Alabama has adopted a captive insurance law and associated regulations, which include provisions for capitve reinsurers. The regulations became effective August 11, 2006.
Reinsurance Regulation
District Court retains action by receiver on reinsurance agreement
A District Court has denied a motion by the Oklahoma Commissioner, as receiver of Hospital Casualty Company, to remand or abstain from proceeding with a claim filed by the receiver against a reinsurer on a reinsurance agreement with Hospital Casualty. The Court declined to apply the Burford abstention doctrine, finding that although the case had a financial effect on the liquidation, the issues were not so intertwined with issues of agency authority or state regulatory policy that their resolution in federal court would imperil the regulatory scheme. Holland v. Employers Reinsurance Corp., Case No. 06-0426 (W.D. Ok. Aug. 29, 2006).
Legislation potentially affecting reinsurers proceeds in US and UK
The implementation of legislation regulating the reinsurance industry is proceeding in the UK, while federal regulatory legislation is under consideration in the US Congress. In the UK, the Financial Services Authority has issued a consultation paper titled Implementing the Reinsurance Directive, which describes the European Union's Reinsurance Directive and the FSA's implementation initiatives. The Reinsurance Directive is intended to create a single European market in reinsurance and remove remaining barriers to trade within the EU arising from varied supervisory regimes.
In the US, the Nonadmitted and Reinsurance Reform Act of 2006 is pending in the House. This bill, if enacted, would pre-empt state laws and attempt to create uniformity in the regulation of reinsurance, and would grant a reinsurer's domiciliary regulator the sole responsibility for regulating the financial solvency of the reinsurer if such state is an NAIC accredited state.
Arbitration award confirmed over objection of regulator
In Koken v. Cologne Reinsurance (Barbados) Ltd., Case No. 98-0678 (USDC M.D. Pa. Aug. 23, 2006), a District Court reaffirmed its earlier decision that an arbitration provision was binding upon the Insurance Commissioner of Pennsylvania, acting as the liquidator of American Integrity Insurance Company, rejecting an argument based upon the McCarran-Ferguson Act. The Court declined to vacate the majority of the award under the manifest disregard of law standard, holding that “an erroneous interpretation by the arbitration panel does not warrant a finding of manifest disregard,” but vacated one paragraph of the award as being in manifest disregard of law, becuase it continued an insurance coverage past the time provided for by an unambiguous Pennsylvania statute.
California court vacates arbitration award involving insurer in liquidation
A California Court of Appeal has reversed an order of a Liquidation Court, directing it to vacate an arbitration award that rescinded a reinsurance contract where the reinsureds had been placed in liquidation by the California Insurance Commissioner. The Court had no difficulty with the rescission of the reinsurance, but took exception with the panel's action of imposing a set-off of approximately $4.5 million against the accompanying return of premium by the reinsurer to the company in liquidation. The Court of Appeals held that the set-off award violated an injunction issued when the reinsureds were placed in liquidation, which prohibited any party from maintaining any claims, or asserting any right of set-off, against the parties in liquidation. Garamendi v. California Compensation Ins. Co., 2005 WL 3485747 (Cal.Ct.App. 2 Dist. Jan. 20, 2006). Since the arbitration award only provided the amount of the payment due to the reinsureds, which was net of the set-off amount, the Court could not determine the amount of premium that should be returned. It therefore remanded the matter to the Liquidation Court, with directions that it order a new arbitration hearing.