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Reinsurance Regulation

FEDERAL INSURANCE OFFICE SOLICITS COMMENTS REGARDING CATASTROPHE RISK REPORT

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Pursuant to the Biggert-Waters Act, the Director of the FIO is required to conduct a study and submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report “providing an assessment of the current state of the market for natural catastrophe insurance in the United States.” The FIO Director must also consult with the National Academy of Sciences, State insurance regulators, consumer organizations, representatives of the insurance and reinsurance industry, policyholders, and other organizations and experts, as appropriate. To that end, on April 24, 2013, the FIO issued a notice seeking comments from these and other interested parties and the public.

The notice seeks comments on a number of areas, including: (1) the current condition of, and the outlook for, the availability and affordability of insurance for natural catastrophe perils in the United States, including whether a definition of a “natural catastrophe” should be established; (2) the current ability of States, communities, and individuals to mitigate their natural catastrophe risks; (3) the current state of catastrophic insurance and reinsurance markets and the current approaches in providing insurance protection to different sectors of the population of the United States; (4) the current financial condition of State residual markets and catastrophe funds in high-risk regions; (5) the current role of the Federal Government and State and local governments in providing incentives for feasible risk mitigation efforts and the cost of providing post-natural catastrophe aid in the absence of insurance; and (6) current approaches to insuring natural catastrophe risks in the United States.

Comments and papers containing analyses of natural catastrophes and the current state of the insurance market must be received by the FIO on or before June 24, 2013.

This post written by Michael Wolgin.

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CFPB ENTERS INTO SETTLEMENT PROHIBITING CAPTIVE MORTGAGE REINSURANCE

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The Consumer Financial Protection Bureau (“CFPB”) recently filed complaints in the Southern District of Florida against Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, Radian Guaranty Inc., and United Guaranty Corporation alleging violations of the Real Estate Settlement Procedures Act (“RESPA”) by engaging in the practice of paying kickbacks to captive reinsurance affiliates of mortgage lenders in exchange for referrals. All four mortgage insurers have agreed to consent orders, which inter alia (1) prohibit them from entering into any new captive mortgage reinsurance arrangements for a period of ten years, regardless of whether the arrangement includes any payments that might be interpreted as kickbacks, (2) prohibit them from accessing funds held in trust related to existing reinsurance arrangements other than for the reimbursement of reinsurance claims, (3) impose a civil penalty ranging from $2.6 to $4.5 million each, and (4) require them to submit to compliance monitoring and reporting to the CFPB. The fact that these settlements prohibit any captive reinsurance agreements for ten years, whether or not a “kickback” payment was involved, seems to overreach the allegations of the Complaints. See, e.g., CFPB v. Radian Guaranty Inc., Case No. 13-21188 (S.D. Fla. Apr. 9, 2013) (Order granting motion to approve consent judgment and Complaint).

This post written by Abigail Kortz.

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NEW YORK AND MISSOURI AMEND THEIR CREDIT FOR REINSURANCE REGULATIONS

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As previously reported by Carlton Fields, LLP, the New York Department of Financial Services published a notice of proposed rulemaking regarding changes to New York’s Credit for Reinsurance regulations in November 2012. The proposed changes were published and took effect on March 20, 2013. Missouri also recently introduced a bill that will change its credit for reinsurance regulations effective January 1, 2014. The changes authorize a reduction in the required statutory trusteed surplus for reinsurers who discontinue underwriting new business for at least three years, provides credit for reinsurance ceded to credited insurers and eligibility requirements for certification, and requires ceding insurers to take steps to diversify their reinsurance programs. Both the New York and Missouri amendments are based upon the NAIC Credit for Reinsurance Model Law and Regulations. N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (2013); S.B. 60, 97th Gen. Assemb., Reg. Sess. (Mo. 2013).

This post written by Abigail Kortz.

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NEW YORK AG LACKS STANDING TO OBJECT TO PROPOSED SETTLEMENT IN AIG SECURITIES LITIGATION

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In a case that has been litigated since 2004, and on which we have frequently reported, the New York Attorney General (“NYAG”) has attempted to block progress toward resolution by filing an objection to the pending settlement between class plaintiffs and a group of defendants. The NYAG asserts that the settlement is “unfair and inadequate” because it does not take into account an allegedly fraudulent finite reinsurance transaction between AIG and General Reinsurance Corp. The court found that the NYAG lacks standing to object, both under the Class Action Fairness Act and constitutional standing requirements, and denied the NYAG’s request for intervention taking into consideration the interest of the settlement class to resolve the matter without further delay. The court did, however, entertain the NYAG’s concerns about misrepresentations in the Class Notice regarding findings from the plaintiffs’ loss causation expert and ordered a Supplemental Notice to be sent out, which includes an additional opportunity to opt out of the settlement class. The Fairness Hearing for the proposed settlement is set for April 10, 2013. In re American International Group, Inc. Securities Litigation, Case No. 04-cv-8141 (USDC S.D.N.Y. Jan. 7, 2013).

This post written by Abigail Kortz.

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UPDATE ON CAPTIVE INQUIRIES

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We have previously posted on the NAIC’s pending inquiries into the appropriateness of the use of captives. There are two recent developments of note with respect to such issues. First, the NAIC’s subgroup which has been conducting an inquiry has exposed for public comment a revised version of its white paper titled Captives and Special Purpose Vehicles. This draft does not resolve all of the disagreements evident in prior discussions of these issues at the NAIC, calling for further study with respect to some issues. The comment period for this document ends April 29, 2013. Second, the Treasury’s Federal Insurance Office (“FIO”) has formed a task force, headed by District of Columbia Insurance Commissioner William White, to examine the national implications of the use or possible abuse of captives and special purpose vehicles by life insurance companies. This represents a new direction for the FIO, and the reason for this shift is not readily apparent. Although the FIO has been involved mostly in international issues so far, and the NAIC white paper does identify its inability to regulate offshort capitves as an issue, it is unclear whether the FIO’s interest has been prompted by international regulatory concerns.

This post written by Rollie Goss.

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