Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURANCE BROKERS UNIFORMLY SEE SOFT PRICING IN CATASTROPHE REINSURANCE MARKET AS CAT BOND MARKET BROADENS

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The major reinsurance brokers have published their analyses of the reinsurance market for catastrophe risks during fourth quarter of 2013, the catastrophe bond market and predictions for renewal rates for traditional reinsurance during early 2014. These analyses generally predict declines in renewal rates for traditional reinsurance for cat risks in the neighborhood of 10-14%. The factors contributing to the declining rates include: (1) further increases in capital in the market; (2) competition from a strong catastrophe bond market; and (3) moderate levels of cat losses in recent years. A separate report summarizes the activity in the catastrophe bond market during 2013.

  • Aon Benfield suggests that traditional reinsurers enhance their competitiveness by providing unlimited hours for U.S. named storm occurrences and by reducing the cost of reinstatements. Reinsurance Market Outlook: January 2014 (includes a rating agency and regulatory update)
  • Guy Carpenter notes that the softening of rates-on-line has extended to non-cat markets due to increased reinsurance capacity, and that reinsurers have offered the following enhancements to coverages: aggregate and quota share cover; multi-year arrangements; extended hours clauses; better reinstatement provisions; early signing opportunities at reduced pricing; and expanded coverage for terrorism and cyber risks. January 2014 Renewal Report: Capacity, Evolution, Innovation and Opportunity
  • Willis Re also notes an increased capital level in the market, moderate loss levels, softening of rates in non-cat markets and the retention by some major insurance groups of more risk due to stronger balance sheets. Changes in the market include more complex, multi-class and multi-year reinsurance and more pooling arrangements to provide access to the market to smaller reinsurers. 1st View: 1 January 2014
  • A concise summary of the cat bond market in 2013 may be found in a short publication from Property Claim Services titled PCS Full-Year 2013 Catastrophe Bond Report: Underlying Change. Although this report over emphasizes the role of index triggers in cat bonds (as opposed to indemnity triggers), it does highlight the important trends of the broadening of the scope of risks encompassed by cat bonds and the issuance of such bonds by midmarket cedents.

This post written by Rollie Goss.

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COURT COMPELS PRODUCTION OF LIABILITY INSURER’S COMMUNICATIONS WITH ITS REINSURER

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In a dispute over coverage under a liability policy for directors and officers of a failed bank, the court compelled certain documents from the insurer covered by a discovery request seeking “documents relating to any communications with any reinsurer about the claim at issue.” While some of the documents were deemed privileged based on submitted declarations, the court found that the basis for withholding other documents was not sufficiently supported or described in the insurer’s privilege log. The court also compelled certain documents shared between the insurer and the reinsurer, notwithstanding the insurer’s assertion of the common interest doctrine. The court explained that although the insurer and reinsurer shared commercial or financial interests, the insurer failed to demonstrate that it shared the requisite “identical legal interest” with the reinsurer. Bancinsurer, Inc. v. McCaffree, Case No. 2:12-cv-02110 (USDC D. Kan. Oct. 24, 2013).

This post written by Michael Wolgin.

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ELEVENTH CIRCUIT COURT AFFIRMS JUDGMENT IN LAWSUIT INVOLVING STATE-SUBSIDIZED REINSURANCE

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Allstate Floridian won an appeal in a case alleging that it failed to pass on the savings it enjoyed from taxpayer-subsidized reinsurance. In 2007, Florida’s legislature passed a law making the subsidized reinsurance available to Florida insurers at rates lower than those offered in the private market. Insurers like Allstate were supposed to pass those savings onto consumers. The plaintiff brought a putative class action against Allstate arising from the Florida Office of Insurance Regulation’s determination that Allstate had charged excessive premium rates. The rates had been filed with the Office, but were later determined to be excessive. The trial court dismissed the putative class action, finding all four claims asserted were barred by the filed rate doctrine, but also finding that each claim failed in its own right to state legally sufficient claims for various reasons. However, on appeal, plaintiffs only briefed and argued the filed rate issue, and not the other several reasons the district court cited in dismissing the claims. The Eleventh Circuit Court of Appeals therefore affirmed, finding the plaintiff had abandoned the other issues that precluded reversal. Sapuppo v. Allstate Floridian Ins. Co., No. 13-11558 (11th Cir. Jan. 7, 2014).

This post written by John Pitblado.

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FANNIE MAE AND FREDDIE MAC ISSUE NEW LENDER-PLACED INSURANCE RESTRICTIONS PROHIBITING ARRANGEMENTS WITH AFFILIATED CAPTIVE INSURERS AND REINSURERS

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On December 18, 2013, Fannie Mae and Freddie Mac issued notices announcing updated requirements for lender-placed insurance (“LPI”) for all Fannie and Freddie mortgage loans. Included in the update is a new requirement that a loan servicer’s LPI carrier must not be an “affiliated entity,” including affiliated captive insurers and reinsurers. A new certification will be required for the servicers to certify that they comply with Fannie’s and Freddie’s requirements for acceptable LPI insurance carriers. Fannie and Freddie also will require servicers, upon request, to provide copies of their LPI policies, including any contractual arrangements with servicers and LPI carriers. The servicers will also be required to respond to periodic requests for data. Copies of Fannie’s Servicing Guide Announcement SVC-2013-27 and Freddie’s 2013-27 Bulletin, can be accessed here.

This post written by Michael Wolgin.

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SEVENTH CIRCUIT FINDS REINSURANCE “REVENUE SHARING AGREEMENT” AMBIGUOUS

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Aon Benfield was the reinsurance broker of record for Homeowners Choice, Inc. The parties executed a “revenue sharing agreement” whereby a portion of the commission Aon made in placing Homeowners’s reinsurance policies would be rebated to Homeowners. During the 2010 contract year, Homeowners notified Aon that it was replacing it as broker of record. Homeowners requested $659,943 from Aon as payment due under the parties’ revenue sharing agreement. Aon refused, claiming that the revenue sharing payment clause was superseded by the clause allowing Aon to keep commissions made after termination of the contract. The district court found the clauses Aon relied on to be ambiguous, and because Aon drafted the agreement, it awarded damages to Homeowners under the doctrine of contra proferentem. Aon appealed, but the Seventh Circuit Court of Appeals agreed with the district court and affirmed. Homeowners Choice, Inc. v. Aon Benfield, Inc., No. 13-1846 (7th Cir. Dec. 29, 2013).

This post written by John Pitblado.

See our disclaimer.