Week's Best Posts

FLORIDA APPROVES SEVENTH REINSURER FOR REDUCED COLLATERAL PROGRAM

January 11, 2011 by Carlton Fields

The Florida Office of Insurance Regulation has approved a seventh reinsurer for participation in Florida’s reinsurance marketplace with modified collateral requirements. Bermuda domiciled Renaissance Re, wholly owned by Bermuda holding company Renaissance Re Holdings, was formed after Hurricane Andrew in 1992 to provide additional cat risk capacity to Florida’s property insurance marketplace and cat insurance in other markets. The holding company’s founding shareholders include GE Investment, GE Pension Trust, USF&G and Warburg and Pincus Investors. The holding company is listed on the New York Stock Exchange. The Florida OIR has, consistent with prior reinsurer approvals, entered into a Consent Order with Renaissance Re outlining the representations made by the company and the conditions of the approval. The Consent Order drops the company’s collateral requirement from 100% to 20%, a dramatic drop. The company is to meet the collateral requirement through letters of credit that comply with certain requirements.

This post written by Rollie Goss.

SWISS RE ARBITRATION AWARD CONFIRMED BY DISTRICT COURT

January 10, 2011 by Carlton Fields

OneBeacon Insurance Company filed a motion to vacate an arbitration award in favor of Swiss Re. OneBeacon argued that the award should be vacated because the arbitrators were guilty of misconduct by refusing to permit necessary discovery and hear certain evidence. The dispute between the parties was governed by a Multiple Line Reinsurance Treaty contract which is an excess loss reinsurance contract containing an arbitration clause. The court denied OneBeacon’s motion to vacate and confirmed Swiss Re’s motion to confirm, finding that the arbitration panel acted reasonably in construing the term “occurrence” under the treaty and that the panel’s discovery and evidentiary decisions were within its discretion. OneBeacon American Insurance Co. v. Swiss Reinsurance Am. Corp., Case No. 09-11495 (USDC D. Mass. Dec. 23, 2010).

This post written by John Black.

APPELLATE COURT REINSTATES CLAIMS BY BENEFICIARY OF REINSURANCE AGREEMENT

January 4, 2011 by Carlton Fields

A New York appellate court reversed the dismissal of contract and breach of fiduciary duty claims asserted against J.P. Morgan, which managed investments on behalf of a foreign reinsurer. The plaintiff – a beneficiary of the investment management agreement between the reinsurer and J.P. Morgan – sued J.P. Morgan as a result of its investment in, and alleged failure to heed plaintiff’s warnings about, certain mortgage-backed securities. The trial court dismissed the claims, but the appellate court reversed, finding that the claims were not pre-empted by New York’s Martin Act, which empowers the Attorney General to bring criminal actions against violators. The Attorney General submitted an amicus brief arguing against pre-emption, pointing to the benefit of parallel civil proceedings by so-called ‘private attorneys general’ such as the plaintiff. Assured Guaranty (UK) Ltd. v. J. P. Morgan Investment Management, Inc., No. 603755/08 (N.Y. App. Div. Nov. 23, 2010).

This post written by John Pitblado.

DOCTRINE OF UBERRIMAE FIDEI ENDS INSURED’S CLAIM FOR BENEFITS UNDER MARITIME POLICY

January 3, 2011 by Carlton Fields

The Ninth Circuit affirmed summary judgment for defendant insurer United Specialty Insurance Company based on the admiralty doctrine of uberrimae fidei or “utmost good faith,” a doctrine sometimes used in reinsurance arrangements. The court held an insurer can invoke the doctrine to void a marine insurance contract if it can show either: (1) an intentional misrepresentation of fact, regardless of materiality, or (2) non-disclosure of a fact material to the risk, regardless of intent. Plaintiff failed to disclose the true owner of the insured vessel to the defendant, a fact that was material to the defendant’s assessment of the risk, according to the court. SW Traders, LLC v. United Specialty Ins. Co., No. 09-0778 (9th Cir. Nov. 18, 2010).

This post written by Ben Seessel.

