Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

STATE SURPLUS LINES REGULATION AND REINSURANCE ACCOUNTING CHANGES

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The following are selected State bills and regulations that were recently introduced or adopted on the topic of reinsurance.

Nonadmitted and Reinsurance Reform: In response to the mandates of the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act, the legislatures of Connecticut (Bill No. 50), Kentucky (Bill No. 167), and North Dakota (Bill No. 1123) have introduced bills to establish requirements that are consistent with the federal law for surplus lines insurers doing business in the state. Kentucky’s bill is modeled after the surplus lines proposal approved by the National Conference of Insurance Legislators (“NCOIL”). At this time, it is unclear based on what has been published whether the Connecticut or North Dakota bills follow the surplus lines proposal approved by NCOIL, the proposal approved by the National Association of Insurance Commissioners or are unlike either of those proposals.

Reinsurance Covering Title Insurance Policies: Proposed legislation (Bill No. 322) relating to the requirements for reinsurance contracts covering title insurance policies was introduced in the Texas Senate. The proposed legislation amends Section 2551.302 of the Texas Insurance Code to remove the requirement that prior approval of the form of reinsurance contract be obtained from the Insurance Department. The proposed legislation also repeals Section 2551.303 concerning additional requirements regarding the approval and form of reinsurance contract.

Reinsurance and Accounting Practices and Procedures Manual: Pursuant to emergency rulemaking, the New York Insurance Department adopted amendments to New York Insurance Regulation No. 172 (11 NYCRR 83) to incorporate by reference the NAIC Accounting Practices and Procedures Manual as of March 2010, except as provided in 11 NYCRR 83.4. The Manual includes a body of accounting guidelines referred to as Statements of Statutory Accounting Principles (“SSAPs”). Section 83.4 sets out “Conflicts and Exceptions” to the Manual, and makes clear that in instances of conflict or deviation, New York statutes and regulations control. Section 83.4 is amended, as it relates to reinsurance, to adopt paragraph 25 of SSAP No. 61, “Life, Deposit-Type and Accident and Health Reinsurance,” with the following addition:

If a ceding insurer that receives credit for reinsurance by way of deduction from its reserve liability remits the associated reinsurance premiums for coverage beyond the paid-to-date of the policy, the ceding insurer may record an asset for the portion of the gross reinsurance premium that provides reinsurance coverage for the period from the next policy premium due date to the earlier of: (1) the end of the policy year or (2) the next reinsurance premium due date. The asset shall be admitted as a write-in asset to the extent that the reinsurer must refund premiums to the ceding insurer in the event of either the termination of the ceded policy or the termination of the reinsurance agreement.

This post written by Karen Benson.

COURT ISSUES PROTECTIVE ORDER OVER DIRECT INSURER’S REINSURANCE CLAIM AND RESERVE INFORMATION

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Teck Metals Ltd. sued London Market Insurance in a direct insurance coverage action arising from alleged environmental pollution claims asserted by Federal, State, and Tribal authorities against Teck. London Market declined coverage for the claims under certain umbrella liability policies. Among a morass of various discovery issues in the case (some of which are the subject of a pending interlocutory appeal to the Ninth Circuit), Teck sought information from London Market pertaining to its notification of the claims to its reinsurers, as well as certain reinsurance claims and reserve information. A Magistrate recommended that the date, method of transmittal, and author of London Market’s first communication to its reinsurers is relevant to late notice issues and should be provided, but that reinsurance reserves and claim information was not relevant. The district court adopted the magistrate’s recommendations with some agreed-upon compromises, including a protective order regarding the reinsurance information. Teck also made a request under the Hague Convention to obtain the depositions of three London Market-affiliated foreign nationals, including two claims administrators and an underwriter. Teck Metals, Ltd. v. London Market Insurance, Case No. 05-411 (USDC E.D. Wash. Nov. 19, 2010).

This post written by John Pitblado.

