Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

PARTIES AGREE TO DISMISSAL OF ACTION AFTER LIBERTY MUTUAL PETITIONS COURT TO APPOINT ARBITRATOR

by

A lawsuit involving a reinsurance dispute has been voluntarily dismissed so that it may proceed in arbitration. On July 14, 2011, Liberty Mutual petitioned a court to appoint an umpire and compel arbitration pursuant to its reinsurance agreement with Continental Insurance under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. The dispute between the two parties arose after Liberty Mutual sought reimbursement from its reinsurer, Continental for amounts paid to a policyholder. Although the parties agreed that their contracts required them to arbitrate, and each had successfully chosen one arbitrator, they were unable to choose an umpire. Because their contracts did not specify a selection process for the umpire and the parties were unable to come to an agreement themselves, Liberty Mutual sought judicial intervention, asking for an order appointing one of five disinterested industry umpires or, alternatively, a retired Massachusetts judge. Although both parties submitted memoranda on the issue and the court held a hearing on the motion, the parties thereafter stipulated to a dismissal of the action and, pursuant to this, the court dismissed the action with prejudice. Liberty Mutual Insurance Co. v. Continental Insurance Co., Case No. 11-cv-11245-MBB (USDC D.Mass. May 7, 2012).

This post written by Brian Perryman.

See our disclaimer.

SPECIAL FOCUS: THE BENEFITS OF CAT BONDS FOR CEDING INSURERS

by

In this Special Focus piece, entitled “The Benefits of Cat Bonds for Ceding Insurers and the Potential for Life and Annuity Risk Bonds,” Rollie Goss compares the relative advantages of catastrophe bonds over traditional reinsurance, as well as the developing market for transfer of life and annuity risks.

This post written by Rollie Goss.

See our disclaimer.

ENGLISH LAW APPLIES TO ARBITRATION AGREEMENT IN POLICIES OSTENSIBLY GOVERNED BY BRAZILIAN LAW WHERE LONDON IS ARBITRAL FORUM

by

Insurance policies insuring various risks regarding the construction of a hydroelectric plant in Brazil provided that, if the parties could not resolve disputes through mediation, arbitration was to take place in London. Brazilian law, however, governed the policies and, furthermore, the policies gave Brazilian courts exclusive jurisdiction over policy disputes. The policies, and arbitration clauses within them, however, were silent regarding what law governed interpretation of the policies’ arbitration agreements.

The insurers (Sulamérica and others) gave notice of arbitration regarding a dispute, to which the insureds responded by obtaining an order from a Brazilian court enjoining arbitration. The insurers applied to the U.K. Commercial Court for an injunction to restrain the Brazilian court proceedings. In opposition, the insureds argued that, under Brazilian law, arbitration could not be commenced without their consent. The Commercial Court sided with the insurers, determining that the arbitration agreement was governed by English law. The appeals court dismissed the appeal and agreed with the Commercial Court that, given the choice of London as arbitral forum, the arbitration agreement had its “closest and most real connection” with English law. Sulamérica CIA Nacional de Seguros S.A. v. Enesa Engenharia S.A., Case No. A3/2012/0249, [2012] EWCA Civ. 638 (Q.B. May 16, 2012).

This post written by Ben Seessel.

See our disclaimer.

SECOND CIRCUIT REVERSES DENIAL OF SETTLEMENT CLASS CERTIFICATION IN AIG/GEN RE FINITE REINSURANCE SECURITIES LITIGATION

by

In a case we have reported on previously, AIG purported to settle class action securities law claims arising from alleged finite reinsurance transactions between it and Gen Re. The district court, however, denied the parties’ joint motion for approval of the settlement, finding that it could not certify a settlement class because the “fraud-on-the-market” theory used to prove reliance was not viable under the facts of the case, resulting in a failure to satisfy the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). The Second Circuit reversed, however, finding that the failure of the fraud-on-the-market theory was relevant only to a manageability analysis, and not to a predominance analysis. Since a court need not engage in a manageability analysis to certify a settlement class under the Supreme Court’s Amchem case, a settlement class could be certified. In re American International Group Securities Litigation, No. 10-4401-cv (2d Cir. Aug. 13, 2012)

This post written by John Pitblado.

See our disclaimer.

NAIC GROUP MEETS TO DISCUSS POTENTIALLY ABUSIVE USE OF CAPTIVES

by

The NAIC Captive and Special Purpose Vehicle Use Subgroup held a meeting on August 11, 2012 to discuss the Subgroup’s Captives and Special Purpose Vehicles draft White Paper. The Subgroup was formed earlier this year, the draft White Paper explains, to address the broadened use of captives and the potential concern that a “shadow insurance industry is emerging.” The draft White Paper addresses, in some detail, state authority over captives and SPVs, transparency and confidentiality requirements, the types of business and risks ceded to captives and SPVs, capitalization standards, accounting and reporting requirements, credit for reinsurance, and holding company analysis considerations.

A primary concern of the Subgroup is that some captives and SPVs may be being used as a means to avoid statutory accounting rules. The White Paper concludes that, in the transactions the Subgroup reviewed, regulators properly required that transactions made with captives to support economic reserves be backed with investment grade, liquid assets, such that the “net result” of the transactions be that “collectively the ceding insurer and captive have liquid assets supporting GAAP equivalent reserves.” The White Paper also makes recommendations regarding the accounting treatment for XXX and AXXX reserve redundancies, and encourages states with active captive and SPV markets to adopt the NAIC’s Special Purposes Reinsurance Vehicles Model Act, and further suggests that changes might be made to this model act to encourage states to adopt it. Minutes of the August 11 meeting and minutes of prior meetings of the subgroup held by conference call are available for review.

This post written by Ben Seessel.

See our disclaimer.