Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NAIC TAKES FURTHER ACTION ON CAPTIVES – TRANSACTION LEVEL REVIEWS TO COME

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We have previously posted on the NAIC’s initiatives with respect to captives and the NY Department’s captives report. The NAIC’s Executive Committee and Plenary, in a joint teleconference, have adopted the Reinsurance Task Force’s proposed White Paper on the activities of captives. Activity regarding captives at the NAIC continues on several fronts, including:

Financial Analysis Working Group of the Financial Condition (E) Committee

Additional responsibilities relating to captives have been assigned to this working group:

  • Perform analytical reviews of transactions (occurring on or after a date as determined by the NAIC membership) by nationally significant US life insurers to reinsure XXX and/or AXXX reserves with affiliated captives, special purpose vehicles (SPVs), or any other US entities that are subject to different solvency regulatory requirements than the ceding life insurers, to preserve the effectiveness and uniformity of the solvency regulatory system.
  • For such transactions entered into and approved prior to this date and still in place, collect specified data in order to provide regulatory insight into the prevalence and significance of these transactions throughout the industry.
  • Provide recommendations to the domiciliary state regulator to address company specific concerns and to the PBR Implementation (EX) Task Force to address issues and concerns regarding the solvency regulatory system.

It was noted that some state insurance departments already conduct reviews of some individual transactions involving captives.

Principle-Based Reserving Implementation (EX) Task Force of the Executive (EX) Committee

This task force will consider the Report’s recommendations in the context of the proposed Principal-Based Reserving system and make further recommendations, if any, to the Executive (EX) Committee. This activity may be conducted through a new Captive Working Group, which will report to this task force. The Captive Working Group will consider the following issues:

  • Address any remaining XXX and AXXX problems without encouraging formation of significant legal structures utilizing captives to cede business;
  • Address confidentiality of information; and
  • Recommend enhancement to the Financial Analysis Handbook Guidance to allow for a consistent approach for states’ review and ongoing analysis of transactions involving captives and SPVs.

Blanks Working Group of the Accounting Practices and Procedures Task Force of the Financial Condition (E) Committee

This working group is evaluating an exposure draft of a definition of “captive affiliate,” which, if adopted, would result in enhanced disclosure in Schedule F of transactions with captives. (see recent agenda item).

Reinsurance Task Force of the Financial Condition (E) Committee

The Reinsurance Task Force may implement other recommendations from the White Paper.

This post written by Rollie Goss.

See our disclaimer.

NEVADA AND LOUISIANA AMEND SURPLUS LINES INSURANCE REGULATIONS

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Both Nevada and Louisiana have amended their insurance regulations to make it easier for surplus lines brokers to procure insurance from “nonadmitted” or “unauthorized” insurers. Nevada loosened the requirements for determining the financial solvency of a nonadmitted insurer, modernized some of its filing requirements to be consistent with an “electronic age,” and provided straightforward guidelines for determining insurer eligibility. Louisiana’s amendments allow brokers to procure insurance from unauthorized insurers that meet certain eligibility requirements, even if those insurers are not on an approved list, and clarify that surplus lines insurance may be procured without regard to the availability of coverage from authorized insurers. State of Nev. Dep’t. of Bus. & Indus. Div. of Ins., Revisions to NAC Chapter 685A Concerning Nonadmitted Insurance, Bulletin No. 13-004 (Jun. 5, 2013); H.B. 543, 2013 Leg., Reg. Sess., (La. 2013).

This post written by Abigail Kortz.

See our disclaimer.

CLASS ACTION WAIVER ARBITRATION PROVISIONS ENFORCEABLE IN THE SECOND CIRCUIT POST-AMEX V. ITALIAN COLORS

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In back-to-back opinions addressing wage disputes brought under the Fair Labor Standards Act, the Second Circuit reversed the district court’s orders denying defendants’ motions to compel arbitration. In so doing, the Second Circuit explicitly followed the Supreme Court’s holding in American Express Co. v. Italian Colors Restaurant that plaintiffs cannot use the “effective vindication doctrine” to invalidate class action waiver provisions by showing that their claim is not economically worth pursuing individually. The Second Circuit also made clear that Amex I and its progeny that preceded the Supreme Court decision are no longer good law. The Amex I cases invalidated a class action waiver provision based on plaintiffs’ showing that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver.” Sutherland v. Ernst & Young LLP, No. 12-304 (2d Cir. Aug. 9, 2013); Raniere v. Citigroup Inc., No. 11-5213 (2d Cir. Aug. 12, 2013).

This post written by Abigail Kortz.

See our disclaimer.

Round-Up Of Federal Decisions Involving Questions of Arbitrability

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Mortensen v. Bresnan Communications, LLC, No. 11-35823 (9th Cir. July 15, 2013) (vacating district court order declining to enforce arbitration agreement between broadband internet provider and consumer, finding 2011 U.S. Supreme Court decision AT&T Mobility v. Concepcion controlling; finding error in district court’s failure to apply New York law despite forum selection clause).

Biernacki v. Service Corp. Int’l, No. 11-17495 (9th Cir. June 10, 2013) (reversing district court order which held that plaintiffs – current and former employees of defendant who initially brought a putative class action in court for which certification was denied – had waived right to seek to compel arbitration, due to participation in litigation for three years. Ninth Circuit court held that merely participating in litigation, and incurring legal expense, insufficient to demonstrate waiver of right to arbitrate).

Safelite Group, Inc. v. Zurich Amer. Ins. Co., Case No. 2:12-cv-536 (USDC S.D. Ohio July 30, 2013) (compelling arbitration where “broad” clause governing “any and all” disputes, includes quasi-contractual claims; reserving questions of arbitrability for arbitrator pursuant to AAA rules incorporated into arbitration provision; staying remaining claims involving non-party until completion of arbitration).

Oracle America, Inc. v. Myriad Group, A.G., No. 11-17186 (9th Cir. July 26, 2013) (reversing denial of motion to compel arbitration, finding question of whether court or arbitrator should decide issues of arbitrability governed by contact language which unmistakably indicated parties’ intent to reserve question for arbitrator).

This post written by John Pitblado.

See our disclaimer.

BRITISH COURT VOIDS REINSURANCE COVERAGE FOR BREACH OF TYPHOON WARRANTY IN MASS-CASUALTY SHIP-SINKING OFF PHILIPPINES

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Plaintiffs sued defendant primary insurer, Oriental Assurance Company, under a reinsurance contract covering underlying risk of a Philippines shipping company, including 22 scheduled vessels. Among them was the Princess of the Stars, a ferry built in 1984 which, on June 21, 2008, set out from Manila on a trip to Cebu, with 2978 tons of cargo, including cars and SUVs, 713 passengers and 138 crew. It capsized when a typhoon struck, killing 851 people and leaving only 32 survivors. The reinsurance contract contained a “Typhoon Warranty” clause prohibiting a ship setting sail in waters after issuance of a typhoon warning, violation of which voids the policy. After hearing expert testimony and other evidence regarding the ship captain’s and shipping company’s knowledge of typhoon warnings, and decision to nonetheless sail, the UK court held the warranty breached, and the reinsurance cover void. Amlin Corporate Member, Ltd. v. Oriental Assurance Corp., [2013] EWHC 2380 (Comm) (British High Court of Justice, Queen’s Bench, July 31, 2013).

This post written by John Pitblado.

See our disclaimer.