New reinsurance-related and arbitration developments from Carlton Fields
The Dodd-Frank Act encouraged states to cooperate in the regulation of surplus lines insurance premium tax allocation. In a Special Focus article, John Pitblado provides an update on the efforts of the states to address this issue.
This post written by John Pitblado.
The NY DFS announced an amendment to its regulations governing excess line placements to conform with the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), which prohibits any State, other than the insured’s home state, from requiring a premium tax payment for nonadmitted insurance. The new regulation sets forth capital and surplus requirements for non-admitted insurers, and otherwise conforms the regulations to the NRRA, as adopted by New York and signed into law in 2011, amending Chapter 61 of the Insurance Laws.
This post written by John Pitblado.
The Vermont Department of Financial Regulation’s Captive Insurance Division has released a bulletin entitled “Guidance for Special Purpose Financial Insurers” to provide guidance regarding licensing standards and regulatory requirements for Special Purpose Financial Insurance Companies, formerly known in Vermont as “Special Purpose Financial Captives” until legislation mid-last year. With a pronounced goal of “support[ing] the use of appropriate uniform standards for regulation of insurer-owned captives and Special Purpose Financial Insurance Companies and to establish best practices and high standards for their continued use,” the bulletin has an NAIC-esque tone. Among other standards, the bulletin provides a sampling of qualified transactions and then discusses transaction review, reporting, and disclosure procedures that appear to engender significant collaboration between and among interested and/or cedents’ regulators. Vermont’s bulletin comes on the heels of a string of regulator releases addressing the captive insurance market, including releases from the New York Department of Financial Services and NAIC in June and July 2013, respectively, and, most recently, the FIO in December 2013. Vt. Ins. Bulletin No. C-2014-01 (Jan. 27, 2014).
This post written by Kyle Whitehead.
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Foreign retrocession insurance transactions are beyond the reach of IRS excise taxes based on the plain language of 26 U.S.C. § 4371(3), which aims to tax insurance transactions involving policies issued by foreign insurers or reinsurers. The District Court for the District of Columbia recently granted summary judgment to a Bermuda reinsurer in its suit against the IRS for a refund of an excise tax extracted from the foreign reinsurer in connection with its ceding of risk to a retrocessionaire. The Government maintained that Congress intended to impose a tax on any and all successive levels of insurance or reinsurance obtained from a foreign insurer, but the court held that the statute had clear internal limitations on its application. Specifically, taxes could be levied on premiums paid on policies of reinsurance covering specific insurance contracts, including casualty insurance, indemnity bonds, life insurance, sickness or accident insurance, or annuity contracts. However, retrocession policies are reinsurance policies covering the risks of reinsurance policies, not one of the types of insurance contracts enumerated by Section 4371(3). Validus Reinsurance, Ltd. v. United States, Case No. 13-0109 (ABJ) (D.D.C. Feb. 5, 2014).
This post written by Kyle Whitehead.
The Consumer Financial Protection Bureau issued a press release on January 29, 2014, announcing that it has initiated an administrative proceeding against PHH Corporation and its affiliates arising from an alleged mortgage insurance “kickback” scheme. CFPB claims that when PHH initiated mortgages requiring mortgage insurance (typically, where the buyer cannot put up a 20 percent downpayment), it referred the consumers to mortgage insurers with which PHH partnered, in exchange for the insurers then purchasing reinsurance from PHH’s subsidiaries. The CFPB claims this violated the Real Estate Settlement Procedures Act and unfairly increased the cost of borrowing for consumers. The CFPB’s Notice of Charges will be available on the CFPB website after February 12, 2014.
This post written by John Pitblado.
See our disclaimer.