Reinsurance Regulation

In a dispute concerning a post-Hurricane Katrina assessment levied by a state-based windstorm pool, the Mississippi Supreme Court recently held that an insurer was entitled to submit revised information pertaining to its alleged overpayment made to the pool, despite the pool’s position that the submission was untimely.

The Mississippi Windstorm Underwriting Association (the “Windpool”) is a statutorily created “insurer of last resort” that provides wind and hail insurance to citizens on Mississippi’s Gulf Coast. Arrowood Indemnity Company was a member of the Windpool, writing property insurance in the state. As a member, Arrowood was required to participate in the Windpool’s expenses, losses, and profits, which was calculated based upon its reported percentages of wind and hail insurance premium writings in Mississippi during the preceding calendar year. Members of the Windpool were subject to additional assessments, based on their participation percentage, if losses in a given year exceeded the pool’s assets. To incentivize insurers to underwrite more difficult risks, members that voluntarily wrote wind and hail policies on the coast received credits that would reduce—or possibly eliminate—their portion of an assessment. Losses arising from Hurricane Katrina depleted the Windpool’s assets, requiring it to issue a substantial assessment on its members. Because the assessment was based on information submitted by each member-insurer, they were given the opportunity to reexamine the data previously reported for the operative underwriting year. Arrowood’s submission failed to claim the appropriate credits available to it by statute, resulting in an alleged $5 million dollar overpayment. Its submission, however, was based on incorrect information provided by the Windpool regarding certain excess policies issued by Arrowood. Accordingly, it requested an opportunity to submit the correct information. The Windpool denied Arrowood’s request on the grounds that the deadline for corrections had passed.

Litigation followed, and the Mississippi Insurance Commissioner and the Hinds County Chancery Court affirmed the Windpool’s decision. On appeal, the Mississippi Supreme Court reversed, holding that the Windpool’s reporting deadline was tolled because its incorrect representation precipitated Arrowood’s incorrect data submission. The Court remanded the matter to the Mississippi Insurance Commissioner for further proceedings. Arrowood Indemnity Co. v. Mississippi Windstorm Underwriting Association, No. 2014-CA-01638-SCT (Miss. June 16, 2016).

This post written by Rob DiUbaldo.

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New Hampshire recently amended its credit for reinsurance laws for domestic ceding insurers, revising RSA § 405:47 as follows:

“No credit under this section shall be allowed, as an admitted asset or deduction from liability, to any ceding insurer for reinsurance, unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance shall be payable by the assuming insurer on the basis of the claims allowed against the ceding insurer in the insolvency proceedings, under contract or contracts reinsured, without diminution because of the insolvency of the ceding insurer…”

Specific exceptions to the above include so-called cut-through arrangements (where the reinsurer/assuming insurer assumes a domestic cedent’s policy obligations to direct insured(s)) or where the reinsurance agreement expressly provides for another payee of such reinsurance in the event of the insolvency of the cedent. The revised statute further provides that a reinsurance contract may require that the “domiciliary liquidator or receiver” of any insolvent cedent provide written notice to the reinsurer within a specific or reasonable period of time of any claim implicating the reinsurance that is filed in court or with the liquidator/receiver. If, during the pendency of the claim, a reinsurer seeks to investigate the claim and interpose certain defenses on the cedent’s behalf, the reinsurer can intervene in the proceeding in which the claim is pending and assert certain defenses unless barred by the applicable reinsurance agreement. The expenses incurred by the reinsurer in these situations are payable up to the amount of the expenses or amount of the “benefit produced”, whichever is less, as expenses of the receivership. The revised statute has an effective date of July 26, 2016. N.H. HB 1403, Ch. 144, May 27, 2016.

This post written by Rob DiUbaldo.
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As we previously reported in March 2016, the United States initiated discussions with the European Union to enter into a Covered Agreement addressing: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. The Dodd-Frank Act introduced Covered Agreements as a means for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states.

On May 27, 2016, the United States and the European Union released another joint statement on their continued negotiations for a Covered Agreement. U.S. and EU representatives met in Washington, D.C. on May 24-25 to discuss the future bilateral agreement. Both sides agreed to continue in good faith to pursue an agreement on matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision. U.S. and EU representatives expressed their commitment to pursuing an agreement that will improve regulatory and supervisory treatment for insurers and reinsurers. Both sides are considering next steps to ensure the advancement of negotiations.

This post written by Michael Wolgin.
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On May 14, 2016, Pennsylvania issued Bulletin No. 16-819, advising that the Pennsylvania Insurance Department amended Chapter 161 of the Pennsylvania Insurance Code related to the requirements for qualified and certified reinsurers. The change made to the Chapter was deleting the requirement that a reinsurer be listed on the successor list to the Non-Admitted Insurance Listing (now known as the ”Quarterly Listing of Alien Insurers”) published by the National Association of Insurance Commissioners (NAIC) to be considered for qualification under Section 319.1 of the Code. This amendment conforms Pennsylvania’s regulation to the model law and regulation developed by the NAIC entitled ”Credit for Reinsurance Model Law” and ”Credit for Reinsurance Model Regulation.” The change to the Pennsylvania Insurance Code will take effect on June 13, 2016.

This post written by Jeanne Kohler.
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