Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SEC CHARGES AND SETTLES WITH FORMER AIG EXECUTIVES

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On August 6, 2009, the SEC filed a Complaint in the Southern District of New York against former AIG Chairman and CEO Maurice “Hank” Greenberg and former Vice Chairman and CFO Howard Smith in connection with multiple accounting transaction allegedly inflating AIG’s financial statements between 2000 and 2005. The complaint charges Greenberg and Smith as control persons for AIG with numerous violations of securities laws including sham reinsurance transactions making it appear that AIG had legitimately increased its general loss reserves.

The complaint charges that Greenberg and Smith were aware of and responsible for AIG’s misleading financial statements over the last several years. According to an SEC Release, both Greenberg and Smith, without admitting or denying the allegations in the complaint, consented to a judgment enjoining them from violating several securities laws under penalty of fine. Smith also consented to the entry of an SEC order that will suspend him from appearing or practicing before the Commission as an accountant. Securities and Exchange Commission v. Greenberg, Case No. 09-6939 (USDC S.D. N.Y. Aug. 6, 2009).

This post written by John Black.

NAIC REDRAFTS REINSURANCE REGULATORY MODERNIZATION ACT

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The National Association of Insurance Commissioners recently published a revised version of its proposed Reinsurance Regulatory Modernization Act of 2009. We reported on the original version, but the July 27, 2009 edition of the bill includes several important changes. Highlights include:

  • Completely redrafting of the “Membership” portion of the bill, detailing the composition and purpose of the Reinsurance Supervision Review Board (Section 3);

  • Expanded the Board’s Home State and Port of Entry Standards as well as amending the Authority to Enter Agreements with Qualified Non-US Jurisdiction Supervisors (Section 4);

  • Inclusion of a section of the bill detailing the requirements for National and Port of Entry Reinsurers (Section 5);

  • An expanded section explaining Preemption of Inconsistent State Laws and Actions (Section 6);

  • A newly drafted Right of Review provision (Section7); and

  • An explanation of the Duties of Board (Section 9).

The NAIC also published a redlined version, showing the changes from the original version.

This post written by Brian Perryman.

SPECIAL FOCUS: EXPANDED VIEW OF ARTHUR ANDERSEN V. CARLISLE

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Blogmaster Roland Goss is now a regular contributing editor to Harris Martin's Reinsurance publication, contributing articles on arbitration-related issues. We publish his first contribution to Reinsurance here, which is an expanded look at the Supreme Court's decision in Arthur Andersen v. Carlisle, which we previously posted on. The article describes the Circuit conflict that gave rise to this opinion as well as the Court's holding that a non-party to an arbitration agreement may appeal the denial of a motion to stay pending arbitration under the Federal Arbitration Act.

This post written by Rollie Goss.

ARBITRATION AWARD NOT SUBJECT TO REVIEW WHILE REMEDY ISSUE IS PENDING

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Prior to the parties remanding the case for the determination of a remedy, the American Postal Workers’ Union (“APWU”) filed a complaint in federal court alleging that the United States Postal Service (“USPS”) had not unequivocally stated it would comply with the award, which constituted a breach of the collective bargaining agreement. The USPS moved to dismiss for lack of jurisdiction, which the district court granted, reasoning that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. The court also stated that the APWU has not shown the exhaustion of remedies to be unworkable. American Postal Workers’ Union v. United States Postal Serv., Case No. 08-2200 (USDC D.D.C. July 14, 2009).

This post written by Dan Crisp.

APPEALS COURT DISMISSES CLAIMS AGAINST REINSURER AS UNRIPE

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New Hampshire Insurance Company brought suit in the Turks and Caicos Islands against its reinsurer, Magellan Reinsurance Company, claiming that Magellan failed to properly fund a trust set up by the parties with a Texas bank, for the deposit by Magellan of all unearned premium reserves plus outstanding loss reserves at the end of each quarter. The premiums derived from a book of vehicle service contract reimbursement policies. New Hampshire, under the terms of the reinsurance agreement, was entitled to withdraw the funds for certain purposes specified in the reinsurance agreement. New Hampshire claimed that Magellan underfunded the trust by approximately $1.4 million. Reversing the holding of the Chief Justice of the Privy Council, the Court of Appeals held that New Hampshire lacked standing to presently pursue the claim, essentially on grounds of ripeness, insofar as it failed to establish any legal right to withdrawal of the amount of funds it claimed were improperly withheld, for any of the specific purposes of withdrawal set forth in the reinsurance agreement. Rather, it merely established that such legal claim of right to those funds would accrue in the future. The appeal was thus dismissed. New Hampshire Ins. Co. v. Magellan Reinsurance Co. Ltd., [2009] UKPC 33 (July 15, 2009)

This post written by John Pitblado.