Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

MISSOURI APPROVES FIRST FOREIGN REINSURERS UNDER ITS CREDIT FOR REINSURANCE LAW

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The Missouri Department of Insurance has announced its approval of two Swiss reinsurers, Swiss Reinsurance Co. Ltd. and Swiss Re Corporate Solutions Ltd., under Missouri’s “credit for reinsurance” law. This allows the two reinsurers to post reduced capital for Missouri transactions, based in part on their high credit rating from recognized rating agencies, and their respective capital surpluses, which far exceed the $250 million minimum under the law ($22.9 billion, and $2.65 billion, respectively).

This post written by John Pitblado.

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CANADA ISSUES NEW RULES ON REINSURANCE WITH A RELATED PARTY

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The Office of the Superintendent of Financial Institutions of Canada promulgated new reinsurance rules under Canada’s Insurance Companies Act, governing reinsurance transactions with a “related” reinsurer. The rules require detailed disclosures by the applicant (primary insurer) of required due diligence, objectives, risks, premiums, coverage, choice of law and other issues involved in the transaction. The rules also require detailed submissions from the proposed related reinsurer, regarding its financials, jurisdictions in which it operates, organization charts and past history of administrative or criminal sanctions, among other things. OSFI Index DA No. 21 (Dec. 2013).

This post written by John Pitblado.

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GAO REPORTS ON THE EFFECTS OF THE NONADMITTED AND REINSURANCE REFORM ACT ON THE SURPLUS LINES MARKET

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The United States Government Accountability Office has issued a Report to Congressional Committees entitled “Property and Casualty Insurance – Effects of the Nonadmitted and Reinsurance Reform Act of 2010.” The Report describes the size and condition of the surplus lines insurance market and examines actions states have taken to implement the Act’s provisions and the effects of the Act, if any, on the price and availability of coverage. The GAO analyzed end-of-year financial data for 2008 through 2012 for insurers who sold surplus lines insurance in 2012 and interviewed insurance regulators from states with a large number of surplus lines insurers, industry associations representing interests in the surplus lines market, and large insurers and brokers. Among the GAO’s finding are: (1) surplus lines insurers’ premiums have increased modestly from $24.8 billion to $25.2 billion; (2) the companies have generally remained profitable; (3) the Act has caused little noticeable shifting in coverage between the admitted and surplus lines markets; (4) nearly all states have modified their laws to implement at least portions of the Act; (5) the changes in states’ laws have simplified compliance for multistate risks, according to market participants; and (6) a few states are also participating in a premium tax-sharing agreement, as permitted by the Act.

This post written by Michael Wolgin.

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ELEVENTH CIRCUIT COURT AFFIRMS JUDGMENT IN LAWSUIT INVOLVING STATE-SUBSIDIZED REINSURANCE

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Allstate Floridian won an appeal in a case alleging that it failed to pass on the savings it enjoyed from taxpayer-subsidized reinsurance. In 2007, Florida’s legislature passed a law making the subsidized reinsurance available to Florida insurers at rates lower than those offered in the private market. Insurers like Allstate were supposed to pass those savings onto consumers. The plaintiff brought a putative class action against Allstate arising from the Florida Office of Insurance Regulation’s determination that Allstate had charged excessive premium rates. The rates had been filed with the Office, but were later determined to be excessive. The trial court dismissed the putative class action, finding all four claims asserted were barred by the filed rate doctrine, but also finding that each claim failed in its own right to state legally sufficient claims for various reasons. However, on appeal, plaintiffs only briefed and argued the filed rate issue, and not the other several reasons the district court cited in dismissing the claims. The Eleventh Circuit Court of Appeals therefore affirmed, finding the plaintiff had abandoned the other issues that precluded reversal. Sapuppo v. Allstate Floridian Ins. Co., No. 13-11558 (11th Cir. Jan. 7, 2014).

This post written by John Pitblado.

See our disclaimer.

FANNIE MAE AND FREDDIE MAC ISSUE NEW LENDER-PLACED INSURANCE RESTRICTIONS PROHIBITING ARRANGEMENTS WITH AFFILIATED CAPTIVE INSURERS AND REINSURERS

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On December 18, 2013, Fannie Mae and Freddie Mac issued notices announcing updated requirements for lender-placed insurance (“LPI”) for all Fannie and Freddie mortgage loans. Included in the update is a new requirement that a loan servicer’s LPI carrier must not be an “affiliated entity,” including affiliated captive insurers and reinsurers. A new certification will be required for the servicers to certify that they comply with Fannie’s and Freddie’s requirements for acceptable LPI insurance carriers. Fannie and Freddie also will require servicers, upon request, to provide copies of their LPI policies, including any contractual arrangements with servicers and LPI carriers. The servicers will also be required to respond to periodic requests for data. Copies of Fannie’s Servicing Guide Announcement SVC-2013-27 and Freddie’s 2013-27 Bulletin, can be accessed here.

This post written by Michael Wolgin.

See our disclaimer.