Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

UPDATE ON COVERED AGREEMENT NEGOTIATIONS BETWEEN THE U.S. AND THE EUROPEAN UNION

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As we previously reported, in November 2015, the U.S. Treasury Department and the U.S. Trade Representative gave notice to Congress to initiate discussions with the European Union to enter into a Covered Agreement essentially addressing two major issues: (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. Covered Agreements were introduced by the Dodd-Frank Act as a vehicle for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. We described the Covered Agreement process in a Special Focus article. On February 23, 2016, the United States and the European Union released a joint statement regarding the status of negotiations and advised that representatives met in Brussels on February 18-19, 2016, and that both sides agreed to move forward efficiently in pursuit of agreement and expressed their hope that such future Covered Agreement will improve regulatory and supervisory treatment for insurers and reinsurers operating on both sides of the Atlantic. The Joint Statement can be found here.

This post written by Jeanne Kohler.

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NEW HAMPSHIRE COURT APPROVES COMMUTATIONS CONCERNING THE HOME INSURANCE COMPANY

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In various posts, the latest of which was September 2, 2015, Reinsurance Focus has covered developments in the liquidation of The Home Insurance Company. Recently, the liquidation court entered orders approving three commutations between Home and its counterparties to certain reinsurance contracts concerning liabilities arising under those agreements – one involving Westport Insurance Corporation, the second for R&Q Reinsurance Company, and the third involving CX Reinsurance Company Limited. Here are the motions to approve the commutation agreements for Westport Insurance Corporation, R&Q Reinsurance Company, and CX Reinsurance Company Limited.

This post written by Rob DiUbaldo.

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FEDERAL COURT FINDS THAT THE MCCARRAN FERGUSON ACT BARS PLAINTIFF’S RICO CLAIMS ARISING FROM CERTAIN REINSURANCE TRANSACTIONS

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In a putative class action seeking damages for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) arising from certain reinsurance transactions, the United States District Court for the Western District of Missouri held that Plaintiff’s claims were barred by the McCarran-Ferguson Act, granting defendants’ motion to dismiss. Plaintiff Dale Ludwick and others purchased annuities from F&G Life Insurance Company, which was acquired by Harbinger Group, Inc. Plaintiff brought suit alleging that F&G, Harbinger and Harbinger’s chairman and CEO engineered a fraudulent accounting scheme to hide F&G’s liabilities, artificially inflate its reported assets, and create a false appearance of capital adequacy through reinsurance transactions with certain entities, including defendants Raven Reinsurance Company and Front Street Re (Cayman), Ltd, in violation of RICO.

Defendants moved to dismiss the action, arguing that plaintiff’s RICO claims impermissibly interfered with state statutory and regulatory insurance schemes, and were thus barred by the McCarran-Ferguson Act. The court granted defendants’ motion, finding that: (a) RICO does not specifically relate to the business of insurance, thus satisfying this prong of McCarran-Ferguson’s criteria; (b) the states relevant to the transactions at issue – Missouri and Iowa – have statutory schemes which regulate the business of insurance and governed said transactions; and (c) the application of RICO to the subject claims would intrude upon the insurance regulatory schemes in those states, and thus “invalidate, impair or supersede” the schemes in violation of McCarran-Ferguson. Moreover, the court rejected plaintiff’s argument that its common law claims negated the effect of McCarran-Ferguson and that such claims were not barred by the statute, as the transactions at issue were subject to the states’ insurance codes. Ludwick v. Harbinger Group, Inc., No. 15-cv-00011 (USDC W.D.MO. Feb. 12, 2016).

This post written by Rob DiUbaldo.

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MAINE AMENDS RULE REGARDING CREDIT FOR REINSURANCE

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Effective January 24, 2016, Maine amended Bureau of Insurance Rule 740, Credit for Reinsurance, in order to implement the newly adopted provision of the Maine Credit-for-Reinsurance Act that allows reduced collateral for reinsurance ceded to “certified” reinsurers. The amendments make other “necessary revisions that have been identified since the Rule’s 1993 adoption in order to address various technical issues and to reflect changes to the controlling Maine law and National Association of Insurance Commissioners (NAIC) accreditation standards.” The amended Rule 740 is attached here, along with a redline of the changes, and the Summary of Comments and Statement of Basis of Adopted Amendments.

This post written by Michael Wolgin.

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NAIC ADOPTS AMENDMENTS TO CREDIT FOR REINSURANCE MODEL LAW

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The NAIC Executive (EX) Committee and Plenary adopted amendments to the Credit for Reinsurance Model Law (#785). These amendments are part of a larger effort to modernize reinsurance regulation in the United States. The changes allow a commissioner to adopt additional requirements relating to: “(1) the valuation of assets or reserve credits; (2) the amount and forms of security supporting reinsurance arrangements…; and/or (3) the circumstances pursuant to which credit will be reduced or eliminated.”

This new regulatory authority was added in response to reinsurance arrangements entered into, directly or indirectly, with life/health insurer-affiliated captives, special purpose vehicles, or similar entities that may not have the same statutory accounting requirements or solvency requirements as U.S.-based multi-state life/health insurers. To assist in achieving national uniformity, the NAIC has asked commissioners to strongly consider adopting regulations that are substantially similar in all material aspects to NAIC-adopted model regulations in the handing and treatment of such reinsurance arrangements.

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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