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Reserves

NEW YORK DEPARTMENT OF INSURANCE PROPOSES MANDATORY CATASTROPHE RESERVES FOR P&C COMPANIES

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The New York Insurance Department has proposed Regulation 189 – Mandatory Catastrophe Reserves for Property/Casualty Insurance Companies. The rule proposal would require every authorized property/casualty insurer issuing a policy of insurance or contract of reinsurance covering losses resulting form a catastrophe to property located in New York, and receiving New York subject premiums, to establish a New York mandatory contingent catastrophe reserve, which shall only be used toward the payment of claims from qualifying losses. In developing this rule proposal, the Department reviewed the research of the NAIC – Catastrophe Insurance Working Group, Casualty Actuarial Society, and performed outreach to property/casualty insurers, consumer groups, and other interested parties. The Department has published the text of the proposed regulation, and the Notice of Proposed Rulemaking notes that comments will be accepted until 45 days after the publication of the Notice. The comment period closes May 26, 2009.

This post written by Karen Benson.

FURTHER DEVELOPMENTS IN STATE CAPITAL AND SURPLUS RELIEF FOR LIFE INSURERS

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We have been following requests for relief by life insurance companies with respect to capital and reserve requirements in the current difficult economic situation. Following the NAIC’s rejection of proposals by the ACLI, individual insurers began to apply for relief to their domiciliary regulators, and two more state departments have published positions with respect to such issues. The Delaware Insurance Department has adopted two regulations (1212 and 1215) by Emergency Orders, which address the valuation of life insurance policies and the recognition of preferred mortality tables for use in determining minimum reserve liabilities. The Illinois Division of Insurance has promulgated Company Bulletin 2009-02, which rejects blanket relief, but which states that the Division would consider relief on a company-by-company basis. Posted to the Division’s web site are letters to eight companies relating to such requests. The first such letter, approving a request from Allstate Life Insurance Company relating to the accounting and valuation methodology for market value adjusted annuities, may be viewed here.

Of more industry-wide interest, the NAIC has posted a detailed chart which purports to summarize various permitted and prescribed practices, taken from annual statements submitted by various companies.

This post written by Rollie Goss.

REINSURANCE COMPANIES VICTORIOUS IN SECURITIES FRAUD CLASS ACTIONS ARISING OUT OF CAT LOSSES

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Two reinsurance companies have prevailed on motions to dismiss in shareholder securities law putative class actions over the restatements of loss levels from cat events, illustrating that the process of estimating cat losses accurately may be challenging, and that companies are not guarantors of the completeness and accuracy of that process. PXRE prevailed in a lawsuit alleging a scheme to understate losses arising out of a series of hurricanes that devastated the Gulf Coast in 2005, restating the amount of losses several times. Judge Sullivan granted PXRE’s motion to dismiss, finding that plaintiffs “failed to plead that defendants were reckless in not knowing about the flaws in PXRE’s calculation of its loss estimates.” In re PXRE Group, Ltd., Securities Litigation, No. 06 CIV 3410 (S.D.N.Y. March 5, 2009). Judge Sullivan issued an order in a similar individual case filed against PXRE implying that he will follow the same course in that action. Anegada Master Fund Ltd v. PXRE Group Ltd., No. 08 Civ 10584 (S.D.N.Y. March 5, 2009).

Quanta Capital Holdings Ltd. (“Quanta”) issued several estimated loss projections relating to Hurricanes Katrina and Rita that ranged from $42-$68.5 million, resulting in multiple rating downgrades, forcing Quanta to cease writing new insurance and reinsurance business and to sell its remaining insurance and reinsurance portfolios. Noting the conjectural nature of insurance reserves established for losses that have been incurred but not yet reported, the court ruled that the Complaint did not put forth sufficient factual allegations such that the court could plausibly find that the loss estimate included in the offering documents was a material untruth at the time it was made, especially since the adjusted estimate was based on a single business interruption claim. The district court also held that the Complaint did not meet applicable heightened pleading requirements, and that some of the claims failed because the $68.5 million preliminary loss estimate was protected by the “bespeaks caution” doctrine. Zirkin v. Quanta Capital Holdings Ltd., Case No. 07-851 (USDC S.D.N.Y. Jan. 22, 2009).

This post written by Rollie Goss.

RECENT REPORTS PROVIDE COMPREHENSIVE VIEW OF REINSURANCE INDUSTRY

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Readers may obtain a fairly comprehensive view of the global reinsurance industry from reading three reports:

This post written by Rollie Goss.

LIFE INSURERS LOOK TO STATES FOR CAPTIAL AND RESERVE RELIEF AFTER NAIC REJECTS INDUSTRY-WIDE RELIEF

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In the aftermath of the NAIC vote rejecting the requests of the American Council of Life Insurers for industry-wide capital and reserve relief, individual companies have applied to their domiciliary regulators for relief. Some state insurance departments have used permitted practice rules to allow companies temporary relief. For example, the Iowa Department, in Bulletin 09-01, has adopted a modified practice of accounting for deferred taxes which has provided relief to at least ten companies. The Ohio Department has adopted three bulletins, 2009-02, 2009-03 and 2009-04, which provide relief through three different accounting practices. These changes reportedly will provide relief to 20 companies. Connecticut and Indiana have also provided relief to companies domiciled in their state. It is unclear what the impact will be if states approve different and potentially conflicting practices.

This post written by Rollie Goss.