Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT DECLINES TO STAY LITIGATION OF CLAIMS UNDER GUARANTEE DESPITE COMMON ISSUES WITH PENDING REINSURANCE ARBITRATION

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This case concerns overlapping reinsurance agreements, retrocession agreements related to the rinsured risks, and guarantees of the retrocession agreements. The reinsurance and retrocession agreements all contain arbitration provisions, but the guarantees do not. Disputes arose, an arbitration commenced concerning the retrocession agreements and a lawsuit was filed on the related guarantees. On a motion to dismiss, the court held that the claimant did not have to “exhaust” efforts to collect under the reinsurance or retrocession agreements before bringing suit under the guarantees. The court denied a request to stay the claims based on the guarantees pending the arbitration of disputes under the retrocession agreements, because the party seeking the stay had failed to establish that there were issues common to the arbitration and the court action which would be finally determined by the arbitration. While liabiity under the reinsurane and retrocession agreements might be considered an issue common to the arbitration and court action, the court found this factor overcome by evidence that the defendants had delayed and abused the arbitration process. Finally, the court rejected arguments that the guarantee claims failed to state a claim. Greenlight Reinsurance, Ltd. v. Appalachian Underwriters, Inc., Case No. 12-8544 (USDC S.D. N.Y.July 25, 2013).

This post written by Rollie Goss.

See our disclaimer.

FASCINATING DEVELOPMENTS IN THE INSURANCE-LINKED SECURITIES AND LONGEVITY TRANSFER SPACES

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There are two interesting regulatory developments of interest to the insurance-linked securities space. First, the Securities and Exchange Commission is considering a proposed rule which would change the regulation of money market mutual funds under the Investment Company Act of 1940. One alternative being considered is to require funds to sell and redeem shares based on the current market-based value of the securities, i.e., that they transact at a “floating” net asset value per share. If funds in cat bond reinsurance trusts or more traditional collateralized reinsurance trusts were invested in such floating value instruments, the value of the collateral might decline and adversesly affect the amount of reinsurance or the amount of collateral available to a ceding insurer. However, the proposed rule exempts from the floating NAV requirement funds which are 80% or more invested in cash, government securities or fully collateralized repurchase agreements. The investment guidelines of most new cat bonds and collateral agreements would come within this exception, and the conservative investment of trust assets should avoid the potential adverse impact of the floating NAV requirement in the current proposed rule.

Second, the European Union’s Joint Forum, which is composed of the EU’s banking, insurance and securities regulators, has issued a report titled Longevity risk transfer markets: market structure, growth drivers and impediments, and potential risks (August 2013). This report describes the three types of transactions that are being used to transfer longevity risk: buy-out transactions; buy-in transactions; and longevity swaps or insurance. Given that the total global amount of annuity and pension related longevity risk exposure ranges from $15-25 trillion, understanding these risks, the alternative risk transfer methods of dealing with them and the views of regulators concerning such issues is important for anyone interested in the potential development of the equivalent of a cat bond market for longevity risks.

This post written by Rollie Goss.

See our disclaimer.

NAIC TAKES FURTHER ACTION ON CAPTIVES – TRANSACTION LEVEL REVIEWS TO COME

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We have previously posted on the NAIC’s initiatives with respect to captives and the NY Department’s captives report. The NAIC’s Executive Committee and Plenary, in a joint teleconference, have adopted the Reinsurance Task Force’s proposed White Paper on the activities of captives. Activity regarding captives at the NAIC continues on several fronts, including:

Financial Analysis Working Group of the Financial Condition (E) Committee

Additional responsibilities relating to captives have been assigned to this working group:

  • Perform analytical reviews of transactions (occurring on or after a date as determined by the NAIC membership) by nationally significant US life insurers to reinsure XXX and/or AXXX reserves with affiliated captives, special purpose vehicles (SPVs), or any other US entities that are subject to different solvency regulatory requirements than the ceding life insurers, to preserve the effectiveness and uniformity of the solvency regulatory system.
  • For such transactions entered into and approved prior to this date and still in place, collect specified data in order to provide regulatory insight into the prevalence and significance of these transactions throughout the industry.
  • Provide recommendations to the domiciliary state regulator to address company specific concerns and to the PBR Implementation (EX) Task Force to address issues and concerns regarding the solvency regulatory system.

It was noted that some state insurance departments already conduct reviews of some individual transactions involving captives.

Principle-Based Reserving Implementation (EX) Task Force of the Executive (EX) Committee

This task force will consider the Report’s recommendations in the context of the proposed Principal-Based Reserving system and make further recommendations, if any, to the Executive (EX) Committee. This activity may be conducted through a new Captive Working Group, which will report to this task force. The Captive Working Group will consider the following issues:

  • Address any remaining XXX and AXXX problems without encouraging formation of significant legal structures utilizing captives to cede business;
  • Address confidentiality of information; and
  • Recommend enhancement to the Financial Analysis Handbook Guidance to allow for a consistent approach for states’ review and ongoing analysis of transactions involving captives and SPVs.

Blanks Working Group of the Accounting Practices and Procedures Task Force of the Financial Condition (E) Committee

This working group is evaluating an exposure draft of a definition of “captive affiliate,” which, if adopted, would result in enhanced disclosure in Schedule F of transactions with captives. (see recent agenda item).

Reinsurance Task Force of the Financial Condition (E) Committee

The Reinsurance Task Force may implement other recommendations from the White Paper.

This post written by Rollie Goss.

See our disclaimer.

NEVADA AND LOUISIANA AMEND SURPLUS LINES INSURANCE REGULATIONS

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Both Nevada and Louisiana have amended their insurance regulations to make it easier for surplus lines brokers to procure insurance from “nonadmitted” or “unauthorized” insurers. Nevada loosened the requirements for determining the financial solvency of a nonadmitted insurer, modernized some of its filing requirements to be consistent with an “electronic age,” and provided straightforward guidelines for determining insurer eligibility. Louisiana’s amendments allow brokers to procure insurance from unauthorized insurers that meet certain eligibility requirements, even if those insurers are not on an approved list, and clarify that surplus lines insurance may be procured without regard to the availability of coverage from authorized insurers. State of Nev. Dep’t. of Bus. & Indus. Div. of Ins., Revisions to NAC Chapter 685A Concerning Nonadmitted Insurance, Bulletin No. 13-004 (Jun. 5, 2013); H.B. 543, 2013 Leg., Reg. Sess., (La. 2013).

This post written by Abigail Kortz.

See our disclaimer.

CLASS ACTION WAIVER ARBITRATION PROVISIONS ENFORCEABLE IN THE SECOND CIRCUIT POST-AMEX V. ITALIAN COLORS

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In back-to-back opinions addressing wage disputes brought under the Fair Labor Standards Act, the Second Circuit reversed the district court’s orders denying defendants’ motions to compel arbitration. In so doing, the Second Circuit explicitly followed the Supreme Court’s holding in American Express Co. v. Italian Colors Restaurant that plaintiffs cannot use the “effective vindication doctrine” to invalidate class action waiver provisions by showing that their claim is not economically worth pursuing individually. The Second Circuit also made clear that Amex I and its progeny that preceded the Supreme Court decision are no longer good law. The Amex I cases invalidated a class action waiver provision based on plaintiffs’ showing that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver.” Sutherland v. Ernst & Young LLP, No. 12-304 (2d Cir. Aug. 9, 2013); Raniere v. Citigroup Inc., No. 11-5213 (2d Cir. Aug. 12, 2013).

This post written by Abigail Kortz.

See our disclaimer.