New York recently joined Florida in adopting a regulation approving reduced collateral for certain reinsurance agreements based largely upon the financial strength of the reinsurer. In this Special Focus article, Carlton Fields partner Anthony Cicchetti provides an analysis of the New York regulation, which takes effect January 1, 2011.
Reinsurance Transactions
FLORIDA OIR REACHES REDUCED COLLATERAL AGREEMENT WITH THREE BERMUDA-BASED REINSURERS
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.
TREATY TIP: ARBITRATION CLAUSES
Tony Cicchetti offers a Treaty Tip concerning arbitrator selection, and a recent case concerning the process for selecting the umpire for an arbitration in a matter involving Lloyd’s.
This post written by Tony Cicchetti.
NEW YORK PUBLICIZES DRAFT AMENDMENTS TO CREDIT FOR REINSURANCE REGS
In what appears to be one of the first, if not the first, state insurance department action in response to the Nonadmitted and Reinsurance Reform provisions of the Dodd-Frank Act (DFA), New York recently issued for comment a draft of proposed amendments to its regulations governing credit for reinsurance. As we discussed in Carlton Fields’s recent webinar on reinsurance aspects of DFA, New York was one of the states that previously had publicized proposed modifications, or enacted actual modifications, to their reinsurance laws to, among other things, address the perceived inequality confronted by non-U.S. reinsurers relating to collateral requirements for U.S. ceded business. In this regard, New York’s latest draft carries forward its previous proposal, which calls for a ratings-based framework for the determination of collateral requirements. Notably, however, several changes now embodied in New York’s proposal appear to respond directly to DFA.
For example, whereas it previously aimed to reach “authorized insurers,” New York under this draft amendment would expressly exclude from the provision’s reach situations where the cedent’s state of domicile (other than New York) recognizes credit for the ceded risk and is an NAIC-accredited state, or has financial solvency requirements substantially similar to the requirements for NAIC accreditation. In addition, those who participated in our webinar will recall that DFA includes provisions relating to the law that may govern a reinsurance contract. On this front, New York’s proposal states that the reinsurance contract must provide that disputes thereunder be governed by and construed in accordance with one of three options: (1) the laws of New York, (2) the laws of the cedent’s domicile, or (3) the laws of any state chosen by the cedent. New York’s draft proposal expressly provides that an agreement by the parties to arbitrate disputes is not overridden by such governing law provisions, consistent with DFA. The brief public comment period for New York’s draft proposed amendment ended on August 4th.
Absent further initiative by the NAIC to move forward with its previous proposal to “modernize” reinsurance regulation as it relates to collateral requirements, New York’s approach, if it goes into effect, could represent another piece in a patchwork whereby various states adopt their own modified collateral requirements within the parameters of DFA, while others maintain the status quo. We will continue to monitor such developments to keep our readers informed.
This post written by Tony Cicchetti.
ANOTHER NAME AT LLOYDS’ MOUNTS AN UNSUCCESSFUL ENFORCEABILITY CHALLENGE TO A JUDGMENT AGAINST HIM
The Second Circuit has affirmed the dismissal of another of a rash of lawsuits by Names at Lloyd’s challenging the enforceability of judgments obtained against them by Lloyd’s in the United Kingdom. The plaintiff Richard A. Tropp, a Name at Lloyd’s, brought a suit in federal district court to declare that a judgment obtained against him by Lloyd’s was unenforceable, as well as for an accounting from Lloyd’s. Tropp invested $160,000 of his retirement savings in the market but, due to its collapse, became liable to Lloyd’s on a $900,000 judgment entered by a UK court. Lloyd’s moved to dismiss for improper venue, since Tropp agreed in the “Choice Clause” of his contract with Lloyd’s to litigate all disputes in England, and for failure to state a claim. Tropp’s primary argument was that this forum selection clause is unenforceable because UK law deprived him of any remedy. The district court rejected this, because a “close reading” of the UK litigation revealed Tropp was not denied any remedy, but “simply was not victorious on the merits of his claims.” The UK courts provided due process. Tropp v. Corporation of Lloyd’s, Case No. 07 Civ. 414 (USDC S.D.N.Y. Mar. 26, 2008).
In a summary order, the Second Circuit affirmed, principally reasoning that, although Tropp was unsuccessful in his attempts to assert defenses and counterclaims against Lloyd’s in the UK courts, “his experiences do not cause us to revisit our holding that the Lloyd’s forum selection clauses (of which this is one) are valid because UK remedies are available.” Tropp v. Corporation of Lloyd’s, No. 08-2332 (2d Cir. July 19, 2010).
This post written by Brian Perryman.