Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Transactions

SPECIAL FOCUS: DODD-FRANK REGULATORY MODERNIZATION ACT

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On July 15, 2010, the Senate passed the Dodd-Frank Act (“DFA”), the financial regulatory modernization act that has been in the process of development and consideration by the Congress for over a year. Rollie Goss presents a Special Focus analysis of the potential impact of the DFA on the insurance and reinsurance industries and markets.

Carlton Fields will present a free webinar for Reinsurance Focus subscribers and Carlton Fields clients on the DFA’s potential impact on the insurance and reinsurance industries and markets. The webinar also will cover the potential impact of the DFA on actions by New York, Florida and potentially other states with respect to the requirement of collateral for reinsurance transactions, and the NAIC’s proposals for the regulation of reinsurance. Webinar login information will be sent to Reinsurance Focus subscribers by e-mail. To subscribe and participate in this webinar, go to our subscription page.

This post written by Rollie Goss.

SECOND REINSURER APPROVED FOR FLORIDA REDUCED COLLATERAL REGULATION

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The Florida Office of Insurance Regulation (“OIR”) has approved XL Re Ltd. as the second non-Florida reinsurer to operate in Florida without having to post 100 percent collateral. The approval is pursuant to a Florida regulation, 69O-144.007, which allows credit for reinsurance without full collateral for transactions involving reinsurers not domiciled in Florida, provided that certain requirements are satisfied. The requirements include, among other requirements:

  • the reinsurer must obtain financial ratings from no less than two approved rating agencies;
  • the percentage of collateral required is determined based upon the lowest rating;
  • the reinsurer must consent to service of process and jurisdiction;
  • the reinsurer and its regulator must provide periodic financial and other information to the OIR; and
  • the reinsurer must hold surplus in excess of $100 million.

Hannover Re was the first reinsurer approved for reduced collateral transactions under this regulation.

This post written by Rollie Goss.

GEN RE ATTEMPTS TO FINALIZE ITS FINITE REINSURANCE EXPOSURE

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General Re Corp. has agreed to a Consent Judgment with the SEC in settlement of allegations that it issued finite reinsurance to AIG and Prudential. The settlement requires that Gen Re disgorge $12.2 million in profits gained as a result of the transactions, with interest. As in prior similar agreements with other insurers, the SEC filed a Complaint in the Southern District of New York, issued a litigation release describing the agreement, and the Court entered a consent Final Judgment. In a twist, Liberty Mutual has filed a motion and memorandum of law seeking to intervene and claim a portion of the disgorged funds, alleging that the SEC rejected its request that it escrow the funds so that it could assert a claim against them. Liberty Mutual is concerned that the settlement with the government will preclude it from asserting a separate claim against Gen Re for what amounts to the same amounts. At the same time, at the request of Gen Re, another judge of the same court continues to seal a proposed class settlement with the Ohio Attorney General, acting on behalf of the Ohio Public Employees Retirement System in a claim relating to Gen Re’s transactions with AIG.

This post written by Rollie Goss.

IRS RULES THAT CAPITIVE REINSURANCE IS INSURANCE FOR TAX PURPOSES

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Using the definition of insurance for tax purposes promulgated by the Supreme Court in 1941 in Helvering v. LeGierse, 312 U.S. 531 (1941), as explained and implemented by later opinions and IRS Revenue Rulings, the IRS has issued a private letter ruling stating that on the facts presented to it, the reinsurance of various workers’ compensation, property and crime risks by a captive constituted insurance for tax purposes, and that the reinsurer was an insurer for tax purposes. The criteria for this determination have been well established: (1) the arrangement must involve both risk shifting and risk distribution; (2) the risk must contemplate the fortuitous occurrence of a stated contingency; (3) the arrangement must not be merely an investment or business risk; and (4) the arrangement must constitute insurance in the commonly accepted sense. IRS No. 200950017 (12/11/2009).

This post written by Rollie Goss.

SECOND CIRCUIT AFFIRMS DISMISSAL OF SHAREHOLDER DERIVATIVE CLASS ACTION AGAINST REINSURER

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The Second Circuit Court of Appeals recently affirmed a district court decision (reported on this blog March 10, 2009), which dismissed a putative shareholder derivative class action against PXRE Group, Ltd., a publicly traded Bermuda reinsurer, and certain of its directors and officers. The plaintiff shareholders alleged that PXRE intentionally or recklessly understated loss projections in the immediate aftermath of Hurricanes Katrina, Rita and Wilma in 2005, in order to preserve its credit rating. Specifically, the plaintiffs claimed that PXRE failed to take river flooding into account in its loss modeling, and that its loss modeling software was inadequate for much-larger-than-typical hurricane loss modeling, and was based only on typical hurricane loss modeling. The plaintiffs alleged specific misleading statements in press releases that it argued were intended to deceive in advance of public offerings. In an effort to establish scienter, the plaintiffs’ Complaint included allegations purportedly obtained from “confidential informants” from PXRE, including actuaries, a Vice President in charge of loss modeling, and the Chief Actuary of a “peer company.” Citing heightened pleading requirements for securities/fraud type claims, the district court dismissed the case, as plaintiffs had failed to sufficiently allege the bases for its allegations. The Second Circuit court affirmed by short summary order, citing the district court’s “thorough, well-reasoned opinion.” In re PXRE Group, Ltd., No. 09-1370 (2d Cir. Dec. 21, 2009).

This post written by John Pitblado.