Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

ILLINOIS INSURANCE DIRECTOR NAMED HEAD OF NEW FEDERAL INSURANCE OFFICE

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Michael McRaith, Director of the Illinois Division of Insurance, has been named by Treasury Secretary Geithner to be the initial Director of the new Federal Insurance Office, which was created last year by the Dodd-Frank Act. Director McRaith spent 15 years in private practice in Chicago prior to being appointed as Director of the Illinois Division of Insurance in 2005. Among his clients while in private practice were financial institutions, including insurance companies. He has been active in the NAIC, presently serving as secretary-treasurer. He has served as chair and vice-chair of the NAIC’s Property and Casualty Insurance (C) Committee. Director McRaith will serve as a non-voting member of the Financial Stability Oversight Council. Significantly for our readers, both Director McRaith and Missouri Insurance Director John Huff (a non-voting member of the FSOC appointed by the NAIC) have been members of the NAIC’s Reinsurance Task Force. The “insurance expert” voting member of the FSOC remains to be appointed by President Obama.

This post written by Rollie Goss.

MCCARRAN-FERGUSON ACT “REVERSE-PREEMPTS” FEDERAL JURISDICTION IN INSURANCE REHABILITATION CASE

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A Wisconsin federal district court has held that it may not interfere with an insurance rehabilitation case proceeding in state court. On January 18, 2011, the federal court ruled that it lacked jurisdiction to consider the legality of a state court’s order made in the context of an insurance rehabilitation proceeding. The state court enjoined the United States from taking certain actions against the claims-paying assets of the segregated accounts of Ambac Assurance. Shortly thereafter, the United States commenced a collateral attack against the state court and others, seeking to enjoin the state court from enforcing its rehabilitation plan or any injunction insofar as it affected the United States. The federal court once again ruled it lacked jurisdiction, holding that the McCarran-Ferguson Act “reverse-preempted” I.R.C. § 7401 (which authorizes injunctions for enforcement of internal revenue laws), the federal-question statute, and the federal-tax-issue jurisdiction statute. An injunction would “impair” or “supersede” state laws authorizing the state court to issue rehabilitation orders. The court also rejected the United States’ argument that the McCarran-Ferguson Act cannot preempt sovereign immunity. The case was dismissed for lack of subject matter jurisdiction. United States v. Wisconsin State Circuit Court for Dane County, Case No. 11-99 (USDC W.D. Wis. Feb. 18, 2011).

This post written by John Black.

FLORIDA APPROVES TWO MORE BERMUDA-BASED REINSURERS FOR REDUCED COLLATERAL PROGRAM

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The Florida Office of Insurance Regulation has approved two more Bermuda-based reinsurers for its collateral reduction program. Consent Orders have been entered approving Allied World Assurance Company, Ltd. and Tokio Millennium Re Ltd. The OIR also issued press releases announcing the agreements with Allied World and Tokio Millennium. Nine reinsurers have now been approved for this program.

This post written by Rollie Goss.

STATE SURPLUS LINES LEGISLATIVE DEVELOPMENTS

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There are two competing proposals to implement the Dodd-Frank Act’s provisions relating to nonadmitted insurance, which are found in the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) (Title V, Subtitle B Part I of the Dodd-Frank Act).  One proposal, called the “Surplus Lines Insurance Multistate Compliance Compact” or SLIMPACT, was created by the National Conference of Insurance Legislators, and has been endorsed by the Council of State Governments (“CSG”) and the National Conference of State Legislatures (“NCSL”).  The other proposal, called the “Nonadmitted Insurance Multi-State Agreement” or NIMA, was created by the National Association of Insurance Commissioners (“NAIC”).  While the NAIC’s NIMA is basically limited to the allocation of nonadmitted insurance premium taxes, NCLOI’s SLIMPACT covers other issues relating to nonadmitted insurance as well as the allocation of premium taxes.

Since our posting of February 10, 2011, there are at least 21 States that have proposed surplus lines insurance legislation to conform to the NRRA.

Among the States that have introduced SLIMPACT or legislation authorizing the commissioner to enter into SLIMPACT:

Among the States that have introduced NIMA or reference NIMA:

Among the States that have introduced both SLIMPACT and NIMA legislation:

Among the States that have introduced surplus lines legislation authorizing the commissioner to enter into a compact or multistate agreement without specifying either SLIMPACT or NIMA:

  • Arizona — HB 2112 (passed by House on 2/17/2011)
  • California – AB 315
  • Hawaii — HB 1052 / SB 1279 (HB 1052 passed by House 3/8/2011; SB 1279 passed by Senate on 3/8/2011)
  • New Hampshire — HB 424
  • Oklahoma — HB 2073 / SB 959 (SB 959 passed by Senate on 3/7/2011)
  • South Dakota — HB 1030 (adopted and signed by the Governor on 2/17/2011
  • Utah — HB 316 (adopted on 3/11/2011)
  • Wyoming — HB 242 (adopted and signed by the Governor on 3/2/2011)

Among the States that have introduced surplus lines legislation, but do not address multistate tax compacts or agreements:

Meanwhile, CSG, NCSL and NCOIL sent a letter to Congress requesting a one year extension of the effective date of the NRAA, to allow states more time to adopt legislation to conform to the NRRA and prevent state loss of critical insurance premium tax dollars.

This post written by Karen Benson.

STATE REINSURANCE AND CAPTIVE DEVELOPMENTS

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The following are select State bills relevant to the areas of reinsurance and captive insurance.

Nonadmitted and Reinsurance Reform: Since our posting of January 18, 2011, the legislatures of Mississippi (HB 785), Vermont (HB 164), and West Virginia (HB 2963) are among other states that have introduced legislation in response to the mandates of the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act. Vermont’s bill appears to be modeled after the surplus lines proposal approved by the National Conference of Insurance Legislators (“NCOIL”). A companion bill (SB 0036) to HB164 was introduced in Vermont’s Senate. West Virginia’s bill contains an express reference to the surplus lines proposal approved by the National Association of Insurance Commissioners (“NAIC”). Mississippi’s bill, which passed the House of Representatives on February 2, 2011 and was subsequently transmitted to the Senate, does not appear to follow either the NAIC or the NCOIL surplus lines proposal.

Reinsurance and Taxation: Texas’ House of Representatives introduced legislation (HR 243) expressing its opposition to federal legislation (H.R. 3424) introduced in the U.S. House of Representatives and to any other proposal that would limit the use of reinsurance by non-U.S.-based insurance companies. As previously reported in our post of August 17, 2009, H.R. 3424 seeks to amend the Internal Revenue Code of 1986 to disallow the deduction for excess non-taxed reinsurance premiums with respect to the United States risks paid to affiliates.

Captive Insurance: West Virginia introduced legislation (HB 2983) that would, among other things, subject captive insurers organized in the state as risk retention groups to additional provisions of the Insurance Code, including, but not limited to, section fifteen-a, article four (credit for reinsurance; definitions; requirements; trust accounts; reductions from liability; security; effective date). A companion bill (SB 356) to HB 2983 was introduced in West Virginia’s Senate. Additionally, Montana introduced legislation (HB 419) that would establish requirements for the operation of captive insurance companies and for interaction between captive insurance companies and their protected cells. Among other things, the bill revises the qualification for protected cell sponsors and participants.

This post written by Karen Benson.