Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

U.S. COVERED AGREEMENT POLICY STATEMENT AFFIRMS U.S. STATE-BASED REGULATION OF INSURANCE

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We have posted several times on the negotiation and finalization of the Covered Agreement (“the Agreement”) negotiated by the Obama Administration and approved by the Trump Administration with the European Union. The agreed text of the Agreement was released in January of this year, and the House Financial Services Committee held a hearing on the Agreement the following month. The Trump Administration’s decision to sign the Agreement was announced in July, and included a statement that the U.S. would issue a “U.S. policy statement on implementation.” That statement intrigued many, prompting speculation as to the positions that would be taken in that policy statement. We posted an analysis of the complicated timeline for the implementation of the Agreement later that month.

In conjunction with the signing of the Agreement on September 22, the U.S. released the anticipated policy statement. The policy statement is not remarkable, and is based upon a theme that the Agreement affirms, preserves, and builds upon the U.S. state-based structure for the regulation of the business of insurance. The policy statement summarizes various provisions of the Agreement, stating in part that the Agreement:

  • with respect to the collateral requirement, “does not prevent a state insurance regulator from imposing non-collateral requirements that do not have substantially the same regulatory impact as collateral requirements as conditions for ceding companies to enter into reinsurance agreements with EU reinsurers or to allow credit for such reinsurance, if the state insurance regulator applies the same requirements in the case of reinsurance agreements with U.S. reinsurers domiciled in that state;”
  • does not prevent parties to reinsurance agreements to contractually require collateral for reinsurance;
  • excludes the US parent of US-domiciled reinsurers from the need to comply with the requirements of Solvency II just because it has an affiliate doing business in the EU; and
  • preserves the authority of the states (in conjunction with the NAIC) to set capital requirements for US insurance groups.

The principal text of the Conclusion section of the policy statement provides:

The Agreement supports the principles specified in the Presidential Executive Order on Core Principles for Regulating the United States Financial System (Feb. 3, 2017) by enabling U.S. companies to be competitive with foreign firmshttps://www.reinsurancefocus.com/wp-admin/edit.php in domestic and foreign markets; advancing U.S. interests in international financial regulatory negotiations and meetings; and making regulation efficient, effective, and appropriately tailored. The United States looks forward to promoting the interests of U.S. stakeholders, U.S. insurance regulators, and the U.S. economy as the Agreement is implemented. The United States also shares with the EU the goal of protecting insurance and reinsurance consumers while respecting one another’s system for supervision and regulation.

This post written by Rollie Goss.
See our disclaimer.

CONGRESS DISAPPROVES THE CFPB’S ANTI-CLASS ACTION ARBITRATION WAIVER RULE

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Congress has adopted a joint resolution of disapproval of the CFPB’s arbitration rule under the Congressional Review Act, 5 U.S.C. Section 801 et seq.  President Trump’s approval of the joint resolution will prevent the implementation of the rule.    With the disapproval of the rule, the CFPB’s rule “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”  5 U.S.C. Section 801(b)(2).  While it seems highly unlikely that the present Congress would approve the same or similar rule, it is not known whether the CFPB will attempt to find another way to implement a prohibition of class action arbitration waivers.

This post written by Rollie Goss.
See our disclaimer.

U.K. COURT APPROVES MULTI-BILLION POUND PLAN TO TRANSFER ANNUITY LIABILITIES UNDER REINSURANCE AND BUSINESS TRANSFER AGREEMENTS

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The Queen’s Bench Division of the U.K.’s High Court of Justice recently approved a scheme proposed by Scottish Equitable Plc to transfer its liabilities as to over 185,000 insurance policies to Rothesay Life Plc. The scheme was backed by roughly £7 billion in assets paid to Rothesay under a series of annuity reinsurance and business transfer agreements executed in April 2016.

