Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Renaissance Re offers to settle probe by SEC

by

RenaissanceRe Holdings Ltd. (“RenRe”) has offered to pay $15 million to settle Securities and Exchange Commission (“SEC”) probes into the company’s three-year restatement of earnings. Under the proposed settlement—under which RenRe will not admit or deny any wrongdoing—the reinsurer will pay the SEC $15 million in civil penalties and will disgorge $1. In addition, RenRe will hire an outside consultant to review the reinsurer’s internal controls and policies, among other things. The settlement would not resolve an ongoing investigation by the U.S. Attorney’s office for the Southern District of New York, or a consolidated securities class action lawsuit pending against the company and certain current and former officers.

RenRe acknowledged in its 2004 10-K filing that two transactions that were accounted for as insurance failed to transfer enough risk to meet accounting standards. One was an aggregate excess-of-loss reinsurance agreement under which RenRe ceded business to Inter-Ocean; the other, an agreement to sell reinsurance recoverables to Inter-Ocean. The effect of the restatement was to boost RenRe’s 2001 and 2003 net income by $20.6 million and $1.3 million, respectively, and reduce its 2002 net income by $21.9 million.

Party loses right to appoint arbitrator due to untimely appointment

by

An arbitration provision required that both parties appoint an arbitrator within 30 days of receipt of written notice from the other party requesting that it do so. Lloyd's appointed an arbitrator timely. The 30th day after receiving such notification for Argonaut fell on the Sunday before Labor Day, and when the appointment was not made by the end of Sunday, Lloyd's appointed a second arbitrtator on Labor Day. Argonaut appointed an arbitrator the following day, claiming that the time for its appointment was extended since its deadline fell on a Sunday, followed by a holiday. The Court disagreed, holding that the agreement to appoint within 30 days was binding, and upheld Lloyd's appointment of two arbitrators. Certain Underwriters at Lloyd's v. Argonaut Insurance. Co., Case No. 04-5852 (N.D. Ill. Aug. 8, 2006).

Court addresses standard for vacating awards under the Foreign Arbitral Awards Convention

by

In a non-insurance matter, a District Court denied a motion to vacate an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Among the grounds alleged for vacating the award was an undisclosed “relationship” between two of the three arbitrators. HSN Capital LLC v. Productora Y Comercializador de Television, S.A., Case No. 05-1769 (M.D. Fla. July 5, 2006). This case contains a good statement of the standards for vacating an arbitration award under the Foreign Arbitral Awards Convention.

Court of Appeals defers issues of arbitration procedure to arbitrators

by

In an unreported opinion, the United States Court of Appeals for the Ninth Circuit affirmed the action of a District Court that declined to become involved in how an arbitration would be conducted, including whether consolidating multiple arbitrations was appropriate. The Court followed Supreme Court precedent in holding that the courts should only decide “gateway issues” such as whether there was a valid agreement to arbitrate, leaving issues relating to arbitration procedure to the arbitrators. Certain Underwriters at Lloyds v. Cravens Dargan & Co., 2006 WL 2337959, Case No. 05-56154 (9th Cir. Aug. 14, 2006).