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Reinsurance Regulation

NEW YORK ADOPTS REVISED EXCESS LINE PLACEMENT STANDARDS

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The New York Department of Financial Services promulgated, on an emergency basis, amendments to Insurance Regulation 41 on January 7, 2013. Regulation 41 deals with standards governing the placement of excess line insurance, which also is known as nonadmitted insurance. The Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”), which was part of the Dodd-Frank Act, subjects the placement of nonadmitted insurance solely to the statutory and regulatory requirements of the insured’s home state, and provides that only an insured’s home state may require an excess line broker to be licensed to sell, solicit, or negotiate nonadmitted insurance with respect to such insured. The New York legistature adopted an amendment to New York’s insurance laws in 2011, in part to conform to these provisions of the NRRA, and these amendments to Regulation 41 further the implementation of the statutory changes. The current amendments affect a large number of sections.11 NYCRR Part 27.

This post written by Rollie Goss.

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TENNESSEE OVERHAULS ITS CAPTIVE INSURER REGULATIONS

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In December 2012, the Tennessee Department of Commerce and Insurance revamped its regulations concerning captive insurers by repealing a law regarding letters of credit used by captive insurance companies and replacing it with a more extensive regulatory scheme. The new regulatory scheme requires annual reports of a captive insurance company’s financial condition and examinations by the insurance commissioner every three to five years. The five year cycle for examinations is only available for captive insurers that submit to annual audits conducted by independent certified public accountants authorized by the commissioner. The annual audits consist of an examination of financial statements by the independent CPA according to GAAP, an evaluation of internal controls, and certification as to the adequacy of the captive insurer’s loss reserves. Tenn. Comp. R. & Regs. tit. 0780, Ch. 01-41 (effective February 28, 2013).

This post written by Abigail Kortz.

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CLASS SETTLEMENT AND ATTORNEYS’ FEES APPROVED IN ACTION INVOLVING CAPTIVE REINSURANCE

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After more than four years of litigation, a class action suit brought against Washington Mutual comes to a close with an unopposed class settlement in the amount of $4 million, which includes $1.2 million for attorneys’ fees and litigation costs. The class action involved allegations that defendants received kickbacks from private mortgage insurers to whom they referred borrowers that exceeded the value of reinsurance services provided by defendants to those insurers. The Eastern District of Pennsylvania determined that class settlement was fair and reasonable because continued litigation would be complex, expensive, and lengthy since formal discovery would still need to be completed. The court also concluded that plaintiffs ran the risk of losing on summary judgment or at trial because resolving the issue of whether the reinsurance agreements adequately transferred risk to the defendants would depend on a battle of the experts. Finally, the court reasoned that there was a strong likelihood a class would not be certified outside of settlement because the defendants had potentially viable defenses that could not adequately be litigated on a class-wide basis. The court approved the class settlement and the award of attorney’s fees and costs in separate orders. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (E.D. Pa. Dec. 4, 2012).

This post written by Abigail Kortz.

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LIQUIDATOR FOR RELIANCE INSURANCE COMPANY SEEKS APPROVAL OF COMMUTATION AGREEMENT WITH REINSURER

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The Pennsylvania Insurance Commissioner, Michael Consedine, moved for approval of a commutation, settlement agreement and release entered into between Reliance Insurance Company (in liquidation) and C.S.C. Assurance, Ltd. Reliance was judicially determined insolvent in 2001, whereupon the Commissioner was appointed as liquidator. C.S.C. is a Class 3A insurer and reinsurer domiciled in Bermuda, which has been in run-off for over ten years. The agreement, if approved, would settle and finalize all facultative and treaty reinsurance contracts between Reliance and C.S.C. that have not already commuted. C.S.C. has agreed to pay $5,500,000 to the Reliance estate in exchange for commuting all such claims. In re Reliance Insurance Co. (in Liquidation), Case No. 1 Rel 2001 (Pa. Commw. Ct. Nov. 19, 2012)

This post written by Ben Seessel.

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VIRGINIA BUREAU OF INSURANCE ISSUES GUIDELINES ON CREDIT FOR REINSURANCE

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Virginia’s Bureau of Insurance issued guidelines for implementation of the Commonwealth’s credit for reinsurance law. The Bureau’s December 13, 2012 Administrative Letter 2012-11 (the “Letter”) lists the basic criteria the Bureau will rely on in making determinations as to whether a domestic ceding insurer can take credit for reinsurance, based on the reinsurer qualifying as: (1) a licensed Virginia insurer in good standing, (2) an accredited Virginia reinsurer with at least $20 million surplus, (3) a reinsurer licensed in a state with similar credit laws and at least $20 million surplus, (4) a single assuming insurer with a trust account and at least $20 million surplus, (5) a participant in an association of unincorporated underwriters and at least $100 million surplus, (6) a participant in an association of incorporated underwriters with aggregate surplus of $10 billion and a joint trusteed surplus of at least $100 million; or (7) a reinsurer certified in Virginia with a surplus of $250 million, domiciled and licensed in a qualified jurisdiction, and with acceptable ratings from two or more ratings agencies.

The Letter also delineates ceding insurer responsibilities in ensuring the validity of credit reported on their statements, and provides information pertaining to filing requirements and forms.

This post written by John Pitblado.

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