The United States Court of Appeals for the Second Circuit, in a non-reinsurance matter, has held that the Federal Arbitration Act does not authorize nationwide service of process of third-party subpoenas. This opinion is of particular interest since it exposes a jurisdictional gap: the FAA provides that subpoenas issued by arbitrators may be enforced by the District Court in which the arbitration panel sits (the Southern District of New York in this matter), yet that Court did not have jurisdiction over the recipient of the subpoena, which was located in Texas, due to the failure of Congress to provide for nationwide jurisdiction. The Court indicated that this was a problem for Congress to address, and that parties should consider the likely sources of third-party evidence when deciding where to arbitrate disputes. Dynegy Midstream Services, LP v. Trammochem, Case No. 05-3544 (2d Cir. June 13, 2006).
FASB receives comments on financial reporting bifurcation proposal
The Financial Accounting Standards Board (FASB) has now received and posted, for public viewing, 53 comments to its proposed Bifurcation of Insurance and Reinsurance Contracts for Financial Reporting. Among the organizations submitting comments are the National Association of Insurance Commissioners, the Reinsurance Association of America and the American Academy of Actuaries.
Endurance places $235 million cat bond
Endurance Specialty Insurance Ltd. (“Endurance”) has acquired $235 million of protection for California earthquake and U.S. hurricane risks, financed through a risk-linked securities program. Endurance, a unit of Bermuda-based Endurance Specialty Holdings Ltd., bought the coverage from Cayman Islands-based Shackleton Re Ltd. Shackleton Re financed the reinsurance through the issuance of a $125 million catastrophe bond and a $110 million multi-year risk-linked credit facility. Endurance’s new reinsurance program has three separate layers of coverage, including: $125 million of reinsurance to cover California earthquake risk for 18 months; $60 million of coverage for U.S. hurricanes in the North Atlantic, Gulf Coast, and certain inland regions for two years; and $50 million of reinsurance for California earthquake or U.S. hurricane losses, occurring within a year of a similar catastrophe, for two years.
Court of Appeal addresses jurisdictional issues regarding arbitration-related matters
The United States Court of Appeals for the Fifth Circuit has dismissed an appeal of decisions to grant summary judgment to Lloyd's and remand to state court a case filed by Lloyd's against an insured to recover $39 million in claims paid to an insurer/ reinsured pursuant to a confirmed arbitration award rendered under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This opinion addresses the reviewability of remand decisions and whether the District Court should have retained jurisdiction over state law-based counterclaims. Certain Underwriters at Lloyd’s, London v. Warrantech Corp., Case No. 04-11168 (5th Cir. Aug. 17, 2006).
Renaissance Re offers to settle probe by SEC
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.