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New reinsurance-related and arbitration developments from Carlton Fields

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Reinsurance Transactions

NAIC CONSIDERING LIFE INSURANCE RESERVE AND REQUIRED CAPITAL CHANGES DUE TO MARKET TURMOIL

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The American Council of Life Insurers (ACLI) has submitted a proposal to the NAIC for immediate reforms to reserve and required capital standards for life insurance companies. One of the suggestions is to “facilitate Commissioners’ use of their existing discretionary authority under the Model Law and Regulation on Credit for Reinsurance to provide immediate relief to ceding insurers.” The ACLI proposes that the changes that it is suggesting take effect December 31, 2008, for the current calendar year. More information is available in a press release issued by the ACLI, a short summary of the proposals prepared by the ACLI and the ACLI’s letter to the NAIC, which categorizes the proposals as affecting the areas of life insurance, variable annuities, reinsurance, investments and accounting. The NAIC has assigned this proposal to the Capital and Surplus Relief (EX) Working Group of the Executive Committee. The Working Group is accepting comments on the ACLI’s proposal to the close of business December 26, 2008. Responses and comments from various areas of the NAIC are available. The NAIC also has created a “Grid of Information Relative to Each ACLI Request,” which may be of interest to those wishing to explore these suggestions.

This post written by Rollie Goss.

FEDERAL JUDGE PRELIMINARILY APPROVES SETTLEMENT AGREEMENT IN SCOR HOLDING AG LITIGATION

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In August, a federal judge preliminarily approved a settlement agreement in a class action against Swiss insurance company, SCOR Holding AG. (See 4/10/2008 blog posting for details on class certification decision). The settlement would resolve claims by U.S. investors that the company’s predecessor, Converium Holding, misrepresented the company’s financial strength to investors during an initial public offering. SCOR has agreed to pay $75 million to resolve claims arising from Converium Holding AG’s IPO in December 2001. Converium’s former parent company, Zurich Financial Services, will pay $9.6 million to U.S. investors who purchased Converium stock on the New York Stock Exchange and the SWX Swiss Exchange. Both SCOR and Zurich have reached separate settlement agreements with foreign investors. Details are available in both the court’s Preliminary Approval Order and in the Memorandum of Law filed by Plaintiffs in support of the approval of the proposed settlement. In re SCOR Holding (Switzerland) AG Securities Litig., Case No. 04 Civ 7897 (S.D.N.Y. Aug. 11, 2008).

This post written by Lynn Hawkins.

BERMUDA ADOPTS ENHANCED SOLVENCY AND DISCLOSURE RULES AND PROVIDES FOR SPECIAL PURPOSE VEHICLES

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With the adoption of the Insurance Investment Act of 2008, Bermuda has adopted risk-based capital adequacy standards for “high impact insurers” and instituted a structure which will be equivalent to those in Europe's Solvency II Directive. The requirements include enhanced financial statement disclosures for Bermuda's Class 4 insurers which comply with Generally Accepted Accounting Principles (GAAP), re-classification of the Class 3 insurance sector, with sub-categories based upon risk profiles, and a new category of Special Purpose Insurer, which is focused on fully collateralized special purpose vehicles that are established to conduct certain transactions, especially those related to asset-backed securitizations. One goal of this new classification is to make it less costly for SPVs to be established in Bermuda. A press release issued by the Bermuda Monetary Authority briefly summarizes the Act.

This post written by Rollie Goss.

SEC FILES AND SETTLES ANOTHER FINITE REINSURANCE ENFORCEMENT ACTION, THIS TIME WITH pRUDENTIAL FINANCIAL

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The Securities and Exchange Commission has filed a lawsuit against Prudential Financial, Inc., alleging violations of the financial reporting, books-and-records and internal control provisions of the Securities Exchange Act of 1934, based upon its former property and casualty subsidiaries (“Prupac”) entering into so-called finite reinsurance contracts with General Reinsurance Corporation. The SEC contends that the reinsurance agreements “had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or 'bank,' that Gen Re held for Prupac.” Securities and Exchange Commission v. Prudential Financial, Inc., Case No. 08-3916 (USDC N. N.J. Aug. 6, 2008). The SEC reports that it has reached a settlement with Prudential, which has consented to a permanent injunction against further violations of certain sections of the Exchange Act and associated Rules. This is similar to an enforcement action filed by the SEC against Rennaisance Re (see November 6, 2006 blog post).

This post written by Rollie Goss.