Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Reinsurance Regulation

Reinsurance Regulation

GEORGIA ENACTS NEW INSURANCE REGULATIONS FOR CAPTIVE INSURANCE OVERSIGHT

by

On July 1, 2015, Georgia’s House Bill 552 went into effect, marking a change in Georgia’s insurance laws that will make the state more attractive to business. That law lowers the state tax on captive insurance premiums and reduces the capital requirements for such companies. Then on August 24, 2015, Georgia’s Commissioner of Insurance issued an order adopting new insurance regulations that incorporate changes to Georgia’s insurance code from House Bill 552 and to implement additional best practices of the captive industry. The new regulations, among other things, create new reporting and auditing requirements, adds a licensure requirement for captive managers, and changes the way in which captive insurance companies pay into the fraud fund. The new regulations went into effect on October 11, 2015.

Ga Comp. R. & Regs. 120-2-45-.01 to .20; 120-2-72-.05.

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

See our disclaimer.

PUTATIVE CLASS REPRESENTATIVE ACCUSING LIFE INSURER OF “HOLLOW ASSET” REINSURANCE LACKS ARTICLE III STANDING

by

We previously reported on putative class actions pending against life insurers for allegedly misleading customers by engaging in “shadow” or “hollow” reinsurance transactions, doing so most recently on August 3, 2015. In early October, another judge in the Southern District of New York faced the same arguments and ultimately reached the same conclusion that Article III standing was lacking. Plaintiffs alleged that Metropolitan Life Insurance Company and MetLife, Inc. had not properly disclosed their reinsurance agreements to customers as part of their transaction purchasing life insurance. According to plaintiffs, MetLife engaged in such conduct as obtaining a reserve credit of over $1 billion based upon letters of credit that were backed by contractual parent guarantees. In particular, plaintiffs pointed to a $315 million letter of credit that the New York Department of Financial Services determined was a “hollow asset” even though MetLife reported it as an admitted asset.

Plaintiffs filed a putative class action seeking damages against MetLife for failure to disclose these transactions and for violating sections of the New York Insurance Law. Plaintiffs, however, could not prove an injury-in-fact and, therefore, lacked Article III standing. Plaintiffs lacked Article III standing, the court found, because they could not show a concrete injury as a result of this conduct. In fact, rather than resulting in higher premiums, as Plaintiffs alleged, “according to an economic study annexed as an exhibit to the complaint, using shadow insurance actually reduces the cost of life insurance policies and, if companies discontinued using shadow insurance, premiums might rise by as much as 10–21%.” Finding that the alleged risk of harm was in the future and not concrete, the court dismissed the case for lack of Article III standing. Robainas v. Metropolitan Life Insurance Co., No. 14-cv-09926-DLC (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Zach Ludens.

See our disclaimer.

FIO ISSUES 2015 ANNUAL REPORT

by

Last month, the Federal Insurance Office (“FIO”) issued its Annual Report for 2015. The Report discusses many financial consumer protection and regulatory issues, both domestic and international, relating to the business of insurance. The Report has relatively little discussion of reinsurance, largely tracking the topics discussed in the FIO’s December 2014 report on the global reinsurance market. The 2015 Annual Report discusses three topics of interest to the reinsurance sector:

  • Regulation of captives: Regulation of captives is discussed mainly in terms of the NAIC’s work on a captive framework and the adoption of principal-based reserves. The Report is critical of the limitation of the captive framework to cessions of reserves for term life insurance and universal life insurance with secondary guarantees, and the “uncertain timeframe for its implementation ….” See Report at 59. The FIO previously identified the regulation of captives as a topic in which it is interested and may take action, although it has not exposed any proposal relating to captives.
  • Credit for reinsurance: The Report is critical of the slow progress on credit for reinsurance reform and notes that the United States and the European Union are in the preliminary stages of discussions of what the Dodd-Frank Act referred to as a covered agreement on that topic. The Report states that “[b]y statute [the Dodd-Frank Act], USTR [United States Trade Representative] and FIO must give notice to Congress of the intent to commence negotiations. That notice is expected in the coming weeks.” See Report at 81 and Recommendation at Appendix, page vii.
  • Alternative risk transfers: The Report contains a brief discussion of the abundance of capital in the reinsurance sector and the rapid growth of alternative risk transfers such as insurance-linked securities (including cat bonds), industry-loss warranties, collateralized reinsurance and sidecars. The Report does not contain any opinions or recommendations with respect to this topic. See Report at page 42.

This post written by Rollie Goss.
See our disclaimer.

LOUISIANA LEGISLATION REPEALS AUTHORITY TO ENTER NIMA

by

The Louisiana House of Representatives’ Bill 259, effective July 1, 2015 as Act 386, repeals the authority of the state’s insurance commissioner to enter the Non-Admitted Insurance Multi-State Agreement (“NIMA”) or other cooperative compacts or agreements with other states for the purpose of allocating surplus lines premium on multi-state policies and tax revenues. Act 386 provides that the entire surplus lines premium of a surplus lines policy of which Louisiana is the home state of the policyholder would be subject to the surplus lines tax, which the Act sets at 4.85%.

H.B. 259, 2015 Reg. Sess. (La. 2015).

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

See our disclaimer.

RHODE ISLAND ENACTS AMENDMENTS TO CREDIT FOR REINSURANCE ACT

by

Rhode Island recently amended its Credit for Reinsurance Act to include two provisions regarding credits for reinsurance relating to the insolvency of the ceding insurer. Specifically, the first provision states that no credit is allowed “unless the reinsurance is payable by the assuming company on the basis of liability of the ceding company under the contractor contracts reinsured without diminution because of the insolvency of the ceding company.” Additionally, the second provision states that no credit is allowed “unless the reinsurance agreement provides that payments by the assuming company shall be made directly to the ceding company or to its liquidator, receiver, or statutory successor” or directly to the insured. Finally, the amendments state that no assuming company “may pay or settle, or agree to pay or settle, any policy claim, or portion of a claim, directly to or with a policyholder of any ceding company if an order of rehabilitation or liquidation has been entered against the ceding company.” These changes appear to be to bring Rhode Island’s statute closer to the model act promulgated by the National Association of Insurance Commissioners.

R.I. HB 6179 (enacted June 17, 2015) and R.I. SB 939.

This post written by Zach Ludens.

See our disclaimer.