New reinsurance-related and arbitration developments from Carlton Fields
The United States and the European Union have agreed on the final wording of a Covered Agreement which covers several topics, including the provision of collateral by foreign reinsurers. We discuss the Covered Agreement and the initial responses to the agreement in a Special Focus article.
This post written by Rollie Goss.
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In a putative class action seeking damages for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) arising from certain reinsurance transactions, the United States District Court for the Western District of Missouri held that Plaintiff’s claims were barred by the McCarran-Ferguson Act, granting defendants’ motion to dismiss. Plaintiff Dale Ludwick and others purchased annuities from F&G Life Insurance Company, which was acquired by Harbinger Group, Inc. Plaintiff brought suit alleging that F&G, Harbinger and Harbinger’s chairman and CEO engineered a fraudulent accounting scheme to hide F&G’s liabilities, artificially inflate its reported assets, and create a false appearance of capital adequacy through reinsurance transactions with certain entities, including defendants Raven Reinsurance Company and Front Street Re (Cayman), Ltd, in violation of RICO.
Defendants moved to dismiss the action, arguing that plaintiff’s RICO claims impermissibly interfered with state statutory and regulatory insurance schemes, and were thus barred by the McCarran-Ferguson Act. The court granted defendants’ motion, finding that: (a) RICO does not specifically relate to the business of insurance, thus satisfying this prong of McCarran-Ferguson’s criteria; (b) the states relevant to the transactions at issue – Missouri and Iowa – have statutory schemes which regulate the business of insurance and governed said transactions; and (c) the application of RICO to the subject claims would intrude upon the insurance regulatory schemes in those states, and thus “invalidate, impair or supersede” the schemes in violation of McCarran-Ferguson. Moreover, the court rejected plaintiff’s argument that its common law claims negated the effect of McCarran-Ferguson and that such claims were not barred by the statute, as the transactions at issue were subject to the states’ insurance codes. Ludwick v. Harbinger Group, Inc., No. 15-cv-00011 (USDC W.D.MO. Feb. 12, 2016).
This post written by Rob DiUbaldo.
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The NAIC Executive (EX) Committee and Plenary adopted amendments to the Credit for Reinsurance Model Law (#785). These amendments are part of a larger effort to modernize reinsurance regulation in the United States. The changes allow a commissioner to adopt additional requirements relating to: “(1) the valuation of assets or reserve credits; (2) the amount and forms of security supporting reinsurance arrangements…; and/or (3) the circumstances pursuant to which credit will be reduced or eliminated.”
This new regulatory authority was added in response to reinsurance arrangements entered into, directly or indirectly, with life/health insurer-affiliated captives, special purpose vehicles, or similar entities that may not have the same statutory accounting requirements or solvency requirements as U.S.-based multi-state life/health insurers. To assist in achieving national uniformity, the NAIC has asked commissioners to strongly consider adopting regulations that are substantially similar in all material aspects to NAIC-adopted model regulations in the handing and treatment of such reinsurance arrangements.
This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.
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The U.S. Treasury Department and the U.S. Trade Representative have given notice to Congress of the initiation of discussions with the European Union to enter into a Covered Agreement essentially addressing two major issues: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. Covered Agreements were introduced by the Dodd-Frank Act as a vehicle for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. Rollie Goss describes the Covered Agreement process and this initial utilization of that process in a Special Focus article.
This post written by Rollie Goss.
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The Vermont Department of Financial Regulation recently amended its regulation pertaining to credit for reinsurance. As we detailed on June 16, 2015, the amendment follows a proposal issued by the Department of Financial Regulation earlier this year. This follows a 2014 amendment to Vermont’s Credit for Reinsurance Act and brings the regulations in compliance with that act. Specifically, the amended regulation sets forth the procedural requirements through which a Vermont insurance company may take credit for insurance ceded to a reinsurer in line with the amended Credit for Reinsurance Act, as well as requires specific clauses in the reinsurance agreements in order for ceding insurers to receive credit for reinsurance. 4-3 Vt. Code R. § 32 (Oct. 28, 2015).
This post written by Zach Ludens.
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