Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

ANOTHER STATE WITHDRAWS FROM NIMA

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Nevada has submitted its notice of withdrawal from the Nonadmitted Insurance Multi-State Agreement (“NIMA”), the interstate compact sponsored by the NAIC to collect and allocate surplus lines tax revenues consistent with the Nonadmitted and Reinsurance Reform Act of 2010. As we reported earlier, Alaska, Connecticut, Mississippi, Nebraska and Hawaii have also withdrawn from the compact. With Nevada’s withdrawal, remaining members include only Florida, Louisiana, Puerto Rico, South Dakota, Utah and Wyoming. The Nevada Division of Insurance issued a bulletin with guidance on surplus lines taxation given its withdrawal. The Bulletin does not state the reason for Nevada’s withdrawal from NIMA. Nevada Bull. 12-005 (July 2, 2012).

This post written by Ben Seessel.

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COURT DISMISSES INSURANCE AGENCY’S CLAIMS THAT INSURER FAILED TO DISCLOSE TROUBLED FINANCIAL CONDITION

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In a bankruptcy adversary proceeding arising out of claims made by an insurer against the debtor insurance agency/reinsurer, a court dismissed the debtor’s counterclaims for breach of fiduciary duty and fraud. The agency contended that the insurer, which itself was in rehabilitation, concealed and misrepresented its poor financial condition and austerity measures that it was taking to address it, which the agency claimed caused it to suffer financial harm and loss of good will. The court held that the agency failed to state claims beyond breach of contract because (1) the insurer was not in a “superior position” of a fiduciary simply by possessing greater knowledge of its internal operations and financial status, and (2) the agency failed to allege facts demonstrating that the insurer owed a separate legal duty to it beyond the obligations of the agency agreement. In re Black, Davis, & Shue Agency, Inc., Case No. 11-00160 (USDC Bankr. M.D. Pa. June 28, 2012).

This post written by Michael Wolgin.

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IAIS POLICY PAPER: REINSURANCE DOES NOT CREATE OR AMPLIFY SYSTEMIC RISK

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The International Association of Insurance Supervisors recently released a policy paper entitled Reinsurance and Financial Stability which addresses specific issues related to the insurance industry along with evaluating the marketplace as a whole. Notably, the paper examined how current trends in reinsurance impact the stability of the financial markets. The IAIS concluded that traditional reinsurance is unlikely to cause or amplify systemic risk that may or may not already exist in the market. However, considerable systemic risk may arise from non-insurance entities (such as investment banks) which have started to offer longevity and pension services with risk transformation and risk transfer features similar to products offered by insurers. The paper may be found at the IAIS website (www.iaisweb.org).

This post written by John Black.

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REINSURANCE ARTICLES OF INTEREST

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AM Best recently published its yearly financial review on the global reinsurance market. AM Best noted the resilience of reinsurers, pointing out that economic volatility and catastrophic loss events combined to create an approximate $110 billion loss for the reinsurance market in 2011. Nevertheless, the report noted that “reinsurance capacity remained ample despite the magnitude of losses and unrelenting headwinds.” In fact, reinsurers ended the year at approximately the same level of capital as they started.

In addition, the International Who’s Who of Insurance and Reinsurance Lawyers brought together two leading practitioners—Peter Mann of Clayton Utz, Australia and Laura Foggan of Wiley Rein LLP, Washington DC—for a roundtable to discuss key issues for the industry. In particular, the attorneys explained that recent legislative and regulatory changes in both Australia and the US have somewhat altered the playing field. The panel also discussed areas of possible growth for the industry as well as areas that have become hotbeds for litigation.

This post written by John Black.

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FEDERAL INSURANCE OFFICE SEEKS COMMENTS ON GLOBAL REINSURANCE MARKET

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The Federal Insurance Office (“FIO”) has requested comments on the global reinsurance market to facilitate the preparation of a report that Dodd Frank requires it to submit to Congress on the impact of the global reinsurance market on insurance in the United States. It invites comments on the purpose of reinsurance, the breadth and scope of the global reinsurance market, the role that the global reinsurance market plays in supporting insurance in the United States, the effect of domestic and international regulation on reinsurance in the United States, the role and impact of government reinsurance programs, the coordination of reinsurance supervision nationally and internationally, and any other relevant topic. Comments are due by August 27, 2012 and the FIO’s report is due by September 30, 2012.

This post written by Ben Seessel.

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