Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

REINSURERS BEWARE: ATTEND YOUR INSURERS’ REHABILITATION PROCEEDINGS

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A Wisconsin Court of Appeals recently affirmed an order enjoining a reinsurer from withholding or failing to make payments to an insurer’s segregated account, which the insurer had established for troubled parts of its insurance business, including mortgage-backed securities, credit default swaps, and municipal bonds. Under an approved rehabilitation plan for the troubled segregated account, policyholders were to receive 25% of their claim amounts in cash and the remaining 75% in surplus notes. Although the reinsurer acknowledged an obligation to pay proportionately for the cash portion of any settlement agreements reached, it refused to reimburse the segregated account for the value of any surplus notes provided to policyholders unless and until the segregated account made cash payment on those notes and sought to compel arbitration. The rehabilitation court disagreed, and the Court of Appeals affirmed, finding: (1) that the rehabilitation court in Wisconsin had personal jurisdiction over the nonresident reinsurer based on minimum contacts and the reinsurer’s notice of the pending rehabilitation plan; (2) that the rehabilitation court had exclusive jurisdiction to determine any matter relating to a delinquent insurer that would otherwise be subject to an arbitration proceeding; and (3) that the reinsurer’s payment obligations stemmed not only from the contracts themselves, but also from the policies underlying the reinsurance contract. In re Rehabilitation of: Segregated Account of Ambac Assurance Corp., Case No. 2010CV1576 (Wis. Ct. App. Oct. 24, 2013).

This post written by Kyle Whitehead.

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A FEDERAL “SOLUTION” FOR REINSURANCE FOR CATASTROPHE RISKS?

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There are three bills pending in Congress concerning reinsurance for catastrophe risks. Such bills have been introduced in prior years and generally have died in committee, and the same is true so far this year. H.R. 240 would authorize the Treasury Department to provide reinsurance to “eligible state programs” for homeowners cat risks. The bill specifically provides that this program “shall not displace or compete with the private insurance or reinsurance markets or the capital market ….” H.R. 737 would establish a non-profit entity which could issue what amounts to cat bonds for its members. The members of this organization would be a state which has established “a reinsurance fund or has authorized the operation of a State residual insurance market entity, or State-sponsored provider of natural catastrophe insurance ….” H.R. 1101 would provide a federal reinsurance program for individual state or multi-state cat risk plans. None of these bills have progressed beyond being referred to a committee. Given the current capacity and pricing of cat risk private reinsurance and cat bonds, these bills appear to present a “solution” in search of a problem.

This post written by Rollie Goss.

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MORE TRACTION FOR THE CREDIT FOR REINSURANCE MODELS

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In an effort to implement reduced collateral requirements for ceding insurers, New Hampshire and Delaware have both enacted legislation that conforms with the NAIC’s amendments to its Credit for Reinsurance Model Law and Regulations. New Hampshire’s amended Reinsurance law, introduced as House Bill 231 on January 1, 2013, took effect on September 13, 2013. N.H. Rev. Stat. Ann. § 405:45-:52-a. New Hampshire is also considering amending its related regulation, N.H. Code Admin. R. Ins. 600, as originally proposed on July 18, 2013. Delaware’s amended Credit for Reinsurance regulation was first published for comments on May 1, 2013, and became effective on August 15, 2013. 18 Del. Admin. Code § 1003. Though not a Model state, Hawaii also recently adopted amendments, effective July 1, 2013, relating to conditions under which risk retention captive insurers may qualify for reinsurance credits on risks ceded to a reinsurer. Haw. Rev. Stat. § 431:19-111.

This post written by Kyle Whitehead.

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NAIC APPROVES PROCESS FOR DEVELOPING LIST OF QUALIFIED FOREIGN JURISDICTIONS IN SUPPORT OF COLLATERAL REFORM

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At its August 26, 2013 meeting, the National Association of Insurance Commissioners (NAIC) approved and adopted the Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions, a process developed and approved by the Reinsurance (E) Task Force and the Financial Condition (E) Committee. The process now turns to the first four jurisdictions selected for expedited review: Bermuda, Germany, Switzerland, and the United Kingdom. If approved, these jurisdictions would constitute “qualified jurisdictions” within the meaning of NAIC’s Credit for Reinsurance Model Law that has been adopted by 18 states and is being considered by several more.

This post written by John Pitblado.

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REVISIONS TO CONNECTICUT’S CREDIT FOR REINSURANCE LAW

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Effective August 6, 2013, Connecticut has adopted requirements in line with the November 6, 2011 amendments to the NAIC Credit for Reinsurance Model Law and Regulation that governs how a reinsurer may become certified in Connecticut for purposes of insurers taking a credit for amounts ceded to such reinsurer. As part of its new program, the Connecticut Insurance Department has created a Credit for Reinsurance webpage which contains all of the necessary applications, instructions and regulations in one location. Companies seeking to become certified must contact the Financial Regulation Division before submitting an application. State of Connecticut Insurance Department, Requirements to Become a Connecticut Certified Reinsurer – Updated, Bulletin No. FS-25-1 (Aug. 12, 2013).

This post written by Abigail Kortz.

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