FAA JURISDICTION EXISTS TO COMPEL AGREEMENT NON-SIGNATORIES TO ARBITRATE

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In a suit brought by FR 8 Singapore, a Singapore company, to compel arbitration with the alleged alter ego companies of Albacore Maritime, a Marshall Islands corporation, the court denied the defendants’ motion to dismiss for lack of subject matter jurisdiction, and held the choice of law provision in the agreement between FR 8 and Albacore applied to defendants’ motion to dismiss for failure to state a claim. The dispute stemmed from a failed purchase of a ship by Albacore from FR 8. The purchase agreement was signed by Albacore in Greece and FR 8 in Singapore, and provided for English choice of law and dispute resolution in London. When the purchase failed, arbitration commenced between FR 8 and Albacore, but Albacore’s parent companies (alleged alter egos) refused to participate. FR 8 sued in the United States under the FAA and the Convention in the Recognition and Enforcement of Foreign Arbitral Awards, to compel the alter egos’ participation. The defendants argued that the refusal to participate by the alter egos, which were non-signatories to the agreement, did not render FR 8 a “party aggrieved” under the FAA. The court rejected FR 8’s argument, questioning whether the FAA applied to compel non-signatories to arbitrate, but holding that FR 8 was a “party aggrieved” because correspondence between FR 8 and the defendants’ counsel constituted “an unambiguous demand to arbitrate,” with which the alter egos refused to comply. The court also resolved conflicting precedent on whether federal common law or the parties’ choice of law would apply to defendants’ motion to dismiss for failure to state a claim, holding the choice of English law provision would apply. FR 8 Singapore v. Albacore Maritime Inc., Case No. 10 Civ. 1862 (USDC S.D.N.Y. Dec. 14, 2010).

This post written by Michael Wolgin.

SUIT DISMISSED AGAINST FINNISH REINSURER FOR LACK OF PERSONAL JURISDICTION

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Neles-Jamesbury Inc. filed suit for breach of contract against Pohjola Ins., a Finnish insurer, arising from a reinsurance contract between Pohjola and Lumbermens Mutual Casualty. NJI sought to hold Pohjola directly liable, alleging that Lumbermens was acting as Pohjola’s agent. Lumbermens had issued a comprehensive insurance policy covering NJI. The policy was stamped “Facultative Reinsurance” and contained the notation “reverse flow business 100% reinsured by Pohjola Ins. Co.” After Lumbermens denied coverage on certain claims, NJI filed suit against Lumbermens in Massachusetts state court. When NJI learned Lumbermens was having financial trouble, it sued Pohjola, which suit was removed to federal court. The federal court granted Pohjola’s motion to dismiss for lack of personal jurisdiction, finding that the Finnish company’s relationship with Lumbermens was not a mere agency and thus the Pohjola’s contacts with Massachusetts did not reach the levels necessary for personal jurisdiction. Neles-Jamesbury, Inc. v. Pohjola Ins. Co., LTD., Case No. 10-40055 (USDC D. Mass. Dec. 7, 2010).

This post written by John Black.

FLORIDA APPROVES SEVENTH REINSURER FOR REDUCED COLLATERAL PROGRAM

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The Florida Office of Insurance Regulation has approved a seventh reinsurer for participation in Florida’s reinsurance marketplace with modified collateral requirements. Bermuda domiciled Renaissance Re, wholly owned by Bermuda holding company Renaissance Re Holdings, was formed after Hurricane Andrew in 1992 to provide additional cat risk capacity to Florida’s property insurance marketplace and cat insurance in other markets. The holding company’s founding shareholders include GE Investment, GE Pension Trust, USF&G and Warburg and Pincus Investors. The holding company is listed on the New York Stock Exchange. The Florida OIR has, consistent with prior reinsurer approvals, entered into a Consent Order with Renaissance Re outlining the representations made by the company and the conditions of the approval. The Consent Order drops the company’s collateral requirement from 100% to 20%, a dramatic drop. The company is to meet the collateral requirement through letters of credit that comply with certain requirements.

This post written by Rollie Goss.