Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

MULTI-STATE COMPACT FOR SURPLUS LINES TAX COLLECTION (NIMA) IS SHEDDING MEMBERS

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Several states have recently withdrawn from the Nonadmitted Insurance Multi-State Agreement (“NIMA”), the interstate compact sponsored by the NAIC to collect and allocate surplus lines tax revenues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 Dodd Frank’s Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). We have reported earlier on NIMA’s development and progress. States that have withdrawn include Alaska, Connecticut, Mississippi, Nebraska and Hawaii. Departing states have cited several reasons for withdrawing: the lack of a financial benefit from participating; the increased burden and cost in overseeing and auditing NIMA’s Clearinghouse; increased costs imposed on brokers and insureds from the Clearinghouse’s service fee; and conflict with state insurance laws on reporting requirements. Mississippi is among the states withdrawing notwithstanding that its insurance commissioner was a principal officer of NIMA. NIMA’s remaining members include only Florida, Louisiana, Nevada, Puerto Rico, South Dakota, Utah and Wyoming.

This post written by Ben Seessel.

See our disclaimer.

SETTLEMENT REACHED IN DISPUTE OVER REINSURANCE ALLEGEDLY OWED TO LIQUIDATING INSURER

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The New Hampshire Insurance Commissioner, as liquidator for The Home Insurance Company, recently settled a breach of contract suit to collect reinsurance payment from reinsurer, Repwest Insurance Company. The commissioner had alleged that Repwest waived any defenses to payment by failing to timely object to the commissioner’s notice of claim made in liquidation under a reinsured Home insurance policy. In its answer, Repwest had denied that it had received proper notice, and had asserted, among other defenses, that Repwest was entitled to setoff certain claims it had against another reinsurer against its obligations to Home. Sevigny v. Repwest Insurance Co., Case No. 1:11-cv-00405 (USDC D.N.H. Apr. 23, 2012).

This post written by Michael Wolgin.

See our disclaimer.

REHABILITATION PLAN DISAPPROVED FOR FAILURE TO INCLUDE SURETY BOND LIABILITIES IN PRIORITY CLASS OF “CLAIMS UNDER POLICIES”

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On July 22, 2009 and November 2, 2011, we reported on certain disputes involving long-time rehabilitating insurer, Frontier Insurance Company. Frontier’s rehabilitator recently submitted to the supervising court a plan of rehabilitation that included a runoff of Frontier’s liabilities, with additional protection for liabilities deemed “claims under policies.” Frontier’s plan defined such claims as those made under policies of insurance, but excluded claims under its significant book of surety bonds, fidelity bonds, and similar instruments. Based on this definition, the rehabilitator contended that Frontier’s surety liabilities were entitled to low priority and could be discounted. The court rejected the proposal and disapproved the plan, siding with objectors who contended that the proposed definition of “claims under policies” unlawfully discriminated within a single priority class of Frontier’s liabilities. Surety claims fall within the same class as insurance claims, and must be paid to the same extent as all other traditional insurance claims. The court ordered the rehabilitator to either propose a revised plan or apply for an order of liquidation. In re Frontier Insurance Co., Index No. 97-06 (N.Y. Sup. Ct. May 23, 2012).

This post written by Michael Wolgin.

See our disclaimer.

TEXAS HIGH COURT HOLDS THAT STOP-LOSS INSURANCE SOLD TO EMPLOYEE-HEALTH PLANS IS NOT REINSURANCE

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The Texas Supreme Court ruled that stop-loss insurance sold to self-funded employee health benefit plans is “direct insurance in the nature of health insurance” and not reinsurance. As we reported earlier, the Court of Appeals had ruled that such policies were reinsurance beyond the scope of DOI regulation. The issue arose when the Texas DOI discovered, during a routine audit, that American Insurance Company had sold stop-loss policies from 1998-2002 without paying taxes or complying with other regulatory requirements. American argued that employers that self-fund employee health benefit plans are “insurers” engaged in the “business of insurance.” The Texas high court disagreed, holding that, although employers that self-fund health benefit plans in some respects act like insurers, they are not regulated as insurers under the Texas Insurance Code. Further, the court reasoned, ERISA generally precludes the states from deeming such plans to be insurers or engaged in the business of insurance. Texas Dep’t of Ins. v. Am. Nat’l Ins. Co., No. 10-0374 (Tex. May 18, 2012).

This post written by Ben Seessel.

See our disclaimer.

FLORIDA AND OREGON ENACT CAPTIVES LEGISLATION

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On March 27th and April 24th, respectively, Oregon and Florida became the latest states to enact legislation providing for the formation of captive insurers, including captive reinsurers, for various types of insurance. Among other things, the new legislation sets out standards for captive formation, capitalization requirements, permissible types of coverage, and reporting. The two laws vary, however, in several respects.

Oregon’s new law (SB 1547) requires minimum policyholder surplus of between $250,000 and $750,000, depending on whether the captive is formed as a “pure” captive, “association” captive, or captive reinsurer, all of which (among others) are defined in the law. Florida’s law (HB 1101), in contrast, requires minimum surplus of between $250,000 and $500,000, depending on whether the captive is formed as a “pure” captive, or an “industrial insured” captive, as defined therein.

The new laws also differ with respect to fees and taxes. Oregon requires $5,000 for the initial application fee and $5,000 for each annual renewal, whereas Florida requires $1,500 as an application fee and $1,000 for annual renewal. With respect to premium taxes, Oregon’s law contains none, as opposed to Florida’s law which sets a premium tax rate of 1.75% on gross premium receipts. Both laws provide various financial requirements relating to the maintenance of reserves and liquidity.

Captives licensed in Oregon or Florida are required to have at least one board meeting each year in their respective states. Both states also require captives to maintain their respective principal places of business in-state (with one exception in Oregon’s law for “branch” captives). Approximately 31 jurisdictions have now enacted captive insurance laws over the past decade. Both the Oregon and Florida laws will take effect July 1, 2012.

This post written by Michael Wolgin.

See our disclaimer.