Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

DISTRICT COURT REMANDS CLAIM AGAINST LIQUIDATOR TO STATE COURT

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In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party. Though the case was properly removed, the Court explained that a Nebraska statute prevented the federal court from entering a judgment against the Liquidator, and that the McCarran-Ferguson Act prevented the Court from entering an order for distribution of any FCIC/RMA judgment proceeds. Rather than dismissing the claim against the Liquidator, the District Court remanded the claim to Nebraska state court while also granting FCIC/RMA’s request to transfer the claims against those parties to the District Court for the District of Columbia. Granite Reinsurance Co., LTD v. Ann M. Frohman, Case No. 08-410 (D. Neb. Oct. 26, 2009).

This post written by John Black.

THIRD CIRCUIT AFFIRMS DISMISSAL OF DI LORETO’S CLAIMS

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This dispute has spanned over two decades, and we have previously reported on: (1) the award of attorney’s fees and costs for an improper bankruptcy filing by the Superintendent of the New York State Insurance Department; and (2) the dismissal of Mrs. Di Loreto’s complaints that sought to prevent the execution of a $20 million judgment obtained against her for reinsurance moneys owed. In this latest installment, Mrs. Di Loreto has appealed the dismissal of her complaints, arguing that the $20 million judgment was obtained in violation of her due process rights. The Third Circuit disagreed, finding that the proceedings bore all the hallmarks of due process. The court thus affirmed the dismissal of her complaints. Di Loreto v. Costigan, No. 09-1812 (3d Cir. Nov. 6, 2009).

This post written by Dan Crisp.

LEGISLATIVE AND REGULATORY UPDATE

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FEDERAL LEGISLATIVE UPDATE

Congress has recently introduced two bills relevant to reinsurance or catastrophe funds. These bills are as follows:

  • On November 4, 2009, the Guaranteed Access to Health Insurance Act of 2009 (H.R. 4020) was introduced in the U.S. House of Representatives. The bill proposes to enable states to establish reinsurance programs or high risk pools to ensure that high risk individuals are able to access health insurance. The bill was referred to the House Committee on Energy and Commerce on the same day.
  • The same day, the Catastrophe Obligation Guarantee Act of 2009 (H.R. 4014) was introduced in the U.S. House of Representatives. The bill proposes to establish a program to provide guarantees for debt issued by state catastrophe insurance programs to assist in the financial recovery from natural catastrophes. The bill was referred to the House Committee on Financial Services on the same day.

STATE REGULATORY UPDATE

State regulatory developments relevant to reinsurance include the following:

  • The Office of the General Counsel of the New York Insurance Department issued an opinion dated September 30, 2009, No. 09-09-06, which addressed whether the requirements in New York Insurance Law Section 1401(b) apply to investments of insurance companies deposited under a reinsurance trust pursuant to New York Regulation 114 (11 NYCRR § 126). The OGC responded in the affirmative stating that Section 1401(b) requires any financial requirement (such as the rating of a given security) to be measured as of the date of the acquisition of the security, absent any express legal or regulatory authorization to the contrary. Because nothing in Regulation 114 or elsewhere in New York Insurance Law specifies otherwise, the OGC concluded that any assets contributed to a Regulation 114 trust must meet any applicable statutory rating requirement as of the asset’s acquisition date.
  • On October 5, 2009, the Washington Office of Insurance Commissioner proposed rulemaking aimed at clarifying when licensed reinsurance intermediaries must report changes to the information contained in their original application for licensing and what changes must be reported. If adopted, proposed rule, WAC 284-13-715, would require a licensed reinsurance intermediary to notify the Commissioner within 15 business days after occurrence of material changes to the information that was included in the application for licensing (such as changes to the reinsurance intermediary’s legal name, registered address, formation documents if it is a business entity, etc.). Also, proposed rules, WAC 284-13-750 and 284-13-760, would require a licensed reinsurance intermediary, or a pending applicant, to notify the Commissioner within 15 business days of disciplinary action taken by another governmental jurisdiction and conviction of certain felonies, respectively. The comment period for the proposed rulemaking expired on November 9, 2009, and a hearing was held on November 10, 2009.

This post written by Karen Benson.

THIRD CIRCUIT AFFIRMS DENIAL OF COVERAGE AND REINSURANCE CLAIMS FOR UNDERLYING SUITS UNDER D&O POLICIES

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G-I Holdings, Inc. purchased directors & officers liability coverage from Reliance Insurance Company, covering claims made from 1999 – 2002. Due to Reliance’s putatively impending insolvency at that time, it reached an agreement with Hartford Fire Insurance Company, whereby Hartford agree to take over some of Reliance’s claims administration, and agreed to reinsure obligations under Reliance policies for claims made after July 15, 2000. Reliance remained responsible for covering claims made under its policies prior to July 15, 2000. Thereafter, Reliance became insolvent and went into liquidation. G-I Holdings asserted a claim for coverage for three fraudulent conveyance suits against its CEO and Chairman. The first suit was brought during the Reliance coverage period, and the other two were brought during the period covered by Hartford. However, Hartford declined coverage, and the parties litigated, based on the question of whether the two later suits related back to the Reliance coverage period. The district court agreed with Hartford, finding that all three suits were Reliance’s responsibility. The Third Circuit affirmed. G-I Holdings, Inc. v. Reliance Ins. Co., No. 07-2510 (3d Cir. Oct. 26, 2009)

This post written by John Pitblado.

BERMUDA MONETARY AUTHORITY ISSUES EXPLANATORY BULLETIN ON NEWLY CLASSIFIED “SPECIAL PURPOSE” (RE)INSURERS

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Bermuda’s Insurance Amendment Act 2008 (“the Act”) became effective July 30, 2009, and introduced new licensing classes for insurers, including “Special Purpose Insurers” (“SPIs”). On October 5, 2009, the Bermuda Monetary Authority (“BMA”) issued an information bulletin pertaining to the creation of the SPI class (the “Bulletin”). The Bulletin describes the creation of the SPI class in the Act as “a platform for the establishment of full fledged (re)insurance entities, licensed to transact both indexed and non-indexed (indemnity) based event-linked structures.”

The Bulletin describes the standard characteristics of SPIs and the BMA’s regulatory approach concerning licensing, supervisory activities, and financial requirements with respect to SPIs. It also provides an overview of the regulatory approach to entities ceding to SPIs. The Bulletin describes the BMA’s establishment of an SPI Advisory Group comprised of industry representatives, signaling an effort to maintain a “working partnership” with industry in the development and implementation of the SPI class.

This post written by John Pitblado.