Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

WAIVER OF RIGHT TO ARBITRATE IS ISSUE FOR COURTS, NOT ARBITRATORS TO DECIDE

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A California appellate court has confirmed that the issue of whether a party has waived the right to arbitrate is an issue to be decided by the trial court, not the arbitrator. Defendants in a dispute regarding a stock purchase agreement moved to compel arbitration pursuant to that agreement, but only after they filed a demurrer to the complaint, moved to require plaintiffs to furnish a bond, and commenced their own lawsuit against plaintiffs for alleged misrepresentations made in connection with the purchase agreement. Plaintiffs opposed the motion to compel arbitration by arguing that defendants waived the right to arbitrate through this litigation conduct. The trial court and the appellate both agreed that the waiver issue is one for the court to decide and that defendants had waived their right to arbitrate. Hong v. CJ GGV America Holdings, Inc., Case No. B246945 (Cal. Ct. App. Dec. 18, 2013).

This post written by Abigail Kortz.

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REINSURANCE BROKERS UNIFORMLY SEE SOFT PRICING IN CATASTROPHE REINSURANCE MARKET AS CAT BOND MARKET BROADENS

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The major reinsurance brokers have published their analyses of the reinsurance market for catastrophe risks during fourth quarter of 2013, the catastrophe bond market and predictions for renewal rates for traditional reinsurance during early 2014. These analyses generally predict declines in renewal rates for traditional reinsurance for cat risks in the neighborhood of 10-14%. The factors contributing to the declining rates include: (1) further increases in capital in the market; (2) competition from a strong catastrophe bond market; and (3) moderate levels of cat losses in recent years. A separate report summarizes the activity in the catastrophe bond market during 2013.

  • Aon Benfield suggests that traditional reinsurers enhance their competitiveness by providing unlimited hours for U.S. named storm occurrences and by reducing the cost of reinstatements. Reinsurance Market Outlook: January 2014 (includes a rating agency and regulatory update)
  • Guy Carpenter notes that the softening of rates-on-line has extended to non-cat markets due to increased reinsurance capacity, and that reinsurers have offered the following enhancements to coverages: aggregate and quota share cover; multi-year arrangements; extended hours clauses; better reinstatement provisions; early signing opportunities at reduced pricing; and expanded coverage for terrorism and cyber risks. January 2014 Renewal Report: Capacity, Evolution, Innovation and Opportunity
  • Willis Re also notes an increased capital level in the market, moderate loss levels, softening of rates in non-cat markets and the retention by some major insurance groups of more risk due to stronger balance sheets. Changes in the market include more complex, multi-class and multi-year reinsurance and more pooling arrangements to provide access to the market to smaller reinsurers. 1st View: 1 January 2014
  • A concise summary of the cat bond market in 2013 may be found in a short publication from Property Claim Services titled PCS Full-Year 2013 Catastrophe Bond Report: Underlying Change. Although this report over emphasizes the role of index triggers in cat bonds (as opposed to indemnity triggers), it does highlight the important trends of the broadening of the scope of risks encompassed by cat bonds and the issuance of such bonds by midmarket cedents.

This post written by Rollie Goss.

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FANNIE MAE AND FREDDIE MAC ISSUE NEW LENDER-PLACED INSURANCE RESTRICTIONS PROHIBITING ARRANGEMENTS WITH AFFILIATED CAPTIVE INSURERS AND REINSURERS

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On December 18, 2013, Fannie Mae and Freddie Mac issued notices announcing updated requirements for lender-placed insurance (“LPI”) for all Fannie and Freddie mortgage loans. Included in the update is a new requirement that a loan servicer’s LPI carrier must not be an “affiliated entity,” including affiliated captive insurers and reinsurers. A new certification will be required for the servicers to certify that they comply with Fannie’s and Freddie’s requirements for acceptable LPI insurance carriers. Fannie and Freddie also will require servicers, upon request, to provide copies of their LPI policies, including any contractual arrangements with servicers and LPI carriers. The servicers will also be required to respond to periodic requests for data. Copies of Fannie’s Servicing Guide Announcement SVC-2013-27 and Freddie’s 2013-27 Bulletin, can be accessed here.

This post written by Michael Wolgin.

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SEVENTH CIRCUIT FINDS REINSURANCE “REVENUE SHARING AGREEMENT” AMBIGUOUS

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Aon Benfield was the reinsurance broker of record for Homeowners Choice, Inc. The parties executed a “revenue sharing agreement” whereby a portion of the commission Aon made in placing Homeowners’s reinsurance policies would be rebated to Homeowners. During the 2010 contract year, Homeowners notified Aon that it was replacing it as broker of record. Homeowners requested $659,943 from Aon as payment due under the parties’ revenue sharing agreement. Aon refused, claiming that the revenue sharing payment clause was superseded by the clause allowing Aon to keep commissions made after termination of the contract. The district court found the clauses Aon relied on to be ambiguous, and because Aon drafted the agreement, it awarded damages to Homeowners under the doctrine of contra proferentem. Aon appealed, but the Seventh Circuit Court of Appeals agreed with the district court and affirmed. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 13-1846 (7th Cir. Dec. 29, 2013).

This post written by John Pitblado.

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SECOND CIRCUIT VACATES DENIAL OF CITIBANK’S MOTION TO COMPEL ARBITRATION

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On appeal from the S.D.N.Y., Citibank challenged the district court’s denial of Citibank’s motion to compel arbitration and decision that the agreement to arbitrate was not binding on the parties. The S.D.N.Y. concluded that Signature Cards signed by appellees when opening their accounts with Citibank did not incorporate by reference the Client Manual, which contains the arbitration agreement. The Second Circuit vacated the district court judgment and remanded for further proceedings because several issues of fact existed as to the making of the arbitration agreement, therefore requiring a trial. The issues of fact identified are (1) whether Citibank provided the Client Manual to appellees; (2) whether the Client Manual appears to be a contract on its face; and (3) whether appellees are estopped from arguing they did not agree to arbitrate because they “knowingly exploited” the benefits of the agreement. Hirsch v. Citibank, N.A., No. 12-1172-cv (2d Cir. Oct. 22, 2013).

This post written by Abigail Kortz.

See our disclaimer.