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Reinsurance Regulation

CALIFORNIA SUES ITSELF OVER IRAN INVESTMENT POLICY

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In response to the determination by the Office of Administrative Law (“the Office”) that the California Insurance Department’s “request” for a “moratorium” on investments in Iran’s energy industry (see our November 4 post), the Insurance Commissioner has sued the Office in a Petition for Writ of Mandate. While most insurance companies had complied with the request, which practically amounts to a divestiture requirement, several trade associations challenged it as an “underground regulation,” and those trade associations were named in the Commissioner’s lawsuit. Commissioner Poizner, who is about to leave office, ‘retained” Attorney General (and soon to be Governor) Brown to represent it against the small 20 employee Office. The Director of the Office has written to the Deputy Attorney General who signed the Petition pointing out that there is a conflict of interest because Attorney General Brown is representing the Office in other “underground regulation” cases, stating that the Office declines to waive the conflict. The letter invites an exchange of legal authorities and discussion of the issue, concluding with “[n]o matter what agency is involved and no matter what praiseworthy objective the agency has in mind, nevertheless, the law calls for the proper procedure to be utilized.” The Petition contends that the directive is a valid implementation of the Commissioner’s authority to regulate insurance company investments due to the political, economic and reputational risk that companies take on in such investments, and that “[t]he action taken by the Commissioner is similar to statutes passed by the California legislature and Congress to force companies to divest in Iranian companies.” How the Commissioner may take action similar to legislative action without the benefit of the rulemaking process is not alleged. The Office found out that it was about to be sued by the receipt of a request from the Deputy Attorney General for the Office’s administrative record in the determination matter. So much for inter-departmental courtesies. The position of the incoming Commissioner and Attorney General with respect to this issue is unknown. Insurance Commissioner Steve Poizner v. Office of Administrative Law, et al., Cal. Super. Ct.

This post written by Rollie Goss.

FLORIDA OIR REACHES REDUCED COLLATERAL AGREEMENT WITH THREE BERMUDA-BASED REINSURERS

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Recently, the Florida Office of Insurance Regulation issued a press release announcing that it had reached separate agreements with three Bermuda-based reinsurers. The reinsurers – Ace Tempest Re, Hiscox Insurance Co., and Partner Re – are now authorized to participate in Florida’s insurance marketplace under modified regulatory terms, including lower collateral requirements. The Florida OIR has now authorized a total of six reinsurance companies to operate in Florida under similar modified terms.

This post written by John Black.

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS 17TH TRI-ANNUAL CONFERENCE

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The International Association of Insurance Supervisors (IAIS) — a consortium of insurance and reinsurance regulators and supervisors from 190 jurisdictions around the world — had its tri-annual conference and general meeting in Dubai on October 29, 2010. The conference featured discussions about regulatory reforms in light of continuing global financial crises. The IAIS adopted a “Strategic Plan and Financial Outlook” for 2011 to 2015, to ensure resources are in place to strengthen overall supervision. It also approved a two-year roadmap to ensure timely progress toward high level goals. The IAIS will undertake research and analysis of systemic risk in the insurance sector, and the means by which to assess those risks from qualitative and quantitative standpoints. It adopted eight “supervisory papers,” which revised the insurance core principles with supporting standards and guidance materials. The IAIS also announced the signing of two more signatories to the IAIS Multilateral Memorandum of Understanding, the members of which voluntarily agree to be bound by certain minimum regulatory standards (no U.S. authority has yet signed). For more details, see the attached Press Release.

This post written by John Pitblado.

CALIFORNIA OFFICE OF ADMINISTRATIVE LAW INVALIDATES CALIFORNIA DOI IRAN DIRECTIVE

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In July, we reported on a California Department of Insurance directive requiring insurance companies to divest themselves of investments in Iran. Recently, the California Office of Administrative Law reviewed the DOI’s rules and determined that the challenged directive met the definition of a “regulation” pursuant to California Government Code § 11342.600. Accordingly, the directive should have been, but was not, adopted pursuant to the Administrative Procedures Act. Thus, the OAL concluded that the directive as issued was invalid. The American Council of Life Insurers, 2010 OAL Determination No. 21 (Oct. 11, 2010).

This post written by John Black.

FDIC ENGAGED IN DODD-FRANK RULEMAKING THAT MAY AFFECT INSURERS AND REINSURERS

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The FDIC has published a Notice of Proposed Rulemaking proposing rules for the implementation of the Dodd-Frank Act provisions providing that the FDIC may, as a receiver, “resolve” (i.e., liquidate) covered financial companies. The proposed rules address very limited topics, encompass six sections, are only one and one-half pages of the Federal Register in length, and obviously are not the only rules that the FDIC will propose to implement its resolution authority under DFA. Dodd-Frank provides that while the liquidation of any insurance company could be initiated by the Secretary of the Treasury, “if an insurance company is a covered financial company or a subsidiary or affiliate of a covered financial company, the liquidation or rehabilitation of such insurance company, and any subsidiary or affiliate of such company that is not excepted under paragraph (2), shall be conducted as provided under such State law.” Dodd-Frank Act, section 203(e)(1). The proposed rules do not contain any provisions recognizing or implementing this subsection, but do contain a provision providing for a lien on the assets of an insurance company if the FDIC “makes funds available to” the insurance company. The comment period for the proposed rules expires November 18, 2010.

This post written by Rollie Goss.