by Rollie Goss.
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The International Association of Insurance Supervisors recently released a policy paper entitled Reinsurance and Financial Stability which addresses specific issues related to the insurance industry along with evaluating the marketplace as a whole. Notably, the paper examined how current trends in reinsurance impact the stability of the financial markets. The IAIS concluded that traditional reinsurance is unlikely to cause or amplify systemic risk that may or may not already exist in the market. However, considerable systemic risk may arise from non-insurance entities (such as investment banks) which have started to offer longevity and pension services with risk transformation and risk transfer features similar to products offered by insurers. The paper may be found at the IAIS website (www.iaisweb.org).
This post written by John Black.
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AM Best recently published its yearly financial review on the global reinsurance market. AM Best noted the resilience of reinsurers, pointing out that economic volatility and catastrophic loss events combined to create an approximate $110 billion loss for the reinsurance market in 2011. Nevertheless, the report noted that “reinsurance capacity remained ample despite the magnitude of losses and unrelenting headwinds.” In fact, reinsurers ended the year at approximately the same level of capital as they started.
In addition, the International Who’s Who of Insurance and Reinsurance Lawyers brought together two leading practitioners—Peter Mann of Clayton Utz, Australia and Laura Foggan of Wiley Rein LLP, Washington DC—for a roundtable to discuss key issues for the industry. In particular, the attorneys explained that recent legislative and regulatory changes in both Australia and the US have somewhat altered the playing field. The panel also discussed areas of possible growth for the industry as well as areas that have become hotbeds for litigation.
This post written by John Black.
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In the first quarter of 2012, a number of state legislatures introduced bills proposing to amend state credit for reinsurance laws following, in large measure, the recently amended NAIC Model Law #785. Connecticut (HB 5484), Georgia (SB 385), Illinois (HB 3987 & SB 2864), Louisiana (HB 849), Missouri (HB 1936), and Virginia (HB 1139) all proposed legislation that would, among other changes, allow full credit to insurers for insurance ceded to unauthorized reinsurers that satisfy certain financial strength ratings, without the need to post full collateral. Following the amended NAIC Model Law, each of the bills also contains provisions increasing oversight of the nature and extent of risk ceded by domestic insurers. Only the Virginia bill, however, included a provision based on a section in the Model Law clarifying that the reduced collateral provisions do not have retroactive application.
On a related note, the New Jersey Department of Banking and Insurance proposed new rules and amendments (NJAC 11:2-28.4) to implement the previously enacted credit for reinsurance law in that state. In particular, the rules provide the standards by which a reinsurer may be deemed a “certified reinsurer” for purposes of insurers taking credit for reinsurance, tracking the amendments NAIC Model Regulation #786. The proposed rules also include provisions from the amended Model Law that had not previously been incorporated into the New Jersey law.
As to the current status of the bills, the Virginia bill passed both chambers and was signed into law on April 4, 2012. All other bills are at varying stages in the legislative process, with the Georgia bill farthest along, having been passed by both chambers and sent on April 5, 2012 for the Georgia governor’s signature. We will report on whether the still-pending bills and rules become law in a later post.
This post written by Michael Wolgin.
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This time of year the major reinsurance brokers publish various market-related reports. Among the interesting recent reports are:
This post written by Rollie Goss.