Reinsurance Focus

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Reinsurance Regulation

CALIFORNIA BILL REVISES PROVISIONS GOVERNING SURPLUS LINES COVERAGE TO CONFORM TO DODD-FRANK

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Approved by Governor Jerry Brown on July 13, 2011, California Assembly Bill 315 significantly changes provisions of the California Insurance Code governing surplus lines coverage to make them consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Certain of the Bill’s provisions became operative on July 21, 2011. The Bill sets forth detailed legislation altering the manner in which surplus lines brokers and non-admitted insurers are governed. Among other provisions, the Bill creates rules regulating the advertising, marketing, and sales of surplus lines coverage, capital requirements for non-admitted insurers, and the taxation of surplus line insurance. The Bill also gives the Commissioner of Insurance the authority to create an advisory organization to monitor surplus lines activity. Assembly Bill No. 315, Ch. 83 (Cal. 2011).

This post written by Ben Seessel.

JULY 2011 NAIC REINSURANCE TASK FORCE MEETING UPDATE

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On July 11, 2011, the NAIC Reinsurance Task Force held an interim meeting in New York City. The meeting addressed issues raised by comments to the task force’s two exposure drafts of the Credit for Reinsurance Model Law and Credit for Reinsurance Model Regulation, which were initially posted in February 2011. The Task Force discussed whether mandatory contract clauses should be included in the models; what requirements an assuming insurer must meet in order to be approved as a certified reinsurer; what specific information certified reinsurers should be required to file; issues regarding multiple beneficiary trusts; issues relating to reporting requirements for ceding insurers; proposed changes to the ratings/collateral matrix; issues regarding the revocation of certification; issues regarding restrictions to limit so-called “concentration risk;” special issues concerning life reinsurance contracts; clarification with respect to the application process; and whether the model language should be clarified to refer to “substantially similar financial solvency regulation” as opposed to “substantially similar credit for reinsurance standards.”

The Task Force posted two revised exposure drafts on its website on July 26, 2011 (see links above), which are open for comment through the close of business on August 24, 2011.

This post written by John Pitblado.

NEW YORK CLARIFIES NEWLY EFFECTIVE DODD-FRANK REINSURANCE PROVISIONS

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The New York Insurance Department issued Circular Letter No. 9 on July 22, 2011, which provides “guidance and clarification” on the impact of the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) (passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act) on surplus line placements in the state. The letter cites to and discusses the various New York state insurance and tax laws which were amended to conform to the NRRA. New York is one of the states which has declined to enter into a surplus insurance premium tax compact, keeping 100% of the tax it collects. The letter clarifies eligibility requirements for non-admitted insurers under NAIC’s Nonadmitted Insurance Model Act, which was codified under New York law; it clarifies exemptions for “exempt commercial purchasers” from satisfying due diligence requirements concerning placement with admitted insurers; and it discusses the “home state” law governing the exclusive regulation of non-admitted insurers by the insurer’s “home state” only. The letter also addresses licensing and taxation issues. Certain of the New York laws, and the NRRA, became effective on July 21, 2011.

This post written by John Pitblado.

SPECIAL FOCUS: MULTI-STATE SURPLUS LINES RISKS: WILL THERE BE MEANINGFUL TAX-SHARING AMONG THE STATES?

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The Nonadmitted and Reinsurance Reform Act, a piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act, contemplates tax sharing agreements among the states to facilitate the equitable distribution of surplus lines premium tax revenues. In this Special Focus article, Karen Benson discusses how those agreements have largely failed to manifest.

This post written by Karen Benson.

COURT ORDERS LIQUIDATION OF REINSURANCE COMPANY OF AMERICA

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An Illinois circuit court entered an order for the liquidation of Reinsurance Company of America based upon a finding of insolvency. The court appointed Michael T. McRaith, Illinois Director of Insurance, as liquidator, vesting him with broad powers to take action as required to serve the interests of RCA, its policyholders, beneficiaries, creditors, and the public. RCA’s sole stockholder consented to the entry of the order. People v. Reinsurance Co. of America, Case No. 10 CH 6207 (Ill. Cir. Ct. Apr. 27, 2011).

This post written by Ben Seessel.