Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Regulation

NAIC REINSURANCE TASK FORCE ISSUES PROGRESS REPORT ON ITS CONSIDERATION OF A PROPOSED REINSURANCE REGULATORY MODERNIZATION FRAMEWORK

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The NAIC's Reinsurance Task Force has issued what amounts to a progress report on its consideration of a proposal for a reinsurance regulatory modernization framework. The 198 page package covers “regulator-to-regulator meetings” in Newark, New Jersey on March 11-12, May 7-9 and June 25-27, 2008, and provides comments on the proposal which were submitted to the Task Force by the Association of Bermuda Insurers and Reinsurers, the American Council of Life Insurers, the American Insurance Association, AIG, CEA Insurers of Europe, Genworth Financial, the General Insurance Association of Japan, the International Underwriting Association, Lloyd's, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America and the Reinsurance Association of America. At the end of the package there are some summaries of the comments.

This post written by Rollie Goss.

AIG WARDS OFF ADDITIONAL CLAIMS IN CONTINGENT COMMISSION ACTION

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This action arose out of allegations that AIG and certain of its officers and directors violated securities laws by failing to disclose AIG’s participation in bid-rigging and contingent commission schemes (alleged in a complaint by New York Attorney General Elliot Spitzer against Marsh & McLennan Companies). Following a period of substantial discovery and a motion for class certification, lead plaintiffs sought to amend their complaint for a fourth time to add new and unrelated claims as well as new defendants based on AIG’s alleged write-down in February and May 2008 of more than $20 billion stemming from losses in its portfolio of credit default swaps written by its subsidiary, AIG Financial Products Corp.

The District Court denied plaintiffs’ motion to amend, finding that: (1) the claims to be added took place more than three years after the transactions in the Third Amended Complaint; and (2) lead plaintiffs knew the basis for the promised amendment before they filed their motion for class certification and before they defended over a dozen class certification depositions. In short, the court found that granting the motion would result in undue prejudice for the defendants as well as a potentially uncertifiable class. In re American International Group, Inc. Securities Litigation, Case No. 04-8141 (USDC S.D.N.Y. July 17, 2008).

This post written by Lynn Hawkins.

STATE LAW UPDATE: CAPTIVE REINSURANCE ISSUES DOMINATE

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The end of the state legislative season has been dominated by developments regarding captive insurers, although there have been a few other interesting developments as well.

  • Louisiana has entered the captive insurer arena with a statute, SB 150, providing for the formation and operation of domestic captive insurance companies (effective January 1, 2009).

  • Hawaii has amended its already established captive structure by enacting a bill (S 3023), which we previously reported, to provide for Special Purpose Financial Captive Insurance Companies, effective July 1, 2008.
  • The Utah Insurance Department has proposed an amendment to its captive insurer regulations, proposed regulation R590-238, relating to the financial, reporting, record-keeping and other requirements for captive insurance companies. The comment period for this proposed regulation ends August 14, 2008; no hearing has yet been set.

In the non-captive area, the New York Insurance Department has issued two interesting opinions, one stating that a licensed insurance broker may compensate a non-licensee for referrals made to the broker, and another providing that an insurer may not pay an insurance commission to an entity which is not licensed and appointed as an insurance agent or broker.

The US Congress has entered the reinsurance regulation arena, considering H.R. 6213, which, if enacted, would establish the Reinsurance International Solvency Standards Evaluation Board, which would be charged “to evaluate the reinsurance supervisory systems of the States of the United States and jurisdictions outside the United States to determine, on a uniform basis, whether such systems provide adequate capital and risk management standards and an acceptable level of prudential supervision over their domiciled reinsurers.”

This post written by Rollie Goss.

JUDICIAL PANEL ON MULTIDISTRICT LITIGATION TRANSFERS CASE FILED BY TENNESSEE INSURANCE COMMISSIONER INVOLVING RECIPROCAL OF AMERICA TO PENDING MDL ACTION

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The Tennessee Insurance Commissioner, as liquidator for three risk retention groups, sued General Reinsurance Corp, Milliman, Price Waterhouse Coopers, Wachovia Bank and others in Tennessee state court, alleging a broad based conspiracy and fraud in a reinsurance program involving Reciprocal of America. After the case was removed to federal district court, the Judicial Panel on Multidistrict Litigation granted a motion to transfer the case to the Reciprocal of America Sales Practices Litigation MDL proceeding pending in the Western District of Tennessee. The Panel found that the actions involve questions of fact arising out of relationships and transactions substantially similar to those involved in the MDL action, and that transfer and consolidation therefore was appropriate under 28 U.S.C. section 1407. In re: Reciprocal of America Sales Practices Litigation, MDL No. 1551 (JPML June 5, 2008).

This post written by Rollie Goss.

ATTORNEYS' FEES AND COSTS AWARDED AGAINST NEW YORK SUPERINTENDENT FOR IMPROPER BANKRUPTCY FILING

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The New York Insurance Department, as Liquidator of Nassau Insurance Company, pursued Jeanne Diloreto for 20 years to recover what it contended were assets diverted from Nassau, recovering a judgment in state court that it attempt to execute upon. Superintendent DiNallo ended up filing an involuntary bankruptcy petition against Ms. Diloreto, which was dismissed, in part based upon procedural infirmities. Diloreto sought damages for a bad faith filing, and established to the satisfaction of the bankruptcy court that the motivation for filing the petition was related to a potential recovery in an ancillary malpractice action that Diloreto had filed against her former law firm. The bankruptcy court judge determined that while the filing by Superintendent DiNallo had not been in bad faith, Diloreto nevertheless was entitled to a judgment against Superintendent DiNallo in his capacity as Liquidator in an amount exceeding $70,000 for attorney’s fees and costs, which it Ordered could not be offset against the Liquidator’s state court judgment against Diloreto. This is a procedurally tortured case, centering on a very long running dispute, which included Diloreto purchasing property in Florida shortly after the state court judgment was entered, apparently in the hope of shielding assets under the Florida homestead provision. In re Diloreto, Bank. No. 07-15413 (US Bank. Ct. E.D. Pa. June 19, 2008).

This post written by Rollie Goss.