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Reserves

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.

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.

IN PARI DELICTO DOCTRINE BARS DERIVATIVE CLAIMS AGAINST ALLEGED AIG CO-CONSPIRATORS

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The AIG Consolidated Derivative Litigation continues – this time the court grants a motion to dismiss claims against alleged co-conspirator defendants. We covered a prior ruling on a motion to dismiss in our April 29, 2009 post, where the court found that the plaintiffs had stated well-pled breach of fiduciary duty claims against certain high-ranking AIG officers who were allegedly involved in two conspiracies, viz., a “bid-rigging” conspiracy and a “fake reinsurance writing” conspiracy, as well as other illegal activities. The question raised in the most recent ruling was: “may AIG sue its co-conspirators for the harm that AIG suffered as a result of two alleged, illegal conspiracies involving AIG and those third-party conspirators?” The court answered the question in the negative, holding that the in pari delicto doctrine bars this type of suit. A primary purpose of the doctrine is to prevent courts from having to engage in “inefficient” and “socially unproductive” accountings between conspirators. Rather than assessing the conspiracy and shifting responsibility, the court held that it would leave the conspirators as they are, potentially jointly and severally liable for the harms caused by their alleged conspiratorial acts. American International Group, Inc. Consolidated Derivative Litigation, Case No. 769-VCS (Del. Ct. Chanc. June 17, 2009).

This post written by Brian Perryman.

NAIC SUMMER MEETINGS RESULT IN MINIMAL PROGRESS ON REINSURANCE ISSUES

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The NAIC held its Summer 2009 meetings in Minneapolis last week, and there was only very modest progress on reinsurance-related issues. The Reinsurance Task Force meeting summary relates the following items:

  • Guidance Memorandum regarding reinsurance collateral: The exposure draft of this Guidance Memorandum (see our April 13, 2009 post) was adopted, for distribution to all state insurance commissioners.

  • Reinsurance Regulatory Modernization Framework: There was further discussion of the implementation of this initiative. The exposed draft Congressional bill is on hold pending the receipt of a legal opinion from Sidley Austin, LLP on constitutional issues that have been raised about this initiative.

  • Nonadmitted and Reinsurance Reform Act: An update was received on the status of this Congressional session’s version of this bill (HR 2571) (see our June 9, 2009 legislative update post). This bill was referred to committee upon its filing, without any progress since that time.

  • Credit for Reinsurance Model Act: Comments were received on a proposed amendment to this Act, which would provide a commissioner the authority to lower the minimum trusted surplus requirement applicable to a multiple-beneficiary trust maintained by an assuming insurer in run-off. Staff was directed to initiate the process for consideration of this amendment, and an additional amendment related to the implementation of the Reinsurance Regulatory Modernization Framework.

  • International Association of Insurance Supervisors’ Reinsurance Subcommittee and Reinsurance Transparency Subgroup: An update on recent activity of this group was received.

This post written by Rollie Goss.

UPDATE ON ANALYSIS OF NAIC CONSIDERATION OF REINSURANCE REGULATORY MODERNIZATION AND COLLATERAL CHANGES

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On April 13, 2009 we posted about the actions of the NAIC, at its recent meetings, to move forward on the regulation of reinsurance, collateral for reinsurance agreements and the modification of credit for reinsurance rules. Our partner Tony Cicchetti has posted a more detailed analysis of the regulatory and collateral proposals on several occasions, and he has updated that analysis to provide a comprehensive view of these issues.

This post written by Tony Cicchetti.