Reinsurance Focus

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Reinsurance Regulation

Renaissance Re offers to settle probe by SEC

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RenaissanceRe Holdings Ltd. (“RenRe”) has offered to pay $15 million to settle Securities and Exchange Commission (“SEC”) probes into the company’s three-year restatement of earnings. Under the proposed settlement—under which RenRe will not admit or deny any wrongdoing—the reinsurer will pay the SEC $15 million in civil penalties and will disgorge $1. In addition, RenRe will hire an outside consultant to review the reinsurer’s internal controls and policies, among other things. The settlement would not resolve an ongoing investigation by the U.S. Attorney’s office for the Southern District of New York, or a consolidated securities class action lawsuit pending against the company and certain current and former officers.

RenRe acknowledged in its 2004 10-K filing that two transactions that were accounted for as insurance failed to transfer enough risk to meet accounting standards. One was an aggregate excess-of-loss reinsurance agreement under which RenRe ceded business to Inter-Ocean; the other, an agreement to sell reinsurance recoverables to Inter-Ocean. The effect of the restatement was to boost RenRe’s 2001 and 2003 net income by $20.6 million and $1.3 million, respectively, and reduce its 2002 net income by $21.9 million.

St. Paul settles broker commission issues

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The St. Paul Travelers Companies Inc. has entered into a $77 million settlement with the attorneys general of New York, Connecticut and Illinois, as well as with the New York State Department of Insurance, resolving issues relating to those states' industry-wide investigations into producer compensation, bid rigging, reinsurance tying and finite reinsurance.

While not admitting any wrongdoing, the companies agreed to:

— pay $37 million into a fund for certain excess casualty policyholders and pay $40 million in fines;

— enhance the company's disclosures regarding its producer compensation practices;

— strengthen its ongoing training and education of employees;

— discontinue paying contingent commissions on excess casualty coverage in the United States through 2008; and

— discontinue paying contingent commissions on any line of business if 65 percent of the United States market for that line does not pay such commissions or has signed similar settlement agreements.

Connecticut Insurance Department publishes notice of intention to revise reinsurance regulations

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The Connecticut Insurance Department has published notice of its intention to amend its current regulations concerning credit for reinsurance to delete the provision that relates to the disposition of assets of a single beneficiary trust on the insolvency of the reinsurer/grantor. Comments will be received prior through September 22, 2006.

SPECIAL FOCUS: solvent schemes of arrangement

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Solvent schemes of arrangement are processes through which solvent companies may commute all policies within the purview of the scheme, effecting a voluntary dissolution or clean reorganization with a relatively short tail. Found predominantly in the UK, they have been subject to some recent court decisions, which have included jurisdictional questions, such as whether such schemes can be imposed where some creditors or policy holders are domiciled in the US or other countries. They are controversial with US companies since they effect a reorganization outside bankruptcy laws or “traditional” US insurance rehabilitation/liquidation proceedings:

  • This process is described by PriceWaterhouse Coopers and Marsh Risk Consulting in special papers found on their web sites.
  • PWC has compiled a guide to specific schemes of arrangement, which describes actual schemes of arrangement administered in the UK.
  • Rhode Island is the first US jurisdiction to adopt a statutory structure providing for such a process, which can be utilized only by companies domiciled under Rhode Island law. Since its adoption in 2002, there have not been any reported court opinions relating to the Rhode Island statutes.  There has been some speculation as to whether the availability of this “abbreviated” form of reorganization might prompt run-off companies, or those preparing to enter a run-off mode, to re-domicile in Rhode Island. 

California reinsurance regulation proposals

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Both the California Legislature and Department of Insurance are considering proposed changes to the regulation of reinsurance. The proposed regulations have been particularly controversial, as some have suggested that they contain substantial deviations from NAIC model provisions. The proposed legislation, Assembly Bill 2400, was amended June 19, 2006, while the Insurance Departmented posted revised proposed regulations on its website on June 14.