Week's Best Posts

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZED

January 20, 2015 by Carlton Fields

On January 12, 2015, the Terrorism Risk Insurance Act Program (“TRIA” or “Program”), which was originally adopted in 2002 to provide a federal backstop to protect insurers from catastrophic claims arising from terrorist attacks on U.S. soil, was extended.

Specifically, the TRIA Reauthorization Act of 2015 (the “Reauthorization Act”), Public Law No: 114-114th-1, revises the Program as follows:

Extends the Program until December 31, 2020.
Decreases the federal share of the compensation for the insured losses of an insurer during each Program year by 1% until it equals 80% of the portion of the amount exceeding the annual insurer deductible.
Increases the insurance marketplace aggregate retention amount under the Program (currently $27.5 billion) by $2 billion per calendar year until such amount equals $37.5 billion.
Directs the Secretary of the Department of Treasury (the “Secretary”) to conduct a study within nine months after the enactment of the Reauthorization Act regarding the process used by the Secretary to certify an act as an act of terrorism under the Program.
Directs a biennial study by the GAO regarding the impact on the Federal government of assessing and collecting upfront premiums on insurers that participate in the Program and the creation of a capital reserve fund under the Program.
Authorizes the Secretary to establish and appoint the Advisory Committee on Risk-Sharing Mechanisms (the “Advisory Committee”) to provide advice, recommendations, and encouragement with respect to the creation and development of the nongovernmental risk-sharing for the protection against losses arising from acts of terrorism. The Advisory Committee must consist of nine members who are directors, officers, or other employees of insurers, reinsurers, or capital market participants that are participating or that desire to participate in the nongovernmental risk-sharing mechanisms and who are representative of the affected sectors of the insurance industry, including commercial property insurance, commercial casualty insurance, reinsurance, and alternative risk transfer industries.
Requires insurers participating in the Program to submit to the Secretary beginning January 1, 2016, and each calendar year thereafter, information regarding insurance coverage for terrorism losses to analyze the effectiveness of the Program. The information to be reported shall include information regarding lines of insurance with exposure to such losses; premiums earned on such coverage; geographical location of exposures; pricing of such coverage; the take-up rate for such coverage; the amount of private reinsurance for acts of terrorism purchased; and such other matters as the Secretary considers appropriate.
Authorizes the Secretary to conduct a study (commencing June 30, 2017, and every other June 30 thereafter) of small insurers participating in the Program, and identify any competitive challenges small insurers face in the terrorism risk insurance marketplace.

Furthermore, the Reauthorization Act includes several other amendments, unrelated to the Program. It amends the Gramm-Leach-Bliley Act to establish the National Association of Registered Agents and Brokers as an independent nonprofit corporation to prescribe licensing and insurance producer qualification requirements and conditions on a multi-state basis, while retaining essential state regulatory authority. It also removes Dodd-Frank Act margin requirements for certain end-users, like utilities and manufacturers, involved in derivatives trading to hedge risk. Finally, it requires the Federal Reserve to have at least one governor with community banking or supervision experience.

This post written by Kelly A. Cruz-Brown.

See our disclaimer.

TREATY TIP: CLARITY IN REINSURANCE CONTRACTS

January 19, 2015 by Carlton Fields

It is important that all contracts accurately and clearly set forth the agreements of the parties to the contract. One of the most critical parts of any reinsurance agreement is specifying the scope of the risks transferred pursuant to the agreement. In a Treaty Tip, Rollie Goss discusses a recent case which was filed due to perceived uncertainty with respect to the contractual loss limit of facultative reinsurance certificates. Treaty Tip: The Mutual Benefits of Clear Reinsurance Limits.

This post written by Rollie Goss.

See our disclaimer.

COURT APPROVES $7 MILLION SETTLEMENT AGREEMENT WITH REINSURER IN RELIANCE INSURANCE COMPANY’S LIQUIDATION

January 13, 2015 by Carlton Fields

A Pennsylvania court overseeing Reliance Insurance Company’s liquidation proceedings approved the settlement agreement between Reliance and XL Reinsurance Company. The agreement allowed the liquidator to terminate and commute the obligations between Reliance and XL under the parties’ reinsurance agreement, such that the estate would receive a $7,248,830 economic benefit. In re Reliance Insurance Company in Liquidation, 1 REL 2001 (Pa. Commw. Ct. Oct. 2, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

U.K. COURT APPROVES INSURANCE BUSINESS TRANSFER SCHEME

January 12, 2015 by Carlton Fields

A court in the United Kingdom has approved the transfer of the entire long-term insurance business of Prudential Annuities Limited (PAL) to The Prudential Assurance Company Limited (PAC). The transfer’s purpose was to simplify the corporate structure of Prudential UK’s business, improve the flexibility and efficiency of capital management, and facilitate Prudential’s response to regulatory developments. The transfer affected approximately 134,000 contracts of long-term insurance business, all non-profit pension policies, and approximately 90,000 policyholders. Regulators did not object to the transfer and an independent expert and three actuaries all supported it.

PAL was already an asset of the PAC fund to which its business was transferred and, since 2012, the vast majority of PAL’s business had been reinsured by that fund. The court found that the reinsurance arrangements for the transfer significantly restricted the ability of the PAC fund to “walk away” from PAL and agreed with the independent expert that there would be no adverse change to either PAL or PAC policyholders from the transfer. Finding that all requirements of the Financial Services and Markets Act 2000 had been met, the court sanctioned the transfer of business. In the Matter of Prudential Annuities Ltd., [2014] EWHC 4770 (Ch.) (High Courts of Justice (Chancery Division) Cos. Ct.) Nov. 13, 2014).

This post written by Renee Schimkat.

See our disclaimer.

RHODE ISLAND SUPREME COURT BARS SECOND ARBITRATION BASED ON THE DOCTRINE OF RES JUDICATA

January 6, 2015 by Carlton Fields

An architectural firm contracted to provide architectural, engineering and design services for a state veterans home for a “not to exceed fee” of $61,500, which was calculated as a percentage of overall expected construction costs. When there were changes to the scope of the construction, the construction costs increased, and the firm sought an additional fee. The request was denied, an administrative appeal was rejected and suit was filed. The parties stipulated to a stay of the lawsuit pending a statutory arbitration procedure. The arbitration was resolved adversely to the claimant, with the arbitrator declaring that he was not deciding any equitable claims the claimant may have had which were not asserted in the arbitration. The arbitration award was confirmed by agreement and no appeal was filed. The claimant then filed a petition to compel a second arbitration of equitable claims. The court denied the petition, holding that the proposed equitable claims were barred by the doctrine of res judicata.

The Rhode Island Supreme Court agreed, holding that the claimant could have asserted the equitable claims in the first arbitration, and that the scope of precluded claims was determined using the transaction test, i.e., whether the claims arose out of the same transaction or series of connected transactions. Finding that the equitable claims arose out of the same transactions as the previously arbitrated claims, and finding no applicable exception to the preclusion doctrine, the Supreme Court ruled that the unasserted equitable claims were barred by the final judgment confirming the award in the first arbitration. Torrado Architects v. Rhode Island Dept. of Human Services, No. 2013-274 (R.I. Nov. 25, 2014).

This post written by Rollie Goss.

See our disclaimer.