Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DISMISSES SWISS RE’S COMPLAINT AGAINST REINSURANCE ADMINISTRATORS

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An Illinois district court judge has granted a group of reinsurance administrators’ motion to dismiss a complaint filed by Swiss Re. The Complaint alleged that the defendants (“Access Entities”), who managed and administered several reinsurance programs, breached the contracts by mishandling the claims they were responsible for administering, and that Swiss Re’s predecessors suffered losses as a result.

While the Court found meritless defendant’s arguments based on statutes of limitations and failure to join an indispensable party, the Court agreed that plaintiffs improperly “lumped together” three separate entities. Plaintiffs recognized that not all of the defendants were parties to each agreement, however, they argued that because the Access Entites were mere ‘alter egos’ of one another, they could appropriately be held liable for the acts of the others. The court disagreed, concluding that the Complaint did not adequately allege facts to support a finding of contract liability based on corporate veil piercing. As such, the Complaint was dismissed with leave to file an Amended Complaint. Swiss Reinsurance America Corp. v. Access General Agency, Inc., Case No. 07 C 3954 (N.D. Ill. Aug. 1, 2008).

This post written by Lynn Hawkins.

SEC FILES AND SETTLES ANOTHER FINITE REINSURANCE ENFORCEMENT ACTION, THIS TIME WITH pRUDENTIAL FINANCIAL

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The Securities and Exchange Commission has filed a lawsuit against Prudential Financial, Inc., alleging violations of the financial reporting, books-and-records and internal control provisions of the Securities Exchange Act of 1934, based upon its former property and casualty subsidiaries (“Prupac”) entering into so-called finite reinsurance contracts with General Reinsurance Corporation. The SEC contends that the reinsurance agreements “had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or 'bank,' that Gen Re held for Prupac.” Securities and Exchange Commission v. Prudential Financial, Inc., Case No. 08-3916 (USDC N. N.J. Aug. 6, 2008). The SEC reports that it has reached a settlement with Prudential, which has consented to a permanent injunction against further violations of certain sections of the Exchange Act and associated Rules. This is similar to an enforcement action filed by the SEC against Rennaisance Re (see November 6, 2006 blog post).

This post written by Rollie Goss.

FLORIDA BUYS CAT BOND PUT OPTION FROM BERKSHIRE HATHAWAY

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The Florida Hurricane Catastrophe Fund has agreed to a creative way to fund potential hurricane losses, and create liquidity, agreeing to pay Berkshire Hathaway $244 million for its agreement to buy $4 billion in 30-year tax-exempt bonds if the Cat Fund suffers insured hurricane losses in excess of $25 billion this year. Press reports state that the Cat Fund is looking to this mechanism to enable it to act quickly to reimburse insurers for incurred losses.

This post written by Rollie Goss.

COMMUTATION AGREEMENT’S JURISDICTION CLAUSE IS EXCLUSIVE AND MANDATORY, UK COMMERCIAL COURT HOLDS

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Allstate applied for a stay of proceedings in a UK Commercial Court action brought by Equitas pending the outcome of arbitration in Texas between Allstate and a non-party, Highlands. The English action concerned the scope of a commutation agreement between, among others, Allstate and Equitas. The agreement was governed by English law and contained an exclusive English jurisdiction clause. The claims in the action – the applicability of the commutation agreement to certain Lloyd’s syndicates’ claimed interests in common account excess of loss reinsurance contracts and whether Highland could recover pursuant to the contracts – were also the subject of the Texas arbitration. This was insufficient to warrant a stay of proceedings, however, principally because of the jurisdiction selection clause. The effect of the clause made English jurisdiction exclusive and mandatory, depriving the court of its common law discretion to stay proceedings in favor of another jurisdiction on classic forum non conveniens grounds. Equitas Limited v. Allstate Insurance Company [2008] EWHC 1671 (Comm. July 17, 2008).

This post written by Brian Perryman.

COURT ADDS PREJUDGMENT INTEREST TO AWARD IN FAVOR OF REINSURED

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We reported on April 7, 2008 on an order entered by a court interpreting a reinsurance agreement in favor of a reinsured. The court has entered an Amended Order and Judgment providing for a total award of $1,707,698.62, consisting of $1.5 million in damages and $207,698.62 in pre-judgment interest. Princeton Insurance Company v. Converium Reinsurance (North America) Inc., Case No. 06-599 (USDC D. N.J. July 2, 2008).

This post written by Rollie Goss.