Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CONVICTED FORMER EXECUTIVE OF GEN RE SENTENCED TO TWO YEARS IN PRISON IN FINITE REINSURANCE PROSECUTION

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The Court hearing the criminal finite reinsurance case reported on previously has sentenced a former Gen Re executive to 2 years in prison, followed by 2 years of supervised probation, and a $200,000 fine. This sentence is substantially below federal sentencing guidelines. The Court had entered a ruling on loss calculation, victim enhancement and restitution, finding that 36 levels of enhancement are appropriate under federal sentencing guidelines, but not ordering restitution, despite finding that more than 250 investors had sustained losses aggregating $544-597 million. A sentence imposed in accordance with such a finding might be a life sentence for many, if not all, of the convicted executives. The convicted executives have submitted Supplemental Sentencing memoranda. The supplemental sentencing memorandum submitted by the recently sentenced defendant may be read here.

This post written by Rollie Goss.

SEC SETTLES FINITE REINSURANCE ALLEGATIONS WITH ZURICH AND CONVERIUM

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Continuing a series of consent agreements, the Securities and Exchange Commission has resolved claims relating to the writing of finite reinsurance, entering into agreed Cease-and-Desist Orders with Zurich Financial Services and SCOR Holding (Switzerland) Ltd., f/k/a Converium Holding AG. The Orders detail the reinsurance transactions and side agreements that underlie the SEC’s allegations. The SEC released information about the agreements in a press release and a Litigation Release. In remediation, Zurich has agreed to pay a $25 million penalty and $1 in disgorgement. In re Zurich Financial Services, Admin. Pro. File no. 3-13306 (Dec. 11, 2008); In re SCOR Holding (Switzerland) Ltd., f/k/a Converium Holding AG, Admin. Pro. File no. 3-13307 (Dec. 11, 2008).

This post written by Rollie Goss.

NAIC CONSIDERING LIFE INSURANCE RESERVE AND REQUIRED CAPITAL CHANGES DUE TO MARKET TURMOIL

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The American Council of Life Insurers (ACLI) has submitted a proposal to the NAIC for immediate reforms to reserve and required capital standards for life insurance companies. One of the suggestions is to “facilitate Commissioners’ use of their existing discretionary authority under the Model Law and Regulation on Credit for Reinsurance to provide immediate relief to ceding insurers.” The ACLI proposes that the changes that it is suggesting take effect December 31, 2008, for the current calendar year. More information is available in a press release issued by the ACLI, a short summary of the proposals prepared by the ACLI and the ACLI’s letter to the NAIC, which categorizes the proposals as affecting the areas of life insurance, variable annuities, reinsurance, investments and accounting. The NAIC has assigned this proposal to the Capital and Surplus Relief (EX) Working Group of the Executive Committee. The Working Group is accepting comments on the ACLI’s proposal to the close of business December 26, 2008. Responses and comments from various areas of the NAIC are available. The NAIC also has created a “Grid of Information Relative to Each ACLI Request,” which may be of interest to those wishing to explore these suggestions.

This post written by Rollie Goss.

AGREEMENTS REACHED REDUCING LITIGATION IN A PAIR OF LAWSUITS BROUGHT BY A REINSURER

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A group of litigants involved in two reinsurance-related lawsuits agreed to de-escalate the disputes by voluntarily withdrawing certain motions and claims in each case.

In the first lawsuit (National Indemnity Co. v. Stonewall Insurance Co., Case No. 08 Civ. 3718 (USDC S.D.N.Y.)), National Indemnity sued Stonewall Insurance and Seaton Insurance for allegedly violating confirmed arbitration awards and judgments by, among other things, demanding rearbitration of a claim for rescission of a reinsurance agreement. National Indemnity sought declaratory and injunctive relief precluding Stonewall and Seaton from further violating the awards and judgments and from rearbitrating the matter. In response, Stonewall and Seaton filed a motion to stay and to compel arbitration. The motion argued that “NICO’s complaint should be seen for what it is: an attempt to preempt arbitration by masquerading as arbitrable defense as an affirmative claim for relief.”

In the second lawsuit (National Indemnity Co. v. Greenwich Street Investments II, LLC, Case No. 08 Civ. 4067 (USDC S.D.N.Y.)), National Indemnity claimed that a group holding companies (collectively, the “Dukes Place” companies) operating under the domination of Greenwich Street Investments – a group of private equity/hedge fund investors – purchased Seaton during Seaton’s run-off, and agreed to purchase Stonewall if National Indemnity agreed to provide retroactive reinsurance agreements similar to that issued to Seaton. Although National Indemnity assumed Seaton’s and Stonewall’s liabilities, according to National Indemnity, Dukes Place and Enstar Group hatched a scheme to coerce National Indemnity into relinquishing its contractual right to be claims servicer of Seaton and Stonewall in the event of a change of control of Seaton or Stonewall, notwithstanding Duke Place’s and Enstar’s alleged fiduciary duties to National Indemnity.

In the second lawsuit,National Indemnity asserted claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, interference with a contract, and inducing a breach of contract. The defendants Dukes Place and Enstar subsequently filed a motion to dismiss the fiduciary duty claims.

As noted, however, agreements were reached to reduce the litigation. In the first lawsuit, the parties stipulated that any reply papers filed in support of the motion to stay and to compel arbitration would be adjourned until February 1, 2009, or fourteen days after a decision by the court on any motion to dismiss the counterclaims that would be filed in the second lawsuit. In the second lawsuit, National Indemnity agreed to withdraw its claim for inducing a breach of contract, and Dukes Place and Enstar withdrew their motion to dismiss the breach of fiduciary duty claims without prejudice.

This post written by Brian Perryman.