FEDERAL REINSURANCE BILL INTRODUCED IN U.S. HOUSE

January 3, 2011 by Carlton Fields

A bill that would establish a Federal license for national reinsurers was introduced on December 16, 2010 in the U.S. House of Representatives by Representative Dennis Moore, a six term Democrat from Kansas who is the outgoing chair of a subcommittee of the House Financial Services Committee. The bill – “Federal License for Reinsurers Act of 2010” (H.R. 6529) – seeks to create a more harmonized reinsurance regulatory system that would apply to the operation of both U.S. and foreign domiciled reinsurers. The bill creates a licensing scheme for national reinsurers that would be administered by the Director of the Federal Insurance Office (“FIO”). Under the bill, FIO’s Director is charged with setting criteria for the licensing and operation of a national reinsurer. Both U.S. entities and non-U.S. entities that establish a branch may apply for a Federal license to transact reinsurance business provided the entity has satisfied unspecified eligibility requirements.

Under the bill, FIO’s Director may revoke, suspend or restrict a Federal license whenever he determines that a national reinsurer is no long operating in a manner consistent with the criteria for licensing and operation. The bill also allows for conversion to a State reinsurance license, subject to notification and approval by FIO’s Director. Additionally, the bill subjects the provisions of Title 11 of the U.S. Bankruptcy Code to a delinquency proceeding for the liquidation or reorganization of a U.S. national reinsurer.

The operation of licensed foreign domiciled reinsurers would be subject to supervisory arrangements negotiated by the Secretary of Commerce and the U.S. Trade Representative with qualified supervisory authorities of non-U.S. jurisdictions that maintain and apply legal standards, regulatory requirements, and enforcement capabilities substantially equivalent to those applied by FIO’s Director, and in which the awards of arbitration panels and judgments of appropriate U.S. courts are enforceable and collectible. An authorized foreign reinsurer will be authorized to transact reinsurance business to the extent authorized by the applicable supervisory arrangement, which must explicitly include certain enumerated conditions relating to reciprocity, dispute resolution, insolvency, among other things.

The bill contains provisions preempting State laws that are contrary to or inconsistent with the purposes of the bill (except those which may be applicable to corporate taxes generally), including state laws that create disparate treatment between national reinsurers or authorized foreign reinsurers and State licensed insurers or reinsurers solely on the basis of the entity’s status. Preemption of State law will be determined by FIO’s Director, which can be judicially reviewed.

The bill prohibits States from interfering, directly or indirectly, with a U.S. insurer or reinsurer (i) applying for a Federal license or operating as a national reinsurer; or (ii) ceding insurance to a national reinsurer or an authorized foreign reinsurer. It also prohibits States from denying credit, either as an asset or a reduction of liabilities, on account of reinsurance ceded to a national reinsurer or an authorized foreign reinsurer. These provisions conflict with: (1) the clear provisions of the Dodd-Frank Act, which explicitly commits decisions as to reinsurance credit to the State of domicile of ceding insurers; (2) guidelines adopted by the NAIC concerning reinsurance credit and collateral; and (3) regulations adopted by Florida and New York concerning reinsurance credit and collateral. If the requirements for a federal reinsurance license do not include financial strength or other risk-based factors, this bill may turn out to be an attractive alternative for reinsurers who wish to operate with relatively modest regulation.

The bill requires cooperation between FIO’s Director and State insurance regulators, requiring the FIO’s Director to: (1) consult, as he deems appropriate, with the relevant State insurance regulators concerning regulatory matters; (2) notify all State insurance regulators of supervisory arrangements entered into; and (3) notify the relevant State insurance regulators of a change in the status of, or any administrative action taken against, a national reinsurer or an authorized foreign reinsurer. It is notable that two of these three “cooperation” requirements merely provide for the FIO’s Director to inform State insurance regulators of actions taken by the FIO, and the third leaves the decision of whether to “consult with” State insurance regulators at all to the discretion of the FIO’s Director. This is not robust consultation or “cooperation.”

In addition, the bill provides that there shall be no determination whether to subject an entity to supervision by the Board of Governors and heightened prudential standards under Section 113 of the Dodd-Frank Act on account of an entity’s status as a national reinsurer or authorized foreign reinsurer.

If the bill is adopted, FIO’s Director must commence licensing of national reinsurers and the entry into supervisory arrangements after the promulgation of regulations, which must occur not later than 2 years from the date of the enactment of the bill.

The bill was referred to the House Committee on Financial Services. The bill does not have any co-sponsors as of the writing of this post, and it is not known whether it is being sponsored by any trade associations.

This post written by Karen Benson.