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Reinsurance Regulation

CONGRESS DISAPPROVES THE CFPB’S ANTI-CLASS ACTION ARBITRATION WAIVER RULE

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Congress has adopted a joint resolution of disapproval of the CFPB’s arbitration rule under the Congressional Review Act, 5 U.S.C. Section 801 et seq.  President Trump’s approval of the joint resolution will prevent the implementation of the rule.    With the disapproval of the rule, the CFPB’s rule “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”  5 U.S.C. Section 801(b)(2).  While it seems highly unlikely that the present Congress would approve the same or similar rule, it is not known whether the CFPB will attempt to find another way to implement a prohibition of class action arbitration waivers.

This post written by Rollie Goss.
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U.K. COURT APPROVES MULTI-BILLION POUND PLAN TO TRANSFER ANNUITY LIABILITIES UNDER REINSURANCE AND BUSINESS TRANSFER AGREEMENTS

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The Queen’s Bench Division of the U.K.’s High Court of Justice recently approved a scheme proposed by Scottish Equitable Plc to transfer its liabilities as to over 185,000 insurance policies to Rothesay Life Plc. The scheme was backed by roughly £7 billion in assets paid to Rothesay under a series of annuity reinsurance and business transfer agreements executed in April 2016.

The court’s approval was guided by eight principles used by British courts in assessing long-term business transfer plans. While the primary factor is whether the scheme would adversely impact policyholders, the court held that a scheme will not be rejected simply because it may adversely affect certain policyholders. Instead, viewed as a whole, the scheme must be objectively “fair.” The court also noted that a proposal will not be rejected solely because it is not the “best possible scheme,” stating that deference should be given to the company’s choice of schemes, provided that choice is objectively fair. The court rejected policyholders’ objections, finding the proposed scheme was sufficient to protect policyholders’ interests. The court also rejected the argument that the scheme was not the “transfer of a business” under the FSMA simply because the policies were being reinsured, finding that the transaction did not need to expose Scottish Equitable to “risk or reward” to qualify as the transfer of its “business.” See In the Matter of Scottish Equitable Plc and In the matter of Rothesay Life Plc, [2017] EWHC 1439 (Ch).

This post written by Alex Silverman.

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RELIANCE LIQUIDATION COURT APPROVES APPLICATION FOR DIRECT PAYMENTS FROM RELIANCE’S REINSURERS TO CERTAIN INSUREDS

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The court handling the liquidation of Reliance Insurance Company has approved an application for the direct payment of reinsurance proceeds by Hunt Equities, Inc., as guarantor of Mount Vernon Insurance company (the “Reinsurer”), to Reliance’s insured, Hunt Consolidated, Inc., with respect to certain workers compensation and employers liability policies issued to Hunt Consolidated, Inc., for the policy periods of 1991 to 1996. The court found that the Reinsurer had unequivocally assumed Reliance’s direct coverage obligations to Hunt Consolidated, Inc., that Hunt Consolidated, Inc. had consented to the substitution of the Reinsurer for Reliance and to the release of Reliance for all coverage related claims, and that permitting such direct payment complied with the Section 534 of Article V of the Pennsylvania Insurance Department Act of 1921, the court’s own guidelines for enforcement of the Act, and it prior orders.

In re Reliance Insurance Company, No. 1 REL 2001 (Pa. Comm. Ct. Aug. 9. 2017)

This post written by Jason Brost.

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ILLINOIS DISTRICT COURT DISMISSES CASE FILED BY INSURANCE DEPARTMENT, AS REHABILITATOR, AGAINST REINSURER

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The District Court for the Northern District of Illinois dismissed a complaint filed by Plaintiff-Rehabilitator, the Illinois Director of Insurance, against Defendant-Reinsurer, Twin Rivers, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and a violation of the Real Estate Settlement Procedures Act (RESPA).

The underlying reinsurance agreement stemmed from a previous “rehabilitation” proceeding under which the Illinois Department of Insurance was appointed as the rehabilitator for a now-defunct insurer, Triad, and as such was authorized to “bring any action, claim, suit or proceeding against any person with respect to that person’s dealings with Triad.” The present dispute concerns a reinsurance arrangement by which Twin Rivers agreed to reinsure certain private mortgage insurance (PMI) policies issued by Triad on mortgages originated by banks affiliated with Twin Rivers. In exchange for the reinsurance, Triad would pay a certain percentage of each referred borrower’s PMI premiums to Twin Rivers. These so-called “ceded” premiums were deposited into a trust account and invested and used to fund any payments due to Twin Rivers under the reinsurance agreement. Twin Rivers would periodically receive dividends out of the trust account for the benefit of itself and its affiliated banks. A balance of approximately $1,741,655 remained in the trust account as of the filing of the original complaint in this action.

With regard to the breach of contract claim, the Illinois Director of Insurance alleged that Twin Rivers breached its agreement by failing to provide certain disclosures to borrowers whose PMI policies it would be reinsuring consistent with U.S. Department of Housing and Urban Development (HUD) regulations requiring the disclosure of the benefits that Twin Rivers was receiving through the captive reinsurance arrangement. In its motion to dismiss, Twin Rivers argued that no provision in the agreement obligated it to provide HUD disclosures to borrowers and, in any event, the Illinois Department of Insurance was not harmed by the absence of disclosures. The Director argued that language in the agreement requiring that Twin Rivers not violate any “agreement with, or condition imposed by, or consent required by… any governmental… body” imposed a continuing commitment on the part of Twin Rivers to provide the HUD disclosures. Ultimately, the Court found the language “fairly susceptible to Defendant’s interpretation, but not [to] Plaintiff’s.” In so finding, the Court found more plausible the meaning attributed by Twin Rivers, that the language was merely a representation that, at the time of contracting, it was not specifically and individually subject to any legal constraints that would preclude it from agreeing to and fulfilling its obligations under the agreement.

The Court also dismissed the good faith and fair dealing claim, citing the Director’s failure to allege that Twin Rivers exercised its discretion in bad faith, unreasonably, or in a manner inconsistent with the reasonable expectations of the parties. The RESPA claims were also dismissed on account of statute of limitations, and the unjust enrichment claim was dismissed in light of the express contract governing the relationship between the parties.

State of Illinois ex rel. Hammer v. Twin Rivers Ins. Co., No. 16 C 7371 (USDC N.D. Ill. Jul. 5, 2017).

This post written by Gail Jankowski.

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DELAWARE GOVERNOR SIGNS LAW CREATING STREAMLINED AND INEXPENSIVE REGULATORY REGIME FOR DORMANT CAPTIVE INSURANCE COMPANIES

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The bill defines a dormant captive insurance company as one that (1) did not contract for any direct premium or reinsurance premium for a full calendar year, (2) is not obligated as an insurance company under any contract of insurance or reinsurance during any year it is a dormant captive, and (3) has provided written notice to the Commissioner of its intent to be a dormant captive. Among various provisions, the bill requires a dormant captive to possess and maintain $25,000 in unimpaired capital and surplus (or such other amount determined by the Commissioner), and exempts a dormant captive from the payment of premium tax, the filing of annual statements, the preparing of audited financial statements, and obtaining statements of actuarial opinion. Del. HB 87 (eff. Aug. 31, 2017).

This post written by Nora A. Valenza-Frost.

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