The court’s approval was guided by eight principles used by British courts in assessing long-term business transfer plans. While the primary factor is whether the scheme would adversely impact policyholders, the court held that a scheme will not be rejected simply because it may adversely affect certain policyholders. Instead, viewed as a whole, the scheme must be objectively “fair.” The court also noted that a proposal will not be rejected solely because it is not the “best possible scheme,” stating that deference should be given to the company’s choice of schemes, provided that choice is objectively fair. The court rejected policyholders’ objections, finding the proposed scheme was sufficient to protect policyholders’ interests. The court also rejected the argument that the scheme was not the “transfer of a business” under the FSMA simply because the policies were being reinsured, finding that the transaction did not need to expose Scottish Equitable to “risk or reward” to qualify as the transfer of its “business.” See In the Matter of Scottish Equitable Plc and In the matter of Rothesay Life Plc, [2017] EWHC 1439 (Ch).

This post written by Alex Silverman.

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DISTRICT OF SOUTH CAROLINA DENIES MOTION TO DISMISS ACTION INVOLVING FRONTING RELATIONSHIP

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Applying Delaware law, a South Carolina District Court found Plaintiff had properly pled its causes of action for breach of contract, breach of fiduciary duty, negligence/gross negligence and negligent misrepresentation involving allegations that Defendant approved multiple transactions depleting the trust account which protected Plaintiff’s obligations under its fronting agreement.

The Court found Plaintiff adequately pled that Defendant breached its duty under the fronting agreement when it depleted the trust’s legitimate assets and left Plaintiff with a duty to pay claims. While the Court acknowledged that the fronting agreement did not explicitly impose a duty on Defendant to validate and confirm the assets admitted to the trust, nevertheless, at the very least, “the duty to provide an ‘accounting’ required Defendant to submit a ‘rendition of [the] account’ and the assets it contained.”

The Court also found Plaintiff adequately pled that Defendant breached its fiduciary duty owed to Plaintiff, as Defendant was the trustee and Plaintiff the trust’s sole beneficiary. Although Delaware law prohibits fiduciary duty claims that are wholly duplicative of contract claims, the Court found Plaintiff’s allegations of fiduciary duty were based on additional facts which were broader in scope than the parties’ contractual obligations.

The Court further found Plaintiff sufficiently alleged an independent duty of good faith and duty of care, which supports Plaintiff’s claim for negligence/gross negligence.

Finally, while the Court acknowledged Defendant’s argument that under the trust agreement Defendant had “no duty or responsibility with respect to the qualification, character, or valuation of the Assets deposited into the trust account,” in the contract between the parties, Defendant (as trustee) “agreed to maintain assets of the trust. . . to be negotiable at any time.” Being the agreed upon terms, the Court held that “Defendant cannot alter these terms by placing boilerplate disclaimer language as to the value of the funds on the statement to absolve itself of contractual duties. When Plaintiff attempted to withdraw the assets of the trust account, Defendant could not negotiate these assets.”

Accident Insurance Company, Inc. v. U.S. Bank National Association and U.S. Bank Trust N.A., 15-cv-02621-JMC (USDC D.S.C. Sept. 28, 2017)

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT FINDS ORDER NOT “FINAL” FOR PURPOSES OF APPELLATE JURISDICTION

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The U.S. Court of Appeals for the Fifth Circuit held that an order compelling arbitration and staying a related action was not an appealable “final decision with respect to arbitration” under the Federal Arbitration Act (“FAA”).

Anthony Charles filed an action asserting substantive claims regarding construction of a home in Mississippi (“Charles I”). While it was pending, the defendants filed a separate action against Charles (“Charles II”), seeking to compel him to arbitrate the claims in Charles I. The court in Charles II granted the motion to compel, and ordered that the unresolved claims in Charles I be stayed pending arbitration. Charles appealed.

The Fifth Circuit held that it did not have jurisdiction over the appeal. The court noted that the FAA only allows courts to consider an appeal from a “final decision with respect to arbitration,” meaning one that “ends the litigation on the merits.” In ruling, the court found that furthering the strong interest in favor of arbitration required considering Charles II together with Charles I. Because the claims in Charles I were merely stayed by virtue of Charles II – not dismissed – the court held that the decision in Charles II could not be considered a “final appealable order” under the FAA.

Green Tree Servicing, LLC, et al. v. Anthony Charles, No. 17-60165 (5th Cir. Sept. 29, 2017)

This post written by Alex Silverman.

See our disclaimer.