Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

IRS WITHDRAWS PROPOSED MODIFICAITON OF CAPTIVE TAX BENEFIT

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In a November 5, 2007 post, we commented upon action of the IRS in proposing a regulation which would eliminate certain tax benefits for captive insurance and reinsurance companies. Following heavy lobbying from politicians, including governors and Senators from states with active captive insurer programs, and heavy lobbying from the captive industry, the IRS has withdrawn the proposed regulation and cancelled the upcoming hearing on the proposal. This action has been viewed in the trade press as being a substantial victory for captive insurers.

This post written by Rollie Goss.

‘FOLLOW THE SETTLEMENTS’ LIMITED TO COVER PROVIDED BY SLIP’S TERMS

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According to a recent decision from the UK Commercial Court, a reinsurer’s obligation to “follow the settlements” of its cedent does not apply when the reinsurance contract contains terms making its scope narrower than the original policy. In this case, the cedent, Aegis, sought to recover from its reinsurer, Continental Casualty Company (“CCC”), for claims arising from incidents at an oil refinery. Aegis had settled the claims made by the refinery owner. CCC denied the claim relying on the fact that additional conditions and definitions relating to boiler and machinery cover were attached to the slip which, if found to apply to the entire contract, would exclude recovery. The same definitions did not appear in the underlying policy. The Court found against Aegis on the issue of contract interpretation, and held that since the original policy and the reinsurance policy were not entirely “back to back,” Aegis could not rely on the follow the settlements provision. Aegis Electrical and Gas International Services Co. Ltd. v. Continental Casualty Company, [2007] EWHC 1762 (Comm. July 25, 2007). This opinion is not available on the UK Court site, but is available on WESTLAW at 2007 WL 2041964.

This post written by Lynn Hawkins.

LIQUIDATOR NOT BOUND TO ARBITRATE REINSURANCE DISPUTE WITH JOHN HANCOCK

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This dispute is between the Ohio Superintendent of Insurance, in her capacity as liquidator for Credit General, and John Hancock over amounts potentially owed by Hancock under 13 reinsurance agreements pursuant to which Hancock reinsured risks initially insured by the now-insolvent Credit General. The sole issue presented on this appeal was whether the provisions of the Ohio Liquidation Act precluded enforcement of arbitration clauses against the Superintendent of Insurance functioning as liquidator, when those arbitration provisions were part of a contract that the liquidator otherwise sought to enforce.

The state appellate panel held that the liquidator was not bound to the arbitration clause in a reinsurance agreement finding that the purpose of the Ohio Liquidation Act outweighed the public policies in favor of arbitration. The panel also disagreed with John Hancock’s argument that the Ohio Liquidation Act could not overcome the explicit enforcement of arbitration under the Federal Arbitration Act. The panel reasoned that under the McCarran-Ferguson Act, state statutes that govern the liquidation of insurers supersede federal statutes. Hudson v. John Hancock Financial Srvs., No. 06AP-1284 (Ct. App. Ohio, Dec. 27, 2007).

This post written by Lynn Hawkins.

IRS ISSUES GUIDANCE FOR CELL CAPTIVE INSURANCE ARRANGEMENTS

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The Internal Revenue Service has issued a Revenue Ruling, number 2008-8 and a Bulletin, IRB 2008-5, which address questions relating to the structuring of cell captive insurance arrangements for federal income tax purposes. The Bulletin “provides guidance on the standards for determining whether an arrangement between a participant and a cell of a Protected Cell Company constitutes insurance for federal income tax purposes, and whether amounts paid to the cell are deductible as “insurance premiums” under section 162 of the Internal Revenue Code.” The IRS is requesting comments on this issue by no later than May 4, 2008. The Revenue Ruling “explains how arrangements between an individual cell and its owner are analyzed for purposes of determining whether there is adequate risk shifting and risk distribution to constitute insurance.”

This post written by Rollie Goss.

REN RE SHAREHOLDER CLASS SETTLEMENT RECEIVES FINAL APPROVAL

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Ren Re's finite reinsurance legal actions appear finally to be over. In an October 23, 2007 post, we reported on the preliminary approval of a class settlement with Ren Re's shareholders, coming after Ren Re's settlement with the SEC. The shareholder settlement has been given final approval by the Court, which entered a Final Approval Order (1/18/08), an Order awarding attorneys' fees and expenses (1/30/08) and a Final Judgment (1/30/08). In re Renaissancere Holdings Ltd. Securities Litigation, Case No. 05-6764 (USDC S.D. N.Y.).

This post written by Rollie Goss.